Blackhawk Bancorp Announces 2017 Second Quarter Earnings

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Jul 21, 2017, 14:57 ET

BELOIT, Wis., July 21, 2017 /PRNewswire/ -- Blackhawk Bancorp, Inc. (OTCQX: BHWB) today announced net income of $1.7 million for the quarter ended June 30, 2017, a $0.5 million, or 42% increase over the $1.2 million earned in the quarter ended March 31, 2017 and a $0.7 million, or 70%, increase over the $1.0 million earned in the second quarter of 2016. Diluted earnings per share (EPS) for the quarter ended June 30, 2017 was $0.53, a 15% and 29% increase over the quarters ended March 31, 2017 and June 30, 2016, respectively.

For the six months ended June 30, 2017, the company reported net income was $2.9 million, a $0.6 million, or 17%, decrease compared to the $3.5 million reported for the first half of 2016. Diluted EPS for the six months ended June 30, 2017 was $0.99, a 37% decrease compared to $1.54 for the first half of 2016. The prior year results include a $1.78 million, or $0.78 per share, after-tax non-recurring recovery.

"Our financial results for the first half of 2017 have been very solid, gaining additional momentum in the second quarter," said Rick Bastian, the company's Chairman and Chief Executive Officer. "Excluding the non-recurring recovery realized last year, net income is up 66% and diluted EPS is up 30% over the first half of 2016."

Total loans grew by $21.3 million, or 5%, during the first half of the year to $433.7, with substantially all of the net growth occurring in the second quarter. Total deposits have grown by $19.6 million, or 3%, to $591.9 million during the first six months of 2017.

The following table summarizes the net income and the high-level performance measures for the last five quarters:

(Dollars in thousands)	Quarter Ended
(Dollars in thousands)	June 30, 2017	March 31, 2017	December 31, 2016	March 31, 2016	June 30, 2016
Net income	$1,745	$1,151	$1,397	$1,056	$951
Diluted EPS	$0.53	$0.46	$0.61	$0.46	$0.41
ROAA	1.01%	.70%	.83%	.63%	.56%
ROAE	9.39%	8.49%	10.87%	8.25%	7.75%

"The more dramatic improvement in net income and Return on Average Assets (ROAA) compared to the increases in diluted EPS and Return on Average Equity (ROAE) reflects the impact of the capital raise that was completed in March of this year," explained Todd James, the company's Chief Financial Officer. "The added capital, gives the company more flexibility in pursuing organic growth and other strategic opportunities," he added.

Net Interest Income

Net interest income totaled $5.7 million for the quarter ended June 30, 2017, increasing by $0.5 million, or 10%, compared to $5.2 million for the quarter ended March 31, 2017 and by $0.6 million compared to $5.1 million for the quarter ended June 30, 2016. The net interest margin for the quarter ended June 30, 2017 was 3.68% , a thirteen basis point increase compared to the net interest margin of 3.55% for the quarter ended March 31, 2017 and a thirty-six basis point increase over the 3.32% net interest margin for the second quarter of last year.

The growth in net interest income and the improvement in the net interest margin for the second quarter compared to the most recent quarter ended March 31, 2017 reflects a $25.4 million increase in average earning assets funded by a $19.6 million increase in average stockholders' equity and a $7.4 million increase in average total deposits. The increase in average earning assets included a $7.9 million increase in average total loans and a $17.5 million increase in average investment securities and short-term investments. During the quarter, the company repaid $7.3 million in senior debt and redeemed $6.1 million of subordinated notes, both of which were holding company level obligations. Bank level short-term borrowings, with significantly lower rates, increased by a similar amount contributing to an eight basis point reduction in the cost of interest bearing liabilities to .45% compared to .53% for the quarter ended March 31, 2017.

Net interest income for the six months ended June 30, 2017 was $10.9 million, a $0.8 million, or 8%, increase over the first six months of 2016. The year-to-date net interest margin was 3.61%, a twenty-one basis point increase over the 3.40% net interest margin for the first half of 2016.

Total average earning assets for the six months ended June 30, 2017 increased by $16.0 million, or 3%, to $629.1 million compared to $613.1 million the first six months of 2016. Average total loans increased by $20.1 million, or 5%, to $419.5 million compared to $399.4 for the first six months of 2016. Total average deposits for the first half of 2017 increased by $7.1 million, or 1% compared to the first six months of 2016. In addition to the growth in loans and deposits, the improvement in the year-to-date net interest margin, compared to the first half of last year, reflects a shift of $32.3 million from cash equivalent investments to higher yielding investment securities.

