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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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
BELOIT, WISCONSIN 53511
(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 MAY 1, 2001
----------------------- ------------------
$.01 PAR VALUE 2,346,170 SHARES
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INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
March 31, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Income for the
three months ended March 31, 2001 and 2000 4
Consolidated Condensed Statements of Shareholders'
Equity as of March 31, 2001 and 2000 5
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 6-7
Notes to Consolidated Condensed Financial Statements 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-15
PART II - OTHER INFORMATION
ITEM 6. A) EXHIBITS 16
B) REPORTS ON FORM 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 18
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 10,875 13,336
Interest-bearing deposit accounts 450 780
Federal funds sold and other short-term investments 6,604 2,529
Securities available for sale 44,877 54,068
Securities held to maturity 19,876 18,530
Loans held for sale 4,048 739
Loans, net of allowance for loan losses of $3,912 and $3,894 217,744 216,926
Federal Home Loan Bank of Chicago stock, at cost 2,242 2,200
Bank premises and equipment, net 7,047 6,732
Intangible assets 5,524 5,671
Accrued interest receivable 2,261 2,481
Other assets 3,096 3,179
--------- ---------
Total Assets $ 324,644 $ 327,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 24,647 $ 28,875
Interest bearing 211,059 232,068
--------- ---------
Total deposits 235,706 260,943
--------- ---------
Borrowed Funds:
Short-term borrowings 13,449 9,873
Other borrowings 49,020 30,031
Accrued interest payable 1,386 1,765
Other liabilities 1,700 1,564
--------- ---------
Total Liabilities 301,261 304,176
--------- ---------
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,
2,351,798 and 2,347,598 shares issued and outstanding 24 23
Additional paid-in capital 7,431 7,417
Retained Earnings 15,558 15,573
Treasury Stock, 10,324 shares, at cost (120) (120)
Accumulated other comprehensive income 490 102
--------- ---------
Total Shareholders' Equity 23,383 22,995
--------- ---------
Total Liabilities and Shareholders' Equity $ 324,644 $ 327,171
========= =========
See Notes to Unaudited Consolidated Condensed Financial Statements
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
2001 2000
------------------
(Dollars in thousands)
INTEREST INCOME:
Interest and fees on loans $4,729 $4,049
Interest on deposits with other banks 13 40
Interest on investment securities:
Taxable 887 868
Exempt from federal income taxes 170 133
Interest on fed funds sold and other short-term investments 19 8
------ ------
Total Interest Income 5,818 5,098
------ ------
INTEREST EXPENSE:
Interest on deposits 2,512 2,220
Interest on short-term borrowings 386 291
Interest on other borrowings 494 266
------ ------
Total Interest Expense 3,392 2,777
------ ------
Net Interest Income 2,426 2,321
Provision for loan losses (Note 3) 104 90
------ ------
Net Interest Income After Provision For Loan Losses 2,322 2,231
------ ------
OTHER OPERATING INCOME:
Service charges on deposit accounts 388 316
Gain on sale of loans 88 15
Brokerage & annuity commissions 18 74
Other income 108 144
------ ------
Total Other Operating Income 602 549
------ ------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,267 1,197
Occupancy expense of bank premises, net 206 171
Furniture and equipment 194 206
Data processing 153 189
Intangible amortization 124 140
Legal and professional fees 92 57
Office supplies 81 57
Telephone and telecommunications 76 59
Other operating expenses 356 326
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Total Other Operating Expenses 2,549 2,402
------ ------
Income Before Income Taxes 375 378
Provision for income taxes 109 126
------ ------
Net Income $ 266 $ 252
====== ======
Earnings Per Share $ 0.11 $ 0.11
====== ======
Fully diluted earnings per share $ 0.11 $ 0.11
====== ======
Dividends Per Share $ 0.12 $ 0.12
====== ======
See Notes to Unaudited Consolidated Condensed Financial Statements
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
-------- --------
(Dollars in thousands)
Common Stock:
Balance at beginning of period $ 23 $ 23
Stock options exercised 1 --
-------- --------
Balance at end of period 24 23
-------- --------
Additional Paid-in Capital:
Balance at beginning of period 7,417 7,307
