Blackhawk Bancorp Announces 2020 Third Quarter Earnings and Share Repurchase Program
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Blackhawk Bancorp Announces 2020 Third Quarter Earnings and Share Repurchase Program

Monday, October 26, 2020 8:55 PM
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Earnings

BELOIT, WI / ACCESSWIRE / October 26, 2020 / Blackhawk Bancorp, Inc. (OTCQX:BHWB) reported net income of $2.9 million for the third quarter of 2020, a 12% increase over the $2.6 million earned the previous quarter, and a 16% decrease compared to the $3.4 million earned the third quarter of 2019. Fully diluted earnings per share (EPS) for the quarter ended September 30, 2020, was $0.86, an increase of $0.09 as compared to $0.77 for the quarter ended June 30, 2020 and a decrease of $0.17 as compared to $1.03 earned for the quarter ended September 30, 2019. The third quarter 2020 results produced a Return on Average Equity (ROAE) of 10.64% and a Return on Average Assets (ROAA) of 1.03%.

The earnings increase compared to the most recent quarter was primarily driven by an increase in net revenue from the sale and servicing of residential mortgage loans, which was partially offset by an increase in operating expenses. Net interest income for the quarter increased only slightly compared to the most recent quarter.

The decrease in net income for the third quarter of 2020 compared to the third quarter of last year reflects an increase in the provision for loan losses, a decrease in net gain on sale of securities and an increase in operating expenses, which were partially offset by growth in net interest income and net revenue from the sale and servicing of residential mortgage loans.

For the nine months ended September 30, 2020, the company reported net income of $7.5 million, a 3% increase over the $7.3 million reported for the first nine months of 2019. Diluted earnings per share for the third quarter of 2020 increased by 3% to $2.26 compared to $2.20 for the first nine months of 2019. The Company's results for the first nine months of 2020 produced a return on average assets of 0.95% and a return on average equity of 9.69%.

Total assets of the company increased by $162 million, or 17%, to $1.1 billion at September 30, 2020, compared to $963.9 million as of December 31, 2019. Total gross loans increased by $57.2 million, or 9%, and total investment securities increased $80.3 million, or 34%, during the first nine months of 2020. Total Deposits increased by $131.2 million, or 16%, to $960.8 million compared to $829.6 million at the end of 2019.

Net Interest Income

Net interest income for the third quarter of 2020 totaled $9.9 million, unchanged compared to the second quarter of 2020, and up $1.1 million, or 12%, compared to the third quarter of last year. The net interest margin was 3.83% for the third quarter of 2020 as compared to 3.99% for the quarter ended June 30, 2020, and 3.93% for the third quarter of last year.

The increase in net interest income compared to the third quarter of last year was driven by the overall increase in earning assets and recognition $0.7 million of PPP fees. Balance sheet growth reflects the origination of approximately $84 million of PPP loans, liquidity from other pandemic stimulus programs and an overall influx of deposits. While the increase in overall earning assets added to net interest income, the net interest margin on the assets added was lean, with PPP loans earning 1% and the remaining liquidity being deployed in the investment portfolio, where yields were at historical lows, or held at the Federal Reserve. Despite the deployment of funds into lower interest rate assets the net interest margin held up well at 3.83% for the third quarter of 2020 as recognition of PPP fees offset the effect of the low interest being earned rate on the PPP loans.

Average total loans for the quarter ended September 30, 2020, equaled $693.4 million, a $7.7 million, or 1%, decrease as compared to the previous quarter, and a $60.2 million, or 10%, increase over the same quarter a year ago. The average total loans for the third quarter and second quarters of 2020 included $84 million and $63 million of average PPP loans, respectively.

Average total deposits for the quarter ended September 30, 2020, equaled $943.8 million, a $25.0 million, or 3% increase over the previous quarter, and a $111.9 million, or 13%, increase over the same quarter a year ago. The increase in average total deposits included PPP funds deposited by borrowers, other stimulus money received by customers and other deposit growth.

