Blackhawk Bancorp Announces First Quarter 2013 Results

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Apr 24, 2013, 02:30 ET

BELOIT, Wis., April 24, 2013 /PRNewswire/ -- Blackhawk Bancorp, Inc. (OTCBB: BHWB) today reported earnings of $583,000 for the quarter ended March 31, 2013, a 14% decrease compared to $678,000 earned in the first quarter of 2012. Earnings per diluted share for the quarter decreased $0.05 to $0.19 compared to $0.24 the first quarter of 2012. The company saw improvements in net interest income and the provision for loan losses, which were more than offset by a decline in non-interest income. The decline in non-interest income was primarily due to a slow-down in mortgage refinance activity, and a reduction in the net gain on sale of securities and other assets. "Our net interest income and other recurring revenues have held up well despite pressure from intense competition for high quality loans and the pro-longed low interest rate environment," said Rick Bastian, the company's president and CEO. "The historically high provision for loan losses continues to be the primary drag on our earnings, however we're making progress in our efforts to reduce problem assets," he added.

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The following table summarizes key performance and asset quality measures for the quarter ended March 31, 2013 compared to the previous four quarters.

Key Performance and Asset Quality Measures	1^st Qtr 2013	4^th Qtr 2012	3^rd Qtr 2012	2^nd Qtr 2012	1^st Qtr 2012

Diluted Earnings per share	$0.19	$0.28	$0.25	$0.27	$0.24
Return on average assets	.42%	.55%	.50%	.53%	.49%
Return on common equity	4.52%	6.69%	6.00%	6.82%	6.03%
Net interest margin	3.76%	3.75%	3.72%	3.80%	3.75%
Efficiency ratio	74.91%	72.92%	68.16%	67.37%	69.94%
Nonaccrual loans to total loans	2.46%	3.09%	3.77%	3.01%	4.19%
Nonaccrual loans and OREO to total loans	3.07%	3.57%	4.38%	3.76%	4.41%
Allowance for loan losses to total loans	1.77%	1.78%	1.74%	1.98%	2.10%
Allowance for loan losses to nonaccrual loans	72.2%	57.11%	46.1%	65.8%	50.8%
Subsidiary bank total risk-based capital	13.62%	13.51%	13.62%	13.58%	13.83%

Net Interest Income

Net interest income for the first quarter increased 1% to $4,731,000 compared to $4,692,000 in the first quarter 2012. Average total earning assets for the first quarter increased by $8.3 million to $525.7 million and the net interest margin realized on earning assets increased 1 basis point to 3.76% compared to 3.75% for the first quarter of 2012. The growth in average earning assets included a $23.7 million, or 7%, increase in average total loans. Average total deposits for the first quarter increased $17.5 million, or 4%, to $494.8 million compared to $477.3 million the first quarter of 2012. The increase in average total deposits included an increase in average non-maturity deposits, such as checking, savings and money market accounts, of $24.9 to $388.1 million compared to $363.2 million for the first quarter of 2012. The increase in average non-maturity deposits was offset by a $7.5 million decrease in average time deposits.

Non-Interest Income and Operating Expenses

Noninterest income for the first quarter of 2013 decreased by $399,000, or 16%, to $2,158,000 compared to $2,557,000 in the first quarter of the prior year. The decrease included an $80,000, or 10%, drop in mortgage banking revenue, a $226,000 reduction in securities gains, and a $102,000 reduction in net gain (loss) on sale of OREO and other assets. Operating expenses for the first quarter increased $103,000, or 2%, to $5,267,000 compared to $5,164,000 in the first quarter of 2012.

Provision for Loan Losses and Credit Quality

The provision for loan losses in the first quarter decreased by $180,000, or 14%, to $1,080,000 compared to $1,260,000 in first quarter 2012. During the first quarter the company had net loan charge-offs of $1,175,000 compared to $900,000 for the first quarter of the previous year. Nonaccrual loans and other real estate owned totaled $11.1 million, or 3.07% of total loans, at March 31, 2013 compared to $13.2 million, or 3.60% of total loans, at December 31, 2012 and $15.1 million, or 4.35% of total loans, at March 31, 2012.