Stock options exercised 14 31
-------- --------
Balance at end of period 7,431 7,338
-------- --------
Retained Earnings:
Balance at beginning of period 15,573 16,973
Net income 266 252
Dividends declared on common stock (281) (278)
-------- --------
Balance at end of period 15,558 16,947
-------- --------
Treasury Stock, at cost:
Balance at beginning of period (120) (120)
Purchase -- --
-------- --------
Balance at end of period (120) (120)
-------- --------
Accumulated other comprehensive income (loss):
Balance at beginning of period 102 (858)
Other comprehensive income (loss), net of taxes 388 (154)
-------- --------
Balance at end of period 490 (1,012)
-------- --------
Total Shareholders' Equity $ 23,383 $ 23,176
======== ========
See Notes to Unaudited Consolidated Condensed Financial Statements
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
-------- -------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 266 $ 252
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 104 90
Provision for depreciation and amortization 337 405
Amortization of premiums (accretion/
discounts) on investment securities, net 8 22
FHLB stock dividends (42) --
Loss on sale of property, equipment and OREO 3 --
(Gain) on sale of loans (88) (15)
Loans originated for sale (7,660) (1,018)
Proceeds from sale of loans 4,439 870
Change in assets and liabilities:
(Increase) decrease in other assets 157 (75)
(Increase) decrease in accrued interest receivable 220 (124)
(Increase) decrease in accrued interest payable (379) 36
(Increase) decrease in other liabilities (28) 42
-------- -------
Net cash provided by (used in) operating activities (2,663) 485
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-for-sale securities 11,794 941
Purchase of available-for-sale securities (1,981) (6,053)
Proceeds from maturity of investment securities 852 1,959
Purchase of investment securities (2,215) (1,104)
(Increase) decrease in federal funds sold and other short-term
investments, net (3,745) 1,438
Loans originated, net of principal collected (1,126) (2,462)
Proceeds from the sale of property, equipment and OREO 149 --
Purchase of bank premises and equipment (590) (76)
-------- -------
Net cash provided by (used in) investing activities 3,138 (5,357)
-------- -------
See Notes to Unaudited Consolidated Condensed Financial Statements.
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2001 2000
-------- --------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised $ 15 $ 31
Net increase (decrease) in deposits (25,237) 191
Net increase in borrowed funds 22,566 4,502
Cash dividends paid (281) (279)
-------- --------
Net cash provided by (used in) financing activities (2,936) 4,445
-------- --------
Net (decrease) increase in cash and cash equivalents (2,461) (427)
CASH AND CASH EQUIVALENTS:
Beginning 13,336 11,994
-------- --------
Ending $ 10,875 $ 11,567
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 3,772 $ 2,741
Income taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Other assets acquired in settlement of loans $ 204 $ --
See Notes to Unaudited Consolidated Condensed Financial Statements.
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
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 March 31, 2001 and December 31, 2000, the
results of operations for the three months ended March 31,
2001 and 2000, and cash flows for the three months ended March
31, 2001 and 2000.
The results of operations for the three months ended March 31,
2001 and 2000 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:
MARCH 31,
-----------------
(Dollars in thousands) 2001 2000
------ ------
Impaired loans $3,052 $1,980
Non-accruing loans 1,450 1,071
Past due 90 days or more and still accruing 396 411
------ ------
Total non-performing loans $4,898 $3,462
====== ======
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BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(CONTINUED)
Note 3 Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is
as follows:
THREE MONTHS ENDED
MARCH 31,
------------------
(Dollars in thousands)
2001 2000
------ ------
Balance at beginning of period $3,894 $1,996
Provision charged to expense 104 90
Loans charged off 92 74
Recoveries 6 3
------ ------
Balance at end of period $3,912 $2,015
====== ======
Note 4. Earnings Per Share
Basic earnings per share are arrived at by dividing net income
available to common shareholders by the weighted-average
number of common shares outstanding and do not include the
impact of any potentially dilutive common stock equivalents.
