Blackhawk Bancorp Posts 2007 Results

- 2007 net income $1.03 vs. $1.00






BELOIT, Wis., Feb. 28  /PRNewswire-FirstCall/ -- Blackhawk Bancorp, Inc. (OTC:BHWB) (BULLETIN BOARD: BHWB)  today announced financial results for the fourth quarter and year ended December 31, 2007.  Net income rose to $2.29 million or $1.03 per fully diluted share compared with $2.26 million or $1.00 per diluted share a year ago.  Net income in fourth quarter was $563,000 or 26 cents per diluted share compared with $766,000 or 34 cents per diluted share in fourth quarter 2006.  Total assets amounted to $464.7 million at year-end, up 6 percent compared with $439.5 million at year-end 2006.

Fourth quarter and annual net interest income rose, reflecting solid loan and deposit growth, the company reported.  The growth in deposits was primarily in checking, savings and money market accounts.  Time deposits were stable year-over-year.  For the year, net interest income rose to $12.9 million in 2007 compared with $12.2 million in 2006.  Fourth quarter 2007 net interest income was approximately $3.4 million compared with $3.0 million in fourth quarter 2006.  The net interest margin for the year was up slightly, to 3.18 percent compared with 3.14 in 2006.  The net interest margin in the fourth quarter was up 14 basis points to 3.24 percent compared with 3.10 percent in the fourth quarter of 2006.

"Blackhawk grew in a number of areas throughout 2007.  In light of the soft economy we believe that performance is a very encouraging indication of our bank's and our markets' essential strength and stability," said R. Richard Bastian, III, President and CEO.  "We believe our commitment to maintaining high levels of personal attention and service strongly contributed to customer retention.  We kept existing customers, balances in consumer accounts were essentially stable, and we successfully collected fee income and service charges."

"In its first full year, balances in Blackhawk's Easy Money checking program grew to nearly $20 million, with $7.3 million from customers that had no prior relationship with the bank.  This innovative account rewards customers with high interest rates in return for using electronic payment methods and receiving electronic account statements.  There is no account minimum, and it includes free worldwide ATM service.  The additional revenue from transaction fees offsets the higher interest costs," explained Bastian. "This has been an exciting product, especially for customers who don't typically carry large enough balances to take advantage of most high-interest earning checking accounts," he said.  "It has generated new business and attracted new customers, which gives us cross-selling opportunities."

Discussing the company's loans and the lending environment of its served markets, Bastian explained: "To remain prudent in today's soft economic environment, we increased our provision for loan losses to $566,000 for the year ended December 31, 2007 compared with $407,000 the year before.  We had lower net charge-offs of $466,000 in 2007 compared to $480,000 in 2006. Blackhawk has no participation in the sub-prime mortgage loan market. Mortgage loans we originate are primarily conforming loans that are sold into the secondary market.  However, an important part of Blackhawk's strategy is to retain the servicing to facilitate the cross-sale of additional banking products.

"Although the economies in the markets we serve are experiencing the same issues as most areas, our communities never had the speculative real estate issues that caused the widest swings," continued Bastian.  "Building and construction in our communities has been slow but stable.  We deal extensively with builders and contractors.  One of our bank's specialties is having a consultative relationship with customers, so we were able to help them anticipate economic changes and make adjustments.  We believe this helped them to more effectively manage their business, and enabled us to avoid over- extending our commitments."

Non-interest income was $5.0 million in 2007 compared with $4.9 million in 2006.  Core non-interest income, which includes wealth management fees, debit card interchange, gain on sale of mortgages and deposit service charges increased by more than $625,000 for 2007 compared to 2006.  These increases were partially offset by a recognized loss of $374,000 on the bank's trading security portfolio and certain financial liabilities that are accounted for at fair value.  This fair value adjustment reflects the pricing volatility on mortgage-backed securities and collateralized mortgage obligations during the last several months of 2007.  Management has closely analyzed Blackhawk's securities portfolios and believes these fair value adjustments will be recovered as the market stabilizes or the underlying cash flows are received. In addition, the company recorded gains on the sale of real estate of approximately $79,000 in 2007 compared to $278,000 in 2006, the decline further offsetting the gains in core non-interest income.

Bastian noted that the company, in most operating cost categories, held the line compared with 2006.  Salaries and employee benefits were up 7.7 percent year-over-year, in part because the company added lenders with proven experience in generating sales and new business, and who are expected to generate increasing business.  "We had held the line on personnel costs for several years, but we have an excellent opportunity to grow and capitalize on any upturn in the economy," explained the chief executive.  "We've also grown revenue in mortgage banking and wealth management, both of which have a commission-based sales team," said Bastian.

He also said the company's intensive service culture, which includes basic financial planning for individuals and consultative support for small business clients, strongly differentiates Blackhawk from competitors.  Even in a strong economy, the company's efficiency ratio will generally be higher than banking organizations that offer less service, he explained.

