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Blackhawk Bancorp Announces 2020 Third Quarter Earnings and Share Repurchase Program

October 27, 2020 GMT
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 ...
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 ...

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%.

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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.

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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

Phone: (608) 364-8911

Matthew McDonnell, SVP & CFO

mmcdonnell@blackhawkbank.com

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.

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