Exhibit 99(c)
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Combined Statement of Financial
Condition and Pro Forma Condensed Combined Statements of Operations are based
upon the historical results of Blackhawk Bancorp, Inc. for the year ended
December 31, 2002, and at and for the six months ended June 30, 2003, and of
DunC Corp. for the year ended December 31, 2002, and at and for the six months
ended June 30, 2003, giving effect to the acquisition using the purchase method
of accounting. Pro forma adjustments, and the assumptions on which they are
based, are described below and in the accompanying footnotes to the pro forma
condensed combined financial statements. These financial statements should be
read in conjunction with the historical financial statements of Blackhawk
Bancorp, Inc. and DunC Corp. The pro forma condensed combined financial
statements are not necessarily indicative of the results that actually would
have occurred had the companies constituted a single entity during the
respective periods, nor are they indicative of future results of operations.
The pro forma financial data gives effect to the fact that the acquisition will
be accounted for as a purchase in accordance with accounting principals
generally accepted in the United States of America. Under the purchase method of
accounting, the tangible and identified intangible assets and liabilities of
DunC corp. will be recorded at estimated fair values at the time the acquisition
is consummated. The excess of the purchase price over the net tangible and
identifiable intangible assets will be recorded as goodwill. The adjustments
necessary to record tangible and identifiable intangible assets and liabilities
at their fair value will be amortized to income and expense over the estimated
remaining lives of the related assets and liabilities. Goodwill will not be
amortized. Instead, goodwill will be reviewed for impairment at least annually.
If the carrying amount of goodwill exceeds its estimated fair value, an
impairment loss will be recognized in an amount equal to that excess.
The unaudited pro forma combined condensed consolidated financial statements
combine the historical condensed consolidated financial statements of Blackhawk
Bancorp, Inc. and DunC Corp. giving effect to the acquisition as if it had been
effective on September 30, 2003, with respect to the unaudited pro forma
combined condensed consolidated balance sheet, and as of the beginning of the
period presented with respect to the unaudited pro forma combined condensed
consolidated statements of earnings.
The total purchase price is $7,222,941 in cash and is based on the merger
consideration of $1,523.18 per share for each of the 4,742 shares of DunC common
stock outstanding.
The pro forma condensed combined financial statements also do not take into
account the following items, which will impact the financial condition, results
of operations and reported per share amounts of the merged entity.
o Earnings from June 30, 2003 to the closing date of the transaction
(September 30, 2003).
o Estimated expense savings to be derived from, among other things, the
termination of certain DunC Corp. employees, elimination of duplicative
backroom operations and conversion to Blackhawk Bancorp, Inc.' s data
processing system.
o Expected revenue enhancements from marketing Blackhawk Bancorp, Inc.' s
services to DunC Corp. customers.
Notes to Unaudited Pro forma Combined Condensed
Consolidated Financial Information
Note 1 Basis of Presentation of DunC Corp. Acquisition
The unaudited pro forma combined condensed consolidated financial information
has been prepared assuming the acquisitions will be accounted for under the
purchase method of accounting. The unaudited pro forma combined condensed
consolidated statements of earnings for the six months ended June 30, 2003 and
for the year ended December 31, 2002 are presented as if the DunC Corp.(" DunC")
acquisition occurred at the beginning of the period. The unaudited pro forma
combined condensed consolidated balance sheet as of June 30, 2003 is presented
as if the DunC acquisition occurred as of that date. This information is not
intended to reflect the actual results that would have been achieved had the
DunC acquisition actually occurred on those dates.
Note 2 Purchase Price and Funding of DunC
Blackhawk Bancorp, Inc. ("the Corporation") acquired DunC pursuant to an
Agreement and Plan of Merger dated as of March 17, 2003 (the "Merger
Agreement"), between the Corporation, DunC Merger Corporation ("Merger Corp"), a
wholly owned subsidiary of the Corporation, and DunC through a series of
mergers.
Pursuant to the Merger Agreement, Merger Corp was merged with and into DunC at
the close of business on the Effective Date, and DunC became a wholly owned
subsidiary of the Corporation. The merger consideration was cash in the
aggregate amount of $7,222,941, which will be paid to former DunC shareholders.
The price paid by the Corporation for the DunC common stock was arrived at
through arms-length negotiations.
The terms of the merger of Merger Corp with and into DunC are described more
fully in the Merger Agreement filed as Exhibit 2.1 to the Corporation's Form 10-
QSB for the quarterly period ended March 31, 2003, which is incorporated herein
by reference. The description of the transaction set forth above is qualified
in its entirety by the terms set forth in the Merger Agreement.
Immediately following the merger of Merger Corp into DunC, DunC merged with and
into the Corporation, and First Bank merged with and into Blackhawk State Bank,
a wholly owned subsidiary of the Corporation. As a result of these mergers the
Corporation and Blackhawk State Bank were the surviving entities, and DunC and
First Bank ceased to exist.
The merger consideration paid to the former shareholders of DunC will be funded
through a term loan with U.S. Bank National Association, Milwaukee, Wisconsin.
