BHWB - Blackhawk Bancorp Announces 2021 Second Quarter Earnings

BELOIT, WI / ACCESSWIRE / July 21, 2021 / Blackhawk Bancorp, Inc. (OTCQX:BHWB) reported net income of $4.06 million for the quarter ended June 30, 2021, an 18% increase over the $3.43 million earned the previous quarter, and a 58% increase compared to the $2.56 million earned the second quarter of 2020. Fully diluted earnings per share (EPS) for the quarter was $1.30, an increase of $0.28 as compared to $1.02 for the quarter ended March 31, 2021 and an increase of $0.53, or 69%, as compared to $0.77 reported for the quarter ended June 30, 2020. The second quarter 2021 results produced a Return on Average Equity (ROAE) of 15.74% and a Return on Average Assets (ROAA) of 1.26%.

The increase in earnings compared to the most recent quarter included a $0.50 million decrease in the provision for loan losses, a $0.45 million increase in net interest income, and a $0.25 million decrease in operating expenses. These earnings gains were offset by a $0.48 million decrease in revenue from the sale and servicing of mortgage loans.

The increase in net income for the second quarter of 2021 compared to the second quarter of the prior year reflects a $2.51 million decrease in provision for loan losses. This improvement was partially offset by a $0.55 million decrease in revenue from the sale and servicing of mortgage loans and a $0.51 million increase in operating expenses.

The increase in earnings per share for the quarter compared to the most recent quarter and the second quarter of 2020 was boosted by the recently completed tender offer and stock repurchase. On May 18, 2021 the Company repurchased 525,546 shares, or 15.6%, of its outstanding common stock, contributing $0.08 to earnings per share for the quarter.

For the six months ended June 30, 2021, the company reported net income of $7.49 million, a 61% increase over the $4.64 million reported for the first six months of 2020. Diluted earnings per share for the first half of 2021 increased by 65% to $2.31 compared to $1.40 for the first six months of 2020. The Company's results for the first six months of 2021 produced a return on average assets of 1.21% and a return on average equity of 13.93%.

"The strong second quarter results were driven primarily by the recognition of PPP (Paycheck Protection Program) loan fees, an abnormally low provision for loan losses and a continuing high level of mortgage banking activity," said Todd James, the Company's Chairman and CEO. "While we're pleased with the overall performance, we know these earnings tailwinds are unsustainable and future performance will be driven by loan growth and efficiency gains." he added.

Total assets of the company increased by $195.2 million, or 17%, to $1.33 billion as of June 30, 2021 compared to $1.14 billion as of December 31, 2020. Total gross loans decreased by $1.1 million, or less than 1%, and total investment securities increased $96.0 million, or 27%, during the first six months of 2021. Total Deposits increased by $201.7 million, or 20%, to $1.19 billion compared to $987.3 million at the end of 2020.

Net Interest Income

Net interest income for the second quarter of 2021 totaled $10.16 million, an increase of $0.45 million, or 5%, compared to the first quarter of 2021, and up $0.29 million, or 3%, compared to the second quarter of last year. The net interest margin was 3.37% for the second quarter of 2021 as compared to 3.52% for the quarter ended March 31, 2021, and 3.99% for the second quarter of the prior year.

The increase in net interest income compared to the second quarter of last year was due to a $216.6 million, or 22%, increase in average total earning assets to $1.22 billion compared to $1.01 billion the second quarter of 2020. The increase included a $129.3 million increase in average investment securities and a $88.3 increase in interest bearing deposits at other financial institutions. Total average loans decreased by $1.0 million. The decrease in average total loans included a decrease of $6.9 million in average Paycheck Protection Program (PPP) loans, which averaged $78.9 million for the quarter. During the second quarter of 2021 $1.10 million of PPP fees were recognized, resulting in a 6.60% annualized yield on average PPP loans for three months ended June, 30 2021. The PPP, pandemic-related stimulus payments and an overall influx of deposits drove a $228.9 million, or 25%, increase in total average deposits for the second quarter of 2021 compared to the second 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 62 basis points to 3.37% compared to 3.99% for the second quarter of the prior year.

