Blackhawk Bancorp, Inc. (OTCBB: BHWB) reports that net
income for the second quarter of 2014 increased 91% to $982,000
compared to $513,000 earned in the second quarter of 2013. Earnings
per diluted share for the quarter increased $0.26 to $0.42 compared
to $0.16 the second quarter last year. The company’s total assets
increased 2% to $594.6 million as of June 30, 2014 compared to
$583.4 million at the end of 2013.
Net income for the six months ended June 30, 2014 increased 54%
to $1,683,000 compared to $1,096,000 the first half of 2013.
Earnings per diluted share for the first half of the year was
$0.66, up $0.31, or 89%, compared to the $0.35 per diluted share
earned the first half of 2013. The return on common equity was
7.57% for the first six months compared to 4.08% the first half of
last year.
“The earnings improvement was driven by a decrease in credit
related losses and a reduction in operating expenses”, said Rick
Bastian, the company’s president and chief executive officer.
“Improvements in these two areas were strong enough to more than
offset a slowdown in mortgage banking activity and a reduction in
securities gains,” he added. Other than volatility in mortgage
banking activity, the company’s core revenue continues to be
stable. Growth in earning assets has offset a small amount of
contraction in the net interest margin and asset quality continues
to improve with nonaccrual loans and foreclosed assets reaching
their lowest level in more than five years at 1.72% of total
loans.
The Company redeemed $10.5 million of preferred stock on April
25, 2014, funding it with cash on hand and a $9.0 million senior
note. “The replacement of the preferred securities with debt
favorably impacts return on common equity and earnings per diluted
share,” explained Todd James the company’s chief financial officer.
“Without the preferred dividend burden all earnings since the
redemption are attributable solely to common shareholders. However,
the interest expense on the new debt hits the income statement
adding some additional pressure to the net interest margin.”
The following table summarizes key performance and asset quality
measures for the quarter ended June 30, 2014 compared to the
previous four quarters:
Key Performance and Asset Quality
Measures
2nd Qtr
2014
1st Qtr
2014
4th Qtr
2013
3rd Qtr
2013
2nd Qtr
2013
Diluted Earnings per share $0.42 $0.24 $0.75 $0.36 $0.16
Return on average assets .67% .49% 1.25% .67% .35% Return on common
equity 9.37% 5.70% 17.47% 8.95% 3.66% Net interest margin 3.60%
3.70% 3.79% 3.69% 3.66% Efficiency ratio 69.7% 79.1% 62.4% 74.4%
68.2% Nonaccrual loans to total loans 1.38% 1.49% 1.63% 1.97% 1.68%
Nonaccrual loans and OREO to total loans 1.72% 1.89% 2.11% 2.75%
2.55% Allowance for loan losses to total loans 1.14% 1.26% 1.26%
1.58% 1.86% Allowance for loan losses to nonaccrual loans 82.7%
84.7% 77.5% 82.3% 110.7% Subsidiary bank total risk-based capital
13.94% 13.80% 13.51%
13.46% 13.64%
Net Interest Income
Net interest income for the second quarter decreased by 1% to
$4,754,000 compared to $4,790,000 for the second quarter of 2013
with the net interest margin decreasing 6 basis points to 3.60%
compared to 3.66% the second quarter last year.
Average total earning assets for the quarter increased by $7.2
million to $548.3 million compared to $541.0 million in the second
quarter of 2013. The growth in earning assets includes a $16.5
million, or 5%, increase in average total loans, offset by a net
reduction in average short-term investments and investment
securities. Average total deposits for the second quarter increased
by $4.9 million, or 1%, to $507.5 million compared to $502.6
million the second quarter of last year. The increase in average
deposits was due to growth in demand deposits.
Net interest income for the first half of the year was
$9,530,000 essentially flat compared to $9,521,000 the prior year.
The net interest margin for the first six months was $3.65%, down 6
basis points compared to the first half of last year.
Year to date average total earning assets increased $11.4
million to $544.9 million compared to $533.4 million for the first
half of 2013. The increase was driven by a $16.3 million increase
in average loans. Total average deposits increased by $9.5 million
with $6.8 million of the growth occurring in demand deposits.
