Blackhawk Bancorp, Inc. (OTCBB: BHWB) reports that net income for the first quarter of 2014 increased 20% to $700,000 compared to $583,000 earned in the first quarter of 2013. Earnings per diluted share for the quarter increased $0.05 to $0.24 compared to $0.19 the first quarter last year. The company’s total assets increased 4% to $604.2 million as of March 31, 2014 compared to $583.4 million at the end of 2013.
“The increase in earnings reflects a continued improvement in credit quality,” said Rick Bastian, the company’s president and CEO. “The provision for loan losses dropped 53% to $511,000 compared to $1,080,000 last year. We also realized a slight increase in net interest income, but these gains were largely offset by a slowdown in secondary market loan production,” he added.
The following table summarizes key performance and asset quality measures for the quarter ended March 31, 2014 compared to the previous four quarters:
Key Performance and Asset Quality Measures |
1st Qtr
2014 |
4th Qtr
2013 |
3rd Qtr
2013 |
2nd Qtr
2013 |
1st Qtr
2013 | ||||||||||
Diluted Earnings per share | $0.24 | $0.75 | $0.36 | $0.16 | $0.19 | ||||||||||
Return on average assets | .49% | 1.25% | .67% | .35% | .42% | ||||||||||
Return on common equity | 5.70% | 17.47% | 8.95% | 3.66% | 4.52% | ||||||||||
Net interest margin | 3.70% | 3.79% | 3.69% | 3.66% | 3.76% | ||||||||||
Efficiency ratio | 79.1% | 62.4% | 74.4% | 68.2% | 74.9% | ||||||||||
Nonaccrual loans to total loans | 1.49% | 1.63% | 1.97% | 1.68% | 2.46% | ||||||||||
Nonaccrual loans and OREO to total loans | 1.89% | 2.11% | 2.75% | 2.55% | 3.07% | ||||||||||
Allowance for loan losses to total loans | 1.26% | 1.26% | 1.58% | 1.86% | 1.77% | ||||||||||
Allowance for loan losses to nonaccrual loans | 84.7% | 77.5% | 82.3% | 110.7% | 72.2% | ||||||||||
Subsidiary bank total risk-based capital | 13.80% | 13.51% | 13.46% | 13.64% | 13.62% | ||||||||||
Net Interest Income
Net interest income for the first quarter increased 1% to $4,776,000 compared to $4,731,000 for the first quarter of 2013; however, the net interest margin decreased 6 basis points to 3.70% compared to 3.76% the first quarter last year. “Loan and investment re-pricing in this prolonged low rate environment continues to put downward pressure on the net interest margin,” said Todd James, the company’s chief financial officer. “Loan growth and lower funding costs are offsetting most of the margin squeeze, but have not been robust enough to improve it,” he added.
Average total earning assets for the quarter increased by $15.8 million to $541.5 million compared to $525.7 million in the first quarter of 2013. The growth in earning assets includes a $16.1 million, or 4.4%, increase in average total loans. Average total deposits for the first quarter increased by $6.3 million, or 1%, to $501.1 million compared to $494.8 million the first quarter of last year. The increase in average total deposits represents growth in demand deposits accounts.
Provision for Loan Losses and Credit Quality
The provision for loan losses in the first quarter dropped by $569,000, or 53%, to $511,000 compared to $1,080,000 in first quarter of 2013 reflecting improving asset quality. Nonaccrual loans and other real estate owned totaled $7.1 million, or 1.89% of total loans, at March 31, 2014 compared to $8.1 million, or 2.10% of total loans, at December 31, 2013 and $11.1 million, or 3.1% of total loans, at March 31, 2013.