Net interest income for the nine months ended September 30, 2020, increased by $3.3 million, or 13%, to $28.4 million as compared to $25.1 million for the first nine months of 2019. The net interest margin for the first nine months of 2020 decreased by two basis points to 3.89% compared to 3.91% for the first nine months of 2019. Average total loans for the first nine months of 2020 were $674.5 million, an increase of $74.8 million, or 12%, as compared to $599.7 million for the first nine months of 2019. Average total deposits for the first nine months of 2020 were $901.5 million, an increase of $93.3 million, or 12%, as compared to $808.2 million for the first nine months of 2019. The Federal Reserve's aggressive rate cuts to address the economic fallout from the pandemic resulted in a forty-four basis point decrease in the year to date yield on average earning assets as compared to the first three quarters of 2019. The Company acted swiftly to lower funding costs achieving a forty-four basis point decrease in the cost of deposits and a fifty basis point drop in cost of funds limiting the decrease in the net interest margin to two basis points compared to the first three quarters of 2019.

Provision for Loan Losses and Asset Quality

The provision for loan losses for the quarter ended September 30, 2020, totaled $2.6 million, as compared to $2.5 million for the quarter ended June 30, 2020, and $0.6 million for the third quarter of 2019. The provision for the first nine months of 2020 increased to $5.9 million compared to $1 million for the first nine months of 2019. The increased provision reflects elevated charge-offs in the third quarter of 2020, and uncertainty related to the impact COVID-19 may have on future loan losses. Net charge-offs during the third quarter equaled $2.8 million, bringing the total up to $3.9 million for the first nine months of 2020. The charge-offs in the third quarter included $2.7 million related to one relationship.

Total nonperforming assets, which include troubled debt restructures that were performing in accordance with their modified terms, equaled $11.0 million as of September 30, 2020, as compared to $11.6 million as of June 30, 2020, and $9.1 million at September 30, 2019. At September 30, 2020, the ratio of nonperforming assets to total assets equaled 0.97%, as compared to 1.05% at June 30, 2020, and 0.93% at September 30, 2019. The allowance for loan losses to total loans was 1.44% as of September 30, 2020, as compared to 1.43% at June 30, 2020, and 1.28% as of September 30, 2019. The allowance for loan losses to total loans, excluding PPP loans, at September 30, 2020 is 1.64% compared to 1.60% at June 30, 2020. The ratio of the allowance for loan losses to nonperforming loans decreased to 90.8% as of September 30, 2020, as compared to 93.6% at June 30, 2020, and 94.7% at September 30, 2019.

While overall delinquency rates and non-performing asset levels have not increased, management believes that current economic conditions could result in elevated losses in future quarters. Many borrowers have taken advantage of PPP, other stimulus programs, and the loan modifications provided by Blackhawk. Management expects to continue recording elevated provision for loan losses for the rest of the year, and will continue being proactive 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 payment deferrals, interest only payments and forbearance agreements offering other relief. During the third quarter many of these customers had returned to normal payments, however, some were still under the original or extended modification agreements. The total balance of loans under COVID-related modifications decreased by $45.5 million to $23.2 million as of September 30, 2020 compared to $68.7 million in June 30, 2020. Blackhawk's exposure to borrowers in high risk industries that received a modification and not returned to normal payments as of September 30, 2020 decreased by $39.5 million or 76%, compared to June 30, 2020. The table below summarizes the company's total outstanding balance and modified loan balance by industry code. The balances in the tables exclude loans originated under PPP, which are 100% guaranteed by the SBA:

As of 9/30/20 (balance in thousands)
                                   
 
        Balance of Loans by Modification Type        
Industry
  Portfolio Balance*     Payment Deferrals     Interest Only     Other     Total Modified     Percent of Portfolio Modified  
High Risk Industries
                                   
Arts, Entertainment and Recreation
    4,208       -       -       -       -       0 %
Health Care and Social Assistance
    49,250       2,441       2,720       -       5,161       10 %
Hospitality and Food Services
    29,505       4,149       7       -       4,156       14 %
Other Services (except Public Admin)
    14,401       1,098       -       -       1,098       8 %
Real Estate Rental and Leasing
    108,882       -       814       -       814       1 %
Retail Trade
    40,798       1,078       -       -       1,078       3 %
High Risk Industries Total
    247,044       8,766       3,541       -       12,307       5 %
Other Industries and Consumer Total
                                               
Construction
    32,247       -       387       -       387       1 %
Manufacturing
    102,404       309       -       -       309       0 %
Other Industries
    100,440       2,587       3,519       -       6,106       6 %
Consumer, Mortgage and Other
    113,071       467       -       3,600       4,067       4 %
Other Industries and Consumer Total
    348,162       3,363       3,906       3,600       10,869       3 %
Grand Total
    595,206       12,129       7,447       3,600       23,176       4 %
*Excluding loans held for sale and PPP loans
                                               