Provision for Loan Losses and Credit Quality
The provision for loan losses in the second quarter dropped by
$1,299,000, or 66%, to $681,000 compared to $1,980,000 in second
quarter of 2013. The provision for the six months ended June 30,
2014 was $1,191,000, 61% less than the $3,060,000 provision
recorded in the first half of 2013.
Nonaccrual loans and other real estate owned totaled $6.5
million, or 1.72% of total loans, at June 30, 2014 compared to $8.1
million, or 2.10% of total loans, at December 31, 2013 and $9.2
million, or 2.55% of total loans, at June 30, 2013.
Net loan charge-offs for the first six months of 2014 decreased
by 38% to $1,762,000 compared to $2,858,000 the first half of 2013.
The following table summarizes the activity in the allowance for
loan losses for the six months ended June 30, 2014 and 2013 and the
year ended December 31, 2013:
Activity in Allowance For Loan
Losses: Year Ended
(in Thousands)
Six Months Ended June 30, December 31, 2014 2013 2013
Beginning allowance for loan losses 4,894 6,520 6,520 Provision for
loan losses 1,191 3,060 4,140 Charge-offs (1,940) (3,000) (6,590)
Recoveries 178 142 824 Ending allowance for loan losses 4,323 6,722
4,894
Net charge-offs to average total loans
0.93% 1.58%
1.55%
Non-Interest Income and Operating Expenses
Non-interest income for the second quarter of 2014 decreased by
31% to $2,103,000 compared to $3,042,000 the second quarter of the
prior year. The decrease in noninterest income was driven by a
$422,000, or 44%, decrease in revenue from the sale and servicing
of secondary market mortgage loans and a $530,000 decrease in net
securities gains.
Non-interest income for the first six months of the year totaled
$3,919,000, a 25% decrease compared to $5,200,000 the first half of
2013. Revenue from the sale and servicing of secondary market
mortgages dropped by $792,000 to $895,000 compared to $1,687,000
the first six months last year. In addition, securities gains were
down by $332,000 and the net loss on sale of foreclosed assets was
$351,000 more than the first half of 2013.
Operating expenses for the second quarter decreased by $545,000,
or 10%, to $4,899,000 compared to $5,444,000 the second quarter of
last year. Year to date operating expenses are down $469,000, or
4%, to $10,242,000 compared to $10,711,000 the first half of
2013.
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 and
nonperforming loans. While the level of nonperforming loans has
been decreasing 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 June 30, 2014
2013 (Amounts in thousands, except share and
per share data) Interest Income: Interest and fees on loans $ 4,594
$ 4,714 Interest on trading securities 4 13 Interest and dividends
on securities: Taxable 522 518 Tax-exempt 333 288 Interest on
federal funds sold and securities purchased under agreements to
resell 46 115 Interest on interest-bearing deposits in banks
1 1
Total interest and dividend income
5,500 5,649 Interest Expenses: Interest
on deposits 526 658 Interest on borrowings 68 48 Interest on
subordinated debentures 152 153
Total interest expense 746 859
Net interest and dividend income 4,754 4,790 Provision for
loan losses 681 1,980
Net interest
and dividend income after provision for loan losses
4,073 2,810 Noninterest Income: Service
charges on deposits accounts 705 684 Net gain on sale of loans 478
968 Net mortgage servicing income 46 (22 ) Debit card interchange
fees 577 579 Net gains (losses) on trading activities (11 ) 3 Net
gains (losses) on available-for-sale securities 57 587 Net other
gains (losses) (95 ) 56 Increase in cash value of bank-owned life
insurance 70 69 Other 276 118
Total
noninterest income 2,103 3,042
Noninterest Expenses: Salaries and employee benefits 2,708
2,825 Occupancy and equipment 603 646 Data processing 572 601
Advertising and marketing 49 63 Amortization of intangibles - 35
