Form 10-QSB
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18599
BLACKHAWK BANCORP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1659424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Broad Street 53511
Beloit, Wisconsin (Zip Code)
(Address of principal executive offices)
(608) 364-8911
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1996
---------------------------- ------------------
$.01 par value 2,285,864 shares
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income for the
three months ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Income for the
nine months ended September 30, 1996 and 1995 5
Consolidated Condensed Statements of Shareholders'
Equity as of September 30, 1996 and December 31, 1995 6
Consolidated Condensed Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 7
Notes to Consolidated Condensed Financial Statements 8
ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
ITEM 6. A) EXHIBITS 18
B) REPORTS ON FORM 8-K 18
SIGNATURES 19
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS SEPTEMBER 30 DECEMBER 31,
1996 1995
--------------------- --------------------
Cash and cash equivalents $6,882,867 $ 7,589,600
Federal funds sold and other short-term investments 4,601,803 11,734,905
Securities available for sale 11,967,516 11,571,581
Securities held to maturity 27,890,922 25,794,108
Total loans 96,327,965 94,476,844
Allowance for loan losses (Note 3) <1,009,276> <928,817>
--------------------- --------------------
Net loans 95,318,689 93,548,027
Bank premises and equipment, net 3,539,401 3,732,418
Accrued interest receivable 1,262,890 1,217,561
Other assets 356,340 343,248
----------------- ----------------------
Total Assets $151,820,428 $155,531,448
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $15,634,344 $ 22,513,544
Interest bearing 95,132,140 97,203,385
----------------- -----------------
Total deposits 110,766,484 119,716,929
Borrowed Funds:
Short-term borrowings (Note 4) 15,910,278 9,679,833
Other borrowings (Note 5) 2,288,849 3,629,027
Accrued interest payable 586,937 693,364
Other liabilities 550,117 622,811
----------------- -----------------
Total Liabilities 130,102,665 134,341,964
SHAREHOLDERS' EQUITY:
Preferred stock
1,000,000 shares, $.01 par value per share
authorized, none issued or outstanding
Common stock
10,000,000 shares, $.01 par value
per share authorized, 2,285,864 and
2,282,615 shares issued and outstanding 22,859 22,826
Additional paid-in capital 6,960,190 6,946,370
Employee stock options earned 74,525 52,165
Retained Earnings 14,812,592 14,210,036
Less 7,578 shares held in treasury, at cost <84,305> -
FASB 115 Adjustment <29,249> 37,114
Less: Deferred compensation related to employe stock
ownership plan debt guarantee <38,849> <79,027>
------------------ -----------------
Total Shareholders' Equity 21,717,763 21,189,484
------------------ -----------------
Total Liabilities and Shareholders' Equity $ 151,820,428 $155,531,448
================= ==========
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30
1996 1995
INTEREST INCOME:
Interest and fees on loans $2,191,194 $ 2,099,021
Interest on deposits with other banks 535 761
Interest on investment securities:
Taxable 554,018 467,524
Exempt from federal income taxes 65,146 50,863
Dividends 7,800 9,388
Interest on federal funds sold
and other short-term investments 30,185 78,133
--------------- -------------
Total Interest Income 2,848,878 2,705,690
--------------- -------------
INTEREST EXPENSE:
Interest on deposits 1,146,285 1,163,571
Interest on short-term borrowings 160,212 109,731
Interest on other borrowings 35,382 79,767
------------- ------------
Total Interest Expense 1,341,879 1,353,069
------------- ------------
Net Interest Income 1,506,999 1,352,621
Provision for loan losses (Note 3 35,000 45,000
------------- ------------
Net Interest Income After
Provision For Loan Losses 1,471,999 1,307,621
------------ -------------
OTHER OPERATING INCOME:
Investment securities gains (losses) - 15,361
Gain on sale of loans 13,708 12,288
Trust department income 25,700 15,333
Service fees 153,800 122,627
Other income 56,318 41,767
-------------- ------------
Total Other Operating Income 249,526 207,376
-------------- ------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 560,220 498,729
Occupancy expense of bank premises, net 78,102 75,905
Furniture and equipment 87,791 95,853
Data processing 83,863 78,908
Other operating expenses 250,767 248,688
------------ ------------
Total Other Operating Expenses 1,060,743 998,083
------------ ------------
Income Before Income Taxes 660,782 516,914
Provision for Income Taxes 221,159 165,357
------------- -----------
Net Income $439,623 $ 351,557
============ =======
Earnings Per Share $ .19 $.15
Dividends Per Share $ .10 $.08
