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Blackhawk Bancorp Earns $3.49 Million in Third Quarter 2022; Highlighted by Net Interest Margin Expansion

BELOIT, WI / ACCESSWIRE / October 24, 2022 / Blackhawk Bancorp, Inc. (OTCQX:BHWB), (the "Company") the parent company of Blackhawk Bank (the "Bank"), today reported net income of $3.49 million for the quarter ended September 30, 2022, a modest increase compared to $3.48 million earned in the preceding quarter, and an 8% increase compared to the $3.22 million earned during the third quarter of 2021. Diluted Earnings per Share (EPS) for the current quarter was $1.21, the same as the preceding quarter, and a $0.08, or 7%, increase compared to the quarter ended September 30, 2021. The third quarter of 2022 results yielded a Return on Average Equity (ROAE) of 16.73% and a Return on Average Assets (ROAA) of 1.02%.

Earnings were essentially flat compared to the most recent quarter despite a $1.10 million, or 10% increase in net interest income. The preceding quarter included two non-recurring items, a negative provision of $1.50 million and a $1.27 million charge related to announced branch closures, which contributed a net $230,000 to second quarter pre-tax net income, partially offsetting the third quarter increase in net interest income. In addition, excluding the charge for announced branch closures, operating expenses increased by $707,000 led primarily by increases in salaries and benefits expense and debit card processing expense.

The increase in net income for the third quarter of 2022, compared to the third quarter of the prior year, included a $1.87 million, or 19%, increase in net interest income. This earnings growth was partially offset by a $1.17 million decrease in income from the sale and servicing of mortgage loans and a $373,000, or 4%, increase in operating expenses.

"Our net interest income generation during the third quarter was strong, reflecting the loan growth achieved over the last several quarters. The net interest margin was also boosted by the current rate environment, which has essentially offset the lost revenue from the slowdown in mortgage lending," said Todd James, Chairman and CEO. "Net loan growth during the third quarter slowed compared to the last several quarters reflecting the pay-off of a significant loan relationship upon the sale of our customer's company. Despite the uncertainty in the market, we continue to see opportunities to grow the loan portfolio and have potential for additional margin expansion in the current rate environment."

Third Quarter 2022 Financial Highlights (at or for the three months ended September 30, 2022)

  • Net income was $3.49 million, or $1.21 per diluted share, compared to $3.22 million, or $1.13 per diluted share, in the third quarter of 2021.
  • Net interest margin was 3.63%, compared to 3.31% in the preceding quarter and 3.11% in the third quarter a year ago.
  • Annualized return on average assets was 1.02%, compared to 0.96% in the third quarter of 2021.
  • Annualized return on average equity was 16.73%, compared to 12.57% in the third quarter a year ago.
  • Excluding Paycheck Protection Program (PPP) loans, average total loans increased $153.5 million, or 25% to $779.7 million for the quarter ended September 30, 2022, compared to $626.2 million for the third quarter of 2021.
  • Total deposits grew by $94.1 million to $1.26 billion at September 30, 2022 compared to $1.17 billion a year earlier.
  • Allowance for loan losses to total loans was 1.14% at quarter end.
  • Nonperforming assets to total assets was 0.36% at September 30, 2022 compared to 0.74% a year ago.
  • On September 23, 2022, the Company paid a quarterly cash dividend of $0.12 per share, marking the 33rd consecutive quarterly cash dividend paid.

Net Interest Income

Net interest income totaled $11.64 million for the quarter ended September 30, 2022, an increase of $1.10 million, or 11%, compared to the second quarter of 2022, and an increase of $1.87 million, or 19%, compared to the third quarter of the prior year. The benefit to net interest income from the recognition of PPP loan fees decreased to $53,000 for the third quarter of 2022 compared to $280,000 the preceding quarter and $850,000 in the third quarter of 2021. As of September 30, 2022, only $33,000 of net deferred PPP fee income remains to be recognized in future periods.

