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Blackhawk Bancorp Announces 2018 First Quarter Earnings

ACCESSWIRE

By Blackhawk Bancorp, Inc.

BELOIT, WI / ACCESSWIRE / April 19, 2018 / Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported net income of $1.45 million for the quarter ended March 31, 2018, a 6% increase over the $1.37 million earned the previous quarter, and a 26% increase over the $1.15 million earned the first quarter of 2017. Fully diluted earnings per share for the first quarter increased $0.02 to $0.44 compared to $0.42 the quarter ended December 31, 2017, and decreased by $0.02 compared to $0.46 for the quarter ended March 31, 2017.

“We have continued to add staff and resources to pursue growth within our current footprint and to expand into contiguous markets,” said Rick Bastian, the company’s Chairman & CEO. “While the increasing expense structure has slowed our earnings growth in the short run, the investments in increased capacity have positioned the company for substantial growth going forward,” he added.

Total assets increased by $21.6 million, or 3%, to $742.2 million at March 31, 2018 compared to $720.6 million as of December 31, 2017. Net loans grew by $17.3 million, or 4%, during the first quarter to $497.6 million compared to $480.3 million at the end of the prior year. Total deposits increased by $39.1 million, or 6%, to $656.1 million compared to $617.0 million at the end of 2017.

The following table summarizes the net income and the key ratios for the last five quarters:

Quarter Ended
(dollars in thousands, except per share data)
Mar 31,
2018
Dec 31,
2017
Sep 30,
2017
Jun 30,
2017
Mar 31,
2017
Net income
$ 1,452 $ 1,371 $ 1,932 $ 1,745 $ 1,151
Diluted EPS
$ 0.44 $ 0.42 $ 0.59 $ 0.53 $ 0.46
ROAA
.81 % .77 % 1.09 % 1.01 % .70 %
ROAE
7.59 % 7.66 % 10.01 % 9.38 % 8.49 %
Net interest margin (1)
3.83 % 3.79 % 3.77 % 3.68 % 3.55 %
Efficiency ratio (1) (2)
72.8 % 72.6 % 65.9 % 66.3 % 74.7 %

(1) Net interest margin and efficiency ratio are calculated on a tax-equivalent basis
(2) Efficiency ratio is calculated excluding net securities gains (losses) and other gains (losses)

Net Interest Income

Net interest income for the first quarter totaled $6.28 million, increasing $230 thousand, or 4%, compared to $6.05 million for the quarter ended December 31, 2017, and by $1.08 million, or 21%, compared to $5.20 million for the first quarter last year. The net interest margin for the quarter ended March 31, 2018 was 3.83%, a four basis point increase compared to 3.79% for the quarter ended December 31, 2017 and a twenty-eight basis point increase over the 3.55% net interest margin for the first quarter of last year.

Compared to the most recent quarter ended December 31, 2017 average total loans increased $11.5 million, or 2%, to $485.3 million, and average total deposits increased $28.2 million, or 5%, to $640.6 million. Compared to the first quarter of 2017 average total loans increased by $69.8 million, or 17%, to $485.3 million. Average total deposits increased $52.8 million, or 9%, to $640.6 million.

Provision for Loan Losses and Credit Quality

The provision for loan losses for the quarter ended March 31, 2018 totaled $510 thousand, compared to $710 thousand for quarter ended December 31, 2017 and $360 thousand for the first quarter of 2017.

Total nonperforming assets, which include troubled debt restructures that are performing in accordance with their modified terms, equaled $8.62 million as of March 31, 2018 compared to $8.65 million as of December 31, 2017 and $14.6 million at March 31, 2017. At March 31, 2018, the ratio of nonperforming assets to total assets equaled 1.16% compared to 1.20% at December 31, 2017 and 2.17% at March 31, 2017.

