News Column

Blackhawk Bancorp Announces Record Earnings for 2013

February 5, 2014

BELOIT, Wis. --(BUSINESS WIRE)-- Blackhawk Bancorp, Inc . (OTCBB: BHWB) reports net income of $1,840,000 for the fourth quarter of 2013, a 136% increase compared to $781,000 earned in the fourth quarter of 2012. For the year ended December 31, 2013 the company’s net income was $3,915,000 , a 34% increase compared to $2,912,000 earned in 2012. Earnings per diluted share for the quarter increased $0.47 , to $0.75 compared to $0.28 per diluted share the fourth quarter of 2012. For the full year the company earned a record $1.47 per diluted share, a 43% increase compared to the $1.03 per diluted share earned in 2012. The company’s total assets increased 4% to $583.3 million as of December 31, 2013 compared to $559.8 million at the end of 2012. The increase in total assets reflects an increase of $22.3 million , or 6%, in portfolio loans. “The diluted earnings per share for 2013 exceeded the previous record of $1.17 , which was set in 2008, by $0.30 ,” said R. Richard Bastian , president and chief executive officer. “While the results were boosted by non-recurring securities gains, loan and deposit growth drove an increase in net interest income; and improving asset quality resulted in a $1.5 million decrease in the provision for loan losses compared to the prior year,” he added. The earnings improvements were partially offset by a drop in mortgage banking income. Net revenue from the sale and servicing of residential mortgages for 2013 dropped by $1.7 million , or 36% compared to 2012, due to declining refinance activity. The following table summarizes key performance and asset quality measures for the quarter ended December 31, 2013 compared to the previous four quarters: 4 th Qtr 3 rd Qtr 2 nd Qtr 1 st Qtr 4 th Qtr Key Performance and Asset Quality Measures 2013 2013 2013 2013 2012 Diluted Earnings per share $0.75 $0.36 $0.16 $0.19 $0.28 Return on average assets 1.25% .67% .35% .42% .55% Return on common equity 17.47% 8.95% 3.66% 4.52% 6.69% Net interest margin 3.79% 3.69% 3.66% 3.76% 3.75% Efficiency ratio 62.4% 74.4% 68.2% 74.9% 72.9% Nonaccrual loans to total loans 1.63% 1.97% 1.68% 2.46% 3.09% Nonaccrual loans and OREO to total loans 2.11% 2.75% 2.55% 3.07% 3.57% Allowance for loan losses to total loans 1.16% 1.62% 1.86% 1.77% 1.78% Allowance for loan losses to nonaccrual loans 71.2% 82.3% 110.7% 72.2% 57.11% Subsidiary bank total risk-based capital 13.51% 13.46% 13.64% 13.62% 13.51% Net Interest Income Net interest income for the fourth quarter increased 5% to $5,014,000 compared to $4,775,000 in the fourth quarter 2012. Average total earning assets for the fourth quarter increased by $20.6 million to $542.1 million compared to $521.5 million in the fourth quarter of 2012. The growth in earning assets includes a $24.2 million , or 7%, increase in average total loans, which was offset by a $3.6 million decrease in securities and short-term investments. The net interest margin realized on earning assets for the quarter increased 4 basis points to 3.79% compared to 3.75% for the fourth quarter of 2012. Average total deposits for the fourth quarter increased by $14.7 million , or 3%, to $502.1 million compared to $487.4 million the fourth quarter of last year. The increase in average total deposits includes a $15.5 million , or 4%, increase in average non-maturity deposits such as demand deposit, interest checking, savings and money market accounts, which was offset by a $0.8 million decrease in the average time deposits. Net interest income for the year 2013 increased by $367,000 , or 2%, to $19,383,000 compared to $19,016,000 in 2012. Average total earning assets for the twelve months ending December 31, 2013 increased by $15.8 million to $537.2 million compared to $521.4 million the year before. The earning asset growth included an $18.5 million , or 5%, increase in average total loans. The net interest margin for 2013 declined by 3 basis points to 3.73% compared to 3.76% in 2012. Average total deposits for 2013 increased by $16.1 million , or 