                                                 

Non-Interest Income and Operating Expenses

Non-interest income for the quarter ended September 30, 2020, totaled $5.7 million, a $0.8 million increase compared to $4.9 million the prior quarter, and a $1.0 million increase over the $4.6 million recorded in the third quarter of 2019. The increase compared to the second quarter of 2020 includes increases of $0.2 million in net gain on sale of loans, $0.4 million in net loan servicing income and $0.1 million in deposit service charges. The increase compared to the third quarter of 2019 includes a $2.1 million increase in net gain on sale of loans, which was offset by a $0.3 million decrease in deposit service fees and an $0.9 million decrease in net gains on the sale of securities.

Non-interest income for the first nine months of 2020 increased $2.5 million, or 22%, to $13.8 million as compared to $11.3 million for the first nine months of 2019, including a $4.6 million increase in gain on sale of loans. This increase was offset by $0.5 million decrease in deposit service charges, a $0.5 million decrease in loan servicing income and a $1.1 million decrease in gain on sale of securities.

Operating expenses for the quarter ended September 30, 2020, totaled $9.3 million, increasing by $0.3 million, or 4%, compared to the quarter ended June 30, 2020, and increasing by $0.8 million, or 9%, compared to the third quarter of 2019. The increases compared to the third quarter of 2019 were driven primarily by the variable compensation related to increased mortgage loan originations.

Operating expenses for the nine-month period ended September 30, 2020, totaled $26.8 million, a $0.7 million, or 3%, increase over the first nine month of 2019. The 2019 results included $2 million of nonrecurring acquisition related expenses. Excluding these expenses, operating expenses would have increased by $2.7 million, or 11%, over the first nine months of last year. The increase reflects operating the three acquired locations for the full nine months, versus only seven months in the first nine months of 2019, and the increased variable compensation related to the mortgage banking activity.

Share Repurchase Program

At its meeting on October 21, 2020, the Company's Board of Directors authorized a share repurchase program, under which the Company may repurchase up to 200,000 shares of its outstanding common stock.

According to Todd James, Blackhawk Bancorp, Inc.'s President and CEO, "the stock repurchase program announced today is part of an overall plan to balance the use of Company resources to support all of its stakeholders. As we manage through these unprecedented times, Blackhawk has been and will continue supporting its customers, communities and employees that are negatively affected by COVID-19. This repurchase plan was adopted to extend similar support to our shareholders. While the number of shares authorized to be repurchased is relatively low, it demonstrates our confidence in the strength of our Company and will provide some level of liquidity for shareholders at a time when other alternatives may not be readily available," added James.

Under the share repurchase program, the Company may purchase, from time to time, on the open market or otherwise, shares of common stock of the Company in such quantities, at such prices, in such manner and on such terms and conditions as the Company's management team may deem appropriate, so long as the aggregate number of shares of common stock repurchased shall not exceed 200,000. Unless extended by the Board, the repurchase program will terminate on the twelve-month anniversary of its adoption.

The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, capital requirements and other corporate considerations, as determined by the Company's management team. The repurchase program may be suspended or discontinued at any time. The Company expects to finance the purchases with existing cash balances.

Outlook

The outlook for Blackhawk as well as the entire banking industry is clouded by uncertainty related to the COVID-19 pandemic crisis. Blackhawk believes there is 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. 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.

Todd J. James, Chairman & CEO
[email protected]
Phone: (608) 364-8911

Matthew McDonnell, SVP & CFO
[email protected]
Phone: (608) 364-8911

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
           
CONSOLIDATED BALANCE SHEETS
           
SEPTEMBER 30, 2020 AND DECEMBER 31, 2019
           
(UNAUDITED)
           
 
  September 30,     December 31,  
Assets
  2020     2019  
 
  (Dollars in thousands, except  
 
  share and per share data)  
Cash and due from banks
  $ 17,403     $ 12,320  
Interest-bearing deposits in banks and other institutions
    43,441       20,761  
Total cash and cash equivalents
    60,844       33,081  
Certificates of deposit in banks and other institutions
    4,407       6,325  
Equity securities at fair value
    2,529       2,365  
Securities available-for-sale
    315,232       235,083  
Loans held for sale
    11,826       6,540  
Federal Home Loan Bank stock, at cost
    2,150       742  
Loans, less allowance for loan losses of $9,943 and $7,941
               
at September 30, 2020 and December 31, 2019, respectively
    669,234       619,359  
Premises and equipment, net
    20,095       21,025  
Goodwill and core deposit intangible
    12,125       12,455  
Mortgage servicing rights
    3,416       3,106  
Cash surrender value of bank-owned life insurance
    11,051       11,118  
Other assets
    13,393       12,662  
Total assets
  $ 1,126,302     $ 963,861  
 
