Blackhawk Bancorp Announces Fourth Quarter and Annual 2011 Results

BELOIT, Wis., Feb. 15, 2012 /PRNewswire/ -- Blackhawk Bancorp, Inc.  (OTCBB: BHWB) today reported net income of $731,000 for the quarter ended December 31, 2011, an 18% decrease compared to the $886,000 earned in the fourth quarter of 2010.  Earnings per share for the quarter decreased 21% to $0.26 compared to $0.33 per share for the fourth quarter of 2010.  For the year ended December 31, 2011, Blackhawk reported net income of $2.4 million, a 20% decrease compared to $3.03 million earned in 2010.  Earnings per share for the year decreased 26% to $.81 compared to the $1.10 per share earned in 2010. Total assets increased to $559.3 million as of December 31, 2011, compared with $539.9 million at year end 2010.  "The decrease in earnings for both the quarter and full year reflect the economic realities of our market," said Rick Bastian, president & CEO.  "Weak loan demand and intense competition for qualified borrowers has compressed net interest income.  Earnings continue to be negatively impacted by elevated credit losses from businesses and consumers hurt by the tough economy and depressed real estate values."

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The following table summarizes key performance and asset quality measures for the quarter ended December 31, 2011 compared to the previous four quarters.    

Key Performance and Asset Quality Measures	4th Qtr 2011	3rd Qtr 2011	2nd Qtr 2011	1st Qtr 2011	4th Qtr 2010
Diluted Earnings per share	$0.26	$0.21	$0.13	$0.22	$0.33
Return on average assets	.52%	.45%	.32%	.47%	.63%
Return on common equity	6.74%	5.49%	3.50%	6.29%	9.57%
Net interest margin	3.79%	3.71%	3.83%	3.97%	4.12%
Efficiency ratio	67.19%	70.17%	73.19%	71.86%	67.93%
Nonaccrual loans to total loans	3.67%	2.61%	2.31%	1.99%	1.73%
Nonaccrual loans and OREO to total loans	4.11%	3.38%	3.12%	2.73%	2.61%
Allowance for loan losses to total loans	2.05%	1.78%	1.83%	1.86%	1.82%
Allowance for loan losses to nonaccrual loans	55.9%	68%	79%	94%	105%
Subsidiary bank total risk-based capital	13.90%	13.71%	13.78%	13.57%	13.57%

Net Interest Income

Net interest income for the fourth quarter decreased 7% to $4.85 million compared to $5.23 million in the fourth quarter 2010.  The net interest margin for the quarter decreased to 3.79% compared to 4.12% for the fourth quarter of 2010.   For the full year net interest income was down 3% to $19.1 million, compared to $19.8 million for 2010.  The net interest margin decreased 23 basis points to 3.82% for the year ended December 31, 2011 compared to 4.05% the year before.  Average total loans for 2011 increased by $5.7 million, or 2%, to $334.8 million compared to $329.1 in 2010.  Average total deposits for 2011 grew by $20.2 million, or 4%, to $475.6 million compared to $455.4 in 2010.  The deposit growth in excess of loan growth was used to purchase additional short-term investments and further reduce borrowing.    

Non-Interest Income and Operating Expenses

Noninterest income for the fourth quarter totaled $2.1 million, a 25% decrease compared to the $2.8 million generated in the fourth quarter of 2010.  For the year, non-interest income decreased 7% to $7.9 million compared to $8.4 million in 2010.  The $0.5 million decrease in non-interest income for the year reflects a $1.2 million decrease in mortgage banking revenue, which was partially offset by increases in deposit service fees and debit card interchange income.      

Operating expenses decreased by $0.8 million, or 15%, to $4.8 million in the fourth quarter of 2011 compared to $5.6 million the prior year.  For the year operating expenses were up $0.2 million, less than 1%, to $19.4 million compared to $19.2 million in 2010.  

Provision for Loan Losses and Credit Quality

The provision for loan losses in the fourth quarter increased by 44% to $1.6 million compared to $1.1 million in fourth quarter 2010.  For the year, Blackhawk recorded a provision for loan losses of $4.8 million, a 6% increase over the $4.5 million provision recorded in 2010.  Loans charged off in 2011, net of recoveries, equaled $4.0 million compared to $3.9 million in 2010.  The ratio of allowance for loan losses to total loans was 2.05% at December 31, 2011 compared to 1.82% at December 31, 2010.  

The following table summarizes the activity in the allowance for loan losses for 2011 and 2010.

