Blackhawk Bancorp : Announces Record Earnings for 2021 (January 21, 2022)

Beloit, WI, January 21, 2022 - Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported record earnings for the year ended December 31, 2021 with net income of $13.62 million exceeding the previous year's net income of $10.85 million by 26%. Diluted Earnings per Share (EPS) for 2021 increased 38% to $4.47 compared to the previous record of $3.25 reported for 2020. The Company's results for the year ended 2021 produced a Return on Average Equity (ROAE) of 12.99% and a Return on Average Assets of 1.06%.

The increase in earnings for 2021 as compared to 2020 includes an increase in net interest income of $1.43 million and a decrease in the provision for loan losses of $7.10 million. These earnings improvements were partially offset by a $0.68 million decrease in noninterest income and a $3.94 million increase in operating expenses.

The Company reported net income of $2.91 million for the quarter ended December 31, 2021, a $0.31 million, or 10%, decrease compared to the $3.22 million earned the previous quarter, and a $0.44 million, or 13%, decrease compared to the $3.35 million earned the fourth quarter of 2020. EPS for the fourth quarter was $1.02, a decrease of $0.11 as compared to $1.13 for the quarter ended September 30, 2021, and an increase of $0.02 as compared to $1.00 reported for the quarter ended December 31, 2020. The 2021 fourth quarter results produced a ROAE of 11.41% and a ROAA of 0.89%.
The $0.44 million decrease in net income for the fourth quarter of 2021 compared to the fourth quarter of the prior year reflects a $1.34 million decrease in revenue from the sale and servicing of mortgage loans, a $0.43 million decrease in net gain on sale of securities, and a $1.18 million increase in operating expenses. These earnings declines were partially offset by a $1.72 million decrease in the provision for loan losses. Despite the 13% decrease in net income compared to the fourth quarter of 2020, EPS increased by 2%, reflecting the repurchase of 525,546 shares, or 15.6%, of the Company's outstanding common stock in the second quarter of 2021.

"We're extremely pleased to be reporting another year of record earnings," said Todd James, the Company's Chairman and CEO. "While the 2021 performance was boosted by several factors that aren't expected to be as strong going forward such as Paycheck Protection Program (PPP) fees, low provision costs and strong mortgage activity, the Company is well positioned going into 2022. In 2021 we transitioned our Kane County, IL loan production office to a full service branch in downtown St. Charles, IL, added several experienced business bankers to our team, and gained momentum in our campground and RV park lending initiative, all of which contributed to the 6% loan growth we realized in the fourth quarter," added James.
Total assets of the Company increased by $23.5 million, or 2%, to $1.34 billion as of December 31, 2021 compared to $1.32 billion at September 30, 2021. Total gross loans increased by $40.5 million, or 6%, to $710.0 million compared to $669.5 million as of September 30, 2021. Total deposits grew by $28.0 million during the quarter to $1.20 billion compared to $1.17 billion at September 30, 2021.
Total assets of the Company increased by $199.9 million, or 18%, to $1.34 billion as of December 31, 2021, compared to $1.14 billion as of December 31, 2020. Total gross loans increased by $30.9 million, or 5%, and total investment securities increased $154.8 million, or 44%, during the year ended 2021. Total deposits increased by $209.8 million, or 21%, to $1.20 billion compared to $987.3 million at the end of 2020.

Net Interest Income

Net interest income for the year ended December 31, 2021 increased by $1.43 million, or 4%, to $39.28 million compared to $37.85 million for 2020. The increase in net interest income includes a $1.50 million increase in PPP loan fees recognized. As of December 31, 2021, the balance of PPP loans was $22.6 with $0.90 million of deferred fees remaining, which will be recognized in future periods. While net interest income increased, the net interest margin for 2021 decreased by 55 basis points to 3.27% compared to 3.82% for 2020. The decrease in the net interest margin compared to the prior year reflects a $219.1 million, or 24%, increase in average deposits that were deployed in cash equivalent investments and the investment securities portfolio. The deposit growth was driven by the tremendous amount of economic stimulus that was distributed through the various COVID relief programs, which when combined with the labor and supply chain issues being experienced by our commercial customers, dampened loan demand. Average total loans for the year increased by $8.4 million, or 1% to $683.9 million compared to $675.5 million in 2020. Net of PPP loans, average total loans for the full year 2021 decreased by $3.5 million compared to the prior year. The Company achieved a 17 basis point decrease in the cost of deposits to 0.14% compared to 0.31% for the twelve months ended December 31, 2020; however, the decrease was more than offset by a 71 basis point decrease in the tax-equivalent yield on average total earning assets to 3.48% as compared to 4.19% for 2020.

