Blackhawk Bancorp Announces 2017 First Quarter Earnings

BELOIT, Wis., April 21, 2017 /PRNewswire/ -- Blackhawk Bancorp, Inc. BHWB today announced net income of $1.2 million and diluted earnings per share (EPS) of $0.46 for the quarter ended March 31, 2017. This compares to net income of $1.4 million and diluted EPS of $0.60 for the quarter ended December 31, 2016; and to net income of $2.6 million and diluted EPS of $1.12 for the first quarter of 2016. The 2016 first quarter results included a $1.8 million (after tax) recovery of a fraud loss incurred in prior years. Excluding the large recovery in the first quarter of 2016 net income would have been $790 thousand, or $0.35 per diluted share.

"We're very pleased with our first quarter results," said Rick Bastian, the company's Chairman and Chief Executive Officer. "Excluding the non-recurring recovery realized last year, diluted EPS for the quarter is up 31% over the first quarter 2016."

Net Interest Income

Net interest income totaled $5.2 million for the quarter ended March 31, 2017. The amount is essentially unchanged compared to the quarter ended December 31, 2016 and represents a 5.6% increase compared to $4.9 million for the first quarter of 2016.

"While we didn't achieve net loan growth during the first quarter of 2017, the net interest margin improved, reflecting loan growth achieved in the fourth quarter of last year and our ability to keep funding costs stable," said Bastian.

The net interest margin for the quarter ended March 31, 2017 was 3.55%, a thirteen basis point increase compared to the net interest margin of 3.42% for the quarter ended December 31, 2016 and a seven basis point increase over the 3.48% net interest margin for the first quarter of last year. The net interest margin improvement compared to the fourth quarter of 2016 reflects the increase in total average loans for the quarter offset by a decrease in average interest-bearing cash equivalents and short-term investments, with little change to total earning assets. The improvement in the net interest margin compared to the first quarter of last year reflects a 5% increase in average total loans and the shift of $29 million of average interest-bearing cash equivalents and short-term investments to investment securities.

Average Earning assets totaled $668.9 million for the quarter ended March 31, 2017, a decrease of $2.1 million compared to the quarter ended December 31, 2016 and a $35.6 million increase compared to the first quarter of the prior year. Average total loans increased by $11.6 million, or 3%, to $415.5 million for the quarter ended March 31, 2017 compared to $403.9 million for the previous quarter, and increased $18.0 million, or 5%, compared to the first quarter of 2016.

Average total deposits for the quarter ended March 31, 2017 were $587.8 million, a $4.2 million decrease compared to the quarter ended December 31, 2016 and a $21.6 million increase compared to the first quarter of 2016. The deposit growth compared to the first quarter of 2016 included an $11.4 million, or 11%, increase in noninterest demand deposits and another $10.1 million increase in interest bearing checking, money market and savings accounts.

Provision for Loan Losses and Credit Quality

The provision for loan losses for the quarter ended March 31, 2017 totaled $360 thousand, compared to $475 thousand for the quarter ended December 31, 2016 and $495 thousand for the first quarter of 2016. Net loan charge-offs were $146 thousand for the quarter ended March 31, 2017 compared to $720 thousand for the quarter ended December 31, 2016, and to net recoveries of $23 thousand for the first quarter of 2016.

Total nonperforming assets, which includes troubled debt restructures that are performing in accordance with their modified terms, equaled $14.6 million as of March 31, 2017. This compares to $11.9 million and $13.5 million at December 31, 2016 and March 31, 2016, respectively. The 2017 first quarter increase reflects the transfer of $4.6 million of commercial loans to nonaccrual status. The majority of the amount transferred to nonaccrual relates to one relationship. We expect a substantial reduction in this credit in the second quarter of 2017.

At March 31, 2017, total nonperforming assets equaled 2.17% of total assets compared to 1.79% at December 31, 2016 and 2.00% at March 31, 2016. The ratio of the allowance for loan losses to total loans was 1.29% at March 31, 2017 compared to 1.25% at December 31, 2016 and 1.34% at March 31, 2016.