(1) Adjusted for 3 for 2 stock split paid as a 50% stock dividend on June 15,
1995
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
September 30
1996 1995
INTEREST INCOME:
Interest and fees on loans $6,497,293 $6,163,869
Interest on deposits with other banks 1,769 1,285
Interest on investment securities:
Taxable 1,580,945 1,381,066
Exempt from federal income taxes 182,617 150,583
Dividends 24,190 25,138
Interest on federal funds sold
and other short-term investments 169,343 111,447
------------ -----------
Total Interest Income 8,456,157 7,833,388
------------ -------------
INTEREST EXPENSE:
Interest on deposits 3,427,262 3,319,915
Interest on short-term borrowings 514,815 294,390
Interest on other borrowings 137,760 150,101
------------- ------------
Total Interest Expense 4,079,837 3,764,406
------------- ------------
Net Interest Income 4,376,320 4,068,982
Provision for loan losses (Note 3) 120,000 135,000
------------- -------------
Net Interest Income After
Provision For Loan Losses 4,256,320 3,933,982
------------- -------------
OTHER OPERATING INCOME:
Investment securities gains (losses) 99 17,785
Gain on sale of loans 54,355 21,279
Trust department income 89,394 62,054
Service fees 414,945 318,693
Other income 184,560 117,801
----------- -----------
Total Other Operating Income 743,353 537,612
------------ -----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,624,544 1,454,044
Occupancy expense of bank premises, net 239,502 212,147
Furniture and equipment 268,634 264,562
Data processing 249,003 224,268
Other operating expenses 767,300 802,658
------------ -------------
Total Other Operating Expenses 3,148,983 2,957,679
------------ -------------
Income Before Income Taxes 1,850,690 1,513,915
Provision for Income Taxes 609,778 482,272
------------- ------------
Net Income $1,240,912 $1,031,643
========= ========
Earnings Per Share $.53 $.45 (1)
Dividends Per Share $.32 $.22 (1)
(1) Adjusted for 3 for 2 stock split paid as a 50% stock dividend on June 15,
1995.
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Nine Months Twelve Months
Ended Ended
September 30, December 31,
1996 1995
Common Stock:
Balance at beginning of period $ 22,826 $ 15,006
Stock split - 7,593
Stock options exercised 33 227
------------- ------------
Balance at end of period 22,859 22,826
------------- ------------
Additional Paid-in Capital:
Balance at beginning of period 6,946,370 6,791,012
Stock options exercised 13,820 155,358
------------ ------------
Balance at end of period 6,960,190 6,946,370
------------ ------------
Employee Stock Options Earned:
Balance at beginning of period 52,165 26,642
Stock options exercised <26,586> <8,174>
Unearned employee compensation 48,946 33,697
-------------- --------------
Balance at end of period 74,525 52,165
-------------- --------------
Retained Earnings:
Balance at beginning of period 14,210,036 13,421,900
Net income 1,240,912 1,471,887
Dividends declared on common stock <638,356> <676,140>
Stock Split - <7,611>
--------------- ---------------
Balance at end of period 14,812,592 14,210,036
--------------- ---------------
Treasury Stock, at Cost:
Balance at Beginning of Period - -
Purchase of Treasury Stock <84,305> -
-------------- --------------
Balance at End of Period <84,305> -
-------------- --------------
FASB 115 Adjustment:
Balance at beginning of period 37,114 <159,701>
Net adjustment during period <66,363> 196,815
---------------- --------------
Balance at end of period <29,249> 37,114
---------------- --------------
Other:
Balance at beginning of period <79,027> <132,599>
Principal payments on ESOP loan 40,178 53,572
---------------- ----------------
Balance at end of period <38,849> <79,027>
---------------- ---------------
Total Shareholders' Equity $21,717,763 $21,189,484
=========== =========
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,240,912 $1,031,643
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 120,000 135,000
Provision for depreciation and
amortization 253,440 241,003
Amortization of premiums (accretion of discounts)
on investment securities, net <57,046> 42,753
(Gains) losses on investment securities <99> <17,785>
(Gain) on sale of loans <54,355> <21,279>
Proceeds from sale of loans 3,888,513 1,709,916
Loans originated for sale <3,834,158> <1,688,637>
Change in assets and liabilities:
(Increase) decrease in accrued
interest receivable <45,329> <32,756>
(Increase) decrease in other assets 9,228 130,535
Increase (decrease) in accrued
interest payable <106,427> 15,562
Increase (decrease) in other
liabilities <2,096> <190,093>
-------------- -------------
Net cash provided by
operating activities 1,412,583 1,355,862
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available for-sale securities - 2,027,813
Proceeds from maturity of available-