The diluted earnings per share calculation is arrived at by
dividing net income by the weighted-average number of shares
outstanding, adjusted for the dilutive effect of outstanding
stock options, and any other common stock equivalents. The
following table shows the computation of the basic and diluted
earnings per share:
Income Share Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
For the Three Months Ended March 31, 2001
Basic Earnings Per Share $266,000 2,339,152 $0.11
======== =====
Effect of Dilutive Stock Options 50,714
---------
Diluted Earnings Per Share $266,000 2,389,866 $0.11
======== ========= =====
For the Three Months Ended March 31, 2000
Basic Earnings Per Share $252,000 2,317,344 $0.11
======== =====
Effect of Dilutive Stock Options 62,412
---------
Diluted Earnings Per Share $252,000 2,379,756 $0.11
======== ========= =====
Note 5. Recent Accounting Developments
Business Combinations
In September 1999, the FASB issued an Exposure Draft of a
proposed SFAS, "Business Combinations and Intangible Assets".
In December 2000, the Board tentatively concluded that upon
the effective date of the final statement on business
combinations and intangible assets, goodwill would no longer
be amortized. This conclusion includes existing goodwill as
well as goodwill arising subsequent to the effective date of
the final statement. Goodwill must be reviewed for impairment
upon the occurrence of certain triggering events. The FASB has
also reached tentative conclusions on the future of the
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pooling-of-interest method of accounting for business
Combinations. These tentative decisions include the decision
that the pooling-of-interests method of accounting will no
longer be an acceptable method to account for business
combinations between independent parties and that there should
be a single method of accounting for all business
combinations, and that method is the purchase method. The FASB
agreed that the purchase method should be applied
prospectively to business combination transactions that are
initiated after the final standard is issued. The FASB is
currently redeliberating its position as to retaining the
pooling method and expects to issue a final statement in June
2001.
The Company's strategy over the past several years has
included business combinations accounted for under the
purchase accounting method which created goodwill upon the
transactions' closings. The Company has goodwill of $3.3
million on its balance sheet as of March 31, 2001 which is
being amortized over 20 years. The pronouncement may have the
effect of eliminating the amortization of this asset during
periods in which no impairment is recognized. It is unclear
the impact this pronouncement may have upon the general
marketplace for business combinations.
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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 March 31, 2001 and December 31,
2000 and the consolidated condensed statements of income for the three months
ended March 31, 2001 and 2000. 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 March 31, 2001 was $266,000 compared to
$252,000 for the similar period in 2000. The discussion that follows will
provide information about the various areas of income and expense that resulted
in the aforementioned results.
THREE MONTHS ENDED MARCH 31
For the three months ended March 31, 2001, interest income increased $0.7
million, or 14.1%, to $5.8 million for the three months ended March 31, 2001
from $5.1 million for the same period in 2000. Substantially all of this
increase was attributable to an increase in interest and fees on loans. Interest
on investment securities increased $56,000 and was partially offset by a
decrease in interest on short-term investments and bank deposits of $16,000.
Interest and fees on loans increased to $4.7 million for the three months ended
March 31, 2001 compared to $4.0 million in same period of 2000. This increase
was the result of a $28.9 million increase in average loans outstanding and a 14
basis point increase in yield on the portfolio. The Company continued to
experience growth predominantly in the commercial real estate and commercial and
industrial loan portfolios with average outstandings increasing $17.1 million
from the first quarter of 2000 to 2001. Other loan categories where average
balances increased for the three months ended March 31, 2001 from the same
period in 2000 were residential mortgages, construction loans and indirect
automobile loans.
Investment income on taxable securities increased slightly by $19,000 in the
first three months of 2001 to $887,000 from $868,000 for the same period in
2000. Slightly higher yields combined with relatively stable volumes to improve
interest income 2.2% from the prior year. Income from tax exempt securities
increased to $170,000 in 2001 compared to $133,000 in the same period in 2000.
