Blackhawk Bancorp Announces Record Results for Second Quarter 2008

– Q2 2008 Net Income Up 32%

– EPS Rises 37%

– Net Interest Income Increases 17%

– Non-interest Income up 18%

– Average deposits grow 7%

BELOIT, Wis., July 16 /PRNewswire-FirstCall/ — Blackhawk Bancorp, Inc. (BULLETIN BOARD: BHWB) today announced improved financial results for the second quarter ended June 30, 2008.

Net income rose to a second quarter record of $812,000, or $0.37 per fully diluted share, compared with $613,000, or $0.27 per diluted share in second quarter 2007. Net income for the first six months of the year rose to $1,409,000, or $0.65 per fully diluted share, compared with $1,084,000, or $0.48 per diluted share for the same period in 2007. Total assets increased to $472.6 million as of June 30, 2008 compared with $464.7 million at year end 2007.

“It’s extremely satisfying to deliver a positive financial report to our shareholders with negative economic news coming at us from all directions in the first half of 2008,” said Rick Bastian, president and CEO. “Our strategy of providing high-touch tailored financial solutions through experienced bankers continues to build customer loyalty. A reputation of service spread by word of mouth is better than any advertising,” he added.

Net Interest Income Rises

Net interest income for the second quarter increased 17% to $3.7 million as compared with $3.1 million in the second quarter 2007. For the first six months of 2008, net interest income was up 18% to $7.3 million, compared to $6.2 million for the same period a year ago. The increase in net interest income includes both an increase in average earning assets and an improved net interest margin being earned on those assets. The net interest margin for the second quarter increased 27 basis points to 3.41%, and is up 31 basis points to 3.42% for the first half of the year. Strong deposit growth and improved investment portfolio yields contributed to the increases in net interest income and improved net interest margin.

Average total loans for the quarter increased 6% to $297.1 million compared with $278.5 million in second quarter 2007. While the balance of retail and mortgage loans grew, the majority of loan growth has been in the commercial and commercial real estate portfolios, which consist of loans to a diversified base of customers, with less than 8% of the bank’s total loans being construction and land development loans.

Average total deposits for the second quarter of 2008 increased 7% to $356.4 million compared with $334.5 million in the same period a year ago. This included an additional $16.6 million in interest checking, driven by the success of Blackhawk’s EasyMoney Checking product, Bastian noted. For the six months, average total deposits increased 7% to $349.5 million compared with $326.3 million over the same period in 2007.

“EasyMoney Checking is a good example of an innovative product that serves customers’ needs and also benefits the company,” said Bastian. “Many of our customers aren’t able to maintain large balances, so they appreciate receiving a very attractive return with no minimum balance. The bank receives fee income from a required minimum number of debit card transactions each month — transactions the customers would make anyway.”

Non-Interest Income and Operating Expenses

Quarterly non-interest income increased 18% to $1.59 million, with year-to-date non-interest income up 15% to $2.9 million.

The growth in non-interest income in the second quarter compared to the same period in 2007 includes increases of $173,000 in mortgage banking revenue, $97,000 in deposit service charges, and $48,000 generated from debit card interchange. Lower interest rates in the secondary markets helped drive mortgage refinancing activity during the first six months even as the housing market cooled. The growth of EasyMoney Checking contributed to the increases in service charges and debit card interchange.

“While we don’t expect mortgage loan volume to continue at its current pace, the increases so far with their affect on both our non-interest income and our net interest income set us up to have a good year,” said Bastian. “We believe we have built one of the best mortgage origination and processing teams in our area, which benefits our customers who were contacted to take advantage of refinance opportunities,” he added.

Total operating expenses for the second quarter increased 11% to $3.89 million compared with $3.50 million for 2007. This included an 11% increase in compensation expense, and higher occupancy, data processing and professional fees. The increase in compensation costs is partially due to the higher mortgage loan production, and brokerage and investment management fees, which are generated by commission-based employees. The other expense increases reflect investment in new technology, equipment and staff development and retention. Bastian added, “We continue to invest in our people, and technology to drive growth.”

Credit Quality Remains Strong

Blackhawk’s provision for loan losses in second quarter was $228,000, an 83% increase over the $124,000 provision recorded in second quarter 2007, but still amounted to only .31% of total loans on an annualized basis. Net charge-offs in the second quarter increased to $196,000 compared with $34,000 for the same period in 2007. For the year, net charge-offs increased to $245,000, or .16% of total loans on an annualized basis, compared with $187,000 for the six months in 2007. Blackhawk’s prudent underwriting practices and close relationships with customers have helped ensure the credit quality of the bank’s loan portfolio, however it has experienced an increase in delinquencies and nonperforming loans. Non-performing loans increased to .98% of total loans at June 30, 2008 compared with .78% at December 31, 2007 and .61% at June 30, 2007.