Activity in Allowance for Loan Losses	2011	2010
Beginning allowance for loan losses	$     6,142,000	$     5,471,000
Provision for loan losses	4,803,000	4,544,000
Charge-offs	(4,407,000)	(4,116,000)
Recoveries	405,000	243,000
Ending allowance for loan losses	$     6,943,000	$     6,142,000
Net charge-offs to average total loans	1.20%	1.18%

Nonperforming assets equaled $13.9 million, or 4.11% of total loans, at December 31, 2011, compared to $11.4 million, or 3.38% of total loans, at September 30, 2011, and $8.8 million, or 2.61% of total loans, at December 31, 2010.  As of December 31, 2011, the ratio of the allowance for loan losses to nonperforming loans equals 56%, compared to 68% as of September 30, 2011 and 105% at December 31, 2010.  

Outlook

Blackhawk has created a strong credit culture and the processes to support it, but 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 SUBSIDIARY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
	Three Months Ended December 31,				Twelve Months Ended December 31,
(Dollars in thousands, except per share data)	2011		2010		2011		2010
Interest and Dividend Income	$      6,137		$      6,824		$           24,822		$            26,847
Interest Expense	1,292		1,596		5,671		7,050
Net Interest and Dividend Income	4,845		5,228		19,151		19,797
Provision for loan losses	1,600		1,111		4,803		4,544
Non-Interest Income	2,116		2,827		7,866		8,416
Non-Interest Expense	4,754		5,558		19,354		19,196
Income Before Income Taxes	607		1,386		2,860		4,473
Income Taxes	(124)		500		434		1,448
Net Income	$         731		$         886		$             2,426		$              3,025
Key Ratios
Diluted Earnings Per Common Share	$        0.26		$        0.33		$               0.81		$                1.10
Average Outstanding Common Shares	2,195,752		2,172,795		2,192,692		2,171,596
Ending Outstanding Common Shares	2,195,752		2,172,795		2,195,752		2,172,795
Net Interest Margin	3.79%		4.12%		3.82%		4.05%
Efficiency Ratio	67.19%		67.93%		70.56%		66.83%
Return on Assets	0.52%		0.63%		0.44%		0.56%
Return on Common Equity	6.74%		9.57%		5.52%		8.25%
CONDENSED BALANCE SHEETS
(Unaudited)
					December 31,		December 31,
(Dollars in thousands)					2011		2010
Assets:
Cash and cash equivalents					$           45,020		$            31,628
Interest-bearing deposits in banks					1,097		639
Trading securities					2,449		3,559
Securities available-for-sale					142,788		132,858
Loans held for sale					4,140		5,301
Federal Home Loan Bank Stock, at cost					4,085		4,085
Loans, net of allowances for loan losses					326,935		326,833
Office buildings and equipment, net					8,772		9,136
Intangible assets, net					8,102		8,172
Cash surrender value of bank-owned life insurance					8,720		8,440
Other assets					7,179		9,266
Total Assets					$         559,287		$          539,917
Liabilities and Stockholders' Equity:
Deposits					$         475,627		$          473,865
Borrowings					32,326		17,535
Subordinated debentures					4,958		4,958
Other liabilities					2,376		3,091
Total liabilities					515,287		499,449
Preferred Stock					10,283		10,183
Common Stockholders' equity					33,717		30,285
Total Stockholders' equity					44,000		40,468
Total liabilities and stockholders' equity					$         559,287		$          539,917

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND DECEMBER 31, 2010
(UNAUDITED)
	December 31,		December 31,
Assets	2011		2010
	(Amounts in thousands, except
	share and per share data)
Cash and due from banks	$           13,056		$             7,877
Federal funds sold and securities purchased under agreements to resell	31,964		23,751
Total cash and cash equivalents	45,020		31,628
Interest-bearing deposits in banks	1,097		639
Trading securities	2,449		3,559
Securities available-for-sale	142,788		132,858
Loans held for sale	4,140		5,301
Federal Home Loan Bank (FHLB) Stock, at cost	4,085		4,085
Loans, less allowance for loan losses of $6,943 and $6,142
at December 31, 2011 and December 31, 2010, respectively	326,935		326,833
Office buildings and equipment, net	8,772		9,136
Intangible assets, net	8,102		8,172
Cash surrender value of bank-owned life insurance	8,720		8,440
Other assets	7,179		9,266
Total assets	$         559,287		$         539,917
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing	$           70,578		$           62,282
Interest-bearing (including $0 and $4,238 at fair value at
December 31, 2011 and December 31, 2010, respectively)	405,049		411,583
Total deposits	475,627		473,865
Short-term borrowings	9,000		-
Other borrowings (including $2,255 and $2,172 at fair value at
December 31, 2011 and December 31, 2010, respectively)	23,326		17,535
Subordinated debentures (including $834 and $834 at fair value at
December 31, 2011 and December 31, 2010, respectively)	4,958		4,958
Other liabilities	2,376		3,091
Total liabilities	515,287		499,449
Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
10,500 shares issued as of December 31, 2011 and
December 31, 2010, respectively	10,283		10,183
Common stock, $0.01 par value, 10,000,000 shares authorized;
2,279,004 and 2,258,047 shares issued as of December 31, 2011 and
December 31, 2010, respectively	23		22
Surplus	9,446		9,359
Retained earnings	23,629		21,848
Treasury stock, 83,252 and 85,252 shares at cost as of December 31, 2011 and
December 31, 2010, respectively	(914)		(931)
Accumulated other comprehensive income (loss)	1,533		(13)
Total stockholders' equity	44,000		40,468
Total liabilities and stockholders' equity	$         559,287		$         539,917