This was the result of an increase in both volume and yield.
Interest from fed funds sold and other short-term investments increased to
$19,000 for the three months ended March 31, 2001 from $8,000 during the same
period in 2000. Increased volumes in the 2001 period were the result of timing
differences between the liquidation of portions of the long-term investment
portfolio and redeployment of those funds back into that portfolio and the
lending portfolio.
Interest paid on deposits increased $0.3 million, or 13.2%, to $2.5 million
during the three months ended March 31, 2001 compared to $2.2 million for the
same period in 2000. Average interest-bearing deposits increased 4.0% from the
first quarter of 2000. Average rates also increased due to a shift in the
mixture of deposits towards certificates of deposit and a premium-rate checking
account that has been successful in attracting new deposits. The Company expects
to benefit from the recent declines in interest rates as its time deposit
portfolio is relatively short in nature and the new checking products bears a
money market rate of interest.
Interest on short-term borrowings increased to $386,000 for the three months
ended March 31, 2001 from $291,000 for the same period in 2000, an increase of
$95,000, or 32.6%. Interest on other borrowings
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increased $228,000 or 85.7% to $494,000 for the three months ended March 31,
2001, from $266,000 for the same period in 2000. The Company has utilized
short-term and other borrowings as a means to facilitate internal growth beyond
the deposit growth limitations faced by the Bank and the industry as a whole
over the short run. Short-term borrowing consist of securities sold under
agreements to repurchase, federal funds purchased, and line of credit borrowings
with the Federal Home Loan Bank of Chicago ("FHLB") and an unaffiliated third
party. Other borrowings are represented by FHLB advances and borrowings with a
third-party bank in part to finance the First Financial acquisition.
The provision for loan loss was $104,000 for the three months ended March 31,
2001 compared to $90,000 in 2000. The increase is reflective of the growth in
the Company's loan portfolio as well as the effects of the recent economic
slowdown have had on the portfolio. It is management's opinion that this amount
represents an adequate provision.
Total other operating income increased to $602,000 from $549,000 for the three
months ended March 31, 2001 and 2000, respectively. Favorable movements in
long-term fixed rates associated with mortgages provided the opportunity for the
Company to improve its gain on sale of loans in the first quarter of 2001 to
$88,000 compared to $15,000 for the same period in 2000. Substantially all
long-term fixed rate mortgage loans originated are sold in the secondary market.
In addition to increased gains from the sales of mortgages, service charges on
deposit accounts increased $72,000, to $388,000 for the three months ended March
31, 2001 from $316,000 for the same period in 2000. Implementation of a new fee
schedule in the second quarter of 2000 and the reconfiguration of the deposit
product menu in the third quarter of 2000 drove the increase. Partially
offsetting the aforementioned improvements were declines in brokerage and
annuity commissions as volatility in the financial markets slowed the flow of
retail money into non-insured investment products. Other non-interest income
declined $36,000 to $108,000 as mortgage servicing revenues declined
substantially as a result of the Company's divestiture of much of its serviced
mortgage portfolio in late-2000.
Total other operating expenses increased $0.1 million, or 6.1%, to $2.5 million
from $2.4 million. Nearly one-half of the increase was the result of increases
in compensation and benefits. A $70,000 increase in compensation and benefits
was driven by annual salary adjustments and increased variable compensation for
employees on commission arrangements. Occupancy expenses increased 20.5%, or
$35,000, to $206,000 for the quarter ended March 31, 2001 as the benefits of
eliminating an in store office during the third quarter of 2000 were more than
offset by increases in energy costs and weather-related maintenance costs during
the first quarter of 2001. Data processing costs decreased 19.0%, or $36,000, to
$153,000 for the quarter ended March 31, 2001 as the Company realized cost
savings associated with its fourth quarter 2000 conversion efforts. Legal and
professional fees increased $35,000, to $92,000 as a result of outsourcing
certain internal audit and marketing functions as well as increased legal fees
resulting from the Company's claim against a former data processing service
provider.