The Company's net interest margin was 3.63% for the third quarter of 2022, compared to 3.31% for the quarter ended June 30, 2022, and 3.11% for the third quarter of 2021. The tax-equivalent yield on earning assets increased by 47 basis points to 3.98% and the cost of deposits increased by 14 basis points to 0.26% for the third quarter of 2022, as compared to 3.51% and 0.12%, respectively, for the most recent quarter ended June 30, 2022. The tax-equivalent yield on earning assets and cost of total deposits increased by 64 basis points and 12 basis points, respectively, compared to the third quarter of 2021.

Average total loans for the quarter ended September 30, 2022 were $780.9 million, a $28.1 million, or 4%, increase over the most recent quarter ended June 30, 2022 and a $105.8 million, or 16%, increase compared to the third quarter of 2021.

Average deposits totaled $1.24 billion for the third quarter of 2022, an increase of $2.1 million, or less than 1%, compared to the quarter ended June 30, 2022, and an increase of $52.8 million, or 4%, compared to the third quarter of 2021.

Net interest income for the nine months ended September 30, 2022 increased $2.19 million, or 7%, to $31.84 million compared to $29.65 million for the first nine months of 2021. For the first nine months of 2022, the company's net interest margin was 3.36%, compared to 3.32% for the same period in the prior year. The tax-equivalent yield on earning assets increased by seven basis points to 3.61% for the first nine months of 2022, compared to 3.54% the first nine months of 2021. The cost of deposits increased by one basis point to 0.12% compared to 0.11% for the first nine months of 2021. The growth in net interest income and net interest margin reflects the $62.8 million increase in average total loans to $749.7 million compared to $686.9 million for the first nine months of 2021.

The benefit to net interest income from recognition of PPP fees was $930,000 for the first nine months of 2022, compared to $3.28 million for the first nine months of 2021. Net interest income for both the quarter and the nine months ended September 30, 2022 benefited from the repricing of variable rate loans and investments due to the increase in short term rates by the Federal Reserve Bank.

Provision for Loan Losses and Asset Quality

The Company recorded a provision for loan losses of $100,000 for the quarter ended September 30, 2022. This compares to a negative provision of $1.5 million the most recent quarter, and no provision for loan losses for the third quarter of 2021. For the nine months ending September 30, 2022 the Company recorded a negative provision of $1.4 million, compared to a $500,000 provision for loan losses for the first nine months of 2021.

Total nonperforming assets, which include troubled debt restructures performing in accordance with their modified terms, equaled $5.0 million as of September 30, 2022, as compared to $6.0 million as of June 30, 2022, and $9.8 million at September 30, 2021. At September 30, 2022, the ratio of nonperforming loans to total loans equaled 0.64%, as compared to 0.78% at June 30, 2022, and 1.46% at September 30, 2021.

The allowance for loan losses to total loans was 1.14% at September 30, 2022, compared to 1.22% at June 30, 2022, and 1.68% at September 30, 2021. The allowance for loan losses to nonperforming loans increased to 179.0% at September 30, 2022, compared to 157.3% at June 30, 2022, and 114.5% at September 30, 2021.

Noninterest Income and Operating Expenses

Noninterest income for the quarter ended September 30, 2022, totaled $3.74 million, a $79,000 decrease compared to $3.82 million the prior quarter and a $1.02 million decrease from the $4.76 million recorded in the third quarter of 2021. The net revenue from the sale and servicing of mortgage loans decreased $200,000 and service charges on deposit accounts increased $55,000 compared to the second quarter of 2022. The decline in noninterest income compared to the third quarter of 2021 was primarily due to a $1.17 million decrease in revenue from the sale and servicing of mortgage loans, which was partially offset by a $236,000 increase in deposit service fees.

Noninterest income for the nine months ended September 30, 2022 totaled $11.48 million, a $3.29 million decrease compared to the $14.76 million for the same period in the prior year. The net revenue from the sale and servicing of mortgages decreased by $3.33 million. This was partially offset by a $764,000 increase in deposit service fees during the same period.