While total nonperforming assets are substantially unchanged from the most recent quarter, credit quality continues to improve. The company realized net recoveries of $136 thousand during the first quarter. The net recoveries combined with the $510 thousand provision for loan losses increased the ratio of the allowance for loan losses to total loans to 1.22% as of March 31, 2018 compared to 1.13% at December 31, 2017. The ratio of the allowance for loan losses to nonperforming loans increased to 75.9% as of March 31, 2018 compared to 67.2% at December 31, 2017.

Non-Interest Income and Operating Expenses

Non-interest income for the quarter ended March 31, 2018 totaled $2.49 million, a $40 thousand decrease compared to $2.53 million for the quarter ended December 31, 2017 and a $300 thousand increase over $2.19 million for the first quarter of 2017. The decrease from the most recent quarter included a $225 thousand decrease in gain on sale of loans, which was offset be a $165 thousand increase in net gain (loss) on sale of securities. The increase in non-interest income compared to the first quarter of 2017 includes growth in deposit service charges, gain on sale of loans and debit card revenue.

Operating expenses for the quarter ended March 31, 2018 totaled $6.56 million, increasing by $53 thousand compared to the quarter ended December 31, 2017, and by $880 thousand, or 16%, compared to the first quarter of 2017. The increase in expenses compared to the first quarter of last year included a $685 thousand increase in salary and benefits and a $226 thousand increase in occupancy and equipment expense. The increases are the result of talent added to increase capacity in the company’s business and mortgage banking areas. The increase also includes costs related to the Janesville, Wisconsin full service branch, which opened in the fourth 2017 and the Elgin, Illinois loan production office, which opened during the first quarter of 2018.

Income Taxes

The provision for income taxes increased $257 thousand to $254 thousand dollars for the first quarter of 2017 compared to a net tax benefit of $3 thousand dollars for the quarter ended December 31, 2017. During the fourth quarter of 2017 the company reversed a valuation allowance related to a state net operating loss carryover, reducing the provision for income taxes by $310 thousand. The tax benefit from the reversal of the valuation allowance was partially offset by a charge of $92,000 as a result of the enactment of The Tax Cuts and Jobs Act of 2017. The provision for income taxes for the quarter increased by $49,000 compared to $205 thousand the first quarter of 2017. The company realized approximately $90,000 in tax savings in the first quarter of 2017 due to the reduction in tax rates.

Capital

As of March 31, 2018, the company’s tier 1 leverage and total risk based capital ratios were 10.79% and 14.62%, compared to 11.05% and 14.74%, respectively, at December 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. Growth, combined with ongoing strengthening of the company’s credit quality, is 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.

For further information:

Blackhawk Bancorp, Inc.

R. Richard Bastian, III, Chairman & CEO
rbastian@blackhawkbank.com

Todd J. James, EVP & CFO
tjames@blackhawkbank.com

Phone: (608) 364-8911

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2018 AND DECEMBER 31, 2017
(UNAUDITED)

March 31,
December 31,
Assets
2018
2017
(Amounts in thousands, except
share and per share data)
Cash and due from banks
$ 16,727 $ 19,326
Interest-bearing deposits in banks and other
13,503 2,215
Total cash and cash equivalents
30,230 21,541
Securities available-for-sale
171,814 176,350
Loans held for sale
2,959 747
Federal Home Loan Bank stock, at cost
492 654
Loans, less allowance for loan losses of $6,149 and $5,093
at March 31, 2018 and December 31, 2017, respectively
494,671 479,539
Premises and equipment, net
11,646 11,120
Goodwill
5,037 5,037
Mortgage Servicing rights
2,528 2,508
Cash surrender value of bank-owned life insurance
10,594 10,512
Other assets
12,483 12,613
Total assets
$ 742,454 $ 720,621
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing
$ 120,907 $ 115,724
Interest-bearing
535,207 501,271
Total deposits
656,114 616,995
Subordinated debentures and notes (including $1,031 at fair value at
March 31, 2018 and December 31, 2017)
5,155 5,155
Other borrowings
16,228
Other liabilities
3,185 4,109
Total liabilities
664,454 642,487
Stockholders’ equity
Common stock, $0.01 par value, 10,000,000 shares authorized;
3,364,092 and 3,347,552 shares issued as of March 31, 2018 and
December 31, 2017, respectively
34 34
Additional paid-in capital
33,025 32,874
Retained earnings
46,276 45,114
Treasury stock, 91,043 and 95,065 shares at cost as of March 31, 2018
and December 31, 2017, respectively
(1,015) (1,124)
Accumulated other comprehensive income (loss)
(320) 1,236
Total stockholders’ equity
78,000 78,134
Total liabilities and stockholders’ equity
$ 742,454 $ 720,621