Net loan charge-offs decreased by 43% to $664,000 compared to $1,175,000 the first quarter of 2013. The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2014 and 2013 and the year ended December 31, 2013:
Activity in Allowance For Loan Losses: | Year Ended | ||||||||
(in Thousands) | Quarter Ended March 31, | December 31, | |||||||
2014 | 2013 | 2013 | |||||||
Beginning allowance for loan losses | 4,894 | 6,520 | 6,520 | ||||||
Provision for loan losses | 511 | 1,080 | 4,140 | ||||||
Charge-offs | (761) | (1,234) | (6,590) | ||||||
Recoveries | 97 | 59 | 824 | ||||||
Ending allowance for loan losses | 4,741 | 6,425 | 4,894 | ||||||
Net charge-offs to average total loans, annualized | 0.69% | 1.31% | 1.55% | ||||||
The ratio of the allowance for loan losses to total loans was 1.26% as of March 31, 2014, which was unchanged from the previous quarter and down by 51 basis points compared to 1.77% at March 31, 2013. However, the ratio of the allowance for loan losses to nonaccrual loans increased to 85% at March 31, 2014 compared to 78% at December 31, 2013 and 72% at March 31, 2013.
Non-Interest Income and Operating Expenses
Non-interest income for the first quarter of 2014 decreased by 15% to $1,843,000 compared to $2,158,000 the first quarter of the prior year. Net revenue from the sale and servicing of mortgage loans decreased in the first quarter by 50% to $372,000 compared to $740,000 the prior year.
Operating expenses for the first quarter increased $104,000, or 2%, to $5,371,000 compared to $5,267,000 in the first quarter 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 March 31, | ||||||||||
2014 | 2013 | |||||||||
(Amounts in thousands, except | ||||||||||
share and per share data) | ||||||||||
Interest Income: | ||||||||||
Interest and fees on loans | $ | 4,620 | $ | 4,692 | ||||||
Interest on trading securities | 4 | 14 | ||||||||
Interest and dividends on available-for-sale securities: | ||||||||||
Taxable | 465 | 537 | ||||||||
Tax-exempt | 335 | 291 | ||||||||
Interest on federal funds sold and securities purchased under agreements to resell | 64 | 94 | ||||||||
Interest on interest-bearing deposits in banks | 1 | 3 | ||||||||
Total interest and dividend income | 5,489 | 5,631 | ||||||||
Interest Expense: | ||||||||||
Interest on deposits | 534 | 747 | ||||||||
Interest on borrowings | 27 | 98 | ||||||||
Interest on subordinated debentures and notes | 152 | 55 | ||||||||
Total interest expense | 713 | 900 | ||||||||
Net interest and dividend income before provision for loan losses | 4,776 | 4,731 | ||||||||
Provision for loan losses | 511 | 1,080 | ||||||||
Net interest and dividend income after provision for loan losses | 4,265 | 3,651 | ||||||||
Noninterest Income: | ||||||||||
Service charges on deposits accounts | 654 | 656 | ||||||||
Net gain on sale of loans | 298 | 771 | ||||||||
Net loan servicing income (loss) | 74 | (31 | ) | |||||||
Debit card interchange fees | 542 | 544 | ||||||||
Net gains (losses) on trading activities | 17 | 4 | ||||||||
Net gains (losses) on available-for-sale securities | 198 | - | ||||||||
Net other gains (losses) | (276 | ) | (76 | ) | ||||||
Increase in cash surrender value of bank-owned life insurance | 80 | 81 | ||||||||
Other | 256 | 209 | ||||||||
Total noninterest income | 1,843 | 2,158 | ||||||||
