Blackhawk Bancorp Announces Second Quarter 2011 Results

BELOIT, Wis., July 28, 2011 /PRNewswire/ -- Blackhawk Bancorp, Inc. (OTCBB: BHWB) today reported earnings of $439,000 for the quarter ended June 30, 2011, a 34% decrease compared to $664,000 earned in the second quarter of 2010.  Net income for the six months ended June 30, 2011 was $1,078,000, an 18% decrease compared to the first six months of 2010.  Modest increases in revenue for both the three and six month periods ended June 30, 2011  were more than offset by increases in credit and collection related costs and other operating expenses when compared to the same three and six months periods of 2010.    

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Earnings per diluted share for the quarter decreased to $0.13 compared to $0.23 the second quarter of 2010.  The Company earned $0.34 per diluted share for the six month period ended June 30, 2011 compared to $0.46 per share the first six months of 2010.  The Company's assets totaled $538.5 million at June 30, 2011 compared to $539.9 million at December 31, 2010.    

The following table summarizes key performance and asset quality measures for the quarter ended June 30, 2011 compared to the previous four quarters.    

Key Performance and Asset Quality Measures	2nd Qtr 2011	1st Qtr 2011	4th Qtr 2010	3rd  Qtr 2010	2nd  Qtr 2010
Diluted Earnings per share	$0.13	$0.22	$0.33	$0.30	$0.23
Return on average assets	.32%	.47%	.62%	.60%	.51%
Return on common equity	3.50%	6.29%	9.62%	8.91%	7.08%
Net interest margin	3.83%	3.97%	4.12%	4.07%	3.97%
Efficiency ratio	73.19%	71.86%	67.93%	63.34%	68.24%
Nonaccrual loans to total loans	2.31%	1.99%	1.73%	2.30%	2.45%
Nonaccrual loans and OREO to total loans	3.12%	2.73%	2.61%	2.68%	2.70%
Allowance for loan losses to total loans	1.83%	1.86%	1.82%	1.88%	1.79%
Allowance for loan losses to nonaccrual loans	79%	94%	105%	82%	73%
Subsidiary bank total risk-based capital	13.78%	13.57%	13.57%	13.05%	13.16%

"We continue to realize growth in core deposits, adding hundreds of new customer relationships each month," said Rick Bastian, the Company's president and chief executive officer. "However, borrower caution and intense competition for high quality credits have constrained loan growth and put downward pressure on the net interest margin.  In addition, credit related expenses continue to stress earnings, and are expected to remain at elevated levels for the remainder of the year," he added.    

Net Interest Income

Net interest income for the second quarter increased 1% to $4.8 million compared to $4.7 million in the second quarter 2010.  Total average earning assets for the quarter were $511.2 million, a 3.9% increase compared to $492.0 million the same quarter last year.  The net interest margin for the quarter decreased 14 basis points to 3.83% compared to 3.97% the second quarter of 2010.  The increase in earning assets includes a $9.8 million, or 3%, increase in average loans and a $9.3 million, or 6% increases in investment securities and short-term investments.  Average total deposits for the second quarter increased $32.8 million, or 7%, compared to the second quarter of 2010.  The increase includes a $3.3 million, or 1% increase in non-maturity deposits such as checking, savings, and money market accounts. The remainder of the increase in total average deposits was in time deposits.  Strong deposit growth allowed for a $14.3 million, or 32%, decrease in the average total borrowings to $30.0 million for the quarter compared to $44.4 million the second quarter of 2010.      

Net interest income for the first six months increased 3% to $9.6 million compared to $9.4 million the first six months of 2010.  Average earning assets for the first six months of 2011 increased 4% to $508.8 million compared to $488.4 million for the six month period ended June 30, 2010.   The net interest margin for the first half of 2011 decreased by 7 basis points to 3.90% compared to 3.97% for the first half of 2010.  The increase in earning assets includes a $12.3 million, or 4%, increase in total average loans and an $8.1 million, or 5%, increase in investment securities and short-term investments.  Average total deposits for the six months ended June 30, 2011 increased $42.0 million, or 8.8%, compared to average total deposits the first half of 2010.  Average total borrowings decreased by $22.5 million, or 46%, for the six months ended June 30, 2011 compared to the first six months of the prior year.      

Non-Interest Income and Operating Expenses

Noninterest income for the second quarter increased 3% to $1.8 million compared to $1.7 million the second quarter of the prior year.  Noninterest income for the first six months increased 3% to $3.6 million compared to $3.5 million for first half of 2010.  Increases in deposit service charges and debit card revenue for both the quarter and the six month period ended June 30, 2011 offset a reduction in gain on sale of mortgage loans compared to the same periods in 2010.              

