BHWB - Blackhawk Bancorp Announces 2021 First Quarter Earnings

BELOIT, WI / ACCESSWIRE / April 8, 2021 / Blackhawk Bancorp, Inc. (OTCQX:BHWB) reported net income of $3.43 million for the quarter ended March 31, 2021, a 2% increase over the $3.35 million earned the previous quarter, and a 65% increase compared to the $2.07 million earned the first quarter of 2020. Fully diluted earnings per share (EPS) for the quarter was $1.02, an increase of $0.02 as compared to $1.00 for the quarter ended December 31, 2020 and an increase of $0.39, or 62%, as compared to $0.63 reported for the quarter ended March 31, 2020. The first quarter 2021 results produced a Return on Average Equity (ROAE) of 12.44% and a Return on Average Assets (ROAA) of 1.16%.

The increase in earnings compared to the most recent quarter included a $1.22 million decrease in the provision for loan losses and a $0.28 million increase in net interest income. These earnings gains were offset by a $0.66 million decrease in revenue from the sale and servicing of mortgage loans, a $0.43 million decrease in net gains from the sale of securities and a $0.39 million increase in operating expenses.

The increase in net income for the first quarter of 2021 compared to the first quarter of the prior year reflects a $1.1 million increase in net interest income and a $1.7 million increase in revenue from the sale and servicing of mortgage loans. These increases were partially offset by a $1.22 million increase in operating expenses.

"We are extremely pleased with our first quarter results" said Todd James, the Company's Chairman and CEO. "While the uncertain path and speed of the post-pandemic recovery creates elevated risk, credit quality is holding up well and supports the reduction in provision expense. In addition, despite the decrease from the fourth quarter of 2020, mortgage banking activity remained strong, and exceeded our expectations for the first quarter."

Total assets of the company increased by $66 million, or 6%, to $1.2 billion as of March 31, 2021 compared to $1.1 billion as of December 31, 2020. Total gross loans increased by $32.4 million, or 5%, and total investment securities increased $27.1 million, or 8%, during the first three months of 2021. Total Deposits increased by $81.0 million, or 8%, to $1.1 billion compared to $987.3 million at the end of 2020.

Net Interest Income

Net interest income for the first quarter of 2021 totaled $9.72 million, an increase of $0.28 million, or 3%, compared to the fourth quarter of 2020, and up $1.10 million, or 13%, compared to the first quarter of last year. The net interest margin was 3.52% for the first quarter of 2021 as compared to 3.63% for the quarter ended December 31, 2020, and 3.83% for the first quarter of the prior year.

The increase in net interest income compared to the first quarter of last year was due to an increase in average total earning assets, which increased by $220.8 million, or 24%, to $1.13 billion compared to $911.9 million the first quarter of 2020. The increase included a $56.9 million increase in average total loans, a $127.5 million increase in average investment securities and a $36.4 increase in interest bearing deposits at other financial institutions. The $56.9 million increase in average total loans includes $85.8 million in average Paycheck Protection Program (PPP) loans. During the first quarter of 2021 $0.79 million of PPP fees were recognized, resulting in a 4.77% annualized yield on average PPP loans for three months ended March 31, 2021. The PPP, pandemic-related stimulus payments and an overall influx of deposits drove a $204.5 million, or 24%, increase in total average deposits for the first quarter of 2021 compared to the first quarter of last year. With the majority of this liquidity being deployed in the investment securities portfolio or held in interest-bearing deposit accounts at other financial institutions, the net interest margin dropped thirty-one basis points to 3.52% compared to 3.83% for the first quarter of the prior year. Further decreases in the net interest margin were mitigated by Blackhawk's ability to react quickly, lowering overall cost of interest-bearing liabilities by fifty basis points for the first quarter compared to the first quarter of last year.

Provision for Loan Losses and Asset Quality

The provision for loan losses for the quarter ended March 31, 2021 totaled $0.50 million, as compared to $1.72 million for the quarter ended December 31, 2020, and $0.77 million for the first quarter of 2020. The decreased provision reflects an improved outlook, especially as it relates to pandemic related losses. Net charge-offs for the first quarter equaled $0.15 million.

Total nonperforming assets, which include troubled debt restructures performing in accordance with their modified terms, equaled $8.4 million as of March 31, 2021, as compared to $9.1 million as of December 31, 2020, and $13.4 million at March 31, 2020. At March 31, 2021, the ratio of nonperforming loans to total loans equaled 1.17%, as compared to 1.34% at December 31, 2020, and 2.09% at March 31, 2020. The allowance for loan losses to total loans was 1.56% as of March 31, 2020, as compared to 1.59% at December 31, 2020, and 1.29% as of March 31, 2020. The ratio of the allowance for loan losses to nonperforming loans increased to 133.0% as of March 31, 2021, as compared to 118.7% at December 31, 2020, and 61.4% at March 31, 2020.

While non-performing asset levels have decreased, management believes that there is still a high level of uncertainty as to the path and breadth of the economic recovery, elevating the risk of losses in future quarters. Many borrowers have taken advantage of PPP, other stimulus programs, and the loan modifications provided by Blackhawk, which has the potential to mask underlying issues. Management continues to work closely with borrowers to ensure credit issues are identified and addressed as early as possible, improving the overall probability of repayment.

Blackhawk has provided payment relief to borrowers negatively affected by the COVID-19 pandemic, including full payment deferrals, principal payment deferrals and other modifications providing payment relief since the beginning of the pandemic. While many of those customers have returned to normal payments, as of March 31, 2021 loans totaling $21.8 million are performing under the original or extended modified terms, including $10.3 million in hospitality and food service sectors.

Non-Interest Income and Operating Expenses

Non-interest income for the quarter ended March 31, 2021 totaled $5.03 million, a $0.93 million decrease compared to $5.97 million the prior quarter, and a $1.83 million increase over the $3.20 million recorded in the first quarter of 2020. The decrease compared to the fourth quarter of 2020 includes decreases of $0.66 million in net revenue from the sale and servicing of mortgage loans, $0.09 million in deposit service charges and $0.43 million in net gains on sales of securities. The increase in non-interest income compared to the first quarter of 2020 is primarily due to a $1.72 million increase in revenue from the sale and servicing of mortgage loans.

Operating expenses for the quarter ended March 31, 2021 totaled $9.71 million, increasing by $0.39 million, or 4%, compared to the quarter ended December 31, 2020, and increasing by $1.22 million, or 14%, compared to the first quarter of 2020. Other expense for the first quarter of 2021 included a $0.26 million penalty related to the prepayment of a Federal Home Loan Bank advance accounting for much of the increase compared to the most recent quarter. The increase compared to the first quarter of 2020 also included a $0.70 million increase in compensation expense, which was partially due to an increase in variable compensation related to mortgage loan production.

Outlook

The outlook for Blackhawk, like much of the banking industry, is clouded by uncertainty related to the COVID-19 pandemic crisis. Blackhawk believes there continues to be risk of elevated credit losses in future quarters as the economic impact of the crisis plays out, and will continue 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. 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 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.

(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.

(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.

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ANALYSIS of AVERAGE BALANCES & TAX EQUIVALENT INTEREST RATES