Blackhawk Bancorp Announces First Quarter 2012 Results

BELOIT, Wis., April 27, 2012 /PRNewswire/ -- Blackhawk Bancorp, Inc.  (OTCBB: BHWB) today reported earnings of $678,000 for the quarter ended March 31, 2012, a 6% increase compared to $639,000 earned in the first quarter of 2011.  Earnings per diluted share for the quarter increased $0.02 to $0.24 compared to $0.22 the first quarter of 2011.  Growth in non-interest income in the first quarter of 2012 more than offset a decrease in net interest income and increase in the provision for loan losses compared to the first quarter of last year.  Total assets of the company increased $6.0 million during the quarter to $565.0 million at March 31, 2012 from $559.0 million at December 31, 2011. 

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The following table summarizes key performance and asset quality measures for the quarter ended March 31, 2012 compared to the previous four quarters.    

Key Performance and Asset Quality Measures	1st Qtr 2012	4th Qtr 2011	3rd Qtr 2011	2nd Qtr 2011	1st Qtr 2011
Diluted Earnings per share	$0.24	$0.26	$0.21	$0.13	$0.22
Return on average assets	.49%	.52%	.45%	.32%	.47%
Return on common equity	6.03%	6.74%	5.49%	3.50%	6.29%
Net interest margin	3.75%	3.79%	3.71%	3.83%	3.97%
Efficiency ratio	69.94%	67.19%	70.17%	73.19%	72.03%
Nonaccrual loans to total loans	4.19%	3.67%	2.61%	2.31%	1.99%
Nonaccrual loans and OREO to total loans	4.41%	4.11%	3.38%	3.12%	2.73%
Allowance for loan losses to total loans	2.13%	2.05%	1.78%	1.83%	1.86%
Allowance for loan losses to nonaccrual loans	50.8%	55.9%	68%	79%	94%
Subsidiary bank total risk-based capital	13.83%	13.90%	13.71%	13.78%	13.57%

"The on-going low interest rate environment, soft loan demand and intense competition for qualified borrowers are all factors that continued to compress net interest income in the first quarter," said Rick Bastian, president & CEO.  "However, we are starting to see an increase in lending opportunities, especially in the manufacturing sector, and expect loan growth to pick up the remainder of the year," he added.     

Net Interest Income

Net interest income for the first quarter decreased 4% to $4.7 million compared to $4.9 million in the first quarter 2011. The average balance of total earning assets for the first quarter increased by $11.2 million to $517.4 million while the net interest margin realized on earning assets decreased 22 basis points to 3.75% compared to 3.97% for the first quarter of 2011.  The growth in earning assets included a $6.9 million, or 2%, increase in average total loans.      

Average total deposits for the first quarter were essentially flat at $477.3 million compared to $478.1 million the first quarter of 2011.  While total average deposits were little changed, a $20.3 million increase in average non-maturity deposits such as checking, money market and savings accounts was offset by a $21.2 million decrease in average time deposits.  The strong growth in non-maturity deposits has dramatically reduced the company's need for brokered deposits or other sources of wholesale funding.          

Non-Interest Income and Operating Expenses

Noninterest income for the first quarter of 2012 increased by $768,000, or 43%, to $2.6 million compared to $1.8 million the first quarter of the prior year.  The increase was primarily attributable to a $406,000 increase in mortgage banking revenues, which consists of gain on sale of mortgage loans and net loan servicing income.   Other increases in non-interest income included a $145,000 increase in net securities gains, a $148,000 improvement in net gain (loss) on sale of other real estate and other assets, and an increase of $110,000 in deposit service fees and debit card revenue.            

Operating expenses for the first quarter increased $305,000, or 6%, to $5.2 million compared to $4.9 million in the first quarter of 2011.  This includes an increase of $276,000, or 11%, in compensation and benefit costs, which was driven primarily by variable compensation related to mortgage production and an increase in the cost of employee health benefits.   