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three months ended December 31,
	2011		2010
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$ 4,958		$ 5,233
Interest on trading securities	16		33
Interest and dividends on securities:
Taxable	822		1,227
Tax-exempt	249		246
Interest on federal funds sold and securities purchased under agreements to resell	89		84
Interest on interest-bearing deposits in banks	3		1
Total interest and dividend income	6,137		6,824
Interest Expenses:
Interest on deposits	1,028		1,284
Interest on short-term borrowings	1		5
Interest on long-term borrowings	227		273
Interest on subordinated debentures	36		34
Total interest expense	1,292		1,596
Net interest and dividend income	4,845		5,228
Provision for loan losses	1,600		1,111
Net interest and dividend income after provision for loan losses	3,245		4,117
Noninterest Income:
Service charges on deposits accounts	710		680
Net gain on sale of loans	1,155		1,749
Net mortgage servicing income	(133)		(144)
Debit card interchange fees	419		383
Net gains (losses) on trading activities	(20)		(88)
Net gains (losses) on available-for-sale securities	9		242
Net other gains (losses)	(248)		(223)
Increase in cash value of bank-owned life insurance	71		82
Other	153		146
Total noninterest income	2,116		2,827
Noninterest Expenses:
Salaries and employee benefits	2,421		2,812
Occupancy and equipment	578		520
Data processing	526		511
FDIC assessment	180		330
Advertising and marketing	102		98
Amortization of intangibles	35		62
Professional fees	200		222
Office Supplies	97		100
Telephone	77		72
Other	538		831
Total noninterest expenses	4,754		5,558
Income before income taxes	607		1,386
Income Taxes	(124)		500
Net income	$    731		$    886
Key Ratios
Basic Earnings Per Common Share	$   0.26		$   0.33
Diluted Earnings Per Common Share	0.26		0.33
Net Interest Margin (FTE)	3.79%		4.12%
Efficiency Ratio (FTE)	67.19%		67.93%
Return on Assets	0.52%		0.63%
Return on Common Equity	6.74%		9.57%

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Twelve months ended December 31,
	2011		2010
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$ 19,591		$ 20,173
Interest on trading securities	86		340
Interest and dividends on securities:
Taxable	3,859		5,145
Tax-exempt	979		900
Interest on federal funds sold and securities purchased under agreements to resell	300		284
Interest on interest-bearing deposits in banks	7		5
Total interest and dividend income	24,822		26,847
Interest Expenses:
Interest on deposits	4,603		5,240
Interest on short-term borrowings	8		20
Interest on long-term borrowings	923		1,615
Interest on subordinated debentures	137		175
Total interest expense	5,671		7,050
Net interest and dividend income	19,151		19,797
Provision for loan losses	4,803		4,544
Net interest and dividend income after provision for loan losses	14,348		15,253
Noninterest Income:
Service charges on deposits accounts	2,811		2,633
Net gain on sale of loans	2,733		4,073
Net mortgage servicing income	(135)		(240)
Debit card interchange fees	1,688		1,428
Net gains (losses) on trading activities	(251)		(410)
Net gains (losses) on available-for-sale securities	396		308
Net other gains (losses)	(518)		(401)
Increase in cash value of bank-owned life insurance	280		303
Other	862		722
Total noninterest income	7,866		8,416
Noninterest Expenses:
Salaries and employee benefits	9,722		9,649
Occupancy and equipment	2,296		2,340
Data processing	2,216		1,953
FDIC assessment	825		1,030
Advertising and marketing	445		445
Amortization of intangibles	167		249
Professional fees	852		813
Office Supplies	377		339
Telephone	286		288
Other	2,168		2,090
Total noninterest expenses	19,354		19,196
Income before income taxes	2,860		4,473
Income Taxes	434		1,448
Net income	$   2,426		$   3,025
Key Ratios
Basic Earnings Per Common Share	$     0.81		$     1.10
Diluted Earnings Per Common Share	0.81		1.10
Net Interest Margin (FTE)	3.82%		4.05%
Efficiency Ratio (FTE)	70.56%		66.83%
Return on Assets	0.44%		0.56%
Return on Common Equity	5.52%		8.25%