Professional fees 223 301 Office Supplies 88 92 Telephone 90 98
Other 566 783
Total noninterest
expenses 4,899 5,444
Income
before income taxes 1,277 408 Provision for income taxes
295 (105 )
Net income $ 982 $ 513
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six months ended June 30, 2014
2013 (Amounts in thousands, except share and per share data)
Interest Income: Interest and fees on loans $ 9,213 $
9,407 Interest on trading securities 8 27 Interest and dividends on
available-for-sale securities: Taxable 987 1,055 Tax-exempt 668 579
Interest on federal funds sold and securities purchased under
agreements to resell 110 209 Interest on interest-bearing deposits
in banks 2 4
Total interest and
dividend income 10,988 11,281
Interest Expense: Interest on deposits 1,060 1,405 Interest on
borrowings 94 147 Interest on subordinated debentures and notes
304 208
Total interest expense
1,458 1,760
Net interest and
dividend income before provision for loan losses 9,530 9,521
Provision for loan losses 1,191 3,060
Net interest and dividend income after provision for loan
losses 8,339 6,461
Noninterest Income: Service charges on deposits accounts 1,359
1,339 Net gain on sale of loans 775 1,740 Net loan servicing income
(loss) 120 (53 ) Debit card interchange fees 1,119 1,124 Net gains
(losses) on trading activities 7 7 Net gains (losses) on
available-for-sale securities 255 587 Net other gains (losses) (371
) (20 ) Increase in cash surrender value of bank-owned life
insurance 150 149 Other 505 327
Total noninterest income 3,919 5,200
Noninterest Expenses: Salaries and employee benefits
5,591 5,579 Occupancy and equipment 1,271 1,305 Data processing
1,178 1,182 Advertising and marketing 112 151 Amortization of
intangibles 25 70 Professional fees 452 574 Office Supplies 178 178
Telephone 182 185 Other 1,253 1,487
Total noninterest expenses 10,242
10,711
Income before income taxes 2,016 950 Provision
for income taxes 333 (146 )
Net income
$ 1,683 $ 1,096
BLACKHAWK BANCORP, INC. AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30,
2014 AND DECEMBER 31, 2013 (UNAUDITED)
June 30,
December 31, Assets
2014 2013 (Amounts in
thousands, except share and per share data) Cash and due from banks
$ 15,590 $ 11,350 Federal funds sold and securities purchased under
agreements to resell 15,027 21,064 Interest-bearing deposits in
banks 573 2,078 Total cash and cash
equivalents 31,190 34,492 Trading
securities 121 315 Securities available-for-sale 151,151 127,985
Loans held for sale 1,949 1,161 Federal Home Loan Bank stock, at
cost 2,266 2,266 Loans, less allowance for loan losses of $4,323
and $4,894 at June 30, 2014 and December 31, 2013, respectively
374,446 382,295 Office buildings and equipment, net 8,677 8,922
Goodwill 5,037 5,037 Other intangible assets, net 2,826 3,091 Cash
surrender value of bank-owned life insurance 9,460 9,311 Other
assets 7,457 8,565 Total assets $
594,580 $ 583,440
Liabilities and
Stockholders' Equity Liabilities Deposits:
Noninterest-bearing $ 91,155 $ 91,450 Interest-bearing
428,116 419,308 Total deposits 519,271 510,758
Borrowings (including $0 and $2,157 at fair value at June 30, 2014
and December 31, 2013, respectively) 19,500 10,157 Subordinated
debentures and notes (including $1,031 at fair value at June 30,
2014 and December 31, 2013) 11,255 11,255 Other liabilities
3,494 2,968
Total liabilities
553,520 535,138
Stockholders’
equity Preferred stock, $0.01 par value, 1,000,000 shares
authorized; 0 and 10,500 shares issued as of June 30, 2014 and
December 31, 2013, respectively - 10,483 Common stock, $0.01 par
value, 10,000,000 shares authorized; 2,229,230 and 2,216,244 shares
issued as of June 30, 2014 and December 31, 2013, respectively 23
23 Surplus 9,846 9,768 Retained earnings 30,610 29,166 Treasury
stock, 87,167 and 83,252 shares at cost as of June 30, 2014 and
December 31, 2013, respectively (960 ) (909 ) Accumulated other