The term loan for $7.5 million was entered into in the ordinary course of
business and on
terms commensurate with prevailing market conditions on September 26, 2003. The
term loan matures on September 26, 2008. A copy of the term loan agreement was
filed as an exhibit on the Corporation's Current Report on Form 8-K dated
September 30, 2003 and is incorporated herein by reference. The term loan
agreement allows the Corporation to select the per annum interest rate. The
unaudited pro forma financial statements reflect an initial interest rate of 3
month LIBOR at 1.2% plus 2% totaling 3.2%. The annual interest expense on the
term loan would change by $9,375 for each 1/8% change in the 3 month LIBOR rate.
Note 3 Allocation of Purchase Price of DunC
Under purchase accounting, DunC's assets and liabilities and any identifiable
intangible assets are required to be adjusted to their estimated fair values.
The estimated fair values have been determined by the Corporation based upon
available information. The estimated fair values assigned are subject to review
as part of the Corporation's year end financial statement audit. The following
are the pro forma adjustments made to record the transaction and to adjust
DunC's assets and liabilities to their estimated fair values at June 30, 2003.
Cash purchase price of DunC (in thousands) $7,223
Debt of DunC assumed by the Corporation 888
Acquisition costs incurred by the Corporation 346
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Total DunC acquisition cost $8,457
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Historical net assets of DunC $5,846
Accrual of DunC severance costs (20)
Fair market value adjustments as of June 30, 2003:
Securities 510
Loans 360
Premises and equipment 401
Goodwill 1,116
Core deposit intangible 1,454
Certificates of deposit (299)
FHLBC advances (131)
Deferred taxes on purchase accounting adjustments (780)
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$8,457
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All of the other asset and liability categories are either variable rate or
short-term in nature and fair market value adjustments were considered to be
immaterial to the financial presentation.
In accordance with Statement of Financial Accounting Standards No 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets," goodwill and
intangible assets with indefinite lives are not amortized for acquisitions
initiated after June 30, 2001; therefore, no goodwill amortization is presented
in the pro forma financial
statements. However, the core deposit intangible will be amortized over its
estimated useful life and recorded as a charge to operations.
Note 4 Merger Costs of DunC
The Corporation incurred merger costs of $346,000 consisting mostly of fees for
professional services related to investment banking, legal and accounting.
Note 5 Amortization of Intangibles
The following table reflects the impact on income from the amortization of
purchase accounting adjustments for each of the next five years.
Year 1 Year 2 Year 3 Year 4 Year 5
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Securities $200 $120 $ 77 $ 45 $ 36
Loans 163 157 40
Premises and equipment 4 4 4 4 4
Goodwill
Core deposit intangible 139 139 139 139 139
Certificates of deposit (277) (16) (4) (2) -
FHLBC advances (61) (35) (25) (10) -
---- ---- ---- ---- ----
Subtotal 168 369 231 176 179
Income taxes (benefit) (57) (125) (79) (60) (61)
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Total $111 $244 $152 $116 $118
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The following assumptions were used for purposes of determining the pro forma
effect of the DunC acquisition on the statement of income. In accordance with
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
goodwill will not be amortized, but will be reviewed for impairment at least
annually. All amortization/depreciation is under the straight line method over
the respective average life of the associated asset(s).
Remaining
Description Term/Useful Life
- ----------- ----------------
Securities 3-313 Months
Loans 6-44 Months
Premises and equipment 18-40 Years
Core deposit intangible 87-144 Months
Certificates of deposit 4-44 Months
FHLBC advances 2-41 Months
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS
OF FINANCIAL CONDITION
June 30, 2003
(in thousands)
Blackhawk DunC Pro Forma Pro Forma
Bancorp, Inc. Corp. Adjustments Note Combined
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ASSETS
Cash and due from banks $ 12,166 $ 5,172 $ 7,500 2
(7,223) 3 $ 17,615
Fed funds sold and securities purchased
under agreements to resell - 3,613 3,613
Interest-bearing deposits in banks 1,922 991 2,913
Available-for-sale securites 102,013 8,884 408 3 111,305
Held-to-maturity securites 19,399 2,336 102 3 21,837
Loans 183,539 53,862 360 3 237,761
Office buildings and equipment, net 6,511 2,725 401 3 9,637
Goodwill 3,112 1,116 3 4,228
Other identifiable intangible assets 1,276 1,454 3 2,730
Other assets 13,595 1,273 (346) 3 14,522
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TOTAL ASSETS $343,533 $78,856 $ 3,772 $426,161
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing $33,120 $16,293 $ 49,413
Interest-bearing 215,772 51,927 299 3 267,998
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Total deposits 248,892 68,220 299 317,411
Short-term borrowings 11,990 865 12,855
Long-term borrowings 46,600 4,000 7,500 2
131 3 58,231
Company Obligated Mandatorily Redeemable
Preferred Securities of subsidiary trust
holding solely subordinated debentures 7,000 7,000