               
Liabilities and Stockholders' Equity
               
 
               
Liabilities
               
Deposits:
               
Noninterest-bearing
  $ 257,123     $ 155,978  
Interest-bearing
    703,650       673,631  
Total deposits
    960,773       829,609  
Short-term borrowings
    -       -  
Subordinated debentures and notes (including $1,031 at fair value at
               
September 30, 2020 and December 31, 2019)
    5,155       5,155  
Senior secured term note
    13,222       14,000  
Other borrowings
    29,000       10,000  
Other liabilities
    10,161       7,773  
Total liabilities
    1,018,311       866,537  
 
               
Stockholders' equity
               
Common stock, $0.01 par value, 10,000,000 shares authorized;
               
3,435,348 and 3,399,803 shares issued as of September 30, 2020 and
               
December 31, 2019, respectively
    34       34  
Additional paid-in capital
    34,487       33,989  
Retained earnings
    66,700       60,295  
Treasury stock, 106,364 and 105,185 shares at cost as of September 30, 2020
               
and December 31, 2019, respectively
    (1,440 )     (1,408 )
Accumulated other comprehensive income (loss)
    8,210       4,414  
Total stockholders' equity
    107,991       97,324  
Total liabilities and stockholders' equity
  $ 1,126,302     $ 963,861  
                 

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

 
  Nine months ended September 30,  
 
  2020     2019  
 
  (Amounts in thousands, except per share data)  
 
           
Interest Income:
           
Interest and fees on loans
  $ 25,362     $ 24,165  
Interest and dividends on available-for-sale securities:
               
Taxable
    4,729       4,594  
Tax-exempt
    1,067       1,256  
Interest on other financial institutions
    244       421  
Total interest income
    31,402       30,436  
Interest Expense:
               
Interest on deposits
    2,381       4,406  
Interest on short-term borrowings
    27       130  
Interest on subordinated debentures
    141       61  
Interest on senior secured term note
    385       426  
Interest on other
    61       300  
Total interest expense
    2,995       5,323  
Net interest income before provision for loan losses
    28,407       25,113  
Provision for loan losses
    5,885       1,030  
Net interest income after provision for loan losses
    22,522       24,083  
 
               
Noninterest Income:
               
Service charges on deposits accounts
    2,254       2,713  
Net gain on sale of loans
    7,509       2,954  
Net loan servicing income
    (254 )     250  
Debit card interchange fees
    2,759       2,526  
Net gains on sales of securities available-for-sale
    107       1,171  
Net other gains (losses)
    64       176  
Increase in cash surrender value of bank-owned life insurance
    235       231  
Change in value of equity securities
    77       109  
Other
    1,030       1,124  
Total noninterest income
    13,781       11,254  
 
               
Noninterest Expenses:
               
Salaries and employee benefits
    16,097       14,418  
Occupancy and equipment
    3,293       3,077  
Data processing
    1,700       3,054  
Debit card processing and issuance
    1,200       1,125  
Advertising and marketing
    222       349  
Amortization of core deposit intangible
    330       278  
Professional fees
    1,157       1,359  
Office Supplies
    273       288  
Telephone
    437       383  
Other
    2,083       1,790  
Total noninterest expenses
    26,792       26,121  
Income before income taxes
    9,511       9,216  
Provision for income taxes
    2,011       1,964  
Net income
  $ 7,500     $ 7,252  
 
               
Key Ratios
               
 
               
Basic Earnings Per Common Share
  $ 2.26     $ 2.20  
Diluted Earnings Per Common Share
    2.26       2.20  
Dividends Per Common Share
    0.33       0.30  
 
               
Net Interest Margin (1)
    3.89 %     3.91 %
Efficiency Ratio (1)(2)
    63.44 %     73.82 %
Return on Assets
    0.95 %     1.04 %
Return on Common Equity
    9.69 %     10.82 %
 
               

(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  
 
  September 30,     June 30,     March 31,     December 31,     September 30,  
 
  2020     2020     2020     2019     2019  
 
  (Dollars in thousands, except per share data)  
Interest Income:
                             