Operating expenses for the second quarter increased 8% to $4.9 million compared to $4.5 million in the second quarter of 2010.  For the six months ended June 30, 2011 operating expenses increased 9% to $9.7 million compared to $8.9 million for the first six months of 2010.  The increase in operating expenses for both the quarter and six month period reflect higher compensation and benefits, data processing costs and credit related expenses.  

Provision for Loan Losses and Credit Quality

The provision for loan losses in the second quarter increased 9% to $1,154,000 compared to $1,061,000 in second quarter 2010.   During the second quarter the Company had net loan charge-offs of $1,309,000 compared to $1,171,000 for the second quarter of the previous year.  For the six months ended June 30, 2011 the provision for loan losses increased 2% to $2,054,000 compared to $2,022,000 the first six months of 2010.  Net charge-offs for the six months ended June 30, 2011 were $2,128,000 compared to $1,607,000 for the first six months of 2010.  "While certain sectors of the local economy have recovered from the recession, the collapse of the housing and construction market, high unemployment and depressed real estate values continue to drive loan losses and other credit and collection related expenses," said Bastian.    

Nonaccrual loans and other real estate owned totaled $10.4 million, or 3.12% of total loans, at June 30, 2011 compared to $8.8 million, or 2.61% of total loans, at December 31, 2010 and $8.9 million, or 2.70% of total loans, at June 30, 2010.  

The ratio of allowance for loan losses to total loans was 1.83% at June 30, 2011 compared to 1.82% at December 31, 2010, and 1.79% at June 30, 2010.  The ratio of the allowance for loan losses to nonaccrual loans was 79% at June 30, 2011 down from 105% at December 31, 2010, but up from 73% at June 30, 2010.

The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2011 and 2010, and the year ended December 31, 2010.

Activity in Allowance for Loan Losses	Six Months Ended June 30,				Year Ended December 31,
	2011		2010		2010
Beginning allowance for loan losses	$     6,142,000		$   5,471,000		$     5,471,000
Provision for loan losses	2,054,000		2,022,000		4,544,000
Charge-offs	(2,404,000)		(1,692,000)		(4,116,000)
Recoveries	276,000		85,000		243,000
Ending allowance for loan losses	$     6,068,000		$  5,886,000		$     6,142,000
Net charge-offs to average total loans, annualized	1.29%		1.01%		1.18%

Outlook

Blackhawk has created a strong credit culture and the processes to support it, but the on-going 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 which 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 offices 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. The bank has received numerous accolades for its work with the fast-growing Hispanic population in the markets it serves.  

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
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2011 AND DECEMBER 31, 2010
(UNAUDITED)
	June 30,		December 31,
Assets	2011		2010
	(Amounts in thousands, except
	share and per share data)
Cash and due from banks	$            11,402		$                 7,877
Federal funds sold and securities purchased under agreements to resell	13,847		23,751
Total cash and cash equivalents	25,249		31,628
Interest-bearing deposits in banks	435		639
Trading securities	2,874		3,559
Securities available-for-sale	143,144		132,858
Loans held for sale	2,729		5,301
Federal Home Loan Bank (FHLB) Stock, at cost	4,085		4,085
Loans, less allowance for loan losses of $6,068 and $6,142
at June 30, 2011 and December 31, 2010, respectively	325,904		326,833
Office buildings and equipment, net	8,989		9,136
Intangible assets, net	8,020		8,172
Cash surrender value of bank-owned life insurance	8,578		8,440
Other assets	8,458		9,266
Total assets	$          538,465		$             539,917
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing	$            67,829		$               62,282
Interest-bearing (including $2,243 and $4,238 at fair value at
June 30, 2011 and December 31, 2010, respectively)	393,501		411,583
Total deposits	461,330		473,865
Short-term borrowings	4,900		-
Long-term borrowings (including $2,213 and $2,172 at fair value at
June 30, 2011 and December 31, 2010, respectively)	21,929		17,535
Subordinated debentures (including $834 and $834 at fair value at
June 30, 2011 and December 31, 2010, respectively)	4,958		4,958
Other liabilities	2,905		3,091
Total liabilities	496,022		499,449
Stockholders’ equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
10,500 shares issued as of June 30, 2011 and
December 31, 2010, respectively	10,233		10,183
Common stock, $0.01 par value, 10,000,000 shares authorized;
2,279,004 and 2,258,047 shares issued as of June 30, 2011 and
December 31, 2010, respectively	23		22
Surplus	9,397		9,359
Retained earnings	22,603		21,848
Treasury stock, 83,252 and 85,252 shares at cost as of June 30, 2011 and
December 31, 2010, respectively	(914)		(931)
Accumulated other comprehensive income (loss)	1,101		(13)
Total stockholders' equity	42,443		40,468
Total liabilities and stockholders' equity	$          538,465		$             539,917

BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three months ended June 30,
	2011		2010
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$                    4,877		$                  4,922
Interest on trading securities	15		7
Interest and dividends on securities:
Taxable	1,031		1,357
Tax-exempt	246		218
Interest on federal funds sold and securities purchased under agreements to resell	59		52
Interest on interest-bearing deposits in banks	1		1
Total interest and dividend income	6,229		6,557
Interest Expenses:
Interest on deposits	1,175		1,323
Interest on short-term borrowings	4		3
Interest on long-term borrowings	233		441
Interest on subordinated debentures	34		35
Total interest expense	1,446		1,802
Net interest and dividend income	4,783		4,755
Provision for loan losses	1,154		1,061
Net interest and dividend income after provision for loan losses	3,629		3,694
Noninterest Income:
Service charges on deposits accounts	685		623
Net gain on sale of loans	451		593
Net mortgage servicing income	29		18
Debit card interchange fees	444		362
Net gains (losses) on trading activities	(223)		34
Net gains (losses) on available-for-sale securities	209		(59)
Net other gains (losses)	(82)		(26)
Increase in cash value of bank-owned life insurance	70		70
Other	221		142
Total noninterest income	1,804		1,757
Noninterest Expenses:
Salaries and employee benefits	2,428		2,268
Occupancy and equipment	568		593
Data processing	561		481
FDIC assessment	225		232
Advertising and marketing	122		112
Amortization of intangibles	35		62
Professional fees	221		213
Office Supplies	91		66
Telephone	70		75
Other	573		418
Total noninterest expenses	4,894		4,520
Income before income taxes	539		931
Income Taxes	100		267
Net income	$                       439		$                     664
Key Ratios
Basic Earnings Per Common Share	$                      0.13		$                    0.23
Diluted Earnings Per Common Share	0.13		0.23
Net Interest Margin (FTE)	3.83%		3.97%
Efficiency Ratio (FTE)	73.19%		68.24%
Return on Assets	0.32%		0.51%
Return on Common Equity	3.50%		7.08%

BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	June 30,
	2011		2010
	(Amounts in thousands, except
	share and per share data)
Interest Income:
Interest and fees on loans	$                    9,731		$                  9,802
Interest on trading securities	49		65
Interest and dividends on securities:
Taxable	2,134		2,666
Tax-exempt	496		413
Interest on federal funds sold and securities purchased under agreements to resell	136		128
Interest on interest-bearing deposits in banks	2		3
Total interest and dividend income	12,548		13,077
Interest Expenses:
Interest on deposits	2,364		2,612
Interest on short-term borrowings	5		13
Interest on long-term borrowings	467		976
Interest on subordinated debentures	67		105
Total interest expense	2,903		3,706
Net interest and dividend income	9,645		9,371
Provision for loan losses	2,054		2,022
Net interest and dividend income after provision for loan losses	7,591		7,349
Noninterest Income:
Service charges on deposits accounts	1,331		1,214
Net gain on sale of loans	834		1,158
Net mortgage servicing income	60		27
Debit card interchange fees	830		696
Net gains (losses) on trading activities	(204)		(10)
Net gains (losses) on available-for-sale securities	290		(65)
Net other gains (losses)	(204)		(107)
Increase in cash value of bank-owned life insurance	139		150
Other	483		392
Total noninterest income	3,559		3,455
Noninterest Expenses:
Salaries and employee benefits	4,867		4,419
Occupancy and equipment	1,162		1,215
Data processing	1,095		967
FDIC assessment	464		460
Advertising and marketing	226		216
Amortization of intangibles	97		125
Professional fees	428		400
Office Supplies	185		145
Telephone	140		148
Other	1,055		822
Total noninterest expenses	9,719		8,917
Income before income taxes	1,431		1,887
Income Taxes	353		570
Net income	$                    1,078		$                  1,317
Key Ratios
Basic Earnings Per Common Share	$                      0.34		$                    0.46
Diluted Earnings Per Common Share	0.34		0.46
Net Interest Margin (FTE)	3.90%		3.97%
Efficiency Ratio (FTE)	72.52%		68.27%
Return on Assets	0.40%		0.51%
Return on Common Equity	4.87%		7.10%