for-sale securities 20,666,069 2,200,233
Purchase of available-for-sale securities <21,143,171> <4,247,781>
Proceeds from maturity of investment
securities 6,296,377 5,207,713
Purchase of investment securities <8,391,800> <6,178,536>
Decrease in federal funds sold and
other short-term investments, net 7,133,102 1,753,580
Loans originated, net of
principal collected <1,890,662> <3,618,839>
Purchase of bank premises and equipment <60,423> <1,158,092>
---------------- ----------------
Net cash provided by (used in)
investing activities 2,609,492 <4,013,909>
--------------- ----------------
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
Nine Month Ended
September 30
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 13,853 134,462
Net (decrease) in deposits <8,950,445> <6,011,524>
Net increase (decrease) in other
borrowings 4,930,445 8,695,627
Cash dividends paid <638,356> <493,549>
Purchase of Treasury Stock <84,305> --
--------------- -------------
Net cash (used in)
financing activities <4,728,808> 2,325,016
--------------- --------------
Net increase (decrease) in cash and
cash equivalents <706,733> <333,031>
CASH AND CASH EQUIVALENTS:
Beginning 7,589,600 5,155,930
------------ -------------
Ending $6,882,867 $4,822,899
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $4,186,264 $3,748,844
Income taxes 477,001 642,177
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Other assets acquired in settlement of loans 170,319 164,469
Principal payments on ESOP loan (Note 5) 40,178 40,179
See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
Note 1. General:
The accompanying consolidated condensed financial statements conform
to generally accepted accounting principles and to general practices
within the banking industry. The more significant policies used by
the Company in preparing and presenting its financial statements are
stated in the Corporation's Form 10-KSB.
The effect of timing differences in the recognition of revenue and
expense for tax liability is not determined until the end of each
fiscal year.
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals necessary to present fairly the financial
position of the Corporation as of September 30, 1996 and December
31, 1995, the results of operations for the three and nine months
ended September 30, 1996 and 1995, and cash flows for the nine
months ended September 30, 1996 and 1995.
The results of operations for the three and nine months ended Sept-
ember 30, 1996 and 1995 are not necessarily indicative of the results
to be expected for the full year.
Note 2. Non-Performing Loans
Non-performing loans includes loans which have been categorized by
management as non-accruing because collection of interest is not
assured, and loans which are past-due ninety days or more as to
interest and/or principal payments. The following summarizes
information concerning non-performing loans:
September 30 December 31
1996 1995 1995
-------------------------- ----------------
Impaired Loans $ - $ - $134,000
Non-accruing loans 362,325 527,460 206,000
Past due 90 days or more
and still accruing 171,900 147,104 238,000
----------- ----------- ------------
Total non-performing loan $534,225 $674,564 $578,000
======= ======= =======
Note 3: Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
Three Months Ended
September 30
1996 1995
----------- -----------
Balance at beginning of period $992,749 $889,925
Provision charged to expense 35,000 45,000
Loans charged off <24,630> <13,969>
Recoveries 6,157 1,884
------------ -----------
Balance at end of period $1,009,276 $922,840
========= =======
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(CONTINUED)
Nine Month Ended
September 30
1996 1995
Balance at beginning of period $ 928,817 $ 814,115
Provision charged to expense 120,000 135,000
Loans charged off <78,396> <31,293>
Recoveries 38,855 5,018
------------- -------------
Balance at end of period $1,009,276 $ 922,840
======= ========
Note 4. Short-Term Borrowings:
A summary of short-term borrowings is as follows:
September 30 December 31,
1996 1995
Securities sold under agreement to
repurchase $15,910,278 $9,679,833
Note 5. Other Borrowings:
September 30, December 31,
1996 1995
ESOP Debt Guarantee $ 38,849 $ 79,027
FHLB Borrowings 2,250,000 3,550,000
------------- -------------
$2,288,849 $3,629,027
======== ========
The Company has an Employee Stock Ownership Plan for the benefit of the employ-
ees of the Company and its subsidiary. The ESOP borrowed funds from a third
party lender and purchased 37,367 shares of the Company's stock. According-
ly, the debt has been recorded in the accompanying consolidated condensed
balance sheets together with the related deferred compensation. The debt and
related deferred compensation are reduced as the ESOP makes principal payments.