Interest and fees on loans
  $ 8,671     $ 8,658     $ 8,033     $ 8,284     $ 8,580  
Interest on available-for-sale securities:
                                       
Taxable
    1,607       1,618       1,505       1,496       1,591  
Tax-exempt
    372       371       323       331       356  
Interest on other financial institutions
    41       40       162       107       133  
Total interest income
    10,691       10,687       10,023       10,218       10,660  
Interest Expense:
                                       
Interest on deposits
    565       639       1,177       1,400       1,485  
Interest on subordinated debentures
    42       45       53       58       61  
Interest on senior secured term note
    119       111       156       165       173  
Interest on other borrowings
    47       19       22       24       97  
Total interest expense
    773       814       1,408       1,647       1,816  
Net interest income before provision for loan losses
    9,918       9,873       8,615       8,571       8,844  
Provision for loan losses
    2,615       2,505       765       980       580  
Net interest income after provision for loan losses
    7,303       7,368       7,850       7,591       8,264  
 
                                       
Noninterest Income:
                                       
Service charges on deposits accounts
    747       610       897       1,002       1,019  
Net gain on sale of loans
    3,412       3,192       905       1,257       1,333  
Net loan servicing income
    26       (389 )     110       119       (91 )
Debit card interchange fees
    1,002       924       832       876       910  
Net gains on sales of securities available-for-sale
    -       8       99       -       866  
Net other gains (losses)
    58       6       -       (87 )     81  
Increase in cash surrender value of bank-owned life insurance
    76       74       85       75       74  
Other
    344       425       273       632       455  
Total noninterest income
    5,665       4,850       3,201       3,874       4,647  
 
                                       
Noninterest Expenses:
                                       
Salaries and employee benefits
    5,585       5,477       5,035       4,964       4,992  
Occupancy and equipment
    1,137       1,074       1,083       1,038       1,085  
Data processing
    629       561       510       520       657  
Debit card processing and issuance
    409       394       397       449       402  
Advertising and marketing
    87       38       97       101       100  
Amortization of intangibles
    107       107       115       119       119  
Professional fees
    386       405       367       300       387  
Office Supplies
    94       88       90       118       112  
Telephone
    138       149       150       153       137  
Other
    714       659       646       730       505  
Total noninterest expenses
    9,286       8,952       8,490       8,492       8,496  
Income before income taxes
    3,682       3,266       2,561       2,973       4,415  
Provision for income taxes
    819       704       487       621       996  
Net income
  $ 2,863     $ 2,562     $ 2,074     $ 2,352     $ 3,419  
 
                                       
Key Ratios
                                       
 
                                       
Basic Earnings Per Common Share
  $ 0.86     $ 0.77     $ 0.63     $ 0.71     $ 1.03  
Diluted Earnings Per Common Share
    0.86       0.77       0.63       0.71       1.03  
Dividends Per Common Share
    0.11       0.11       0.11       0.10       0.10  
 
                                       
Net Interest Margin (1)
    3.83 %     3.99 %     3.83 %     3.83 %     3.93 %
Efficiency Ratio (1)(2)
    59.39 %     60.43 %     71.89 %     67.25 %     67.19 %
Return on Assets
    1.03 %     0.96 %     0.85 %     0.97 %     1.40 %
Return on Common Equity
    10.64 %     10.16 %     8.31 %     9.60 %     14.25 %
 
                                       

(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  
 
  September 30,     June 30,     March 31,     December 31,     September 30,  
 
  2020     2020     2020     2019     2019  
 
  (Amounts in thousands, except per share data)  
Cash and due from banks
  $ 17,403     $ 14,527     $ 15,240     $ 12,320     $ 18,778  
Interest-bearing deposits in banks and other
    47,848       25,246       6,775       27,086       22,478  
Securities
    317,761       301,726       265,165       237,448       232,165  
Net loans/leases
    681,060       697,881       626,797       625,899       640,576  
Goodwill and core deposit intangible
    12,125       12,232       12,340       12,455       12,575  
Other assets
    50,105       49,485       50,688       48,653       49,786  
Total assets
  $ 1,126,302     $ 1,101,097     $ 977,005     $ 963,861     $ 976,358  
 