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

Three months ended March 31,
2018
2017
(Amounts in thousands, except per share data)
Interest Income:
Interest and fees on loans
$ 5,875 $ 4,688
Interest on available-for-sale securities:
Taxable
772 764
Tax-exempt
375 371
Interest on interest-bearing deposits and other
73 14
Total interest income
7,095 5,837
Interest Expense:
Interest on deposits
752 401
Interest on subordinated debentures and notes
53 162
Interest on senior secured term note
67
Interest on other borrowings
12 9
Total interest expense
817 639
Net interest income before provision for loan losses
6,278 5,198
Provision for loan losses
510 360
Net interest income after provision for loan losses
5,768 4,838
Noninterest Income:
Service charges on deposits accounts
741 668
Net gain on sale of loans
470 378
Net loan servicing income
177 192
Debit card interchange fees
695 576
Net gains (losses) on sales of securities available-for-sale
6
Net other gains (losses)
(6) (14)
Increase in cash surrender value of bank-owned life insurance
81 83
Other
330 311
Total noninterest income
2,494 2,194
Noninterest Expenses:
Salaries and employee benefits
3,867 3,182
Occupancy and equipment
832 606
Data processing
395 398
Debit card processing and issuance
293 272
Advertising and marketing
153 101
Professional fees
256 259
Office Supplies
110 81
Telephone
124 112
Other
526 665
Total noninterest expenses
6,556 5,676
Income before income taxes
1,706 1,356
Provision for income taxes
254 205
Net income
$ 1,452 $ 1,151
Key Ratios
Basic Earnings Per Common Share
$ 0.44 $ 0.46
Diluted Earnings Per Common Share
0.44 0.46
Dividends Per Common Share
0.08 0.04
Net Interest Margin (1)
3.83 % 3.55 %
Efficiency Ratio (1)(2)
73.84 % 74.68 %
Return on Assets
0.81 % 0.70 %
Return on Common Equity
7.59 % 8.49 %

(1) Net interest margin and the efficiency ratio are calculated on a taxable-equivalent basis
(2) Efficiency ratio is calculated excluding net securities gains (losses) and other gains (losses)