Operating expenses for the quarter ended September 30, 2022, totaled $10.69 million, a decrease of $563,000, or 5%, compared to the second quarter of 2022, and an increase of $373,000, or 4%, compared to the third quarter of 2021. The decrease compared to the most recent quarter was due to the previous quarter including a $1.27 million charge related to announced branch closures. Excluding the branch closure charge recognized in the second quarter, total operating expenses for the third quarter increased by $707,000 compared to the quarter ended June 30, 2022. This increase includes a $356,000 increase in salaries and benefits, which is primarily attributable to increased cost of medical benefits, and a $133,000 increase in debit card processing expenses due to the mass re-issuance of cards to adopt new requirements and touchless functionality.

Operating expenses for the nine months ended September 30, 2022 totaled $32.12 million, a $2.34 million, or 8%, increase compared to the same period in 2021. The increase includes a $1.10 million increase in salaries and employee benefits as well as a $1.27 million one-time charge relating to the announced branch closures. Excluding the one-time charge related to the announced branch closures, total operating expenses for the nine months ended September 30, 2022 increased $1.1 million, or 4%, compared to the first nine months of 2021.

Excluding the one-time charge related to the announced branch closures, the efficiency ratio was 69.04% for the third quarter of 2022. This compared to 68.96% for the preceding quarter and 70.70% for the third quarter a year ago.

Capital

Tangible book value per share was $21.01 at September 30, 2022, compared to $23.91 at June 30, 2022 and $31.17 at September 30, 2021. The decrease in tangible book value per share during the current quarter was primarily due to a $6.23 million decrease in accumulated other comprehensive income ("AOCI") related to an increase in the unrealized loss on available for sale securities reflecting the increase in interest rates during the current quarter. Excluding AOCI, tangible book value per share was $33.62 at September 30, 2022, an increase of $1.20 and $3.98 compared to June 30, 2022 and September 30, 2021, respectively.

About Blackhawk Bancorp

Blackhawk Bancorp, Inc. is headquartered in Beloit, Wisconsin, and is the parent company of Blackhawk Bank. The combined entity operates ten full-service banking centers located in Rock County, Wisconsin, and the Illinois counties of Winnebago, Boone, McHenry, 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, securities gains and losses and other non-recurring gains or losses 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
tjames@blackhawkbank.com
Phone: (608) 364-8911

Matthew McDonnell, SVP & CFO
mmcdonnell@blackhawkbank.com

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(UNAUDITED)


September 30, December 31,
Assets
2022 2021

(Dollars in thousands, except

share and per share data)
Cash and due from banks
$ 18,618 $ 10,846
Interest-bearing deposits in banks and other institutions
58,651 55,720
Total cash and cash equivalents
77,269 66,566

Certificates of deposit in banks and other institutions
1,465 2,161
Equity securities at fair value
3,432 2,553
Securities available-for-sale
448,766 504,341
Loans held for sale
2,849 2,585
Federal Home Loan Bank stock, at cost
1,705 2,150
Loans, less allowance for loan losses of $8,902 and $11,125
at September 30, 2022 and December 31, 2021, respectively
767,430 696,292
Premises and equipment, net
19,025 20,778
Goodwill and core deposit intangible
11,369 11,628
Mortgage servicing rights
4,065 3,833
Cash surrender value of bank-owned life insurance
11,682 11,440
Other assets
31,324 16,911
Total assets
$ 1,380,381 $ 1,341,238

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Noninterest-bearing
$ 377,877 $ 380,601
Interest-bearing
885,306 816,440
Total deposits
1,263,183 1,197,041
Subordinated debentures and notes, net of issuance costs (including $1,031
at fair value at September 30, 2022 and December 31, 2021)
19,841 19,775
Senior secured term note
10,111 11,278
Other borrowings
5,000 5,000
Other liabilities
10,568 6,985
Total liabilities
1,308,703 1,240,079