Other liabilities 2,909 813 780 3
20 3 4,522
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TOTAL LIABILITIES 317,391 73,898 8,730 400,019
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Stockholders' equity
Preferred stock -
Common stock 25 3,034 (3,034) 3 25
Surplus 8,773 8,773
Retained earnings 16,062 1,924 (1,924) 3 16,062
Accumulated other comprehensive income 1,282 - 1,282
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TOTAL STOCKHOLDERS' EQUITY 26,142 4,958 (4,958) 26,142
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $343,533 $78,856 $ 3,772 $426,161
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS
OF OPERATIONS
For the Year Ended December 31, 2002
(in thousands)
Blackhawk DunC Pro Forma Pro Forma
Bancorp, Inc. Corp. Adjustments Combined
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Interest Income:
Interest and fees on loans $14,659 $3,853 $(163) $18,349
Interest and dividends on securities:
Taxable 3,497 624 (161) 3,960
Nontaxable 853 90 (39) 904
Interest on fed funds sold and securities
purchased under agreements to resell 133 21 154
Interest on interest-bearing deposits in banks 46 14 60
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TOTAL INTEREST INCOME 19,188 4,602 (363) 23,427
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Interest Expenses:
Interest on deposits 5,926 1,220 (277) 6,869
Interest on short-term borrowings 292 2 294
Interest on long-term borrowings 2,152 231 240
(61) 2,562
Interest on Company Obligated Mandatorily Redeemable
Preferred Securities 13 13
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TOTAL INTEREST EXPENSE 8,383 1,453 (98) 9,738
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NET INTEREST INCOME 10,805 3,149 (265) 13,689
Provision for loan losses 1,004 628 1,632
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,801 2,521 (265) 12,057
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Noninterest Income:
Service charges on deposit accounts 1,583 688 2,271
Securities gains, net 321 54 375
Gain on sale of loans 454 1,568 2,022
Other 648 187 835
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TOTAL NONINTEREST INCOME 3,006 2,497 - 5,503
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Noninterest expenses:
Salaries and employee benefits 5,388 2,373 7,761
Occupancy 735 316 4 1,055
Equipment 927 147 1,074
Data processing services 764 366 1,130
Advertising and marketing 349 92 441
Amortization of intangibles 310 92 139 541
Professional fees 565 80 645
Office supplies 258 105 363
Telephone 307 67 374
Write-off of receivable 271 - 271
Other 1,397 570 1,967
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TOTAL NONINTEREST EXPENSE 11,271 4,208 143 15,622
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INCOME BEFORE INCOME TAXES 1,536 810 (408) 1,938
Income Taxes 300 236 (139) 397
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NET INCOME $ 1,236 $ 574 $(269) $1,541
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Basic earnings per share $0.50 $0.62
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Diluted earnings per share $0.50 $0.62
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS
OF OPERATIONS
For the Six Months Ended June 30, 2003
(in thousands)
Blackhawk DunC Pro Forma Pro Forma
Bancorp, Inc. Corp. Adjustments Combined
------------- ----- ----------- --------
Interest Income:
Interest and fees on loans $6,267 $2,162 $ (78) $8,351
Interest and dividends on securities:
Taxable 1,857 241 (48) 2,050
Nontaxable 535 51 (12) 574
Interest on fed funds sold and securities
purchased under agreements to resell 49 10 59
Interest on interest-bearing deposits in banks 18 25 43
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TOTAL INTEREST INCOME 8,726 2,489 (138) 11,077
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Interest Expenses:
Interest on deposits 2,496 475 (8) 2,963
Interest on short-term borrowings 76 3 79
Interest on long-term borrowings 1,035 102 120
(17) 1,240
Interest on Company Obligated Mandatorily Redeemable
Preferred Securities 163 163
------ ------ ----- ------
TOTAL INTEREST EXPENSE 3,770 580 95 4,445
------ ------ ----- ------
NET INTEREST INCOME 4,956 1,909 (233) 6,632
Provision for loan losses 365 130 495
------ ------ ----- ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,591 1,779 (233) 6,137
------ ------ ----- ------
Noninterest Income:
Service charges on deposit accounts 700 218 918
Securities gains, net 301 301
Gain on sale of loans 424 866 1,290
Other 492 174 666
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TOTAL NONINTEREST INCOME 1,917 1,258 - 3,175
------ ------ ----- ------
Noninterest expenses:
Salaries and employee benefits 2,818 1,561 4,379
Occupancy 369 171 2 542
Equipment 461 105 566
Data processing services 399 167 566
Advertising and marketing 207 45 252
Amortization of intangibles 159 32 70 261
Professional fees 302 155 457
Office supplies 117 30 147
Telephone 153 34 187
Write-off of receivable 212 - 212
Other 523 322 845
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TOTAL NONINTEREST EXPENSE 5,720 2,622 72 8,414
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INCOME BEFORE INCOME TAXES 788 415 (305) 898
Income Taxes 61 110 (103) 68
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NET INCOME $ 727 $ 305 $(202) $ 830
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Basic earnings per share $0.29 $0.33
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Diluted earnings per share $0.29 $0.33
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