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
2018
2017
2017
2017
2017
(Amounts in thousands, except per share data)
Interest Income:
Interest and fees on loans
$ 5,875 $ 5,659 $ 5,357 $ 4,980 $ 4,688
Interest on available-for-sale securities:
Taxable
772 685 806 802 764
Tax-exempt
375 402 384 389 371
Interest on interest-bearing deposits and other
73 13 44 45 14
Total interest income
7,095 6,759 6,591 6,216 5,837
Interest Expense:
Interest on deposits
752 635 527 438 401
Interest on subordinated debentures and notes
53 47 47 85 162
Interest on senior secured term note
67
Interest on other borrowings
12 29 44 32 9
Total interest expense
817 711 618 555 639
Net interest income before provision for loan losses
6,278 6,048 5,973 5,661 5,198
Provision for loan losses
510 710 360 360 360
Net interest income after provision for loan losses
5,768 5,338 5,613 5,301 4,838
Noninterest Income:
Service charges on deposits accounts
741 787 791 730 668
Net gain on sale of loans
470 695 687 679 378
Net loan servicing income
177 175 179 186 192
Debit card interchange fees
695 623 608 605 576
Net gains on sales of securities available-for-sale
6 (159) 104 (13)
Net other gains (losses)
(6) 1 (7) (12) (14)
Increase in cash surrender value of bank-owned life insurance
81 74 74 74 83
Other
330 337 344 303 311
Total noninterest income
2,494 2,533 2,780 2,552 2,194
Noninterest Expenses:
Salaries and employee benefits
3,867 3,828 3,355 3,129 3,182
Occupancy and equipment
832 709 637 625 606
Data processing
395 362 382 374 398
Debit card processing and issuance
293 300 309 301 272
Advertising and marketing
153 180 111 101 101
Professional fees
256 305 305 250 259
Office Supplies
110 82 66 59 81
Telephone
124 122 118 116 112
Other
526 615 560 644 665
Total noninterest expenses
6,556 6,503 5,843 5,599 5,676
Income before income taxes
1,706 1,368 2,550 2,254 1,356
Provision for income taxes
254 (3) 618 509 205
Net income
$ 1,452 $ 1,371 $ 1,932 $ 1,745 $ 1,151
Key Ratios
Basic Earnings Per Common Share
$ 0.44 $ 0.42 $ 0.59 $ 0.53 $ 0.46
Diluted Earnings Per Common Share
0.44 0.42 0.59 0.53 0.46
Dividends Per Common Share
0.08 0.08 0.08 0.08 0.04
Net Interest Margin (1)
3.83 % 3.79 % 3.77 % 3.68 % 3.55 %
Efficiency Ratio (1)(2)
73.84 % 72.57 % 65.88 % 66.29 % 74.68 %
Return on Assets
0.81 % 0.77 % 1.09 % 1.01 % 0.70 %
Return on Common Equity
7.59 % 7.66 % 10.01 % 9.38 % 8.49 %

(1) Net interest margin and the efficiency ratio are calculated on a taxable-equivalent basis
(2) Efficiency ratio is calculated excluding net securities gains (losses) and other gains (losses)

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

As of
March 31,
December 31,
September 30,
June 30,
March 31,
2018
2017
2017
2017
2017
(Amounts in thousands, except per share data)
Cash and due from banks
$ 16,727 $ 19,326 $ 16,633 $ 17,251 $ 18,863
Interest-bearing deposits in banks and other
13,503 2,215 7,415 7,368 13,448
Securities
171,814 176,350 177,702 195,409 191,928
Net loans/leases
497,630 480,286 460,684 428,827 407,425
Goodwill
5,037 5,037 5,037 5,037 5,037
Other assets
37,743 37,407 37,165 36,561 35,998
Total assets
$ 742,454 $ 720,621 $ 704,636 $ 690,453 $ 672,699
Deposits
$ 656,114 $ 616,995 $ 606,539 $ 591,949 $ 585,116
Subordinated debentures
5,155 5,155 5,155 5,155 11,255
Borrowings
16,228 11,858 14,583 311
Other liabilities
3,185 4,109 3,815 3,120 2,906
Stockholders’ equity
78,000 78,134 77,269 75,646 73,111
Total liabilities and stockholders’ equity
$ 742,454 $ 720,621 $ 704,636 $ 690,453 $ 672,699

ASSET QUALITY DATA
(Amounts in Thousands)

March 31,
December 31,
September 30,
June 30,
March 31,
2018
2017
2017
2017
2017
Non-accrual loans
$ 3,511 $ 3,657 $ 5,852 $ 5,679 $ 8,867
Accruing loans past due 90 days or more
139 15
Troubled debt restructures – accruing
4,456 4,527 4,886 5,177 5,125
Total nonperforming loans
$ 8,106 $ 8,184 $ 10,738 $ 10,856 $ 14,007
Other real estate owned
511 470 343 442 597
Total nonperforming assets
$ 8,617 $ 8,654 $ 11,081 $ 11,298 $ 14,604
Total loans
$ 503,779 $ 485,789 $ 465,929 $ 434,657 $ 412,695
Allowance for loan losses
$ 6,149 $ 5,503 $ 5,864 $ 5,613 $ 5,307
Nonperforming Assets to total Assets
1.16 % 1.20 % 1.57 % 1.64 % 2.17 %
Nonperforming loans to total loans
1.61 % 1.68 % 2.30 % 2.50 % 3.39 %
Allowance for loan losses to total loans
1.22 % 1.13 % 1.26 % 1.29 % 1.29 %
Allowance for loan losses to nonperforming loans
75.9 % 67.2 % 54.6 % 51.7 % 37.9 %

