Blackhawk Bancorp : Annual Report - 2021 Annual Report

ANNUAL REPORT • 2021

1881 - 2021

OUR VISION:

To create exceptional results by creating exceptional experiences... the fun, smart place to bank, invest and work.

OUR MISSION:

To make every customer a customer for life.

OUR CORE VALUES:

Be obsessed with our Client's success. Keep learning and teaching.

Own it.

Work smart, play hard.

Communicate in ways that engage & inform. Embrace our differences.

Give.

Be grateful.

1881 - 2021

Financial HigHligHts

(Amounts in thousands, except share and per share data)

Years ended December 31,	2021	2020	2019	2018	2017
Interest income	$41,834	$41,496	$40,653	$32,131	$25,403
Interest expense	2,557	3,647	6,969	4,660	2,523
Net interest income	39,277	37,849	33,684	27,471	22,880
Provision for loan losses	500	7,600	2,010	1,180	1,790
Net interest income after provision for loan losses	38,777	30,249	31,674	26,291	21,090
Noninterest income	19,004	19,684	15,128	11,542	10,060
Noninterest expense	39,997	36,053	34,613	27,731	23,621
Income before income taxes	17,784	13,880	12,189	10,102	7,529
Income taxes	4,165	3,033	2,585	1,960	1,329
Net income available to common shareholders	$13,619	$10,847	$9,604	$8,142	$6,200
Basic earnings per common share	$4.47	$3.25	$2.90	$2.47	$2.02
Diluted earnings per common share	$4.47	$3.25	$2.90	$2.47	$2.01
Cash dividend declared per share	$0.44	$0.44	$0.40	$0.38	$0.28
Return on assets	1.06%	1.02%	1.02%	1.06%	0.89%
Return on common equity	12.99%	10.35%	10.49%	10.19%	8.73%
Total assets	$1,341,238	$1,141,599	$963,861	$817,287	$720,621
Securities	504,341	349,565	235,083	198,670	176,350
Total loans, net	696,292	662,225	619,359	541,760	479,539
Deposits	1,197,041	987,254	829,609	685,639	616,995
Short-term borrowings	-	-	-	36,500	16,228
Subordinated debentures, net	19,775	5,155	5,155	5,155	5,155
Senior secured term note	11,278	12,833	14,000	-	-
Other borrowings	5,000	14,000	10,000	-	-
Total stockholders' equity	101,159	111,755	97,324	84,292	78,134
Contents

• 1 Financial Highlights

  • 15 Consolidated Balance Sheets

• 2-3 Todd James - Shareholders' Letter

  • 16 Consolidated Statements of Income

• 4-5 Dave Adkins - Reflections on 2021

• 6-7 Matthew McDonnell -

  Financial Performance Review

• 8 Board of Directors

• 9-14 Building Relationships:

  4 Unique Stories of Partnering with Clients

• 17 Consolidated Statements of Changes in Stockholders' Equity

• 18 Average Balance Sheets with Resultant Interest and Rates

• 19-20 Quarterly Financial Information

1

Todd James

Dear Fellow Shareholders:

"To create exceptional results by creating exceptional experiences…the fun, smart place to bank, invest and work" is Blackhawk's Vision Statement. The last couple of years have been some of the most challenging of Blackhawk's rich 140-year history, yet we continue to make our vision a reality. In the last two years the pandemic shut down the economy, the government pumped an unprecedented level of stimulus into the system, and there was mass confusion as ill-equipped government agencies did their best to administer the relief programs. It's during the challenging times like this that our customers need us the most and long-term relationships are solidified or lost.

Chairman, President and CEO Blackhawk Bancorp

We stuck to our Core Values, obsessing with the success of our customers and doing everything we could to help guide them through the challenges of the last couple of years. I believe that the exceptional experiences enjoyed by our customers and prospects during this time has cemented their loyalty and the trust they have in Blackhawk and will continue to drive exceptional results for our shareholders. In 2021, Blackhawk achieved its seventh consecutive year of record net income and third consecutive year of record earnings per share, which increased 38% over the prior year.

Diluted EPS

While the pandemic brought many challenges, opportunities were created in the way we dealt with those challenges, giving true community banks like Blackhawk our chance to shine. We worked with customers to modify loans and/or access government programs, such as the Paycheck Protection Program (PPP), allowing them to keep their workers on the job and businesses open. Helping business clients and prospects navigate the complexities of the relief programs not only created a great experience, it was essential in keeping credit losses in check throughout the pandemic. While the relief programs helped us avoid credit losses, the available funds combined with labor shortages and supply chain issues that evolved during the pandemic dampened loan demand from our business customers. The fees earned from PPP, and revenue from elevated mortgage banking activity, provided some tailwinds in 2020 and 2021 to offset the revenue lost from low loan demand, but those tailwinds will be less of a factor moving forward.

2

Despite the subdued demand for traditional loans over the last couple of years, we continued to attract and recruit experienced and talented bankers, and are well positioned for growth as we head into 2022. With loan demand gradually picking up, our bankers are uncovering more lending opportunities as demonstrated by the 6% loan growth we realized in the fourth quarter of 2021.

Our approach to banking continues to create shareholder value by growing the tangible book value of shares and paying a quarterly dividend. However, one of the challenges for shareholders of a microcap stock such as Blackhawk is that there is generally a low level of trading activity and liquidity for the shares. During the second quarter of 2021, the Company made a tender offer for up to 15% of its shares providing liquidity at a slight premium to where the shares were then traded. The tender was very successful with the Company achieving its 15% target and with all shares tendered having been repurchased. This was a great outcome for the shareholders looking for liquidity and for the shareholders who retained their shares. The repurchase of shares was funded with low-cost subordinated debt and was approximately 15% accretive to earnings per share since the transaction was completed.

We're excited about the Company's performance for 2021 and the opportunity to continue building value for our shareholders. I'd like to thank our committed Board of Directors for their advice, counsel and oversight, and our talented employees for their dedication and hard work making sure our customer experiences are exceptional, leading to more exceptional results for our shareholders.

$0.00

$0.20

$0.40

$0.60

Year End TBV per Share

2017

2018

2019

$22.33$24.22$25.76

2020

2021

$29.57$31.41

$15.00

$20.00

$25.00

$30.00

$35.00

Total Return

24.1%

1 year

32.8% 36.8%

3 year

62.9%

62.0% 5 year

60.9%

0.0%

20.0%

40.0%

60.0%

80.0%

BHWB

S&P US BMI Banks

3

Annual Dividend
2017	$0.28
2018	$0.38
2019	$0.40
$0.44
2020
2021	$0.44