The bank has established a line of credit with the Federal Home Loan Bank
("FHLB"). Periodic draws are taken gainst this line to fund specific loans.
The total line of credit is $4,705,000, with an available balance of
$2,455,000.
Note 6. Stock Option Plan:
The Company's 1990 Directors' Stock Option Plan and the 1990 Executive Stock
Option Plan expired on January 24, 1995. At the time of expiration, options
outstanding under the 1990 Plans were 125,134 plus another 160,000 options
under the 1994 Directors' and Executives Stock Option Plans. Options are
granted at prices equal to the fair market value for directors and at prices
from 90% to 100% of fair market value for key employees. The options vest
over three years and are exercisable to 10 years from the date of grant.
Other pertinent information related to the plans is as follows:
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(CONTINUED)
Note 6. Stock Option Plan (continued)
September 30, December 31,
1996 1995 (1)
Shares under option, beginning of year 262,235 196,701
Granted during the year 7,300 108,350
Terminated and canceled during the year <510> <11,100>
Exercised during the year <3,249> <31,716>
Shares under option, end of period 265,776 262,235
Options exercisable, end of period 167,596 113,543
Available to grant, end of period 124,350 131,650
Average prices: Granted during the period $ 11.15 $ 9.40
Exercised during the period $ 4.26 $ 4.65
Under option $ 6.87 $ 9.79
(1) Adjusted for 3-for-2 stock split payable June 15, 1995.
Note 7. Commitments and Contingent Liabilities:
Following are commitments and contingent liabilities with changes
since December 31, 1995.
Financial instruments with off-balance-sheet risk:
A summary of the amount of exposure to credit loss for loan commit-
ments (unfunded loans and unused lines of credit) and standby
letters of credit outstanding is as follows:
September 30, December 31,
1996 1995
Loan commitments $ 7,804,513 $ 7,733,617
Standby letters of credit 278,247 201,793
--------------- --------------
$ 8,082,760 $7,935,410
========= ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The purpose of Management's discussion and analysis is to provide relevant
information regarding the Registrant's financial condition and its results of
operations. The information included herein should be read in conjunction
with the consolidated condensed balance sheets as of September 30, 1996 and
December 31, 1995 and the consolidated condensed statements of income for the
three and nine months ended September 30, 1996 and 1995. This information is
not meant to be a substitute for the balance sheets and income statements.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1996 was approximately
$439,000 compared to $352,000 for the similar period in 1995. For the nine
months ended September 30, 1996 net income was nearly $1,241,000 compared to
$1,032,000 for nine months ended September 30, 1995. The discussion that
follows will provide information about the various areas of income and
expense that resulted in the aforementioned results.
THREE MONTHS ENDED SEPTEMBER 30
For the three months ended September 30, 1996, interest income was $2,849,000
compared to $2,706,000 for the same period in 1995. This increase of approx-
imately 5.3%, $143,000, was the result of both increased volumes and
increased yields on loans and increased volume on securities.
Interest and fees on loans increased to $2,191,000 in the third quarter of
1996 compared to $2,099,000 in the same period of 1995. The average balance
of loans was $93.8 million in 1996 compared to $93.3 million in 1995. The
average yield on loans increased to 8.99% in the third quarter of 1996 from
8.79% in the same period in 1995. Approximately 35% of the increased loan
income was the result of increased volume and loan mix, and approximately 65%
was the result of increased yields.