Non-Interest Income and Operating Expenses:

Non-interest income for the quarter ended March 31, 2017 totaled $2.2 million. This represents a $315 thousand decrease compared to $2.5 million for the quarter ended December 31, 2016. The reduction in non-interest income compared to the quarter ended December 31, 2016 includes a $199 thousand decrease in revenue from the sale and servicing on mortgage loans and a $156 thousand reduction in net gains on the sale of securities. Compared to the quarter ended March 31, 2106, non-interest income decreased by $2.8 million. The first quarter of 2016 includes a $2.9 million non-recurring recovery of a fraud loss incurred in prior years. Excluding that recovery, non-interest income increased by $129,000.

Operating expenses for the quarter ended March 31, 2017 totaled $5.7 million, increasing $361 thousand compared to the quarter ended December 31, 2106, and increasing by $168 thousand compared to the first quarter of 2016.

Capital Levels:

On March 14, 2017, the Company completed a $23 million capital raise that substantially improved the consolidated regulatory capital ratios. As of March 31, 2017, the company's tier 1 leverage ratio was 10.93% compared to 7.47% at December 31, 2016 and 7.40% at March 31, 2016. The company's total capital to risk-weighted assets ratio increased to 16.96% as of March 31, 2017 compared to 12.39% at December 31, 2016 and 11.82% at March 31, 2016. The company anticipates redeeming certain subordinated notes, which are included in the determination of total capital, in the second quarter of 2017. These subordinated notes contributed 123 basis points to the total capital to risk-weighted assets ratio at March 31, 2017.

Outlook

Blackhawk expects to grow by pursuing creditworthy and profitable business and consumer relationships in its Wisconsin and Illinois markets, emphasizing the value of its personal attention and service that remains unmatched by larger competitors. This growth combined with ongoing strengthening of the Company's credit quality are expected to lead to improved earnings. Growth and earnings could however be tempered by uncertain economic conditions, competitive pressures, regulatory burden and the interest rate environment.

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 Janesville, 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 the financial products it provides.

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"; inability to recover previously recorded losses as anticipated, 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, 2017 AND DECEMBER 31, 2016
(UNAUDITED)
	March 31,	December 31,
Assets	2017	2016
	(Amounts in thousands, except share data)

Cash and due from banks	$ 18,863	$ 16,402
Securities purchased under agreements to resell	-	-
Interest-bearing deposits in banks and other	13,448	7,640
Total cash and cash equivalents	32,311	24,042
Securities available-for-sale	191,928	191,815
Loans held for sale	534	1,053
Federal Home Loan Bank stock, at cost	497	1,086
Loans, less allowance for loan losses of $5,307 and $5,093 at March 31, 2017 and December 31, 2016, respectively	406,891	407,331
Premises and equipment, net	9,794	8,242
Goodwill	5,037	5,037
Mortgage Servicing rights	2,221	2,189
Cash surrender value of bank-owned life insurance	10,291	10,208
Other assets	13,195	14,725
Total assets	$ 672,699	$ 665,728

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Noninterest-bearing	$ 116,420	$ 117,785
Interest-bearing	468,696	454,581
Total deposits	585,116	572,366
Subordinated debentures and notes (including $1,031 at fair value at March 31, 2017 and December 31, 2016)	11,255	11,255
Senior secured term note	-	7,500
Other borrowings	311	21,200
Other liabilities	2,906	3,857
Total liabilities	599,588	616,178

Stockholders' equity
Common stock, $0.01 par value, 10,000,000 shares authorized; 3,342,285 and 2,376,750 shares issued as of March 31, 2017 and December 31, 2016, respectively	33	24
Additional paid-in capital	32,548	10,664
Retained earnings	41,049	39,990
Treasury stock, 91,238 and 90,844 shares at cost as of March 31, 2017 and December 31, 2016, respectively	(1,030)	(1,020)
Accumulated other comprehensive income (loss)	511	(108)
Total stockholders' equity	73,111	49,550
Total liabilities and stockholders' equity	$ 672,699	$ 665,728