3%, to $504.0 million compared to $487.9 million in 2012. The increase in average total deposits includes an increase of $19.4 million , or 5%, in average non-maturity deposits such as demand deposit, interest checking, savings and money market accounts. The increase in average non-maturity deposits was partially offset by a $3.3 million reduction in average time deposits. Provision for Loan Losses and Credit Quality The provision for loan losses in the fourth quarter dropped by $660,000 , or 52%, to $600,000 compared to $1,260,000 in fourth quarter 2012. For the year 2013 the provision for loan losses decreased by $1,480,000 , or 26%, to $4,140,000 compared to $5,620,000 in 2012. The decreased provision reflects improving asset quality. Nonaccrual loans and other real estate owned totaled $8.1 million , or 2.11% of total loans, at December 31, 2013 compared to $10.4 million , or 2.68% of total loans, at September 30, 2013 and $13.2 million , or 3.6% of total loans, at December 31, 2012 . The company had net loan charge-offs of $5,766,000 in 2013, compared to $6,043,000 the year before. The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2013 and 2012: Activity in Allowance for Loan Losses: (In Thousands) Year Ended December 31 , 2013 2012 Beginning allowance for loan losses 6,520 6,943 Provision for loan losses 4,140 5,620 Charge-offs (6,590 ) (6,391 ) Recoveries 824 348 Ending allowance for loan losses 4,894 6,520 Net charge-offs to average total loans, annualized 1.55 % 1.71 % The ratio of allowance for loan losses to total loans was 1.16% as of December 31, 2013 compared to 1.58% at September 30, 2013 , and 1.78% at December 31, 2012 . The ratio of the allowance for loan losses to nonaccrual loans was 71% at December 31, 2013 compared to 82% at September 30, 2013 and 57% at December 31, 2012 . Net charge-offs for 2013 were down by $277,000 compared to the prior year and are expected to continue to decrease. Non-Interest Income and Operating Expenses Noninterest income for the fourth quarter of 2013 increased by $1,238,000 , or 45%, to $3,986,000 compared to $2,748,000 the fourth quarter of the prior year. For the year ended December 31, 2013 noninterest income increased $158,000 , or 1%, to $11,274,000 compared to $11,116,000 in 2012. During the fourth quarter of 2013 the company recognized net gains of $2,043,000 on the sale of securities and other trading activities. These gains more than offset decreases in revenue from the sale and servicing of mortgage loans of $665,000 and $1,679,000 for the quarter and year, respectively. The securities gains were realized on private label mortgage-backed securities that increased in value as the housing market stabilized. Operating expenses for the fourth quarter increased $127,000 , or 2%, to $5,720,000 compared to $5,593,000 in the fourth quarter of 2012. For the year operating expenses increased by $342,000 , or 2% to $21,695,000 compared to $21,353,000 for 2012. 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 losses nonperforming loans. While the level of nonperforming loans has begun to decrease and should result in improved earnings, 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 December 31 , 2013 2012 (Amounts in thousands) Interest Income: Interest and fees on loans $ 4,897 $ 4,964 Interest on trading securities 11 15 Interest and dividends on securities: Taxable 452 424 Tax-exempt 341 291 Interest on federal funds sold and securities purchased under agreements to resell 75 52 Interest on interest-bearing deposits in banks 2 2 Total interest and dividend income 5,778 5,748 Interest Expenses: Interest on deposits 585 760 Interest on borrowings 26 178 Interest on subordinated debentures 153 35 Total interest expense 764 973 Net interest and dividend income 5,014 4,775 Provision for loan losses 600 1,260 Net interest and dividend income after provision for loan losses 4,414 3,515 Noninterest Income: Service charges on deposits accounts 722 753 Net gain on sale of loans 596 1,436 Net mortgage servicing income 49 (126 ) Debit card interchange fees 543 552 Net gains (losses) on trading activities 72 - Net gains (losses) on available-for-sale securities 1,971 144 Net other gains (losses) (348 ) (163 ) Increase in cash value of bank-owned life insurance 70 72 Other 311 80 Total noninterest income 3,986 2,748 Noninterest Expenses: Salaries and employee benefits 2,993 2,905 Occupancy and equipment 667 606 Data processing 577 630 FDIC assessment 212 185 Advertising and marketing 57 59 Amortization of intangibles 35 35 Professional fees 281 279 Office Supplies 93 97 Telephone 89 95 Other 716 702 Total noninterest expenses 5,720 5,593 Income before income taxes 2,680 670 Provision for income taxes 840 (111 ) Net income $ 1,840 $ 781 BLACKHAWK BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Twelve months ended December 31 , 2013 2012 (Amounts in thousands) Interest Income: Interest and fees on loans $ 19,060 $ 19,464 Interest on trading securities 49 66 Interest and dividends on available-for-sale securities: Taxable 1,953 2,533 Tax-exempt 1,257 1,159 Interest on federal funds sold and securities purchased under agreements to resell 367 259 Interest on interest-bearing deposits in banks 7 13 Total interest and dividend income 22,693 23,494 Interest Expenses: Interest on deposits 2,591 3,518 Interest on borrowings 206 816 Interest on subordinated debentures 513 144 Total interest expense 3,310 4,478 Net interest and dividend income before provision for loan losses 19,383 19,016 Provision for loan losses 4,140 5,620 Net interest and dividend income after provision for loan losses 15,243 13,396 Noninterest Income: Service charges on deposits accounts 2,821 2,792 Net gain on sale of loans 2,948 5,009 Net loan servicing income (loss) 13 (369 ) Debit card interchange fees 2,230 2,259 Net gains (losses) on trading activities 112 (49 ) Net gains (losses) on available-for-sale securities 2,586 666 Net other gains (losses) (630 ) (279 ) Increase in cash surrender value of bank-owned life insurance 294 296 Other 900 791 Total noninterest income 11,274 11,116 Noninterest Expenses: Salaries and employee benefits 11,412 11,092 Occupancy and equipment 2,623 2,399 Data processing 2,346 2,536 FDIC assessment 767 740 Advertising and marketing 262 313 Amortization of intangibles 139 139 Professional fees 1,161 1,076 Office Supplies 371 382 Telephone 367 342 Other 2,247 2,334 Total noninterest expenses 21,695 21,353 Income before income taxes 4,822 3,159 Provision for income taxes 907 247 Net income $ 3,915 $ 2,912 BLACKHAWK BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED) December 31 , December 31 , Assets 2013 2012 (Amounts in thousands, except share and per share data) Cash and due from banks $ 11,350 $ 11,579 Federal funds sold and securities purchased under agreements to resell 21,064 25,442 Interest-bearing deposits in banks 2,078 1,539 Total cash and cash equivalents 34,492 38,560 Trading securities 314 1,614 Securities available-for-sale 127,985 121,077 Loans held for sale 1,161 2,558 Federal Home Loan Bank (FHLB) Stock, at cost 2,266 2,266 Loans, less allowance for loan losses of $4,894 and $6,520 at December 31, 2013 and December 31, 2012 , respectively 382,295 359,928 Office buildings and equipment, net 8,922 8,407 Intangible assets, net 8,128 8,274 Cash surrender value of bank-owned life insurance 9,311 9,016 Other assets 8,392 8,059 Total assets $ 583,266 $ 559,759 Liabilities and Stockholders' Equity Liabilities Deposits: Noninterest-bearing $ 91,450 $ 84,311 Interest-bearing 419,308 409,510 Total deposits 510,758 493,821 Borrowings (including $2,157 and $2,231 at fair value at December 31, 2013 and December 31, 2012 , respectively) 10,157 10,010 Subordinated debentures (including $1,031 and $834 at fair value at December 31, 2013 and December 31, 2012 ) 11,081 4,958 Other liabilities 2,968 3,146 Total liabilities 534,964 511,935 Stockholders’ equity Preferred stock, $0.01 par value, 1,000,000 shares authorized; 10,500 shares issued as of December 31, 2013 and 2012, respectively 10,483 10,383 Common stock, $0.01 par value, 10,000,000 shares authorized; 2,299,496 and 2,287,496 shares issued as of