comprehensive income (loss) 1,541 (229 ) Total
stockholders' equity 41,060 48,302
Total liabilities and stockholders' equity $ 594,580
$ 583,440
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 June 30, 2014 Three months ended June 30, 2013
Average Average Average Average
Balance
Interest
Rate
Balance
Interest
Rate
Interest Earning Assets: Interest-bearing deposits in banks
$ 3,202 $ 1 0.17 % $ 3,175 $ 1 0.12 % Federal funds sold &
securities purchased under agreements to resell 13,175 46 1.41 %
38,386 115 1.20 % Investment securities: Taxable investment
securities 113,868 526 1.85 % 103,681 531 2.06 % Tax-exempt
investment securities 39,541 333
5.08 % 33,812 288 5.14 % Total
Investment securities 153,409 859 2.68 % 137,493 819 2.81 % Loans
378,502 4,594 4.87 %
361,985 4,714 5.22 %
Total
Earning Assets $ 548,288 $ 5,500
4.15 % $ 541,039 $
5,649 4.30 % Allowance for loan losses
(4,733 ) (6,488 ) Cash and due from banks 12,936 13,556 Other
assets 33,593 35,561
Total
Assets $ 590,084 $ 583,668
Interest
Bearing Liabilities: Interest bearing checking accounts $
165,314 $ 120 0.29 % $ 163,220 $ 177 0.44 % Savings and money
market deposits 147,844 57 0.16 % 144,054 49 0.14 % Time deposits
98,209 349 1.43 % 105,563
432 1.64 % Total interest bearing
deposits 411,367 526 0.51 % 412,837 658 0.64 % Subordinated
debentures 12,637 152 5.45 % 10,870 153 5.64 % Borrowings
11,201 68 2.16 % 14,404
48 1.36 %
Total Interest-Bearing
Liabilities $ 435,205 $ 746
0.69 % $ 438,111 $ 859
0.79 % Interest Rate Spread
3.46 % 3.51 % Noninterest
checking accounts 96,164 89,771 Other liabilities 11,496
6,289 Total liabilities 542,865 534,171
Preferred Stock 2,769 10,417 Common Stockholders' equity
44,450 39,080
Total Stockholders'
equity 47,219 49,497
Total Liabilities and
Stockholders' Equity $ 590,084 $ 583,668
Net Interest Income/Margin $ 4,754
3.60 % $ 4,790
3.66 % 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)
Six months ended June 30, 2014 Six months ended June 30, 2013
Average Average Average Average Balance Interest Rate
Balance Interest Rate
Interest Earning Assets:
Interest-bearing deposits in banks $ 3,020 $ 2 0.16 % $ 3,494 $ 4
0.21 % Federal funds sold & securities purchased under
agreements to resell 16,442 110 1.35 % 34,586 209 1.22 % Investment
securities: Taxable investment securities 106,990 995 1.88 % 98,768
1,082 2.21 % Tax-exempt investment securities 39,366
668 5.15 % 33,831
579 5.20 % Total Investment securities 146,356 1,663 2.76 %
132,599 1,661 2.97 % Loans 379,093
9,213 4.90 % 362,748 9,407
5.23 %
Total Earning Assets $
544,911 $ 10,988 4.19 %
$ 533,427 $ 11,281 4.38
% Allowance for loan losses (4,826 ) (6,375 ) Cash and due
from banks 12,832 13,294 Other assets 33,897
35,698
Total Assets $ 586,814 $ 576,044
Interest Bearing Liabilities: Interest bearing
checking accounts $ 162,644 $ 236 0.29 % $ 160,643 $ 411 0.52 %
Savings and money market deposits 152,258 109 0.15 % 146,994 120
0.17 % Time deposits 101,550 715
1.42 % 106,129 874 1.66 % Total
interest bearing deposits 416,452 1,060 0.51 % 413,766 1,405 0.68 %
Subordinated debentures and notes 14,141 304 5.50 % 8,500 208 4.94
% Borrowings 11,142 94 1.35 %
14,758 147 2.01 %
Total Interest-Bearing Liabilities $ 441,735
$ 1,458 0.67 % $
437,024 $ 1,760 0.81 %
Interest Rate Spread 3.52 % 3.57
% Noninterest checking accounts 93,434 86,582 Other
liabilities 3,306 3,179 Total
liabilities 538,475 526,785 Preferred Stock 6,610 10,405 Common
Stockholders' equity 41,729 38,854
Total Stockholders' equity 48,339 49,259
Total
Liabilities and Stockholders' Equity $ 586,814 $
576,044
Net Interest Income/Margin $
9,530 3.65 % $ 9,521
3.71 %
Blackhawk Bancorp, Inc.R. Richard Bastian, III, President &
CEOrbastian@blackhawkbank.comorTodd J. James, EVP &
CFOtjames@blackhawkbank.comPhone: (608) 364-8911
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