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)	Quarter Ended
	March 31,	December 31,	September 30,	June 30,	March 31
	2017	2016	2016	2016	2016
	(amounts in thousands, except per share data)
Interest Income:
Interest and fees on loans	$ 4,688	$ 4,749	$ 4,786	$ 4,654	$ 4,635
Interest and dividends on available-for-sale securities:
Taxable	764	758	742	724	561
Tax-exempt	371	315	300	299	301
Interest on other	14	35	64	103	73
Total interest and dividend income	5,837	5,857	5,892	5,780	5,570
Interest Expense:
Interest on deposits	401	416	423	415	398
Interest on subordinated debentures and notes	162	161	159	157	157
Interest on senior secured term note	67	83	84	86	91
Interest on other borrowings	9	6	3	3	1
Total interest expense	639	666	669	661	647
Net interest and dividend income before provision for loan losses	5,198	5,191	5,223	5,119	4,923
Provision for loan losses	360	475	435	475	495
Net interest and dividend income after provision for loan losses	$ 4,838	$ 4,716	$ 4,788	$ 4,644	$ 4,428

Noninterest Income:
Service charges on deposits accounts	$ 668	$ 715	$ 738	$ 703	$ 689
Net gain on sale of loans	378	702	649	698	353
Net loan servicing income	192	67	71	71	81
Debit card interchange fees	576	557	566	594	568
Net gains on sales of securities available-for-sale	-	156	-	-	-
Net other gains (losses)	(14)	(51)	(50)	(51)	2,933
Increase in cash surrender value of bank-owned life insurance	83	75	74	73	85
Other	311	288	540	239	279
Total noninterest income	$ 2,194	$ 2,509	$ 2,588	$ 2,327	$ 4,988

Noninterest Expenses:
Salaries and employee benefits	$ 3,182	$ 3,040	$ 3,107	$ 3,076	$ 3,136
Occupancy and equipment	606	592	663	661	645
Data processing	398	384	329	331	344
Debit card processing and issuance	272	258	435	279	255
Advertising and marketing	101	114	76	121	94
Professional fees	259	252	435	244	230
Office Supplies	81	79	72	86	86
Telephone	112	115	107	106	103
Other	665	481	799	798	615
Total noninterest expenses	$ 5,676	$ 5,315	$ 6,023	$ 5,702	$ 5,508
Income before income taxes	$ 1,356	$ 1,910	$ 1,353	$ 1,269	$ 3,908
Provision for income taxes	205	512	297	318	1,335
Net income	$ 1,151	$ 1,398	$ 1,056	$ 951	$ 2,573

Key Ratios

Basic Earnings Per Common Share	$ 0.46	$ 0.61	$ 0.46	$ 0.41	$ 1.13
Diluted Earnings Per Common Share	$ 0.46	$ 0.60	$ 0.46	$ 0.41	$ 1.12
Dividends Per Common Share	$ 0.04	$ 0.04	$ 0.04	$ 0.04	$ 0.04

Net Interest Margin (FTE)	3.55%	3.42%	3.40%	3.32%	3.48%
Efficiency Ratio (FTE)	74.66%	68.48%	75.10%	74.48%	77.17%
Return on Assets	0.70%	0.89%	6.70%	0.56%	1.63%
Return on Common Equity	8.49%	10.87%	8.25%	7.77%	22.27%

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)	For the Quarter Ended
	March 31, 2017			December 31, 2016			March 31, 2016
	Average		Average	Average		Average	Average		Average
	Balance	Interest	Rate	Balance	Interest	Rate	Balance	Interest	Rate
Interest Earning Assets:
Interest-bearing deposits in banks	$ 7,850	$ 13	0.74%	$ 26,451	$ 34	0.53%	$ 23,741	$ 29	0.50%
Federal funds sold & securities purchased under agreements to resell	359	1	0.61%	489	1	0.19%	13,521	44	1.31%
Investment securities:
Taxable investment securities	141,702	764	2.18%	149,309	758	2.02%	112,907	561	2.00%
Tax-exempt investment securities	50,876	371	4.53%	43,299	315	4.42%	39,952	301	4.64%
Total Investment securities	192,578	1,135	2.80%	192,608	1,073	2.56%	152,859	862	2.69%
Loans	415,517	4,688	4.58%	403,937	4,749	4.68%	397,481	4,635	4.69%

Total Earning Assets	$ 616,304	$ 5,837	3.97%	$ 623,485	$ 5,857	3.84%	$ 587,602	$ 5,570	3.92%
Allowance for loan losses	(5,162)			(5,309)			(4,968)
Cash and due from banks	17,807			15,080			15,445
Other assets	39,947			37,820			35,192