The ratio of allowance for loan losses to total loans was 1.77% at March 31, 2013 compared to 1.78% at December 31, 2012, and 2.10% at March 31, 2012. The ratio of the allowance for loan losses to nonaccrual loans was 72% at March 31, 2013 up from 57% at December 31, 2012, and 51% at March 31, 2012. The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2013 and 2012, and the year ended December 31, 2012.

Activity in Allowance for Loan Losses:	Quarter Ended March 31,		Year Ended December 31,
	2013	2012	2012
Beginning allowance for loan losses	$ 6,520,000	$ 6,943,000	$ 6,943,000
Provision for loan losses	1,080,000	1,260,000	5,620,000
Charge-offs	(1,234,000)	(987,000)	(6,391,000)
Recoveries	59,000	86,000	348,000
Ending allowance for loan losses	$ 6,425,000	$ 7,302,000	$ 6,520,000

Net charge-offs to average total loans, annualized	1.31%	1.06%	1.71%

Outlook

Blackhawk has created a strong credit culture and the processes to support it; however, the economic recession and depressed real estate values have resulted in an elevated level of nonperforming loans. The level of nonperforming loans and 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 Beloit, 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"; 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 STATEMENTS OF INCOME
(UNAUDITED)
	Three months ended March 31,
	2013	2012
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$ 4,692	$ 4,730
Interest on trading securities	14	12
Interest and dividends on available-for-sale securities:
Taxable	537	789
Tax-exempt	291	287
Interest on federal funds sold and securities purchased under agreements to resell	94	80
Interest on interest-bearing deposits in banks	3	2
Total interest and dividend income	5,631	5,900
Interest Expenses:
Interest on deposits	747	952
Interest on borrowings	98	219
Interest on subordinated debentures	55	37
Total interest expense	900	1,208
Net interest and dividend income before provision for loan losses	4,731	4,692
Provision for loan losses	1,080	1,260
Net interest and dividend income after provision for loan losses	3,651	3,432

Noninterest Income:
Service charges on deposits accounts	656	615
Net gain on sale of loans	771	899
Net loan servicing income (loss)	(31)	(79)
Debit card interchange fees	544	561
Net gains (losses) on trading activities	4	(16)
Net gains (losses) on available-for-sale securities	-	226
Net other gains (losses)	(76)	26
Increase in cash surrender value of bank-owned life insurance	81	82
Other	209	243
Total noninterest income	2,158	2,557

Noninterest Expenses:
Salaries and employee benefits	2,753	2,715
Occupancy and equipment	660	606
Data processing	581	620
FDIC assessment	185	185
Advertising and marketing	88	91
Amortization of intangibles	35	35
Professional fees	273	255
Office Supplies	86	96
Telephone	87	76
Other	519	485
Total noninterest expenses	5,267	5,164
Income before income taxes	542	825
Provision for income taxes	(41)	147
Net income	$ 583	$ 678

Key Ratios

Basic Earnings Per Common Share	$ 0.19	$ 0.24
Diluted Earnings Per Common Share	0.19	0.24

Net Interest Margin (FTE)	3.76%	3.75%
Efficiency Ratio (FTE)	74.91%	69.94%
Return on Assets	0.42%	0.49%
Return on Common Equity	4.52%	6.03%