Income taxes decreased to $109,000 for the three months ended March 31, 2001
from $126,000 for the same period in 2000. The decline in effective tax rate to
29.1% for the 2001 period from 33.33% in the same period of 2000 is reflective
of greater tax efficiency brought about by an increase in non-taxable income and
a reduction in non-deductible amortization expense. The non-deductible
amortization expenses are the result of the purchase method of accounting the
Company has used for its acquisitions.
BALANCE SHEET ANALYSIS
This analysis of the Company's financial position is comparing March 31, 2001 to
December 31, 2000. Total assets were $324.6 million compared to $327.2 million
at December 31, 2000. This represents a decrease of approximately 0.8%.
Net portfolio loans were $217.7 million on March 31, 2001 and $216.9 million on
December 31, 2000, an increase of $0.8 million. During the three months ended
March 31, 2001 the Company continued to change
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the mixture of its loan portfolio as commercial real estate and commercial and
industrial loans increased over $5.0 million, while residential real estate
declined approximately $3.0 million. A decline in other loan types including
consumer loans accounted for the difference.
The allowance for loan losses remained substantially unchanged at $3.9 million
at March 31, 2001 from December 31, 2000. As of March 31, 2001, non-performing
loans totaled $4.9 million compared to $3.5 million at December 31, 2000.
Management believes that the allowance is adequate at this time.
Net bank premises and equipment was $7.0 million at March 31, 2001 compared to
$6.7 million at December 31, 2000. The increase resulted from the capitalization
of certain hardware and software costs associated with the Company's recent data
processing conversion. Partially offsetting acquisitions of $0.6 million, was
depreciation of $0.2 million.
Fed funds sold and other short-term investments increased $4.1 million to $6.6
million at March 31, 2001 compared to $2.5 million at December 31, 2000.
Securities available for sale were $44.9 million at March 31, 2001 compared to
$54.1 million at December 31, 2000. Securities held to maturity were $19.9
million compared to $18.5 million, March 31, 2001 and December 31, 2000,
respectively. The increase in short-term investments was the result of timing
issues from investment maturities and calls as they related to the redeployment
of those funds into the long-term investment and loan portfolios.
Total deposits were $235.7 million at March 31, 2001 compared to $260.9 million
at December 31, 2000. Non-interest bearing deposits were approximately $4.2
million lower at $24.6 million on March 31, 2001 than December 31, 2000. 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 declined $21.0 million, to $211.1
million at March 31, 2001, from $232.1 million at December 31, 2000. As noted in
the Company's December 31, 2000 financial statements, short-term deposits of
$25.3 million were reflected in the year-end number. In an effort to increase
its commercial deposit base, the Company has contracted with an experienced
service provider to expand the geographic reach of its Rockford, IL facility by
providing a daily scheduled courier service. This service is expected to allow
the Company to conveniently and effectively reach a significant share of the
Northern Illinois market by bringing banking services to their office without
the use of additional capital for branches. The Company is optimistic about the
long-term potential this service has to generate deposit growth as the provider
has, in partnership with other financial institutions, introduced this service
in several other markets across the country with great success. As previously
mentioned, the Company has also had success with its premium rate checking
product since its introduction in the Fall of 2000.
Short-term borrowings, fed funds purchased and repurchase agreements and the
Company's line of credit with an unaffiliated third-party, increased to $13.4
million from $9.9 million as of year-end. Other borrowings, consisting of
long-term borrowings incurred in part to complete the First Financial
acquisition and term advances from the Federal Home Loan Bank, were $49.0
million at March 31, 2001 compared to $30.0 million at December 31, 2000.
Aggregate borrowings increased $22.6 million to replace the short-term funds
that were on deposit as of December 31, 2000.
The Company continues to maintain a well-capitalized position regardless of the
measurement used. The following table shows three different measurements as of
March 31, 2001 and December 31, 2000, and the regulatory requirement, if any.