Stockholders' equity
Common stock, $0.01 par value, 10,000,000 shares authorized;
3,510,970 and 3,479,069 shares issued as of September 30, 2022 and
December 31, 2021, respectively
35 35
Additional paid-in capital
36,565 35,890
Retained earnings
90,535 81,987
Treasury stock, 640,216 and 630,991 shares at cost as of September 30, 2022
and December 31, 2021, respectively
(19,265 ) (18,952 )
Accumulated other comprehensive income (loss)
(36,192 ) 2,199
Total stockholders' equity
71,678 101,159
Total liabilities and stockholders' equity
$ 1,380,381 $ 1,341,238

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


September 30, June 30, March 31, December 31, September 30,

2022 2022 2022 2021 2021

(Dollars in thousands, except per share data)
Interest Income:





Interest and fees on loans
$ 9,306 $ 8,366 $ 7,808 $ 7,876 $ 8,180
Interest on available-for-sale securities:
Taxable
2,913 2,364 2,068 1,960 1,830
Tax-exempt
372 369 365 369 419
Interest on deposits in other financial institutions
184 72 24 33 61
Total interest income
12,775 11,171 10,265 10,238 10,490
Interest Expense:
Interest on deposits
815 375 322 319 421
Interest on subordinated debentures
196 186 195 196 195
Interest on senior secured term note
89 45 91 98 103
Interest on other borrowings
32 24 - - -
Total interest expense
1,132 630 608 613 719
Net interest income before provision for loan losses
11,643 10,541 9,657 9,625 9,771
Provision for loan losses
100 (1,500 ) - - -
Net interest income after provision for loan losses
11,543 12,041 9,657 9,625 9,771

Noninterest Income:
Service charges on deposits accounts
1,023 968 913 901 787
Net gain on sale of loans
868 1,063 1,146 1,865 2,147
Net loan servicing income
203 209 402 186 90
Debit card interchange fees
1,177 1,165 1,079 1,168 1,146
Net gains on sales of securities available-for-sale
- (20 ) - - -
Net other gains (losses)
- 11 (4 ) 5 52
Increase in cash surrender value of bank-owned life insurance
78 77 86 77 78
Other
392 347 296 317 457
Total noninterest income
3,741 3,820 3,918 4,519 4,757

Noninterest Expenses:
Salaries and employee benefits
6,422 6,066 6,222 6,403 6,118
Occupancy and equipment
1,176 1,132 1,212 1,109 1,273
Data processing
705 681 708 694 689
Debit card processing and issuance
661 528 513 533 489
Advertising and marketing
138 140 108 115 141
Amortization of intangibles
88 88 96 95 96
Professional fees
417 392 389 436 434
Office Supplies
96 97 86 127 74
Telephone
136 146 140 143 139
Other
852 1,984 697 850 865
Total noninterest expenses
10,691 11,254 10,171 10,505 10,318
Income before income taxes
4,593 4,607 3,404 3,639 4,210
Provision for income taxes
1,107 1,129 785 728 988
Net income
$ 3,486 $ 3,478 $ 2,619 $ 2,911 $ 3,222

Key Ratios

Basic Earnings Per Common Share
$ 1.21 $ 1.21 $ 0.92 $ 1.02 $ 1.13
Diluted Earnings Per Common Share
1.21 1.21 0.92 1.02 1.13
Dividends Per Common Share
0.12 0.12 0.12 0.11 0.11

Book Value Per Common Share
24.97 27.89 30.59 35.50 35.29
Tangible Book Value Per Share
21.01 23.91 26.58 31.41 31.17
Tangible Book Value Excluding AOCI Per Share
33.62 32.42 31.27 30.64 29.64
Number of Shares Outstanding
2,870,754 2,875,430 2,873,528 2,848,078 2,848,078
Average Number of Shares Outstanding
2,872,232 2,874,254 2,864,082 2,848,109 2,848,109

Net Interest Margin (1)
3.63 % 3.31 % 3.13 % 3.12 % 3.11 %
Efficiency Ratio (1)(2)(3)
69.04 % 68.96 % 74.35 % 73.75 % 70.70 %
Return on Assets
1.02 % 1.02 % 0.80 % 0.89 % 0.96 %
Return on Common Equity
16.73 % 16.75 % 10.82 % 11.41 % 12.57 %

(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.