“We’ve done a good job of insulating ourselves from many of the problems facing the financial sector. However, we can’t immunize ourselves from the realities around us,” said Bastian. “We expect an increased level of loan loss provision to continue throughout 2008 to strengthen our allowance for loan losses.” While Blackhawk has not directly participated in the sub-prime mortgage business, the recent slowdown in housing and overall economic downturn could result in further increases in nonperforming loans and charge-offs.

“A key benefit of being a relationship bank is our frequent contact with customers, which allows us to more effectively monitor their financial situations and gives us more opportunities to work with them to avert late payments and defaults,” said Bastian. “This is one of the best ways we know to protect the quality of our loan portfolio.”


Bastian remarked, “We are evaluating the best methods to take market share, which is our primary growth strategy in the relatively stable markets we serve. We continue investing in sales training and tools, which allow our bankers to deliver personalized solutions to our customers, deepening the relationships and increasing our share of the financial services products they purchase. We remain committed to innovative and niche products such as EasyMoney Checking and health savings accounts for small business owners.”

Blackhawk continues to seek profitable growth opportunities in its Wisconsin and Illinois markets, without sacrificing profitability or credit quality. It emphasizes the value of its personal attention and the service it provides that remains unmatched by larger competitors.

Blackhawk has started construction of a new full service facility in a manufacturing and business section of Rockford, Illinois which will be convenient to its niche markets of small to medium sized manufacturing companies and the Hispanic immigrant population. In spite of the soft economy, the Company believes its commitment to service and personalized attention will appeal to a great number of people.

About Blackhawk Bancorp

Blackhawk Bancorp, Inc. is headquartered in Beloit, Wisconsin and is the parent company of Blackhawk Bank, which operates seven banking centers in south central Wisconsin and north Central Illinois, along the I-90 corridor from Belvidere, Ill. to Beloit, Wis. Blackhawk’s locations serve individuals and small businesses, primarily with fewer than 200 employees. The company offers a variety of value-added consultative services to small businesses and their employees related to its banking products such as Health Savings Accounts and trust, estate and succession planning. The bank has received numerous accolades for its work with the fast-growing Hispanic population in its served markets.

Further information is available on the Company’s website at

Forward-Looking Statements

When used in this communication, 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: 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; 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”; and the inability of third party vendors to perform critical services for the company or its customers.

Financial Summary Follows


Three Months Ended Six Months Ended
(Dollars in thousands, June 30, June 30,
except per share data) 2008 2007 2008 2007

Interest and Dividend Income $6,796 $6,843 $13,834 $13,470
Interest Expense 3,106 3,696 6,536 7,300
Net Interest and
Dividend Income 3,690 3,147 7,298 6,170
Provision for loan losses 228 124 456 253
Non-Interest Income 1,591 1,344 2,931 2,536
Non-Interest Expense 3,883 3,497 7,768 6,955
Income Before Income Taxes 1,170 870 2,005 1,498
Income Taxes 358 257 596 414
Net Income $812 $613 $1,409 $1,084

Key Ratios
Diluted Earnings Per Share $0.37 $0.27 $0.65 $0.48
Dividends Per Share 0.09 0.09 0.18 0.18
Average Outstanding Shares 2,165,608 2,215,541 2,168,785 2,222,576
Ending Outstanding Shares 2,154,504 2,203,885 2,154,504 2,203,885
Net Interest Margin 3.41% 3.14% 3.42% 3.11%
Efficiency Ratio 72.50% 77.22% 74.94% 79.25%
Return on Assets 0.68% 0.55% 0.60% 0.49%
Return on Equity 13.14% 10.11% 11.40% 9.03%

June 30, December 31,
(Dollars in thousands) 2008 2007
Cash and cash equivalents $25,543 $22,793
Interest-bearing deposits in banks 1,038 1,066
Trading securities 22,302 26,520
Securities available.for sale 97,271 92,266
Federal Home Loan Bank Stock, at cost 4,085 4,085
Loans, net of allowances for loan losses 295,795 292,529
Office buildings and equipment, net 7,674 7,424
Intangible assets, net 6,788 6,636
Cash surrender value of bank-owned life insurance 7,425 7,286
Other assets 4,751 4,068
Total Assets $472,672 $464,673

Liabilities and Stockholders’ Equity:
Deposits $351,002 $331,239
Borrowings 89,444 100,931
Subordinated debentures 5,158 5,158
Other liabilities 2,840 2,852
Total liabilities 448,444 440,180
Stockholders’ equity 24,228 24,493
Total liabilities and stockholders’ equity $472,672 $464,673

First Call Analyst:
FCMN Contact:

Source: Blackhawk Bancorp, Inc.

CONTACT: Todd James, CFO or R. Richard Bastian III, President & CEO,
both of Blackhawk Bancorp, Inc., +1-608-364-8911; or Diane Hettwer or Woody
Wallace, both of The Investor Relations Company, +1-312-245-2700, for
Blackhawk Bancorp, Inc.

Web site: