BELOIT, WI / ACCESSWIRE / April 20, 2020 / Blackhawk Bancorp, Inc. (BHWB) reported net income of $2.07 million for the three months ended March 31, 2020, as compared to $2.35 million for the previous quarter, and $1.08 million for the quarter ended March 31, 2019. Fully diluted earnings per share for the three months ended March 31, 2020 decreased 11% to $0.63, as compared to $0.71 for the quarter ended December 31, 2019, but increased by $0.30, or 91%, compared to $0.33 for the quarter ended March 31, 2019. The first quarter results produced a Return on Average Equity (ROAE) of 8.31% and a Return on Average Assets (ROAA) of 0.85%.
The decrease in earnings as compared to the most recent quarter was driven by a $673,000 decrease in noninterest income, reflecting decreases of $352,000 in gain on sale of mortgage loans and $359,000 in other income. The decrease in other income was due to non-recurring items in the previous quarter. The reduction in non-interest income was partially offset by a $215,000 decrease in the provision for loan losses.
The increase in net income and earnings per share compared to the first quarter of 2019 was due to the prior year's first quarter results including $1.34 million (after tax) of non-recurring merger and integration related expenses. Excluding the prior year's non-recurring merger and integration expenses, net income for the first quarter of 2020 decreased by $346,000, and diluted earnings per share decreased by $0.10, or 14%, compared to the first quarter of last year. The decrease included a $495,000, or 183% increase in the provision for loan losses.
"The first quarter's results reflect minimal impact related to the COVID-19 global pandemic that has gripped the nation," said Todd James, the Company's Chairman and CEO. "We expect increased loan losses in the quarters ahead, and we're in the process of running credit stress tests and assessing the effectiveness of the government stimulus programs that were enacted to soften the impact of the crisis. Our first priority was and is the safety and well-being of our employees, customers and the communities we serve. We have implemented appropriate social distancing protocols and measures to comply with the "Safer at Home" orders and similar guidance issued by authorities, and have accordingly continued to provide essential services. We have also made helping our customers understand and gain access to the stimulus programs available to them a priority. Our dedicated credit team and business bankers processed over six hundred Payroll Protection Program applications over a two-week period, securing over $70 million under the program, getting funds into the hands of businesses that need it. I could not be more proud of the way our employees have stepped up to the challenges of this crisis, and have continued to provide the products, services, counseling and financial guidance that our customers have come to expect from Blackhawk," added James.
Total assets increased by $13.1 million, or 1.4%, to $977 million at March 31, 2020, as compared to $963.9 million as of December 31, 2019. The increase in assets reflects a $27.8 million increase in securities available for sale, which was funded by $13.5 million of deposit growth and a $16.8 million reduction in cash equivalents. Net loans increased $0.9 million during the first quarter to $626.8 million, as compared to $625.9 million at the end of the prior year.
Net Interest Income
Net interest income totaled $8.62 million for the quarter ending March 31, 2020, an increase of $44,000, or 0.5%, as compared to $8.57 million for the fourth quarter of 2019, and an increase of $822,000, or 10.5%, as compared to $7.79 million for the quarter ended March 31, 2019. The net interest margin for the quarter stayed flat at 3.83% compared to the most recent quarter ended December 31, 2019, and decreased by nine basis points compared to the 3.92% reported for the first quarter of last year.
Average total earning assets for the quarter ended March 31, 2020 increased $15 million to $911.9 million compared to $896.9 million in the fourth quarter of 2019, despite a $13.6 million decrease in average total loans. The decrease in average total loans was offset by an $11.5 million increase in investment securities, a shift in the asset mix, which had a negative effect on net interest income and the net interest margin. The negative effect of that change in asset mix was offset by a $13.2 million increase in average non-interest checking accounts, which primarily funded a $17.1 million increase in average interest-bearing deposits in other financial institutions.
The increase in net interest income for the quarter compared to the first quarter of 2019 was driven by a $91.7 million increase in earning assets. This includes a $64.9 million, or 11.5% growth in average total loans. Total average deposits for the quarter increased by $77.3 million, or 10.1% compared to the first quarter of 2019.
Provision for Loan Losses and Credit Quality
The provision for loan losses for the quarter ended March 31, 2020, totaled $765,000 as compared to $980,000 for the quarter ended December 31, 2019, and $270,000 for the first quarter of 2019. The decrease in the provision compared the most recent quarter was due to the previous quarter including elevated provisions related to a specific credit with exposure to the energy related frac sand industry. The loss on this credit, which was provisioned for in the fourth quarter of 2019, was charged off during the first quarter of 2020, accounting for $450,000 of the first quarter net charge-offs, which equaled $546,000.