For the Quarter Ended
March 31,
December 31,
September 30,
June 30,
March 31,
ROLLFORWARD OF ALLOWANCE
2018
2017
2017
2017
2017
Beginning Balance
$ 5,503 $ 5,864 $ 5,613 $ 5,307 $ 5,093
Provision
510 710 360 360 360
Loans charged off
52 1326 156 224 199
Loan recoveries
188 255 47 170 53
Net charge-offs
-136 1071 109 54 146
Ending Balance
$ 6,149 $ 5,503 $ 5,864 $ 5,613 $ 5,307

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, 2018
December 31, 2017
March 31, 2017
Average
Average
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
Balance
Interest
Rate
Interest Earning Assets:
Interest-bearing deposits and other
$ 20,001 $ 73 1.48 % $ 4,259 $ 13 1.24 % $ 8,209 $ 14 0.74 %
Investment securities:
Taxable investment securities
120,523 772 2.60 % 124,189 685 2.19 % 141,702 764 2.18 %
Tax-exempt investment securities
51,004 375 3.83 % 55,044 402 4.61 % 50,876 371 4.53 %
Total Investment securities
171,527 1,147 2.96 % 179,233 1,087 2.93 % 192,578 1,135 2.80 %
Loans
485,284 5,875 4.91 % 473,820 5,659 4.74 % 415,517 4,688 4.58 %
Total Earning Assets
$ 676,812 $ 7,095 4.32 % $ 657,312 $ 6,759 4.22 % $ 616,304 $ 5,837 3.97 %
Allowance for loan losses
(5,800) (5,945) (5,162)
Cash and due from banks
18,080 16,608 17,807
Other assets
41,378 33,951 39,947
Total Assets
$ 730,470 $ 701,926 $ 668,896
Interest Bearing Liabilities:
Interest bearing checking accounts
$ 224,529 $ 241 0.43 % $ 191,654 $ 199 0.41 % $ 209,202 $ 147 0.28 %
Savings and money market deposits
207,427 250 0.49 % 200,754 172 0.34 % 175,849 70 0.16 %
Time deposits
90,261 261 1.17 % 97,037 264 1.08 % 85,794 184 0.87 %
Total interest bearing deposits
522,217 752 0.58 % 489,445 635 0.51 % 470,845 401 0.35 %
Subordinated debentures and notes
5,155 53 4.16 % 5,155 47 3.64 % 11,255 162 5.84 %
Borrowings
3,242 12 1.55 % 8,851 29 1.26 % 11,076 76 2.80 %
Total Interest-Bearing Liabilities
$ 530,614 $ 817 0.62 % $ 503,451 $ 711 0.56 % $ 493,176 $ 639 0.53 %
Interest Rate Spread
3.70 % 3.66 % 3.44 %
Noninterest checking accounts
118,376 122,981 116,990
Other liabilities
3,935 4,455 3,778
Total liabilities
652,925 630,887 613,944
Total Stockholders’ equity
77,545 71,039 54,952
Total Liabilities and
Stockholders’ Equity
$ 730,470 $ 701,926 $ 668,896
Net Interest Income/Margin $ 6,278 3.83 % $ 6,048 3.79 % $ 5,198 3.55 %

SOURCE: Blackhawk Bancorp, Inc.

ReleaseID: 496636