Net interest income for the six months ended June 30, 2021, increased by $1.39 million, or 8%, to $19.88 million as compared to $18.49 million for the first six months of 2020. The net interest margin for the first six months of 2021 decreased by 48 basis points to 3.44% compared to 3.92% for the first six months of 2020. Average total loans for the first six months of 2021 were $692.9 million, an increase of $28.0 million, or 4%, as compared to $664.9 million for the first six months of 2020. Average total deposits for the first six months of 2021 were $1.10 billion, an increase of $216.9 million, or 25%, as compared to $880.1 million for the first six months of 2020.

Provision for Loan Losses and Asset Quality

There was no provision for loan losses recorded for the quarter ended June 30, 2021, as compared to $0.50 million for the quarter ended March 31, 2021, and $2.51 million for the second quarter of 2020. The decreased provision reflects an improved credit outlook, especially as it relates to pandemic related losses. Net recoveries for the second quarter equaled $0.11 million.

Total nonperforming assets, which include troubled debt restructures performing in accordance with their modified terms, equaled $10.2 million as of June 30, 2021, as compared to $8.4 million as of March 31, 2021, and $11.6 million at June 30, 2020. At June 30, 2021, the ratio of nonperforming loans to total loans equaled 1.50%, as compared to 1.17% at March 31, 2021, and 1.52% at June 30, 2020. The allowance for loan losses to total loans was 1.66% as of June 30, 2021, as compared to 1.56% at March 31, 2021, and 1.43% as of June 30, 2020. The ratio of the allowance for loan losses to nonperforming loans decreased to 110.2% as of June 30, 2021, as compared to 133.0% at March 31, 2021, and 93.6% at June 30, 2020.

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 provided payment relief to borrowers negatively affected by the COVID-19 pandemic. Loans with an aggregate balance in excess of $70 million were modified, and as of June 30, 2021 all of the modified credits have either returned to normal payments or are reflected in the nonperforming loan numbers, except for a small number of credits totaling $2.4 million for which the modified terms have been extended and the borrowers are continuing to perform under the modified terms.

Non-Interest Income and Operating Expenses

Non-interest income for the quarter ended June 30, 2021 totaled $4.69 million, a $0.34 million decrease compared to $5.04 million the prior quarter, and a $0.16 million decrease from the $4.85 million recorded in the second quarter of 2020. The decrease compared to the first quarter of 2021 included a decrease of $0.48 million in net revenue from the sale and servicing of mortgage loans. This was partially offset by a $0.19 million increase in debit card interchange fees. The decrease in non-interest income compared to the second quarter of 2020 was primarily due to a $0.55 million decrease in revenue from the sale and servicing of mortgage loans that was partially offset by a $0.29 million increase in debit card interchange fees.

Non-interest income for the first six months of 2021 increased $1.38 million, or 17%, to $9.73 million as compared to $8.35 million for the first six months of 2020, including a $1.17 million increase in the sale and servicing of loans and a $0.49 million increase in debit card interchange fees.

Operating expenses for the quarter ended June 30, 2021 totaled $9.46 million, a decrease of $0.25 million, or 3%, compared to the quarter ended March 31, 2021, and increased by $0.51 million, or 6%, compared to the second quarter of 2020.

Operating expenses for the six-month period ended June 30, 2021, totaled $19.18 million, a $1.44 million, or 8%, increase over the first six month of 2020.

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.

Blackhawk Bancorp, Inc.

Todd J. James, Chairman & CEO
tjames@blackhawkbank.com

Matthew McDonnell, SVP & CFO
mmcdonnell@blackhawkbank.com

Phone: (608) 364-8911

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2021 AND DECEMBER 31, 2020
(UNAUDITED)

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

(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)

(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)

ASSET QUALITY DATA

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

Average Balance Sheet with Resultant Interest and Rates

(Dollars in thousands - unaudited)