Provision for Loan Losses and Credit Quality

The provision for loan losses for the quarter ended June 30, 2017 totaled $360 thousand, compared to $360 thousand for quarter ended March 31, 2017 and $475 thousand for the second quarter of 2016. The provision for loan losses for the six months ended June 30, 2017 totaled $720 thousand compared to $970 thousand the first six months of 2016. Net loan charge-offs were $200 thousand for the first six months of 2017 compared to $785 thousand for the first half of 2016.

Total nonperforming assets, which includes troubled debt restructures that are performing in accordance with their modified terms, equaled $11.3 million as of June 30, 2017, a $3.3 million, or 23%, reduction compared to $14.6 million as of March 31, 2017. At June 30, 2017, the ratio of nonperforming assets to total assets equaled 1.64% compared to 2.17% at March 31, 2017, 1.79% at December 31, 2016 and 1.91% at June 30, 2016. The ratio of the allowance for loan losses to total loans was 1.29% at June 30, 2017, unchanged from the March 31, 2017 ratio, but up slightly from 1.25% at December 31, 2016 and 1.24% at June 30, 2016.

Non-Interest Income and Operating Expenses

Non-interest income for the quarter ended June 30, 2017 totaled $2.55 million, a $358 thousand, or 16%, increase compared to $2.19 million for the quarter ended March 31, 2017 and a $225 thousand increase over $2.33 million for the second quarter of 2016.

Non-interest income for the six months ended June 30, 2017 was $4.75 million, a $2.57 million decrease compared to $7.32 million for the first six months of 2016. Excluding the prior year non-recurring recovery, non-interest income for the first six months of 2017 increased $354 thousand, or 8%, over the first half of 2016.

Operating expenses for the quarter ended June 30, 2017 totaled $5.6 million, decreasing $77 thousand compared to the quarter ended March 31, 2017 and decreasing by $103 thousand compared to the second quarter of 2016. Operating expenses for the six months ended June 30, 2017 totaled $11.3 million, increasing less than 1% compared to $11.2 million for the first half of 2016.

Capital

On March 14, 2017, the company netted $21.7 million in a capital raise that substantially improved the consolidated regulatory capital ratios. As of June 30, 2017, the company's tier 1 leverage and total risk based capital ratios were 11.15% and 15.50%, compared to 7.47% and 12.39%, respectively, at December 31, 2016.

Outlook

Blackhawk expects to grow by pursuing creditworthy and profitable business and consumer relationships in its Wisconsin and Illinois markets, emphasizing the value of its personal attention and service that remains unmatched by larger competitors. Growth, combined with ongoing strengthening of the company's credit quality, is expected to lead to improved earnings. Growth and earnings could however be tempered by uncertain economic conditions, competitive pressures, regulatory burden and the interest rate environment.

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 the financial products it provides.

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, 2017 AND DECEMBER 31, 2016
(UNAUDITED)
	June 30,	December 31,
Assets	2017	2016
	(Amounts in thousands, except
	share and per share data)
Cash and due from banks	$ 17,251	$ 16,402
Interest-bearing deposits in banks and other	7,368	7,640
Total cash and cash equivalents	24,619	24,042
Securities available-for-sale	195,409	191,815
Loans held for sale	697	1,053
Federal Home Loan Bank stock, at cost	914	1,086
Loans, less allowance for loan losses of $5,613 and $5,093
at June 30, 2017 and December 31, 2016, respectively	428,130	407,331
Premises and equipment, net	10,331	8,242
Goodwill	5,037	5,037
Mortgage Servicing rights	2,327	2,189
Cash surrender value of bank-owned life insurance	10,364	10,208
Other assets	12,625	14,725
Total assets	$ 690,453	$ 665,728

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Noninterest-bearing	$ 119,208	$ 117,785
Interest-bearing	472,741	454,581
Total deposits	591,949	572,366
Subordinated debentures and notes (including $1,031 at fair value at
June 30, 2017 and December 31, 2016)	5,155	11,255
Senior secured term note	-	7,500
Other borrowings	14,583	21,200
Other liabilities	3,120	3,857
Total liabilities	614,807	616,178

Stockholders' equity
Common stock, $0.01 par value, 10,000,000 shares authorized;
3,346,552 and 2,376,750 shares issued as of June 30, 2017 and
December 31, 2016, respectively	34	24
Additional paid-in capital	32,638	10,664
Retained earnings	42,534	39,990
Treasury stock, 95,065 and 90,844 shares at cost as of June 30, 2017
and December 31, 2016, respectively	(1,124)	(1,020)
Accumulated other comprehensive income (loss)	1,564	(108)
Total stockholders' equity	75,646	49,550
Total liabilities and stockholders' equity	$ 690,453	$ 665,728

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEET
(UNAUDITED)
	As of
	June 30,	March 31,	December 31,	September 30,	June 30,
	2017	2017	2016	2016	2016
	(Amounts in thousands)
Cash and due from banks	$ 17,251	$ 18,863	$ 16,402	$ 16,078	$ 11,766
Interest-bearing deposits in banks and other	7,368	13,448	7,640	14,775	44,711
Securities	195,409	191,928	191,815	192,636	176,331
Net loans/leases	428,827	407,425	408,384	400,955	397,694
Goodwill	5,037	5,037	5,037	5,037	5,037
Other assets	36,561	35,998	36,450	30,060	29,067
Total assets	$ 690,453	$ 672,699	$ 665,728	$ 659,541	$ 664,606

Deposits	$ 591,949	$ 585,116	$ 572,366	$ 573,528	$ 590,640
Subordinated debentures	5,155	11,255	11,255	11,255	11,255
Borrowings	14,583	311	28,700	19,475	8,000
Other liabilities	3,120	2,906	3,120	4,103	4,214
Stockholders' equity	75,646	73,111	49,550	51,180	50,497
Total liabilities and stockholders' equity	$ 690,453	$ 672,699	$ 664,991	$ 659,541	$ 664,606

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)	Six months ended June 30,
	2017	2016
	(Amounts in thousands, except per share data)

Interest Income:
Interest and fees on loans	$ 9,668	$ 9,289
Interest on available-for-sale securities:
Taxable	1,566	1,285
Tax-exempt	760	600
Interest on interest-bearing deposits and other	59	176
Total interest income	12,053	11,350
Interest Expense:
Interest on deposits	839	813
Interest on subordinated debentures and notes	247	314
Interest on senior secured term note	67	177
Interest on other borrowings	41	4
Total interest expense	1,194	1,308
Net interest income before provision for loan losses	10,859	10,042
Provision for loan losses	720	970
Net interest income after provision for loan losses	10,139	9,072

Noninterest Income:
Service charges on deposits accounts	1,398	1,392
Net gain on sale of loans	1,057	1,051
Net loan servicing income	378	152
Debit card interchange fees	1,181	1,162
Net gains on sales of securities available-for-sale	(13)	-
Net other gains (losses)	(26)	2,882
Increase in cash surrender value of bank-owned life insurance	157	158
Other	614	518
Total noninterest income	4,746	7,315

Noninterest Expenses:
Salaries and employee benefits	6,311	6,212
Occupancy and equipment	1,231	1,306
Data processing	772	675
Debit card processing and issuance	573	534
Advertising and marketing	202	215
Professional fees	509	474
Office Supplies	140	172
Telephone	228	209
Other	1,309	1,413
Total noninterest expenses	11,275	11,210
Income before income taxes	3,610	5,177
Provision for income taxes	714	1,653
Net income	$ 2,896	$ 3,524

Key Ratios

Basic Earnings Per Common Share	$ 0.99	$ 1.54
Diluted Earnings Per Common Share	0.99	1.53
Dividends Per Common Share	0.12	0.08

Net Interest Margin (1)	3.68%	3.32%
Efficiency Ratio (1)(2)	70.22%	75.78%
Return on Assets	0.84%	1.04%
Return on Common Equity	7.83%	14.39%

(1) Net interest margin and efficiency ratio are calculated on a fully taxable equivalent basis

(2) Efficiency ratio is calculated excluding net securities gain (losses) and other gains (losses)

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	For the Quarter Ended
	June 30,	March 31,	December 31,	September 30,	June 30,
	2017	2017	2016	2016	2016
	(Amounts in thousands, except per share data)
Interest Income:
Interest and fees on loans	$ 4,980	$ 4,688	$ 4,749	$ 4,786	$ 4,654
Interest on available-for-sale securities:
Taxable	802	764	758	742	724
Tax-exempt	389	371	315	300	299
Interest on interest-bearing deposits and other	45	14	34	64	103
Total interest income	6,216	5,837	5,856	5,892	5,780
Interest Expense:
Interest on deposits	438	401	416	423	415
Interest on subordinated debentures and notes	85	162	161	159	157
Interest on senior secured term note	-	67	83	84	86
Interest on other borrowings	32	9	6	3	3
Total interest expense	555	639	666	669	661
Net interest income before provision for loan losses	5,661	5,198	5,190	5,223	5,119
Provision for loan losses	360	360	475	435	475
Net interest income after provision for loan losses	5,301	4,838	4,715	4,788	4,644

Noninterest Income:
Service charges on deposits accounts	730	668	715	738	703
Net gain on sale of loans	679	378	702	649	698
Net loan servicing income	186	192	67	71	71
Debit card interchange fees	605	576	557	566	594
Net gains on sales of securities available-for-sale	(13)	-	156	-	-
Net other gains (losses)	(12)	(14)	(51)	(50)	(51)
Increase in cash surrender value of bank-owned life insurance	74	83	75	74	73
Other	303	311	288	540	239
Total noninterest income	2,552	2,194	2,509	2,588	2,327

Noninterest Expenses:
Salaries and employee benefits	3,129	3,182	3,040	3,107	3,076
Occupancy and equipment	625	606	592	663	661
Data processing	374	398	384	329	331
Debit card processing and issuance	301	272	258	435	279
Advertising and marketing	101	101	114	76	121
Professional fees	250	259	252	435	244
Office Supplies	59	81	79	72	86
Telephone	116	112	115	107	106
Other	644	665	481	799	798
Total noninterest expenses	5,599	5,676	5,315	6,023	5,702
Income before income taxes	2,254	1,356	1,909	1,353	1,269
Provision for income taxes	509	205	512	297	318
Net income	$ 1,745	$ 1,151	$ 1,397	$ 1,056	$ 951

Key Ratios

Basic Earnings Per Common Share	$ 0.53	$ 0.46	$ 0.61	$ 0.46	$ 0.41
Diluted Earnings Per Common Share	0.53	0.46	0.60	0.46	0.41
Dividends Per Common Share	0.08	0.04	0.04	0.04	0.04

Net Interest Margin (1)	3.68%	3.55%	3.42%	3.40%	3.32%
Efficiency Ratio (1)(2)	66.23%	74.66%	68.48%	75.10%	74.48%
Return on Assets	1.01%	0.70%	0.89%	6.70%	0.56%
Return on Common Equity	9.38%	8.49%	10.87%	8.25%	7.77%

(1) Net interest margin and efficiency ratio are calculated on a fully taxable equivalent basis

(2) Efficiency ratio is calculated excluding net securities gain (losses) and other gains (losses)

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ANALYSIS OF NET INTEREST INCOME
(Amounts in thousands)
(yields on a tax-equivalent basis)
	For the Six Months Ended
	June 30, 2017			June 30, 2016
	Average		Average	Average		Average
	Balance	Interest	Rate	Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits and other	$ 13,104	$ 59	0.93%	$ 49,591	$ 176	0.51%
Investment securities:
Taxable investment securities	144,365	1,566	2.19%	124,260	1,285	2.08%
Tax-exempt investment securities	52,114	760	4.54%	39,917	600	4.63%
Total Investment securities	196,479	2,326	2.81%	164,177	1,885	2.69%
Loans	419,495	9,668	4.65%	399,381	9,289	4.68%

Total Earning Assets	$ 629,078	$ 12,053	4.00%	$ 613,149	$ 11,350	3.83%
Allowance for loan losses	(5,318)			(4,932)
Cash and due from banks	16,498			14,541
Other assets	40,701			35,540

Total Assets	$ 680,959			$ 658,298

Interest Bearing Liabilities:
Interest bearing checking accounts	$ 212,878	$ 329	0.31%	$ 223,600	$ 342	0.31%
Savings and money market deposits	177,535	143	0.16%	171,098	126	0.15%
Time deposits	82,903	367	0.89%	80,778	345	0.86%
Total interest bearing deposits	473,316	839	0.36%	475,476	813	0.34%
Subordinated debentures	9,031	247	5.52%	11,255	314	5.61%
Borrowings	11,840	108	1.85%	10,729	181	3.40%

Total Interest-Bearing Liabilities	$ 494,187	$ 1,194	0.49%	$ 497,460	$ 1,308	0.53%

Interest Rate Spread			3.51%			3.30%

Noninterest checking accounts	118,235			108,937
Other liabilities	3,717			3,993
Total liabilities	616,139			610,390
Common Stockholders' equity	64,820			47,908
Total Stockholders' equity	64,820			47,908
Total Liabilities and
Stockholders' Equity	$ 680,959			$ 658,298