"Because of our service levels and personal attention to customers, we have exceptionally high account retention rates," he continued.  "We also have many opportunities to present new products and services to customers on a personal level.  The service and sales skills of our employees is a cost- effective investment to generate new business."  The company increased spending on technology to offer the latest electronic banking capabilities to customers and to improve long-term efficiency of operations.

Bastian noted that the economy affected Blackhawk's performance, with return on equity declining to 9.35 percent in 2007 compared with 10.01 percent in 2006.  Return on assets was .51 percent in 2007, virtually even with 2006, while the bank's efficiency ratio moved up to 78.62 percent compared with 77.64 percent in 2006.

2008 Outlook

"The Wisconsin and Illinois communities Blackhawk serves should continue stable, although they will probably have few growth opportunities for at least the next six months," said Bastian. "The company's best opportunities for growth will come from building market share and getting a greater share of banking and financial business from each customer.  One of the company's goals is to increase the average number of financial products per customer by establishing expectations for the front line on the number of products delivered at each point of sale."

Blackhawk has acquired land for future expansion in a manufacturing and business section of Rockford, Ill., where it anticipates beginning to serve the area's small businesses and their employees.  "Although Rockford is not a fast growing market, it is a regional business center with more than 150,000 population (2000 census) and has many vibrant businesses that we believe can benefit from the high level of service and personal attention we provide, especially to small business owners," explained Bastian.  "We are excited about the opportunity we have to establish a strong foothold in Rockford in an area with significant potential for economic development."

About Blackhawk Bancorp

Blackhawk Bancorp, Inc. is the parent company of Blackhawk State Bank, which operates seven office locations in south central Wisconsin and north Central Illinois, along the US 90 corridor from Rockford, Ill. to Beloit, Wis. Blackhawk's locations Blackhawk serves 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 trust, estate and succession planning. The bank has received numerous accolades for its work with the fast-growing Hispanic population in its served markets.

Further information is available on the Company's website at http://www.blackhawkbank.com/.

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.

                        Financial Summary Follows



                  BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                       CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)

                                    Three Months Ended   Twelve Months Ended
  (Dollars in thousands, except         December 31,          December 31,
   per share data)                    2007       2006       2007       2006

  Interest Income                   $7,165     $6,566    $27,664    $25,038
  Interest Expense                   3,754      3,514     14,778     12,859
       Net Interest and Dividend
        Income                       3,411      3,052     12,886     12,179
  Provision for loan losses            189        115        566        407
  Non-Interest Income                1,089      1,477      4,988      4,892
  Non-Interest Expense               3,620      3,275     14,195     13,402
       Income Before Income
        Taxes                          691      1,139      3,113      3,262
  Income Taxes                         128        373        822      1,006
       Net Income                     $563       $766     $2,291     $2,256

            Key Ratios

  Diluted Earnings Per Share         $0.26      $0.34      $1.03      $1.00
  Dividends Per Share                 0.09       0.09       0.36       0.36
  Average Outstanding Shares     2,180,361  2,227,861  2,205,067  2,224,408
  Ending Outstanding Shares      2,174,227  2,235,706  2,174,227  2,235,706
  Net Interest Margin                 3.24%      3.10%      3.18%      3.14%
  Efficiency Ratio                   79.36%     71.69%     78.62%     77.64%
  Return on Assets                    0.48%      0.70%      0.51%      0.52%
  Return on Equity                    8.82%     12.81%      9.35%     10.01%



                    CONDENSED BALANCE SHEETS (Unaudited)

                                              December 31,      December 31,
  (Amounts in thousands)                           2007              2006
  Assets:
  Cash and cash equivalents                      $22,793           $26,641
  Interest-bearing deposits in banks               1,066             1,249
  Available-for sale securities                   92,266           113,763
  Trading securities                              26,520               -
  Federal Home Loan Bank Stock, at cost            4,085             4,085
  Loans, net of allowances for loan
   losses                                        292,529           268,616
  Office buildings and equipment, net              7,424             8,057
  Intangible assets, net                           6,636             6,675
  Cash surrender value of bank-owned
   life insurance                                  7,286             7,014
  Other assets                                     4,068             3,418
       Total Assets                             $464,673          $439,518
  Liabilities and Stockholders' Equity:
  Deposits                                      $331,239          $312,001
  Borrowings                                     100,931            88,284
  Subordinated debentures                          5,158            11,341
  Other liabilities                                2,852             3,684
       Total liabilities                         440,180           415,310
  Stockholders' equity                            24,493            24,208
       Total liabilities and
        stockholders' equity                    $464,673          $439,518


DATASOURCE: Blackhawk Bancorp, Inc.



CONTACT:  Todd James, CFO, or R. Richard Bastian III, President & CEO,

both of Blackhawk Bancorp, Inc., [phone]; or Tad Gage or Jacob Eisen,

both of The Investor Relations Company, [phone], for Blackhawk

Bancorp, Inc.



Web site:  http://www.blackhawkbank.com/ 

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