Provision for Loan Losses and Credit Quality

The provision for loan losses in the first quarter increased by $360,000, or 40%, to $1.3 million compared to $0.9 million in first quarter 2011.   During the first quarter the company had net loan charge-offs of $901,000 compared to $819,000 for the first quarter of the previous year.  Nonaccrual loans and other real estate owned totaled $15.1 million, or 4.41% of total loans, at March 31, 2012 compared to $13.9 million, or 4.11% of total loans, at December 31, 2011 and $9.1 million, or 2.73% of total loans, at March 31, 2011.   "While we are beginning to see bright spots in the local economy, our market still suffers from high unemployment and depressed real estate values," said Bastian.  "Although we expect non-performing assets to remain at elevated levels throughout 2012, we anticipate improvement throughout the year as we reach final resolution on certain credits." 

The ratio of allowance for loan losses to total loans was 2.13% at March 31, 2012 compared to 2.05% at December 31, 2011, and 1.86% at March 31, 2011.  The ratio of the allowance for loan losses to nonaccrual loans was 51% at March 31, 2012 down from 56% at December 31, 2011, and 94% at March 31, 2011.

The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2012 and 2011, and the year ended December 31, 2011.

Activity in Allowance for Loan Losses	Quarter Ended March 31,				Year Ended December 31,
	2012		2011		2011
Beginning allowance for loan losses	$     6,943,000		$   6,142,000		$     6,142,000
Provision for loan losses	1,260,000		900,000		4,803,000
Charge-offs	(987,000)		(858,000)		(4,407,000)
Recoveries	86,000		39,000		405,000
Ending allowance for loan losses	$     7,302,000		$  6,223,000		$     6,943,000
Net charge-offs to average total loans, annualized	1.06%		1.00%		1.20%

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 BALANCE SHEETS
MARCH 31, 2012 AND DECEMBER 31, 2011
(UNAUDITED)
	March 31,		December 31,
Assets	2012		2011
	(Amounts in thousands, except
	share and per share data)
Cash and due from banks	$                12,653		$              13,056
Federal funds sold and securities purchased under agreements to resell	29,512		31,964
Total cash and cash equivalents	42,165		45,020
Interest-bearing deposits in banks	10,128		1,097
Trading securities	2,187		2,449
Securities available-for-sale	135,374		142,788
Loans held for sale	4,328		4,140
Federal Home Loan Bank (FHLB) Stock, at cost	3,055		4,085
Loans, less allowance for loan losses of $7,302 and $6,943
at March 31, 2012 and December 31, 2011, respectively	335,400		326,935
Office buildings and equipment, net	8,525		8,772
Intangible assets, net	8,053		8,102
Cash surrender value of bank-owned life insurance	8,801		8,720
Other assets	7,011		6,879
Total assets	$             565,027		$            558,987
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing	$                79,034		$              70,578
Interest-bearing	418,091		405,049
Total deposits	497,125		475,627
Short-term borrowings	-		16,000
Other borrowings (including $2,246 and $2,255 at fair value at
March 31, 2012 and December 31, 2011, respectively)	15,994		16,326
Subordinated debentures (including $834 and $834 at fair value at
March 31, 2012 and December 31, 2011, respectively)	4,958		4,958
Other liabilities	2,660		2,040
Total liabilities	520,737		514,951
Stockholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
10,500 shares issued as of March 31, 2012 and
December 31, 2011, respectively	10,308		10,283
Common stock, $0.01 par value, 10,000,000 shares authorized;
2,279,004 and 2,279,004 shares issued as of March 31, 2012 and
December 31, 2011, respectively	23		23
Surplus	9,516		9,477
Retained earnings	24,146		23,629
Treasury stock, 83,252 and 83,252 shares at cost as of March 31, 2012 and
December 31, 2011, respectively	(909)		(909)
Accumulated other comprehensive income (loss)	1,206		1,533
Total stockholders' equity	44,290		44,036
Total liabilities and stockholders' equity	$             565,027		$            558,987