(3)The efficiency ratio excludes the one‐time charge totaling $1.27 million related to the previously announced branch closures.

(UNAUDITED)
As of

September 30, June 30, March 31, December 31, September 30,

2022 2022 2022 2021 2021


(Amounts in thousands, except per share data)
Cash and due from banks
$ 18,618 $ 15,682 $ 13,413 $ 10,846 $ 16,536
Interest-bearing deposits in banks and other
60,116 12,990 42,103 57,882 104,722
Securities
452,198 472,977 484,420 506,894 472,472
Net loans/leases
770,279 765,979 716,456 698,877 658,323
Goodwill and core deposit intangible
11,369 11,453 11,536 11,628 11,723
Other assets
67,801 63,109 62,715 55,428 54,218
Total assets
$ 1,380,381 $ 1,342,190 $ 1,330,643 $ 1,341,555 $ 1,317,994

Deposits
$ 1,263,183 $ 1,220,667 $ 1,199,627 $ 1,197,041 $ 1,169,085
Subordinated debentures
19,841 19,827 19,812 20,155 20,155
Senior secured term note
10,111 10,500 10,889 11,278 11,667
Borrowings
5,000 5,000 5,000 5,000 5,000
Other liabilities
10,568 5,998 7,414 6,985 11,585
Stockholders' equity
71,678 80,198 87,901 101,096 100,502
Total liabilities and stockholders' equity
$ 1,380,381 $ 1,342,190 $ 1,330,643 $ 1,341,555 $ 1,317,994


ASSET QUALITY DATA
(Amounts in thousands)
September 30, June 30, March 31, December 31, September 30,

2022 2022 2022 2021 2021

Non-accrual loans
$ 3,254 $ 4,125 $ 4,983 $ 5,430 $ 7,827
Accruing loans past due 90 days or more
- - - - -
Troubled debt restructures - accruing
1,720 1,910 1,802 1,843 1,975
Total nonperforming loans
$ 4,974 $ 6,035 $ 6,785 $ 7,273 $ 9,802
Other real estate owned
- - 75 24 -
Total nonperforming assets
$ 4,974 $ 6,035 $ 6,860 $ 7,297 $ 9,802

Total loans
$ 779,181 $ 775,474 $ 727,451 $ 710,002 $ 669,547
Allowance for loan losses
8,902 9,495 10,995 11,125 11,224
Loans, less allowance for loan losses
$ 770,279 $ 765,979 $ 716,456 $ 698,877 $ 658,323
Nonperforming Assets to total Assets
0.36 % 0.45 % 0.52 % 0.54 % 0.74 %
Nonperforming loans to total loans
0.64 % 0.78 % 0.93 % 1.02 % 1.46 %
Allowance for loan losses to total loans
1.14 % 1.22 % 1.51 % 1.57 % 1.68 %
Allowance for loan losses to nonperforming loans
179.0 % 157.3 % 162.0 % 153.0 % 114.5 %



For the Quarter Ended

September 30, June 30, March 31, December 31, September 30,
ROLLFORWARD OF ALLOWANCE
2022 2022 2022 2021 2021

Beginning Balance
$ 9,495 $ 10,995 $ 11,125 $ 11,224 $ 11,229
Provision
100 (1,500 ) - - -
Loans charged off
758 95 214 181 103
Loan recoveries
65 95 84 82 98
Net charge-offs
693 - 130 99 5
Ending Balance
$ 8,902 $ 9,495 $ 10,995 $ 11,125 $ 11,224

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)


Nine months ended September 30,

2022 2021

(Amounts in thousands, except per share data)



Interest Income:


Interest and fees on loans
$ 25,480 $ 24,956
Interest and dividends on available-for-sale securities:
Taxable
7,345 5,309
Tax-exempt
1,105 1,182
Interest on deposits in other financial institutions
281 150
Total interest income
34,211 31,597
Interest Expense:
Interest on deposits
1,513 1,258
Interest on subordinated debentures
577 353
Interest on senior secured term note
224 313
Interest on other borrowings
56 21
Total interest expense
2,370 1,945
Net interest income before provision for loan losses
31,841 29,652
Provision for loan losses
(1,400 ) 500
Net interest income after provision for loan losses
33,241 29,152