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2013 AND DECEMBER 31, 2012
(UNAUDITED)
	March 31,	December 31,
Assets	2013	2012
	(Amounts in thousands, except
	share and per share data)
Cash and due from banks	$ 8,743	$ 11,579
Federal funds sold and securities purchased under agreements to resell	45,215	25,442
Interest-bearing deposits in banks	1,019	1,539
Total cash and cash equivalents	54,977	38,560
Trading securities	1,439	1,614
Securities available-for-sale	132,517	121,077
Loans held for sale	4,312	2,558
Federal Home Loan Bank (FHLB) Stock, at cost	2,266	2,266
Loans, less allowance for loan losses of $6,425 and $6,520
at March 31, 2013 and December 31, 2012, respectively	355,899	359,928
Office buildings and equipment, net	9,116	8,407
Intangible assets, net	8,229	8,274
Cash surrender value of bank-owned life insurance	9,097	9,016
Other assets	8,867	8,059
Total assets	$ 586,719	$ 559,759

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Noninterest-bearing	$ 89,492	$ 84,311
Interest-bearing	418,183	409,510
Total deposits	507,675	493,821
Borrowings (including $2,217 and $2,231 at fair value at
March 31, 2013 and December 31, 2012, respectively)	16,966	10,010
Subordinated debentures (including $834 at fair value at
March 31, 2013 and December 31, 2012)	10,866	4,958
Other liabilities	2,968	3,146
Total liabilities	538,475	511,935

Stockholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
10,500 shares issued as of March 31, 2013 and
December 31, 2012, respectively	10,408	10,383
Common stock, $0.01 par value, 10,000,000 shares authorized;
2,287,496 and 2,279,004 shares issued as of March 31, 2013 and
December 31, 2012, respectively	23	23
Surplus	9,653	9,619
Retained earnings	26,318	25,896
Treasury stock, 83,252 shares at cost as of March 31, 2013 and
December 31, 2012	(909)	(909)
Accumulated other comprehensive income (loss)	2,751	2,812
Total stockholders' equity	48,244	47,824
Total liabilities and stockholders' equity	$ 586,719	$ 559,759

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 March 31, 2013			Three months ended March 31, 2012
	Average		Average	Average		Average
	Balance	Interest	Rate	Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$ 3,818	$ 3	0.28%	$ 3,789	$ 2	0.24%
Federal funds sold & securities purchased under agreements to resell	30,744	94	1.24%	27,248	80	1.17%
Investment securities:
Taxable investment securities	93,801	551	2.38%	114,062	801	2.82%
Tax-exempt investment securities	33,849	291	5.19%	32,593	287	5.20%
Total Investment securities	127,650	842	3.13%	146,655	1,088	3.35%
Loans	363,520	4,692	5.23%	339,772	4,730	5.60%

Total Earning Assets	$ 525,732	$ 5,631	4.45%	$ 517,464	$ 5,900	4.69%
Allowance for loan losses	(6,260)			(7,088)
Cash and due from banks	13,030			12,760
Other assets	35,834			33,547

Total Assets	$ 568,336			$ 556,683

Interest Bearing Liabilities:
Interest bearing checking accounts	$ 158,038	$ 234	0.60%	$ 150,314	$ 355	0.95%
Savings and money market deposits	146,721	71	0.20%	138,384	120	0.35%
Time deposits	106,701	442	1.68%	114,152	477	1.65%
Total interest bearing deposits	411,460	747	0.74%	402,850	952	0.95%
Subordinated debentures	6,103	55	3.67%	4,958	37	2.99%
Borrowings	15,116	98	2.63%	23,070	219	3.82%

Total Interest-Bearing Liabilities	$ 432,679	$ 900	0.84%	$ 430,878	$ 1,208	1.13%

Interest Rate Spread			3.61%			3.56%

Noninterest checking accounts	83,358			74,471
Other liabilities	3,281			6,289
Total liabilities	519,318			511,638
Preferred Stock	10,392			10,296
Common Stockholders' equity	38,625			34,749
Total Stockholders' equity	49,017			45,045
Total Liabilities and Stockholders' Equity	$ 568,335			$ 556,683

Net Interest Income/Margin		$ 4,731	3.76%		$ 4,692	3.75%