Total Assets	$ 668,896			$ 671,076			$ 633,271

Interest Bearing Liabilities:
Interest bearing checking accounts	$ 209,202	$ 147	0.28%	$ 209,515	$ 160	0.30%	$ 202,125	$ 161	0.32%
Savings and money market deposits	175,849	70	0.16%	174,517	66	0.15%	172,779	68	0.16%
Time deposits	85,794	184	0.87%	88,267	190	0.86%	80,401	169	0.84%
Total interest bearing deposits	470,845	401	0.35%	472,299	416	0.35%	455,305	398	0.35%
Subordinated debentures and notes	11,255	162	5.84%	11,255	161	5.69%	11,255	157	5.59%
Borrowings	11,076	76	2.80%	12,268	89	2.87%	10,710	92	3.48%

Total Interest-Bearing Liabilities	$ 493,176	$ 639	0.53%	$ 495,822	$ 666	0.53%	$ 477,270	$ 647	0.55%

Interest Rate Spread			3.44%			3.31%			3.37%

Noninterest checking accounts	116,990			119,749			105,530
Other liabilities	3,778			4,353			4,011
Total liabilities	613,944			619,924			586,811
Total Stockholders' equity	54,952			51,152			46,460
Total Liabilities and Stockholders' Equity	$ 668,896			$ 671,076			$ 633,271

Net Interest Income/Margin		$ 5,198	3.55%		$ 5,191	3.42%		$ 4,923	3.48%

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ASSET QUALITY DATA
(Amounts in thousands)
	Quarter Ended
	March 31,	December 31,	September 30,	June 30,	March 31
	2017	2016	2016	2016	2016
ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
Beginning Balance	$ 5,093	$ 5,338	$ 4,975	$ 5,308	$ 4,790
Provision	360	475	435	475	495
Loans charged off	(199)	(1,170)	(306)	(890)	(170)
Loan recoveries	53	450	234	82	193
Ending Balance	$ 5,307	$ 5,093	$ 5,338	$ 4,975	$ 5,308


	As of
	March 31,	December 31,	September 30,	June 30,	March 31
	2017	2016	2016	2016	2016
NONPERFORMING ASSETS
Non-accrual loans	$ 8,867	$ 4,775	$ 5,464	$ 5,321	$ 5,985
Accruing loans past due 90 days or more	15	1,198	19	-	-
Troubled debt restructures - accruing	5,125	5,072	5,327	6,349	5,719
Total nonperforming loans	$ 14,007	$ 11,045	$ 10,810	$ 11,670	$ 11,704
Other real estate owned	597	871	1,115	1,006	1,842
Total nonperforming assets	$ 14,604	$ 11,916	$ 11,925	$ 12,676	$ 13,546


ASSET QUALITY RATIOS
Nonperforming assets to total Assets	2.17%	1.79%	1.81%	1.91%	2.00%
Allowance for loan losses to total loans	1.29%	1.25%	1.32%	1.24%	1.34%
Allowance for loan losses to nonperforming loans	37.9%	46.1%	49.4%	42.6%	45.4%


REGULATORY CAPITAL RATIOS
Consolidated:
Tier 1 leverage ratio	10.93%	7.47%	7.28%	7.00%	7.40%
Common equity tier 1 to risk-weighted assets	13.64%	9.09%	9.10%	8.74%	8.45%
Tier 1 capital to risk-weighted assets	14.65%	10.11%	10.15%	9.77%	9.48%
Total capital to risk-weighted assets	16.96%	12.39%	12.56%	12.07%	11.82%

Subsidiary bank:
Tier 1 leverage ratio	10.01%	8.85%	8.72%	8.44%	9.27%
Common equity tier 1 to risk-weighted assets	13.35%	11.96%	12.14%	11.79%	11.87%
Tier 1 capital to risk-weighted assets	13.35%	11.96%	12.14%	11.79%	11.87%
Total capital to risk-weighted assets	14.42%	13.00%	13.27%	12.82%	12.96%

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SOURCE Blackhawk Bancorp, Inc.

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