Investment income on taxable securities was $554,000 for the three months ended
September 30, 1996 compared to $468,000 for the same three months in 1995.
The increase was due to increased volume. Interest income from tax exempt
securities increased to $65,000 from $51,000 in 1995. The average yield
declined, but the average volume for the quarter increased from approximately
$4.0 million to $5.3 million.
Interest from fed funds sold and other short-term investments decreased to
$30,000 in 1996 from $78,000 in 1995. The decreased volume in fed funds
sold, $1.8 million in 1996 compared to $5.2 million in 1995, was the primary
reason for the decreased income in this category. However, the yield was
also lower on fed funds, 5.18% in 1996 and 5.48% in 1995.
Interest paid on deposits decreased to $1,146,000 in the three months ended
September 30, 1996 compared to $1,164,000 for the same period in 1995.
The average balance of total deposits declined slightly, but there was a
shift out of CDS and into money market accounts and NOW accounts, which have
lower interest rates. The average rate on CDS was slightly higher in 1996
than in 1995, 5.74% and 5.70%, respectively. The average rate on maturing
deposits was lower than the rate on new and renewed deposits. The actions of
the Federal Reserve will affect the level and direction of interest rates in
the future. Management, at this time, is not able to predict their actions.
Interest on short-term borrowings increased to $160,000 from $110,000 in
1995, or an increase of $50,000. Repurchase agreements, the major item in
this category, had a higher average balance in 1996 compared to 1995, $11.6
million and $7.8 million, respectively. The interest rates paid decreased in
1996 compared to 1995, 5.30% and 5.60%, respectively. Fed funds purchased
were not used in the third quarter of 1995 compared to an average balance of
$473,000 in 1996.
Other borrowings are represented by Federal Home Loan Bank ("FHLB") advances.
Average borrowings from the FHLB decreased to $2.3 million from $5.0 million in
1995. The average rate on the borrowings declined to 6.30% from 6.40%.
The provision for loan loss was $35,000 for the three months in 1996 compared to
$45,000 in 1995. It is management's opinion that this amount is an adequate
provision. The rationale for the decrease compared to the provision in 1995
was due in part to a large recovery anticipated and received early in the
fourth quarter in the amount of $180,000. This loan was originally charged
off in the fourth quarter of 1994.
Total other operating income increased to $250,000 from $207,000 for the three
months ended September 30, 1996 and 1995, respectively. Included in the 1995
amount is $15,000 from the gain on sale of securities compared to zero in 1996.
Gain on sale of loans in the third quarter of 1996 was $14,000 compared to
$12,000 in 1995. Service fees increased to over $154,000 in 1996 from
$123,000 in 1995. Most of this amount results from checking account fees.
The increase was due to an increased number of accounts and an increased fee
schedule. Fees generated from trust activities, credit cards and the sale of
non-deposit investments were $60,000 for the three months ended September 30,
1996 compared to $32,000 in the same period in 1995.
Total other operating expenses increased to $1,061,000 for the three months
ended September 30, 1996 compared to $998,000 for the same period in 1995.
The increase can be attributed to the salary and benefits area with most of it
being additional accrual for projected bonuses. Salaries increased approx-
imately $13,000, a 3% increase, bonus increased $41,000 and health insurance
premiums increased $8,000.
Income taxes increased to $221,000 from $165,000. This increase was due to a
larger amount of income before taxes and a higher effective tax rate, 33% and
32%, 1996 and 1995, respectively.
NINE MONTHS ENDED SEPTEMBER 30
Total interest income for the nine months ended September 30 was $8,456,000 and
$7,833,000, in 1996 and 1995, respectively. Of this $623,000 increase, slightly
over one-half of it was from the lending area, approximately $333,000. This
increase was split between volume and yield. The average loan balance for the
first nine months of 1996 was $93.4 million, compared to $91.5 million in
1995. The average yields were 8.95% and 8.79%, 1996 and 1995, respectively.
Interest on taxable securities increased to $1,581,000 for the nine months ended
September 30, 1996 from $1,381,000 for the same period in 1995. All of this
increase was due to increased volume. The average yield on the taxable sec-
urities was approximately the same in 1996 as in 1995.
Interest from tax exempt securities was $183,000 in 1996 compared to $151,000 in
1995. The yield on the tax exempt portfolio was approximately the same in both
periods. The increase in income was the result of higher volume.