The increase in the provision compared to the first quarter of 2019 was driven by uncertainty around the COVID-19 crisis. The Company's management expects loan losses to increase in future quarters. The company is in process of developing stress tests and related assumptions regarding depth, breadth and longevity of the impending recession, and the effectiveness of the stimulus packages being implemented to soften the impact.
Total nonperforming assets, which include troubled debt restructures that are performing in accordance with their modified terms, equaled $13.4 million as of March 31, 2020, as compared to $13.6 million as of December 31, 2019, and $7.70 million at March 31, 2019. At March 31, 2020, the ratio of nonperforming assets to total assets equaled 1.37%, as compared to 1.41% at December 31, 2019, and 0.80% at March 31, 2019. The allowance for loan losses to total loans was 1.29% as of March 31, 2020, as compared to 1.25% at December 31, 2019, and 1.28% as of March 31, 2019. The ratio of the allowance for loan losses to nonperforming loans was 61.4% as of March 31, 2020, as compared to 58.8% at December 31, 2019, and 102.5% at March 31, 2019.
Non-Interest Income and Operating Expenses
Non-interest income for the quarter ended March 31, 2020, totaled $3.2 million, which was a $673,000 decrease as compared to $3.87 million for the quarter ended December 31, 2019, and a $221,000 increase compared to $2.98 million for the first quarter of 2019. The decrease compared to the most recent quarter included decreases of $353,000 and $105,000 in gain on sale of loans and service charges on deposits, respectively. In addition, other income decreased by $359,000 due to non-recurring income realized in the fourth quarter of 2019, including $208,000 of recoveries on acquired charged-off loans, and $125,000 in life insurance proceeds. The $221,000 increase in non-interest income compared to the same quarter a year ago includes an increase of $262,000 from the sale and servicing of loans and an increase of $89,000 in deposit service charges. These increases were offset by decreases of $60,000 and $115,000 in net gains on sale of securities and other income, respectively.
Operating expenses for the first quarter ending March 31, 2020, totaled $8.49 million, which were flat compared to the quarter ended December 31, 2019, and down by $761,000 compared to the first quarter of 2019. The decrease compared to the first quarter of 2019 was due to $1.83 million in non-recurring merger and integration expenses being included in the 2019 first quarter results. Excluding the prior year merger and integration expenses, total operating expenses for the first quarter of 2020 increased by $1.07 million, or 14.4%, with $675,000 of the increase being in salaries and employee benefits.
Outlook
The outlook for Blackhawk as well as the entire banking industry is clouded by uncertainty related to the COVID-19 pandemic crisis. Blackhawk expects to see elevated credit losses in future quarters as the economic impact of the crisis plays out, and will be taking steps to increase revenue, implement government stimulus programs and work with credit customers to offset and mitigate losses to the extent possible. Management believes the Company's financial position is strong and it has ample resources to withstand a potentially severe and protracted recession. In addition to responding to this crisis, Blackhawk will continue to pursue 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. In addition to organic growth opportunities, Blackhawk may also pursue growth through selective acquisitions. Ability to grow or maintain profitability may be affected by uncertain economic conditions, competitive pressures, changes in 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. The combined entity operates eleven full-service banking centers and a dedicated commercial office, which are located in Rock County, Wisconsin and the Illinois counties of Winnebago, Boone, McHenry, Lake, and Kane. The Company's footprint stretches along the I-90 corridor from Janesville, Wisconsin to Elgin, Illinois and into the Northwest collar counties of the Chicagoland area. The company offers a variety of value-added consultative services to its business customers and their employees related to the financial products it provides.
Disclosures Regarding non-GAAP Measures
This report refers to financial measures that are identified as non-GAAP that the Company believes help to evaluate and measure the Company's performance, including the presentation of the net interest margin ratio and efficiency ratio calculations on a taxable-equivalent basis. Non-GAAP measures are also used to assist investor comparison by identifying nonrecurring events such as the 2019 acquisition-related expenses, nonrecurring securities gains and the impact such items have on the performance measures of return on average assets, return on average equity, diluted earnings per share, and the efficiency ratio. This supplemental information should not be considered in isolation or as a substitute for the related GAAP measures.
Forward-Looking Statements
When used in this communication, the words "believes," "expects," "likely", "would", 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 particularly in the Company's markets; potential deterioration in real estate values, 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. The inclusion of forward-looking information should not be construed as a representation by the Company or any person that future events or plans contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information or otherwise.
Further information is available on the company's website at www.blackhawkbank.com.
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2020 AND DECEMBER 31, 2019
(UNAUDITED)
| March 31, | December 31, | |||||||
| Assets | 2020 | 2019 | ||||||
| (Dollars in thousands, except | ||||||||
| share and per share data) | ||||||||
| Cash and due from banks | $ | 15,240 | $ | 12,320 | ||||
| Interest-bearing deposits in banks and other institutions | 1,010 | 20,761 | ||||||
| Total cash and cash equivalents | 16,250 | 33,081 | ||||||
| Certificates of deposit in banks and other institutions | 5,765 | 6,325 | ||||||
| Equity securities at fair value | 2,319 | 2,365 | ||||||
| Securities available-for-sale | 262,846 | 235,083 | ||||||
| Loans held for sale | 6,255 | 6,540 | ||||||
| Federal Home Loan Bank stock, at cost | 900 | 742 | ||||||
| Loans, less allowance for loan losses of $8,160 and $7,941 | ||||||||
| at March 31, 2020 and December 31, 2019, respectively | 620,542 | 619,359 | ||||||
| Premises and equipment, net | 20,808 | 21,025 | ||||||
| Goodwill and core deposit intangible | 12,340 | 12,455 | ||||||
| Mortgage servicing rights | 3,119 | 3,106 | ||||||
| Cash surrender value of bank-owned life insurance | 10,903 | 11,118 | ||||||
| Other assets | 14,958 | 12,662 | ||||||
| Total assets | $ | 977,005 | $ | 963,861 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | 161,674 | $ | 155,978 | ||||
| Interest-bearing | 681,387 | 673,631 | ||||||
| Total deposits | 843,061 | 829,609 | ||||||
| Short-term borrowings | - | - | ||||||
| Subordinated debentures and notes (including $1,031 at fair value at | ||||||||
| March 31, 2020 and December 31, 2019) | 5,155 | 5,155 | ||||||
| Senior secured term note | 14,000 | 14,000 | ||||||
| Other borrowings | 10,000 | 10,000 | ||||||
| Other liabilities | 6,083 | 7,773 | ||||||
| Total liabilities | 878,299 | 866,537 | ||||||
| Stockholders' equity | ||||||||
| Common stock, $0.01 par value, 10,000,000 shares authorized; | ||||||||
| 3,421,675 and 3,399,803 shares issued as of March 31, 2020 and | ||||||||
| December 31, 2019, respectively | 34 | 34 | ||||||
| Additional paid-in capital | 34,151 | 33,989 | ||||||
| Retained earnings | 62,007 | 60,295 | ||||||
| Treasury stock, 106,018 and 105,185 shares at cost as of March 31, 2020 | ||||||||
| and December 31, 2019, respectively | (1,433 | ) | (1,408 | ) | ||||
| Accumulated other comprehensive income (loss) | 3,947 | 4,414 | ||||||
| Total stockholders' equity | 98,706 | 97,324 | ||||||
| Total liabilities and stockholders' equity | $ | 977,005 | $ | 963,861 | ||||
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| (Amounts in thousands, except per share data) | ||||||||
| Interest Income: | ||||||||
| Interest and fees on loans | $ | 8,033 | $ | 7,542 | ||||
| Interest and dividends on available-for-sale securities: | ||||||||
| Taxable | 1,505 | 1,345 | ||||||
| Tax-exempt | 323 | 448 | ||||||
| Interest on other financial institutions | 162 | 158 | ||||||
| Total interest income | 10,023 | 9,493 | ||||||
| Interest Expense: | ||||||||
| Interest on deposits | 1,177 | 1,463 | ||||||
| Interest on short-term borrowings | 1 | 105 | ||||||
| Interest on subordinated debentures | 53 | 65 | ||||||