Noninterest Expenses: | ||||||||||
Salaries and employee benefits | 2,884 | 2,753 | ||||||||
Occupancy and equipment | 668 | 660 | ||||||||
Data processing | 606 | 581 | ||||||||
FDIC assessment | 185 | 185 | ||||||||
Advertising and marketing | 63 | 88 | ||||||||
Amortization of intangibles | 25 | 35 | ||||||||
Professional fees | 230 | 273 | ||||||||
Office Supplies | 89 | 86 | ||||||||
Telephone | 92 | 87 | ||||||||
Other | 529 | 519 | ||||||||
Total noninterest expenses | 5,371 | 5,267 | ||||||||
Income before income taxes | 737 | 542 | ||||||||
Provision for income taxes | 37 | (41 | ) | |||||||
Net income | $ | 700 | $ | 583 | ||||||
Key Ratios | ||||||||||
Basic Earnings Per Common Share | $ | 0.25 | $ | 0.19 | ||||||
Diluted Earnings Per Common Share | 0.24 | 0.19 | ||||||||
Net Interest Margin (FTE) | 3.70 | % | 3.76 | % | ||||||
Efficiency Ratio (FTE) | 79.12 | % | 74.91 | % | ||||||
Return on Assets | 0.49 | % | 0.42 | % | ||||||
Return on Common Equity | 5.70 | % | 4.52 | % |
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES | ||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
MARCH 31, 2014 AND DECEMBER 31, 2013 | ||||||||||
(UNAUDITED) | ||||||||||
March 31, | December 31, | |||||||||
Assets | 2014 | 2013 | ||||||||
(Amounts in thousands, except | ||||||||||
share and per share data) | ||||||||||
Cash and due from banks | $ | 29,312 | $ | 11,350 | ||||||
Federal funds sold and securities purchased under agreements to resell | 13,048 | 21,064 | ||||||||
Interest-bearing deposits in banks | 418 | 2,078 | ||||||||
Total cash and cash equivalents | 42,778 | 34,492 | ||||||||
Trading securities | 226 | 315 | ||||||||
Securities available-for-sale | 153,033 | 127,985 | ||||||||
Loans held for sale | 249 | 1,161 | ||||||||
Federal Home Loan Bank stock, at cost | 2,266 | 2,266 | ||||||||
Loans, less allowance for loan losses of $4,741 and $4,894 | ||||||||||
at March 31, 2014 and December 31, 2013, respectively | 371,911 | 382,295 | ||||||||
Office buildings and equipment, net | 8,846 | 8,922 | ||||||||
Goodwill | 5,037 | 5,037 | ||||||||
Other intangible assets, net | 2,945 | 3,091 | ||||||||
Cash surrender value of bank-owned life insurance | 9,391 | 9,311 | ||||||||
Other assets | 7,540 | 8,565 | ||||||||
Total assets | $ | 604,222 | $ | 583,440 | ||||||
Liabilities and Stockholders' Equity | ||||||||||
Liabilities | ||||||||||
Deposits: | ||||||||||
Noninterest-bearing | $ | 106,012 | $ | 91,450 | ||||||
Interest-bearing | 418,270 | 419,308 | ||||||||
Total deposits | 524,282 | 510,758 | ||||||||
Borrowings (including $2,140 and $2,157 at fair value at | ||||||||||
March 31, 2014 and December 31, 2013, respectively) | 15,920 | 10,157 | ||||||||
Subordinated debentures and notes (including $1,031 at fair value at | ||||||||||
March 31, 2014 and December 31, 2013) | 11,255 | 11,255 | ||||||||
Other liabilities | 3,026 | 2,968 | ||||||||
Total liabilities | 554,483 | 535,138 | ||||||||
Stockholders’ equity | ||||||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized; | ||||||||||
10,500 shares issued as of March 31, 2014 and December 31, | ||||||||||
2013, respectively | 10,500 | 10,483 | ||||||||
Common stock, $0.01 par value, 10,000,000 shares authorized; | ||||||||||
2,312,199 and 2,299,496 shares issued as of March 31, 2014 and | ||||||||||