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three months ended March 31,
	2012		2011
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$                  4,730		$                4,854
Interest on trading securities	12		33
Interest and dividends on securities:
Taxable	789		1,103
Tax-exempt	287		250
Interest on federal funds sold and securities purchased under agreements to resell	80		78
Interest on interest-bearing deposits in banks	2		1
Total interest and dividend income	5,900		6,319
Interest Expenses:
Interest on deposits	952		1,188
Interest on short-term borrowings	2		2
Interest on long-term borrowings	217		234
Interest on subordinated debentures	37		33
Total interest expense	1,208		1,457
Net interest and dividend income	4,692		4,862
Provision for loan losses	1,260		900
Net interest and dividend income after provision for loan losses	3,432		3,962
Noninterest Income:
Service charges on deposits accounts	615		570
Net gain on sale of loans	899		383
Net mortgage servicing income	(79)		31
Debit card interchange fees	561		496
Net gains (losses) on trading activities	(16)		19
Net gains (losses) on available-for-sale securities	226		81
Net other gains (losses)	26		(122)
Increase in cash value of bank-owned life insurance	82		69
Other	243		262
Total noninterest income	2,557		1,789
Noninterest Expenses:
Salaries and employee benefits	2,715		2,439
Occupancy and equipment	606		594
Data processing	620		573
FDIC assessment	185		240
Advertising and marketing	91		104
Amortization of intangibles	35		62
Professional fees	255		207
Office Supplies	96		94
Telephone	76		69
Other	485		477
Total noninterest expenses	5,164		4,859
Income before income taxes	825		892
Income Taxes	147		253
Net income	$                      678		$                    639
Key Ratios
Basic Earnings Per Common Share	$                    0.24		$                   0.22
Diluted Earnings Per Common Share	0.24		0.22
Net Interest Margin (FTE)	3.75%		3.97%
Efficiency Ratio (FTE)	69.94%		72.03%
Return on Assets	0.49%		0.47%
Return on Common Equity	6.03%		6.29%

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, 2012				Three months ended March 31, 2011
	Average		Average		Average		Average
	Balance	Interest	Rate		Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$               3,789	$                  2	0.24%		$                    735	$                  1	0.65%
Federal funds sold & securities
purchased under agreements to
resell	27,248	80	1.17%		27,426	78	1.15%
Investment securities:
Taxable investment securities	114,062	801	2.82%		122,278	1,136	3.81%
Tax-exempt investment securities	32,593	287	5.20%		23,035	250	6.11%
Total Investment securities	146,655	1,088	3.35%		145,313	1,386	4.27%
Loans	339,772	4,730	5.60%		332,837	4,854	5.91%
Total Earning Assets	$           517,464	$          5,900	4.69%		$           506,311	$          6,319	5.15%
Allowance for loan losses	(7,088)				(6,385)
Cash and due from banks	12,760				11,705
Other Assets	33,547				35,660
Total Assets	$           556,683				$           547,291
Interest Bearing Liabilities:
Interest bearing checking accounts	$           150,314	$             355	0.95%		$           129,525	$             412	1.29%
Savings and money market deposits	138,384	120	0.35%		147,110	139	0.38%
Time deposits	114,152	477	1.68%		135,319	637	1.91%
Total interest bearing deposits	402,850	952	0.95%		411,954	1,188	1.17%
Short-term borrowings	1,504	2	0.40%		1,018	2	0.56%
Subordinated debentures	4,958	37	2.99%		4,958	33	2.73%
Long-term borrowings	21,566	217	4.05%		17,526	234	5.42%
Total Interest-Bearing Liabilities	$           430,878	$          1,208	1.13%		$           435,456	$          1,457	1.36%
Interest Rate Spread			3.56%				3.79%
Noninterest checking accounts	74,471				66,212
Other liabilities	6,289				4,069
Total liabilities	511,638				505,737
Preferred Stock	10,296				10,196
Common Stockholders' equity	34,749				31,358
Total Stockholders' equity	45,045				41,554
Total Liabilities and
Stockholders' Equity	$           556,683				$           547,291
Net Interest Income/Margin		$          4,692	3.75%			$          4,862	3.97%

SOURCE Blackhawk Bancorp, Inc.

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