December 31, 2013 and 2012, respectively 23 23 Surplus 9,768 9,619 Retained earnings 29,166 25,896 Treasury stock, 83,252 shares at cost as of December 31, 2013 and 2012, respectively (909 ) (909 ) Accumulated other comprehensive income (loss) (229 ) 2,812 Total stockholders' equity 48,302 47,824 Total liabilities and stockholders' equity $ 583,266 $ 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 December 31, 2013 Three months ended December 31, 2012 Average Average Average Average Balance Interest Rate Balance Interest Rate Interest Earning Assets: Interest-bearing deposits in banks $ 2,142 $ 2 0.37 % $ 4,844 $ 2 0.20 % Federal funds sold & securities purchased under agreements to resell 22,784 75 1.30 % 17,777 52 1.17 % Investment securities: Taxable investment securities 90,311 463 2.04 % 102,173 439 1.71 % Tax-exempt investment securities 39,512 341 5.13 % 33,519 291 5.20 % Total Investment securities 129,823 804 2.98 % 135,692 730 2.57 % Loans 387,392 4,897 5.02 % 363,234 4,964 5.44 % Total Earning Assets $ 542,141 $ 5,778 4.35 % $ 521,547 $ 5,748 4.50 % Allowance for loan losses (5,591 ) (6,312 ) Cash and due from banks 12,970 12,687 Other assets 35,865 34,681 Total Assets $ 585,385 $ 562,603 Interest Bearing Liabilities: Interest bearing checking accounts $ 159,188 $ 125 0.31 % $ 152,076 $ 236 0.62 % Savings and money market deposits 146,158 57 0.16 % 143,406 69 0.19 % Time deposits 106,248 403 1.50 % 107,092 455 1.69 % Total interest bearing deposits 411,594 585 0.56 % 402,574 760 0.75 % Subordinated debentures 15,917 153 5.49 % 4,958 35 2.80 % Borrowings 11,029 26 0.66 % 15,686 178 4.60 % Total Interest-Bearing Liabilities $ 438,540 $ 764 0.69 % $ 423,218 $ 973 0.91 % Interest Rate Spread 3.66 % 3.59 % Noninterest checking accounts 90,517 84,862 Other liabilities 7,596 6,176 Total liabilities 536,653 514,256 Preferred Stock 10,471 10,367 Common Stockholders' equity 38,261 37,980 Total Stockholders' equity 48,732 48,347 Total Liabilities and Stockholders' Equity $ 585,385 $ 562,603 Net Interest Income/Margin $ 5,014 3.79 % $ 4,775 3.75 % 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, 2013 Twelve months ended December 31, 2012 Average Average Average Average Balance Interest Rate Balance Interest Rate Interest Earning Assets: Interest-bearing deposits in banks $ 3,120 $ 7 0.23 % $ 4,910 $ 13 0.27 % Federal funds sold & securities purchased under agreements to resell 30,112 367 1.22 % 21,834 259 1.19 % Investment securities: Taxable investment securities 95,545 2,002 2.09 % 108,138 2,599 2.40 % Tax-exempt investment securities 36,561 1,257 5.17 % 33,154 1,159 5.22 % Total Investment securities 132,106 3,259 2.95 % 141,292 3,758 3.06 % Loans 371,827 19,060 5.13 % 353,372 19,464 5.51 % Total Earning Assets $ 537,165 $ 22,693 4.34 % $ 521,408 $ 23,494 4.62 % Allowance for loan losses (6,336 ) (6,783 ) Cash and due from banks 13,051 12,419 Other assets 36,232 34,079 Total Assets $ 580,112 $ 561,123 Interest Bearing Liabilities: Interest bearing checking accounts $ 161,425 $ 667 0.41 % $ 153,891 $ 667 0.83 % Savings and money market deposits 148,800 229 0.15 % 144,699 229 0.26 % Time deposits 106,121 1,695 1.60 % 109,401 2,622 1.70 % Total interest bearing deposits 416,346 2,591 0.62 % 407,991 3,518 0.86 % Subordinated debentures 9,736 513 5.27 % 4,958 144 2.90 % Borrowings 14,553 206 1.42 % 18,286 816 4.66 % Total Interest-Bearing Liabilities $ 440,635 $ 3,310 0.75 % $ 431,235 $ 4,478 1.04 % Interest Rate Spread 3.59 % 3.58 % Noninterest checking accounts 87,652 79,886 Other liabilities 3,108 3,496 Total liabilities 531,395 514,617 Preferred Stock 10,430 10,234 Common Stockholders' equity 38,287 36,272 Total Stockholders' equity 48,717 46,506 Total Liabilities and Stockholders' Equity $ 580,112 $ 561,123 Net Interest Income/Margin $ 19,383 3.73 % $ 19,016 3.76 % Blackhawk Bancorp, Inc. R. Richard Bastian, III , President & CEO rbastian@blackhawkbank.com or Todd J. James , EVP & CFO tjames@blackhawkbank.com Phone: (608) 364-8911 Source: Blackhawk Bancorp, Inc.


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