Net Interest Income/Margin		$ 10,859	3.61%		$ 10,042	3.40%

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ANALYSIS OF NET INTEREST INCOME
(Amounts in thousands)
(Yields on a tax-equivalent basis)
	For the Quarter Ended
	June 30, 2017			March 31, 2017			June 30, 2016
	Average		Average	Average		Average	Average		Average
	Balance	Interest	Rate	Balance	Interest	Rate	Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits and other	$ 17,945	$ 45	1.00%	$ 8,209	$ 13	0.63%	$ 61,920	$ 103	0.67%
Investment securities:
Taxable investment securities	146,999	802	2.19%	141,702	764	2.18%	135,613	724	2.15%
Tax-exempt investment securities	53,339	389	4.56%	50,876	371	4.53%	39,883	299	4.62%
Total Investment securities	200,338	1,191	2.82%	192,578	1,135	2.80%	175,496	1,023	2.71%
Loans	423,430	4,980	4.73%	415,517	4,688	4.58%	401,280	4,654	4.66%

Total Earning Assets	$ 641,713	$ 6,216	4.03%	$ 616,304	$ 5,837	3.97%	$ 638,696	$ 5,780	3.74%
Allowance for loan losses	(5,473)			(5,162)			(4,896)
Cash and due from banks	15,204			17,807			13,637
Other assets	41,452			39,947			35,896

Total Assets	$ 692,896			$ 668,896			$ 683,333

Interest Bearing Liabilities:
Interest bearing checking accounts	$ 216,514	$ 181	0.34%	$ 209,202	$ 147	0.28%	$ 245,075	$ 180	0.30%
Savings and money market deposits	179,203	74	0.17%	175,849	70	0.16%	169,417	59	0.14%
Time deposits	80,043	183	0.95%	85,794	184	0.87%	81,155	176	0.87%
Total interest bearing deposits	475,760	438	0.37%	470,845	401	0.35%	495,647	415	0.34%
Subordinated debentures and notes	6,831	85	5.01%	11,255	162	5.84%	11,255	157	5.62%
Borrowings	12,595	32	1.04%	11,076	76	2.80%	10,747	89	3.32%

Total Interest-Bearing Liabilities	$ 495,186	$ 555	0.45%	$ 493,176	$ 639	0.53%	$ 517,649	$ 661	0.51%

Interest Rate Spread			3.58%			3.44%			3.23%

Noninterest checking accounts	119,466			116,990			112,344
Other liabilities	3,665			3,778			4,099
Total liabilities	618,317			613,944			634,092
Total Stockholders' equity	74,579			54,952			49,241
Total Liabilities and
Stockholders' Equity	$ 692,896			$ 668,896			$ 683,333

Net Interest Income/Margin		$ 5,661	3.68%		$ 5,198	3.55%		$ 5,119	3.32%

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ASSET QUALITY DATA
	June 30,	March 31,	December 31,	September 30,	June 30,
NONPERFORMING ASSETS	2017	2017	2016	2016	2016
	(Amounts in thousands)
Non-accrual loans	$ 5,679	$ 8,867	$ 4,775	$ 5,464	$ 5,321
Accruing loans past due 90 days or more	-	15	1,198	19	-
Troubled debt restructures - accruing	5,177	5,125	5,072	5,327	6,349
Total nonperforming loans	$ 10,856	$ 14,007	$ 11,045	$ 10,810	$ 11,670
Other real estate owned	442	597	871	1,115	1,006
Total nonperforming assets	$ 11,298	$ 14,604	$ 11,916	$ 11,925	$ 12,676

Total loans	$ 434,657	$ 412,695	$ 413,477	$ 406,295	$ 402,669
Allowance for loan losses	$ 5,613	$ 5,307	$ 5,093	$ 5,339	$ 4,975

Nonperforming Assets to total Assets	1.64%	2.17%	1.79%	1.81%	1.91%
Nonperforming loans to total loans	2.50%	3.39%	2.67%	2.66%	2.90%
Allowance for loan losses to total loans	1.29%	1.29%	1.23%	1.31%	1.24%
Allowance for loan losses to nonperforming loans	51.7%	37.9%	46.1%	49.4%	42.6%


ROLLFORWARD OF ALLOWANCE

Beginning Balance	$ 5,307	$ 5,093	$ 5,338	$ 4,974	$ 5,308
Provision	360	360	475	435	475
Loans charged off	224	199	1,170	306	890
Loan recoveries	170	53	450	235	81
Net charge-offs	54	146	720	71	809
Ending Balance	$ 5,613	$ 5,307	$ 5,093	$ 5,338	$ 4,974