The income from fed funds sold and other short term investments was $169,000 for
the first nine months of 1996 compared to $111,000 in 1995. The average balance
in fed funds sold was $4.0 million in 1996 compared to $2.1 million in 1995.
This increase in volume offset a decrease of approximately .55% in yield, 5.01%,
and 5.56% in 1996 and 1995, respectively.
Interest on deposits was $3,427,000 for the nine months ended September 30, 1996
compared to $3,320,000 for the same period in 1995. Nearly all of this increase
can be attributed to higher interest rates. IRAs and CD's experienced a higher
average rate in 1996 than in 1995. Although 1996 has not been an increasing
interest rate environment, maturing deposits have rates lower than the rates
being offered, thus the average yields increased.
Interest on short-term borrowings, repurchase agreements and fed funds purch-
ased, was $515,000 in 1996 compared to $294,000 in 1995. The increase in the
average balance of repurchase agreements offset a slight decline in rate.
The increase in repurchase interest, offset by a decline in fed funds purch-
ased interest, represents this increase.
The provision for loan loss was $120,000 in 1996 compared to $135,000 in 1995.
The discussion for the three months regarding the loan loss provision also
applies in this section. Management is of the opinion that the current provision
is adequate.
For the nine months of 1996, total other operating income was $743,000 compared
to $538,000 for the same period in 1995. Included in these figures are service
fees which were $415,000 in 1996 compared to $319,000 in 1995. The majority of
these are fees associated with deposit accounts, primarily checking, and are the
result of a larger number of accounts and an increased fee schedule. Two other
areas that experienced sizeable increases were gain on sale of loans and
trust department income. A program to increase fixed rate mortgage loan orig-
inations was instituted early in 1996. As a result, more loans were originated
and subsequently sold, which in turn resulted in an increase of income, $54,000
and $21,000 in 1996 and 1995, respectively. Trust income increased to
$89,000 in 1996 from $62,000 in 1995. This was the result of an increase in
accounts. The other areas of income that experienced significant growth in
1996 compared to 1995 was credit card fees and investment center income, $58,000
and $11,000 respectively.
Total other operating expenses were $3,149,000 for the nine months of 1996
compared to $2,958,000 for the same period of 1995. The largest area of
increase was salaries and employee benefits. Increases in salaries, bonus
accrual and health insurance premiums account for $158,000 of the $170,000
increase in this category. Included in the category of other operating exp-
enses is the FDIC premiums. In 1996 they totaled $1,500 compared to $116,000
in 1995. This was the major reason for the decrease in the other operating
expense category.
The income tax provision was $610,000 in 1996 compared to $482,000 in 1995.
These amounts represent effective tax rates of 33% and 32% respectively.
BALANCE SHEET ANALYSIS
This analysis of the Company's financial position is comparing September 30,
1996 to December 31, 1995. Total assets were $151,820,000 compared to
$155,531,000. This represents a decrease of approximately 2.4%.
Total loans were $96.3 million on September 30, 1996 and $94.5 million on Dec-
ember 31, 1995, an increase of $1.8 million. Two of the three major categories
of loans increased during this period of time. Real estate loans were $55.6
million compared to $56.5 million, September 30, 1996 and December 31, 1995
respectively . Consumer loans increased to $17.3 million at September 30,
1996 compared to $16.2 million at December 31, 1995. Commercial loans exp-
erienced the largest increase, $21.7 million at September 30, 1996 compared to
$20.3 million at December 31, 1995. If the predictions of slower economic
growth during the rest of 1996 are correct, growth of the loan portfolio should
also be slower.
Allowance for loan losses was $1,009,000 at September 30, 1996 compared to
$923,000 at December 31, 1995. As of September 30, 1996 non-performing loans
totaled $534,000 compared to $578,000 at December 31, 1995. Management believes
that the allowance is adequate at this time. The $180,000 recovery discussed
earlier in this analysis had the affect of increasing the allowance, by the
amount of the recovery. This will be reflected in the fourth quarter of 1996.
Bank premises and equipment was $3.5 million at September 30, 1996 compared to
$3.7 million at December 31, 1995. The decrease was primarily the depreciation
of buildings and equipment.