                                       
Deposits
  $ 960,773     $ 939,066     $ 843,061     $ 829,609     $ 843,703  
Subordinated debentures
    5,155       5,155       5,155       5,155       5,155  
Senior secured term note
    13,222       13,611       14,000       14,000       14,000  
Borrowings
    29,000       29,000       10,000       10,035       10,042  
Other liabilities
    10,161       9,758       6,083       7,738       7,516  
Stockholders' equity
    107,991       104,507       98,706       97,324       95,942  
Total liabilities and stockholders' equity
  $ 1,126,302     $ 1,101,097     $ 977,005     $ 963,861     $ 976,358  
 
                                       
 
                                       
ASSET QUALITY DATA
                                       
(Amounts in thousands)
  September 30, 2020     June 30, 2020     March 31, 2020     December 31, 2019     September 30,
2019
 
 
                                       
 
                                       
Non-accrual loans
  $ 8,584     $ 8,427     $ 9,680     $ 10,642     $ 5,524  
Accruing loans past due 90 days or more
    196       -       845       -       104  
Troubled debt restructures - accruing
    2,176       2,361       2,770       2,866       3,163  
Total nonperforming loans
  $ 10,956     $ 10,788     $ 13,295     $ 13,508     $ 8,791  
Other real estate owned
    1       762       123       54       319  
Total nonperforming assets
  $ 10,957     $ 11,550     $ 13,418     $ 13,562     $ 9,110  
 
                                       
Total loans
  $ 691,003     $ 707,983     $ 634,957     $ 633,840     $ 648,900  
Allowance for loan losses
  $ 9,943     $ 10,102     $ 8,160     $ 7,941     $ 8,324  
 
  $ 681,060     $ 697,881     $ 626,797     $ 625,899     $ 640,576  
Nonperforming Assets to total Assets
    0.97 %     1.05 %     1.37 %     1.41 %     0.93 %
Nonperforming loans to total loans
    1.59 %     1.52 %     2.09 %     2.13 %     1.35 %
Allowance for loan losses to total loans
    1.44 %     1.43 %     1.29 %     1.25 %     1.28 %
Allowance for loan losses to nonperforming loans
    90.8 %     93.6 %     61.4 %     58.8 %     94.7 %
 
                                       
 
  For the Quarter Ended  
 
  September 30,     June 30,     March 31,     December 31,     September 30,  
ROLLFORWARD OF ALLOWANCE
  2020     2020     2020     2019     2019  
 
                             
Beginning Balance
  $ 10,102     $ 8,160     $ 7,941     $ 8,324     $ 7,749  
Provision
    2,615       2,505       765       980       580  
Loans charged off
    2,892       639       633       1,463       52  
Loan recoveries
    118       76       87       100       47  
Net charge-offs
    2,774       563       546       1,363       5  
Ending Balance
  $ 9,943     $ 10,102     $ 8,160     $ 7,941     $ 8,324  
                                         

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)
(Yields on a tax-equivalent basis) (1)

 
  For the Quarter Ended  
 
  September 30, 2020     June 30, 2020     September 30, 2019  
 
  Average           Average     Average           Average     Average           Average  
 
  Balance     Interest     Rate     Balance     Interest     Rate     Balance     Interest     Rate  
Interest Earning Assets:
                                                     
Interest-bearing deposits and other
  $ 42,716     $ 41       0.38 %   $ 17,056     $ 40       0.95 %   $ 23,356     $ 133       2.26 %
Investment securities:
                                                                       
Taxable investment securities
    257,506       1,607       2.48 %     241,831       1,618       2.69 %     202,607       1,591       3.11 %
Tax-exempt investment securities
    47,090       372       4.09 %     46,443       371       4.13 %     43,558       356       4.10 %
Total Investment securities
    304,596       1,979       2.73 %     288,274       1,989       2.92 %     246,165       1,947       3.29 %
Loans
    693,418       8,670       4.97 %     701,080       8,658       4.97 %     633,215       8,580       5.38 %
 
                                                                       
Total Earning Assets
  $ 1,040,730     $ 10,690       4.13 %   $ 1,006,410     $ 10,687       4.31 %   $ 902,736     $ 10,660       4.73 %
Allowance for loan losses
    (11,018 )                     (8,769 )                     (7,860 )                
Cash and due from banks
    18,901                       15,232                       16,131                  
Other assets
    58,022                       58,475                       59,817                  
 
                                                                       
Total Assets
  $ 1,106,635                     $ 1,071,348                     $ 970,824                  
 
                                                                       
Interest Bearing Liabilities:
                                                                       