December 31, 2013, respectively | 23 | 23 | ||||||||
Surplus | 9,807 | 9,768 | ||||||||
Retained earnings | 29,714 | 29,166 | ||||||||
Treasury stock, 87,167 and 83,252 shares at cost as of March 31, 2014 | ||||||||||
and December 31, 2013, respectively | (960 | ) | (909 | ) | ||||||
Accumulated other comprehensive income (loss) | 655 | (229 | ) | |||||||
Total stockholders' equity | 49,739 | 48,302 | ||||||||
Total liabilities and stockholders' equity | $ | 604,222 | $ | 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 March 31, 2014 | Three months ended March 31, 2013 | ||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||
Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||
Interest Earning Assets: | ||||||||||||||||||||
Interest-bearing deposits in banks | $ | 2,836 | $ | 1 | 0.19 | % | $ | 3,818 | $ | 3 | 0.28 | % | ||||||||
Federal funds sold & securities | ||||||||||||||||||||
purchased under agreements to | ||||||||||||||||||||
resell | 19,745 | 64 | 1.31 | % | 30,744 | 94 | 1.24 | % | ||||||||||||
Investment securities: | ||||||||||||||||||||
Taxable investment securities | 100,037 | 469 | 1.90 | % | 93,801 | 551 | 2.38 | % | ||||||||||||
Tax-exempt investment securities | 39,189 | 335 | 5.22 | % | 33,849 | 291 | 5.19 | % | ||||||||||||
Total Investment securities | 139,226 | 804 | 2.84 | % | 127,650 | 842 | 3.13 | % | ||||||||||||
Loans | 379,691 | 4,620 | 4.93 | % | 363,520 | 4,692 | 5.23 | % | ||||||||||||
Total Earning Assets | $ | 541,498 | $ | 5,489 | 4.24 | % | $ | 525,732 | $ | 5,631 | 4.45 | % | ||||||||
Allowance for loan losses | (4,920 | ) | (6,260 | ) | ||||||||||||||||
Cash and due from banks | 12,726 | 13,030 | ||||||||||||||||||
Other assets | 34,250 | 35,834 | ||||||||||||||||||
Total Assets | $ | 583,554 | $ | 568,336 | ||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||
Interest bearing checking accounts | $ | 159,944 | $ | 116 | 0.29 | % | $ | 158,038 | $ | 234 | 0.60 | % | ||||||||
Savings and money market deposits | 145,533 | 53 | 0.15 | % | 146,721 | 71 | 0.20 | % | ||||||||||||
Time deposits | 104,929 | 365 | 1.41 | % | 106,701 | 442 | 1.68 | % | ||||||||||||
Total interest bearing deposits | 410,406 | 534 | 0.53 | % | 411,460 | 747 | 0.74 | % | ||||||||||||
Subordinated debentures and notes | 15,662 | 152 | 5.56 | % | 6,103 | 55 | 3.67 | % | ||||||||||||
Borrowings | 11,083 | 27 | 0.69 | % | 15,116 | 98 | 2.63 | % | ||||||||||||
Total Interest-Bearing Liabilities | $ | 437,151 | $ | 713 | 0.66 | % | $ | 432,679 | $ | 900 | 0.84 | % | ||||||||
Interest Rate Spread | 3.58 | % | 3.61 | % | ||||||||||||||||
Noninterest checking accounts | 90,674 | 83,358 | ||||||||||||||||||
Other liabilities | 6,258 | 3,282 | ||||||||||||||||||
Total liabilities | 534,083 | 519,319 | ||||||||||||||||||
Preferred Stock | 10,490 | 10,392 | ||||||||||||||||||
Common Stockholders' equity | 38,981 | 38,625 | ||||||||||||||||||
Total Stockholders' equity | 49,471 | 49,017 | ||||||||||||||||||
Total Liabilities and | ||||||||||||||||||||
Stockholders' Equity | $ | 583,554 | $ | 568,336 | ||||||||||||||||
Net Interest Income/Margin | $ | 4,776 | 3.70 | % | $ | 4,731 | 3.76 | % |
Contacts:
R. Richard Bastian, III, President &
CEO
rbastian@blackhawkbank.com
or
Todd
J. James, EVP & CFO
tjames@blackhawkbank.com
Phone:
(608) 364-8911