As of September 30, 1996 fed funds sold and other short-term investments were
$4.6 million compared to $11.7 million at December 31, 1995. Securities avail-
able for sale were $12.0 million at September 30, 1996 compared to $11.7 million
at December 31, 1995. Securities held to maturity also increased slightly,
$27.9 million compared to $25.8 million, September 30, 1996 and December 31,
1995, respectively.
Total deposits were $110.8 million at September 30, 1996 compared to $119.7
million at December 30, 1995. Non-interest bearing deposits were approximately
$6.9 million lower on September 30, 1996 than December 31, 1995, $15.6 million
and $22.5 million, respectively. Several commercial customers have historically
increased their demand deposit balances at year end. As a result, subsequent
reporting dates typically have balances lower than year-end. Interest
bearing deposits were down slightly, $95.1 million at September 30, 1996 and
$97.2 million at December 31, 1995. Competition for deposit dollars continues
to be intense. As a result, dramatic growth of deposits is not anticipated
during the fourth quarter of 1996.
Other borrowings, the main component of which are advances from the FHLB, was
$2,250,000 at September 30, 1996 compared to $3,550,000 at December 31, 1995.
The advances were used to fund some of the increase in loans and to also provide
liquidity.
The company continues to maintain an excellent capital position regardless of
the measurement used. The following table shows four different measurements as
of September 30, 1996 and December 31, 1995, and the regulatory requirement, if
any. Management does not anticipate the need for additional capital resources
in the near future.
September 30, December 31, Regulatory
1996 1995 Requirements
Leverage capital ratio 15.03% 14.60% N/A
Core capital as a percent
of assets 14.30% 13.51% 5.50%
Core capital as a percent
of risk-based assets 23.04% 22.88% N/A
Total capital as a percent
of risk-based assets 24.02% 23.89% 8.00%
Liquidity as it relates to the subsidiary bank is a measure of its ability to
fund loans and withdrawals of deposits in a cost-effective manner. The Bank's
principal sources of funds are deposits, scheduled amortization and pre-payment
of loan principal, maturities of investment securities, income from opera-
tions, and short-term borrowings. Additional sources include purchasing fed
funds, sale of loans, borrowing from both the Federal Reserve Bank and Federal
Home Loan Bank and capital loans. Under present law, accumulated earnings could
be paid as dividends without incurring a tax liability, which also provides
additional liquidity, by its investment subsidiary, Nevahawk Investment, Inc.
The liquidity needs of the Company consist of payment of dividends to its
shareholders and a limited amount of expenses. The sources of funds to provide
this liquidity are income from investments, maturities of investments, cash
balances and dividends from the Bank. Certain restrictions are imposed upon the
Bank which could limit its ability to pay dividends if it did not have net
earnings in the future. The Company maintains adequate liquidity to pay its
expenses.
Off -Balance sheet items consist of credit card lines of credit, mortgage com-
mitments, letters of credit and other commitments totaling approximately
$8,082,760 as of September 30, 1996. This compares to $7,935,000 at December
31, 1995. The bank has historically funded the off-balance sheet commitments
with its primary sources of funds, and management anticipates that this will
continue.
PART II
OTHER INFORMATION
ITEM 6. A) EXHIBITS
See Exhibit Index following the signature page in this report,
which is incorporated herein by this reference.
ITEM 6. B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the third quar-
ter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Blackhawk Bancorp, Inc.
(Registrant)
Date: November 14, 1996 /s/ Dennis M. Conerton
------------------------------------
President and
Chief Executive Officer
Date: November 14, 1996
/s/ Jesse L. Calkins
-------------------------------------
Senior Vice President
(Chief Financial and
Accounting Officer)
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
Incorporated Filed
Exhibit Herein By Here- Page
Number Description Reference To: with No.
- -------------------------- ------------------------------------------
4.1 Amended and Exhibit 3.1 to
restated Articles Amendment No. 1 to
of Incorporation Registrant's
of the Registrant Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.2 By-laws of Regis- Exhibit 3.2 to
trant as amended Amendment No. 1 to
Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.3 Plan of Conversion Exhibit 1.2 to
Beloit Savings Amendment No. 1 to
Bank as amended Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)
27.0 Financial Data Schedule X 21