BLACKHAWK BANCORP, INC. AND SUBSIDIARY
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 June 30, 2011				Three months ended June 30, 2010
	Average		Average		Average		Average
	Balance	Interest	Rate		Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$                    948	$                   1	0.51%		$                     915	$                   1	0.63%
Federal funds sold & securities
purchased under agreements to
resell	19,057	59	1.23%		13,531	52	1.55%
Investment securities:
Taxable investment securities	134,102	1,046	3.13%		133,000	1,364	4.11%
Tax-exempt investment securities	23,947	246	5.79%		21,277	218	6.23%
Total Investment securities	158,049	1,292	3.53%		154,277	1,582	4.40%
Loans	333,162	4,877	5.87%		323,341	4,922	6.11%
Total Earning Assets	$             511,216	$            6,229	4.97%		$              492,064	$            6,557	5.44%
Allowance for loan losses	(6,386)				(6,015)
Cash and due from banks	10,301				10,541
Other Assets	35,346				30,984
Total Assets	$             550,477				$              527,574
Interest Bearing Liabilities:
Interest bearing checking accounts	$             132,658	$               434	1.31%		$              150,818	$               555	1.48%
Savings and money market deposits	139,567	122	0.35%		126,403	188	0.60%
Time deposits	131,139	619	1.89%		101,651	580	2.29%
Total interest bearing deposits	403,364	1,175	1.17%		378,872	1,323	1.40%
Short-term borrowings	4,230	4	0.39%		2,613	3	0.50%
Subordinated debentures	4,958	34	2.75%		4,958	35	2.79%
Long-term borrowings	20,866	233	4.47%		36,827	441	4.81%
Total Interest-Bearing Liabilities	$             433,418	$            1,446	1.34%		$              423,270	$            1,802	1.71%
Interest Rate Spread			3.63%				3.73%
Noninterest checking accounts	70,211				61,914
Other liabilities	4,301				4,244
Total liabilities	507,930				489,428
Preferred Stock	10,221				10,121
Common Stockholders' equity	32,326				28,025
Total Stockholders' equity	42,547				38,146
Total Liabilities and
Stockholders' Equity	$             550,477				$              527,574
Net Interest Income/Margin		$            4,783	3.83%			$            4,755	3.97%

BLACKHAWK BANCORP, INC. AND SUBSIDIARY
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)	Six months ended June 30, 2011				Six months ended June 30, 2010
	Average		Average		Average		Average
	Balance	Interest	Rate		Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$                  842	$                   2	0.57%		$                 1,034	$                   3	0.51%
Federal funds sold & securities
purchased under agreements to
resell	23,218	136	1.18%		18,562	128	1.39%
Investment securities:
Taxable investment securities	128,223	2,183	3.43%		127,623	2,731	4.31%
Tax-exempt investment securities	23,493	496	5.95%		20,482	413	6.38%
Total Investment securities	151,716	2,679	3.82%		148,105	3,144	4.60%
Loans	333,000	9,731	5.89%		320,649	9,802	6.16%
Total Earning Assets	$           508,776	$          12,548	5.05%		$             488,350	$          13,077	5.50%
Allowance for loan losses	(6,385)				(5,835)
Cash and due from banks	10,999				12,035
Other Assets	35,480				31,328
Total Assets	$           548,870				$             525,878
Interest Bearing Liabilities:
Interest bearing checking accounts	$           131,100	$               846	1.30%		$             147,382	$            1,063	1.45%
Savings and money market deposits	144,084	261	0.37%		125,106	393	0.63%
Time deposits	133,217	1,257	1.90%		101,380	1,156	2.30%
Total interest bearing deposits	408,401	2,364	1.17%		373,868	2,612	1.41%
Short-term borrowings	2,633	5	0.42%		2,256	13	1.51%
Subordinated debentures	4,958	67	2.74%		4,958	105	4.26%
Long-term borrowings	19,205	467	4.90%		42,092	976	4.68%
Total Interest-Bearing Liabilities	$           435,197	$            2,903	1.34%		$             423,174	$            3,706	1.77%
Interest Rate Spread			3.71%				3.73%
Noninterest checking accounts	68,223				60,798
Other liabilities	3,397				3,957
Total liabilities	506,817				487,929
Preferred Stock	10,209				10,108
Common Stockholders' equity	31,844				27,841
Total Stockholders' equity	42,053				37,949
Total Liabilities and
Stockholders' Equity	$           548,870				$             525,878
Net Interest Income/Margin		$            9,645	3.90%			$            9,371	3.97%

SOURCE Blackhawk Bancorp, Inc.

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