Interest bearing checking accounts
  $ 292,875     $ 166       0.23 %   $ 298,831     $ 157       0.21 %   $ 258,808     $ 399       0.61 %
Savings and money market deposits
    335,043       111       0.13 %     305,966       105       0.14 %     295,746       547       0.73 %
Time deposits
    91,366       288       1.25 %     101,808       377       1.49 %     118,910       539       1.80 %
Total interest bearing deposits
    719,284       565       0.31 %     706,605       639       0.36 %     673,464       1,485       0.88 %
Subordinated debentures and notes
    5,155       42       3.25 %     5,155       45       3.53 %     5,155       61       4.70 %
Borrowings
    42,637       165       1.54 %     39,436       130       1.32 %     32,870       270       3.25 %
 
                                                                       
Total Interest-Bearing Liabilities
  $ 767,076     $ 772       0.40 %   $ 751,196     $ 814       0.44 %   $ 711,489     $ 1,816       1.01 %
 
                                                                       
Interest Rate Spread
                    3.73 %                     3.87 %                     3.72 %
 
                                                                       
Noninterest checking accounts
    224,552                       212,196                       158,512                  
Other liabilities
    7,950                       6,570                       5,603                  
Total liabilities
    999,578                       969,962                       875,604                  
Total Stockholders' equity
    107,057                       101,386                       95,220                  
Total Liabilities and
                                                                       
Stockholders' Equity
  $ 1,106,635                     $ 1,071,348                     $ 970,824                  
 
                                                                       
Net Interest Income/Margin
          $ 9,918       3.83 %           $ 9,873       3.99 %           $ 8,844       3.93 %
 
                                                                       

(1) Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance including a presentation of net interest income with a net interest margin ratio on a tax-equivalent (TE) basis. 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. Nonaccrual loans are included in the above-stated average balances.

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)(1)

 
  For the Nine Months Ended  
 
  September 30, 2020     September 30, 2019  
 
  Average           Average     Average           Average  
 
  Balance     Interest     Rate     Balance     Interest     Rate  
Interest Earning Assets:
                                   
Interest-bearing deposits and other
  32,518     244       1.00 %   23,901     421       2.37 %
Investment securities:
                                               
Taxable investment securities
    234,704       4,729       2.69 %     194,127       4,594       3.16 %
Tax-exempt investment securities
    44,811       1,067       4.10 %     53,331       1,256       4.04 %
Total Investment securities
    279,515       5,796       2.92 %     247,458       5,850       3.35 %
Loans
    674,503       25,362       5.02 %     599,712       24,165       5.39 %
 
                                               
Total Earning Assets
  986,536     31,402       4.29 %   871,071     30,436       4.73 %
Allowance for loan losses
    (9,274 )                     (7,652 )                
Cash and due from banks
    16,594                       15,953                  
Other assets
    58,483                       57,443                  
 
                                               
Total Assets
  1,052,339                     936,815                  
 
                                               
Interest Bearing Liabilities:
                                               
Interest bearing checking accounts
  287,538     657       0.31 %   253,795     1,122       0.59 %
Savings and money market deposits
    307,807       578       0.25 %     284,070       1,725       0.81 %
Time deposits
    102,306       1,146       1.50 %     116,247       1,559       1.79 %
Total interest bearing deposits
    697,651       2,381       0.46 %     654,112       4,406       0.90 %
Subordinated debentures
    5,155       141       3.64 %     5,155       191       4.94 %
Borrowings
    35,584       473       1.78 %     28,123       726       3.45 %
 
                                               
Total Interest-Bearing Liabilities
  738,390     2,995       0.54 %   687,390     5,323       1.04 %
 
                                               
Interest Rate Spread
                    3.75 %                     3.69 %
 
                                               
Noninterest checking accounts
    203,854                       154,084                  
Other liabilities
    7,131                       5,723                  
Total liabilities
    949,375                       847,197                  
Total Stockholders' equity
    102,964                       89,618                  
Total Liabilities and
                                               
Stockholders' Equity
  1,052,339                     936,815                  
 
                                               
Net Interest Income/Margin
          28,407       3.89 %           25,113       3.91 %
                                                 

(1) Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance including a presentation of net interest income with a net interest margin ratio on a tax-equivalent (TE) basis. 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. Nonaccrual loans are included in the above-stated average balances.