For the fourth quarter of 2021 net interest income totaled $9.63 million, a decrease of $0.15 million, or 1%, compared to the third quarter of 2021, and an increase of $0.18 million, or 2%, compared to the fourth quarter of the prior year. The net interest margin was 3.12% for the fourth quarter of 2021 compared to 3.11% for the quarter ended September 30, 2021, and 3.63% for the fourth quarter of 2020. The tax-equivalent yield on earning assets for the fourth quarter of 2021 dropped 56 basis points to 3.32%, compared to 3.88% for the fourth quarter of 2020, while at the same time, the cost of deposits decreased only eight basis points to 0.11% compared to 0.19% the same quarter the year before. In addition, interest expense on subordinated debentures increased by $0.16 million reflecting the issuance of $15 million of subordinated debt, which was used to fund the share repurchase in the second quarter of 2021. Average total deposits for the fourth quarter of 2021 increased by $203.5 million to $1.16 billion compared to $956.1 million in the fourth quarter of 2020. Average total loans for the fourth quarter of 2021 decreased by $3.5 million, or 1%, compared to the fourth quarter of the prior year. Excluding PPP loans, average total loans increased by $38.4 million to $645.9 million compared to $607.5 million for the fourth quarter of 2020.

Provision for Loan Losses and Asset Quality

The provision for loan losses for 2021 decreased by $7.10 million, or 93%, to $.50 million compared to $7.60 million for 2020. The decrease in provision reflects the improved credit outlook, especially as it related to potential losses related to the pandemic. There was no provision for loan losses recorded for the quarter ended December 31, 2021, or September 30, 2021, compared to $1.72 million for the quarter ended December 31, 2020.
Total nonperforming assets, which include troubled debt restructures performing in accordance with their modified terms, equaled $7.3 million as of December 31, 2021, as compared to $9.8 million as of September 30, 2021, and $9.1 million at December 31, 2020. At December 31, 2021, the ratio of nonperforming loans to total loans equaled 1.02%, as compared to 1.46% at September 30, 2021, and 1.34% at December 31, 2020. The allowance for loan losses to total loans was 1.57% as of December 31, 2021, as compared to 1.68% at September 30, 2021, and 1.59% as of December 31, 2020. The allowance for loan losses to nonperforming loans increased to 153.0% as of December 31, 2021, compared to 114.5% at September 30, 2021, and 118.7% at December 31, 2020. As of December 31, 2021, all but $2.4 million of credits that were granted modifications for COVID relief have been returned to normal payments, or are included in the nonperforming asset numbers above. The majority of this amount relates to one commercial credit that is returning to normal payments in January of 2022.

Non-Interest Income and Operating Expenses

Noninterest income for 2021 decreased $0.68 million, or 3%, to $19.0 million as compared to $19.68 million for the prior year, including a $1.38 million decrease in revenue from the sale and servicing of mortgage loans and a $0.54 million decrease in net gains on sale of securities. These declines were partially offset by a $0.82 million increase in debit card revenue.

Noninterest income for the quarter ended December 31, 2021, totaled $4.52 million, a $0.24 million decrease compared to $4.76 million the prior quarter and a $1.45 million decrease from the $5.97 million recorded in the fourth quarter of 2020. The decrease in noninterest income compared to the fourth quarter of 2020 was due to a $1.34 million decrease in revenue from the sale and servicing of mortgage loans and a $0.43 million decrease in the net gain on sale of securities. These declines were partially offset by a $0.19 million increase in debit card revenue and a $0.12 million increase in deposit service fees.

Operating expenses for 2021, totaled $40.0 million, a $3.94 million, or 11%, increase over the twelve months of 2020. The increase compared to the twelve months of 2020 included an increase of $2.1 million in salary and employee benefits.

Operating expenses for the quarter ended December 31, 2021, totaled $10.51 million, an increase of $0.19 million, or 2%, compared to the quarter ended September 30, 2021, and an increase of $1.18 million, or 13%, compared to the fourth quarter of 2020. The increase compared to the fourth quarter of 2020 included a $0.55 million increase in salary and employee benefits.

About Blackhawk Bancorp

Blackhawk Bancorp, Inc. is headquartered in Beloit, Wisconsin and is the parent company of Blackhawk Bank. The combined entity operates twelve full-service banking centers which are located in Rock County, Wisconsin and the Illinois counties of Winnebago, Boone, McHenry, Lake, and Kane. 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 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.