| Interest on senior secured term note | 156 | 67 | ||||||
| Interest on other | 21 | - | ||||||
| Total interest expense | 1,408 | 1,700 | ||||||
| Net interest income before provision for loan losses | 8,615 | 7,793 | ||||||
| Provision for loan losses | 765 | 270 | ||||||
| Net interest income after provision for loan losses | 7,850 | 7,523 | ||||||
| Noninterest Income: | ||||||||
| Service charges on deposits accounts | 897 | 808 | ||||||
| Net gain on sale of loans | 905 | 581 | ||||||
| Net loan servicing income | 110 | 172 | ||||||
| Debit card interchange fees | 832 | 789 | ||||||
| Net gains on sales of securities available-for-sale | 99 | 159 | ||||||
| Net other gains (losses) | - | - | ||||||
| Increase in cash surrender value of bank-owned life insurance | 85 | 83 | ||||||
| Change in value of equity securities | (70 | ) | 23 | |||||
| Other | 343 | 365 | ||||||
| Total noninterest income | 3,201 | 2,980 | ||||||
| Noninterest Expenses: | ||||||||
| Salaries and employee benefits | 5,035 | 4,585 | ||||||
| Occupancy and equipment | 1,083 | 992 | ||||||
| Data processing | 510 | 1,827 | ||||||
| Debit card processing and issuance | 397 | 334 | ||||||
| Advertising and marketing | 97 | 108 | ||||||
| Amortization of core deposit intangible | 115 | 40 | ||||||
| Professional fees | 367 | 579 | ||||||
| Office Supplies | 90 | 86 | ||||||
| Telephone | 150 | 116 | ||||||
| Other | 646 | 584 | ||||||
| Total noninterest expenses | 8,490 | 9,251 | ||||||
| Income before income taxes | 2,561 | 1,252 | ||||||
| Provision for income taxes | 487 | 173 | ||||||
| Net income | $ | 2,074 | $ | 1,079 | ||||
| Key Ratios | ||||||||
| Basic Earnings Per Common Share | $ | 0.63 | $ | 0.33 | ||||
| Diluted Earnings Per Common Share | 0.63 | 0.33 | ||||||
| Dividends Per Common Share | 0.11 | 0.10 | ||||||
| Net Interest Margin (1) | 3.83 | % | 3.92 | % | ||||
| Efficiency Ratio (1)(2) | 71.89 | % | 86.07 | % | ||||
| Return on Assets | 0.85 | % | 0.50 | % | ||||
| Return on Common Equity | 8.31 | % | 5.12 | % | ||||
(1) Non-GAAP Presentations: Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance, including the presentation of the net interest margin and efficiency ratio calculations on a taxable equivalent basis ("TE"). The net interest margin ratio is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding comparative balance sheet profitability.
(2) The efficiency ratio is calculated as noninterest expense divided by the sum of net interest income on a TE basis, noninterest income less any securities gains (losses) or other gains (losses), and also includes a TE adjustment on the increases in cash surrender value of bank-owned life insurance.
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| For the Quarter Ended | ||||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Interest Income: | ||||||||||||||||||||
| Interest and fees on loans | $ | 8,033 | $ | 8,284 | $ | 8,580 | $ | 8,043 | $ | 7,542 | ||||||||||
| Interest on available-for-sale securities: | ||||||||||||||||||||
| Taxable | 1,505 | 1,496 | 1,591 | 1,659 | 1,345 | |||||||||||||||
| Tax-exempt | 323 | 331 | 356 | 451 | 448 | |||||||||||||||
| Interest on other financial institutions | 162 | 107 | 133 | 130 | 158 | |||||||||||||||
| Total interest income | 10,023 | 10,218 | 10,660 | 10,283 | 9,493 | |||||||||||||||
| Interest Expense: | ||||||||||||||||||||
| Interest on deposits | 1,177 | 1,400 | 1,485 | 1,458 | 1,463 | |||||||||||||||
| Interest on subordinated debentures | 53 | 58 | 61 | 65 | 65 | |||||||||||||||
| Interest on senior secured term note | 156 | 165 | 173 | 186 | 67 | |||||||||||||||
| Interest on other borrowings | 22 | 24 | 97 | 98 | 105 | |||||||||||||||
| Total interest expense | 1,408 | 1,647 | 1,816 | 1,807 | 1,700 | |||||||||||||||