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
MODIFIED LOAN BALANCES BY INDUSTRY CODE (UNAUDITED)

As of 9/30/20 (balance in thousands)
                                   
 
        Balance of Loans by Modification Type        
Industry
  Portfolio Balance*     Payment Deferrals     Interest Only     Other     Total Modified     Percent of Portfolio Modified  
High Risk Industries
                                   
Arts, Entertainment and Recreation
    4,208       -       -       -       -       0 %
Health Care and Social Assistance
    49,250       2,441       2,720       -       5,161       10 %
Hospitality and Food Services
    29,505       4,149       7       -       4,156       14 %
Other Services (except Public Admin)
    14,401       1,098       -       -       1,098       8 %
Real Estate Rental and Leasing
    108,882       -       814       -       814       1 %
Retail Trade
    40,798       1,078       -       -       1,078       3 %
High Risk Industries Total
    247,044       8,766       3,541       -       12,307       5 %
Other Industries and Consumer Total
                                               
Construction
    32,247       -       387       -       387       1 %
Manufacturing
    102,404       309       -       -       309       0 %
Other Industries
    100,440       2,587       3,519       -       6,106       6 %
Consumer, Mortgage and Other
    113,071       467       -       3,600       4,067       4 %
Other Industries and Consumer Total
    348,162       3,363       3,906       3,600       10,869       3 %
Grand Total
    595,206       12,129       7,447       3,600       23,176       4 %
*Excluding loans held for sale and PPP loans
                                               
                                                 
As of 6/30/20 (balance in thousands)
                                   
 
        Balance of Loans by Modification Type        
Industry
  Portfolio Balance*     Payment Deferrals     Interest Only     Other     Total Modified     Percent of Portfolio Modified  
High Risk Industries
                                   
Arts, Entertainment and Recreation
    4,363       219       1,101       -       1,320       30 %
Health Care and Social Assistance
    50,855       3,176       6,342       -       9,518       19 %
Hospitality and Food Services
    27,540       8,766       9,578       -       18,344       67 %
Other Services (except Public Admin)
    16,164       7,809       1,702       -       9,511       59 %
Real Estate Rental and Leasing
    121,187       5,761       3,687       -       9,448       8 %
Retail Trade
    43,898       261       3,444       -       3,705       8 %
High Risk Industries Total
    264,007       25,992       25,854       -       51,846       20 %
Other Industries and Consumer Total
                                               
Construction
    33,956       255       387       -       642       2 %
Manufacturing
    109,364       1,744       1,829       -       3,573       3 %
Other Industries
    93,981       2,361       5,106       200       7,667       8 %
Consumer, Mortgage and Other
    110,229       529       -       4,464       4,993       5 %
Other Industries and Consumer Total
    347,530       4,889       7,322       4,664       16,875       5 %
Grand Total
    611,537       30,881       33,176       4,664       68,721       11 %
*Excluding loans held for sale and PPP loans
                                               
                                                 
Net Change (balance in thousands)
                             
 
        Balance of Loans by Modification Type  
Industry
  Portfolio Balance     Payment Deferrals     Interest Only     Other     Total Modified  
High Risk Industries
                             
Arts, Entertainment and Recreation
    (155 )     (219 )     (1,101 )     -       (1,320 )
Health Care and Social Assistance
    (1,605 )     (735 )     (3,622 )     -       (4,357 )
Hospitality and Food Services
    1,965       (4,617 )     (9,571 )     -       (14,188 )
Other Services (except Public Admin)
    (1,763 )     (6,711 )     (1,702 )     -       (8,413 )
Real Estate Rental and Leasing
    (12,305 )     (5,761 )     (2,873 )     -       (8,634 )
Retail Trade
    (3,100 )     817       (3,444 )     -       (2,627 )
High Risk Industries Total
    (16,963 )     (17,226 )     (22,313 )     -       (39,539 )
Other Industries and Consumer Total
                                       
Construction
    (1,709 )     (255 )     -       -       (255 )
Manufacturing
    (6,960 )     (1,435 )     (1,829 )     -       (3,264 )
Other Industries
    6,459       226       (1,587 )     (200 )     (1,561 )
Consumer, Mortgage and Other
    2,842       (62 )     -       (864 )     (926 )
Other Industries and Consumer Total
    632       (1,526 )     (3,416 )     (1,064 )     (6,006 )
Grand Total
    (16,331 )     (18,752 )     (25,729 )     (1,064 )     (45,545 )

SOURCE: Blackhawk Bancorp, Inc.

Blackhawk Bancorp, Inc.
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