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 December 31, 2011				Three months ended December 31, 2010
	Average		Average		Average		Average
	Balance	Interest	Rate		Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$     6,642	$        3	0.18%		$        942	$        1	0.51%
Federal funds sold & securities
purchased under agreements to
resell	27,499	89	1.28%		18,790	84	1.78%
Investment securities:
Taxable investment securities	117,567	838	2.83%		129,875	1,260	3.85%
Tax-exempt investment securities	28,015	249	5.15%		22,427	246	6.60%
Total Investment securities	145,582	1,087	3.28%		152,302	1,506	4.25%
Loans	339,189	4,958	5.80%		343,087	5,233	6.05%
Total Earning Assets	$ 518,912	$ 6,137	4.78%		$ 515,121	$ 6,824	5.35%
Allowance for loan losses	(6,591)				(6,273)
Cash and due from banks	10,657				20,433
Other Assets	34,502				34,921
Total Assets	$ 557,480				$ 564,202
Interest Bearing Liabilities:
Interest bearing checking accounts	$ 138,972	$    403	1.15%		$ 136,649	$    414	1.20%
Savings and money market deposits	139,942	125	0.36%		156,232	198	0.50%
Time deposits	119,223	500	1.66%		132,725	672	2.01%
Total interest bearing deposits	398,137	1,028	1.02%		425,606	1,284	1.20%
Short-term borrowings	1,135	1	0.34%		3,595	5	0.56%
Subordinated debentures	4,958	36	2.90%		4,958	34	2.72%
Long-term borrowings	30,458	227	2.96%		20,999	273	5.15%
Total Interest-Bearing Liabilities	$ 434,688	$ 1,292	1.18%		$ 455,158	$ 1,596	1.39%
Interest Rate Spread			3.60%				3.96%
Noninterest checking accounts	71,474				64,289
Other liabilities	6,927				4,694
Total liabilities	513,089				524,141
Preferred Stock	10,273				10,172
Common Stockholders' equity	34,118				29,889
Total Stockholders' equity	44,391				40,061
Total Liabilities and
Stockholders' Equity	$ 557,480				$ 564,202
Net Interest Income/Margin		$ 4,845	3.79%			$ 5,228	4.12%

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)	Twelve months ended December 31, 2011				Twelve months ended December 31, 2010
	Average		Average		Average		Average
	Balance	Interest	Rate		Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$     2,771	$          7	0.24%		$        947	$          5	0.55%
Federal funds sold & securities
purchased under agreements to
resell	24,787	300	1.21%		18,551	284	1.44%
Investment securities:
Taxable investment securities	124,442	3,945	3.17%		129,149	5,485	4.39%
Tax-exempt investment securities	24,864	979	5.60%		21,341	900	6.52%
Total Investment securities	149,306	4,924	3.58%		150,490	6,385	4.68%
Loans	334,807	19,591	5.85%		329,079	20,173	6.16%
Total Earning Assets	$ 511,671	$ 24,822	4.93%		$ 499,067	$ 26,847	5.52%
Allowance for loan losses	(6,296)				(6,042)
Cash and due from banks	10,641				13,930
Other Assets	35,110				32,169
Total Assets	$ 551,126				$ 539,124
Interest Bearing Liabilities:
Interest bearing checking accounts	$ 134,354	$   1,671	1.24%		$ 143,133	$   1,947	1.41%
Savings and money market deposits	144,115	516	0.36%		135,446	784	0.61%
Time deposits	128,079	2,416	1.89%		115,655	2,509	2.23%
Total interest bearing deposits	406,548	4,603	1.13%		394,234	5,240	1.38%
Short-term borrowings	1,912	8	0.44%		2,399	20	0.98%
Subordinated debentures	4,958	137	2.77%		4,958	175	3.80%
Long-term borrowings	22,109	923	4.18%		33,825	1,615	4.71%
Total Interest-Bearing Liabilities	$ 435,527	$   5,671	1.30%		$ 435,416	$   7,050	1.70%
Interest Rate Spread			3.63%				3.82%
Noninterest checking accounts	69,100				61,226
Other liabilities	3,452				3,498
Total liabilities	508,079				500,140
Preferred Stock	10,234				10,134
Common Stockholders' equity	32,813				28,850
Total Stockholders' equity	43,047				38,984
Total Liabilities and
Stockholders' Equity	$ 551,126				$ 539,124
Net Interest Income/Margin		$ 19,151	3.82%			$ 19,797	4.05%

SOURCE Blackhawk Bancorp, Inc.

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