| Net interest income before provision for loan losses | 8,615 | 8,571 | 8,844 | 8,476 | 7,793 | |||||||||||||||
| Provision for loan losses | 765 | 980 | 580 | 180 | 270 | |||||||||||||||
| Net interest income after provision for loan losses | 7,850 | 7,591 | 8,264 | 8,296 | 7,523 | |||||||||||||||
| Noninterest Income: | ||||||||||||||||||||
| Service charges on deposits accounts | 897 | 1,002 | 1,019 | 885 | 808 | |||||||||||||||
| Net gain on sale of loans | 905 | 1,257 | 1,333 | 1,040 | 581 | |||||||||||||||
| Net loan servicing income | 110 | 119 | (91 | ) | 171 | 172 | ||||||||||||||
| Debit card interchange fees | 832 | 876 | 910 | 827 | 789 | |||||||||||||||
| Net gains on sales of securities available-for-sale | 99 | - | 866 | 146 | 159 | |||||||||||||||
| Net other gains (losses) | - | (87 | ) | 81 | 94 | - | ||||||||||||||
| Increase in cash surrender value of bank-owned life insurance | 85 | 75 | 74 | 74 | 83 | |||||||||||||||
| Other | 273 | 632 | 455 | 390 | 388 | |||||||||||||||
| Total noninterest income | 3,201 | 3,874 | 4,647 | 3,627 | 2,980 | |||||||||||||||
| Noninterest Expenses: | ||||||||||||||||||||
| Salaries and employee benefits | 5,035 | 4,964 | 4,992 | 4,841 | 4,585 | |||||||||||||||
| Occupancy and equipment | 1,083 | 1,038 | 1,085 | 1,000 | 992 | |||||||||||||||
| Data processing | 510 | 520 | 657 | 571 | 1,827 | |||||||||||||||
| Debit card processing and issuance | 397 | 449 | 402 | 389 | 334 | |||||||||||||||
| Advertising and marketing | 97 | 101 | 100 | 142 | 108 | |||||||||||||||
| Amortization of intangibles | 115 | 119 | 119 | 119 | 40 | |||||||||||||||
| Professional fees | 367 | 300 | 387 | 393 | 579 | |||||||||||||||
| Office Supplies | 90 | 118 | 112 | 89 | 86 | |||||||||||||||
| Telephone | 150 | 153 | 137 | 130 | 116 | |||||||||||||||
| Other | 646 | 730 | 505 | 701 | 584 | |||||||||||||||
| Total noninterest expenses | 8,490 | 8,492 | 8,496 | 8,375 | 9,251 | |||||||||||||||
| Income before income taxes | 2,561 | 2,973 | 4,415 | 3,548 | 1,252 | |||||||||||||||
| Provision for income taxes | 487 | 621 | 996 | 794 | 173 | |||||||||||||||
| Net income | $ | 2,074 | $ | 2,352 | $ | 3,419 | $ | 2,754 | $ | 1,079 | ||||||||||
| Key Ratios | ||||||||||||||||||||
| Basic Earnings Per Common Share | $ | 0.63 | $ | 0.71 | $ | 1.03 | $ | 0.83 | $ | 0.33 | ||||||||||
| Diluted Earnings Per Common Share | 0.63 | 0.71 | 1.03 | 0.83 | 0.33 | |||||||||||||||
| Dividends Per Common Share | 0.11 | 0.10 | 0.10 | 0.10 | 0.10 | |||||||||||||||
| Net Interest Margin (1) | 3.83 | % | 3.83 | % | 3.93 | % | 3.88 | % | 3.92 | % | ||||||||||
| Efficiency Ratio (1)(2) | 71.89 | % | 67.25 | % | 67.19 | % | 69.77 | % | 86.07 | % | ||||||||||
| Return on Assets | 0.85 | % | 0.97 | % | 1.40 | % | 1.15 | % | 0.50 | % | ||||||||||
| Return on Common Equity | 8.31 | % | 9.60 | % | 14.25 | % | 12.54 | % | 5.12 | % | ||||||||||
(1) Non-GAAP Presentations: Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance, including the presentation of net interest income, net interest margin and efficiency ratio calculations on a taxable equivalent basis ("TE"). The net interest margin is calculated by dividing net interest income on a TE basis by average earning assets for the period. Management believes this measure provides investors with information regarding comparative balance sheet profitability.
(2) The efficiency ratio is calculated as noninterest expense divided by the sum of net interest income on an TE basis, noninterest income less any securities gains (losses) or other gains (losses), and also includes a TE adjustment on interest on tax-exempt securities, loans, and the increases in cash surrender value of bank-owned life insurance.
| (UNAUDITED) | As of | null | ||||||||||||||||||