Capital ratios have remained relatively consistent as increases in capital have
slightly outpaced growth in risk-weighted assets. The growth in risk weighted
assets is the result of a shift in the mixture of the Company's total assets
into loans as well as the shift within the loan portfolio towards commercial
real estate and commercial and industrial loans. This change in mixture is
expected to improve long-term earnings.
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MARCH 31, DECEMBER 31, REGULATORY
2001 2000 REQUIREMENTS
--------- ------------ ------------
Total Capital (To Risk-Weighted Assets) 9.6% 9.6% 8.0%
Tier I Capital (To Risk-Weighted Assets) 8.4% 8.3% 4.0%
Tier I Capital (To Average Assets) 5.6% 5.6% 4.0%
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 prepayment
of loan principal, maturities of investment securities, income from operations,
and short-term borrowings. Additional sources include purchasing fed funds, sale
of securities, sale of loans, borrowing from both the Federal Reserve Bank and
Federal Home Loan Bank, and dividends paid by Nevahawk to the Bank. Under
present law, accumulated earnings could be paid as dividends without incurring a
tax liability.
The liquidity needs of the Company generally consists of payment of dividends to
its shareholders, payments of principal and interest on borrowed funds, and a
limited amount of expenses. The sources of funds to provide this liquidity are
income from investments, maturities of investments, cash balances, issuance of
capital and dividends from its subsidiary bank. Certain restrictions are imposed
upon the Bank, which could limit its ability to pay dividends if it did not have
net earnings or adequate capital in the future. The Company maintains adequate
liquidity to pay its expenses.
Off-balance sheet items consist of credit card lines of credit, mortgage
commitments, letters of credit and other commitments totaling approximately
$25.6 million as of March 31, 2001. This compares to $34.0 million at December
31, 2000. The Bank has historically funded off-balance sheet commitments with
its primary sources of funds and management anticipates that this will continue.
The Company's consolidated assets include a $271,000 receivable that relates to
an improper charge made by the Company's former data processing service provider
("Provider") to the Company's check clearing account maintained with the Federal
Home Loan Bank of Chicago. Upon discovery of the Provider's error and following
the Provider's initial acknowledgement of that error, the Company worked closely
with the Provider to attempt to recover the amount improperly charged. During
the third quarter of 2000, the Provider notified the Company that it was unable
to pursue the matter further and that the Provider did not intend to indemnify
the Company on account of this error.
In response, the Company filed a complaint in the Circuit Court of Waukesha
County, Wisconsin on August 18, 2000, seeking to recover the amount of the
improper charge from the Provider. While the Company believes it is entitled to
recovery, it can provide no assurance that it will ultimately prevail in the
litigation. Moreover, the Company will incur costs and legal fees in connection
with its pursuit of this matter, and it may be unable to recover those costs and
fees. The potential amount of those costs and fees depends on how this
litigation develops and ultimately is resolved, and the Company cannot predict
that amount with certainty at this time.
Given the lack of significant movement toward a resolution of this matter in the
final quarter of 2000, and pursuant to the application of regulatory guidelines
and principles under these circumstances, the Company wrote this contingent
asset down approximately 50% to $271,000. In the unlikely event that the Company
is unsuccessful in recovering any portion of this improper charge, the Company
would be required to write off the remaining $271,000 balance of this contingent
asset through a further charge against earnings in the period in which the write
off occurs. Legal costs and fees incurred in connection with these proceedings
will be charged against earnings in the period incurred.
14
15
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this report, the words "believes," "expects," 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, changes in interest rates, levels of consumer bankruptcies,
customer loan and deposit preferences, and other general economic conditions
15
16
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 first
quarter of 2001.
16
17
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: May 14, 2001 /s/Dennis M. Conerton
------------------------
Dennis M. Conerton
Chairman and
Chief Executive Officer
Date: May 14, 2001 /s/ Keith D. Hill
------------------------
Keith D. Hill
Vice President
(Chief Financial and
Accounting Officer)
17
18
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
Incorporated
Herein By Filed
Exhibit Page Here-
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)