Noninterest Income:
Service charges on deposits accounts
2,904 2,140
Net gain on sale of loans
3,077 6,726
Net loan servicing income
814 495
Debit card interchange fees
3,421 3,392
Net gains on sales of securities available-for-sale
(20 ) -
Net other gains (losses)
7 101
Increase in cash surrender value of bank-owned life insurance
242 237
Change in value of equity securities
(193 ) (12 )
Other
1,227 1,685
Total noninterest income
11,479 14,764

Noninterest Expenses:
Salaries and employee benefits
18,710 17,605
Occupancy and equipment
3,521 3,547
Data processing
2,094 1,921
Debit card processing and issuance
1,702 1,417
Advertising and marketing
385 310
Amortization of core deposit intangible
273 294
Professional fees
1,198 1,224
Office Supplies
279 244
Telephone
422 425
Other
3,532 2,785
Total noninterest expenses
32,116 29,772
Income before income taxes
12,604 14,144
Provision for income taxes
3,021 3,437
Net income
$ 9,583 $ 10,707

Key Ratios

Basic Earnings Per Common Share
$ 3.34 $ 3.45
Diluted Earnings Per Common Share
3.34 3.45
Dividends Per Common Share
0.36 0.33

Net Interest Margin (1)
3.36 % 3.32 %
Efficiency Ratio (1)(2)(3)
70.68 % 67.01 %
Return on Assets
0.95 % 1.13 %
Return on Common Equity
14.55 % 13.49 %

(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.

(3)The efficiency ratio excludes the one‐time charge totaling $1.27 million related to the previously announced branch closures.

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, 2022 June 30, 2022 September 30, 2021

Average
Average Average
Average Average
Average

Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets:









Interest-bearing deposits and other
$ 30,655 $ 184 2.39 % $ 50,333 $ 72 0.58 % $ 119,991 $ 61 0.20
%
Investment securities:
Taxable investment securities
417,110 2,913 2.77 % 432,659 2,364 2.19 % 413,853 1,830 1.75
%
Tax-exempt investment securities
54,353 372 3.46 % 54,184 369 3.48 % 52,663 420 4.05
%
Total Investment securities
471,463 3,285 2.85 % 486,843 2,733 2.33 % 466,516 2,250 2.01
%
Loans
780,878 9,306 4.73 % 752,785 8,366 4.46 % 675,070 8,180 4.81 %

Total Earning Assets
$ 1,282,996 $ 12,775 3.98 % $ 1,289,961 $ 11,171 3.51 % $ 1,261,577 $ 10,491 3.34
%
Allowance for loan losses
(9,120 ) (10,618 ) (11,229 )
Cash and due from banks
15,331 14,900 16,821
Other assets
71,882 70,202 61,274

Total Assets
$ 1,361,089 $ 1,364,445 $ 1,328,443

Interest Bearing Liabilities:
Interest bearing checking accounts
$ 359,146 $ 451 0.50 % $ 316,829 $ 175 0.22 % $ 300,935 $ 180
%
Savings and money market deposits
419,116 177 0.17 % 426,585 75 0.07 % 423,894 109 0.10
%
Time deposits
82,736 187 0.90 % 77,287 125 0.65 % 76,682 133 0.69 %
Total interest bearing deposits
860,998 815 0.38 % 820,701 375 0.18 % 801,511 422 0.21
%
Subordinated debentures and notes
19,834 196 3.93 % 19,820 186 3.77 % 20,155 195 3.83
%
Borrowings
16,492 121 2.90 % 22,143 69 1.25 % 16,670 103 2.45 %

Total Interest-Bearing Liabilities
$ 897,324 $ 1,132 0.50 % $ 862,664 $ 630 0.29 % $ 838,336 $ 720 0.34
%

Interest Rate Spread
3.48 % 3.22 % 3.00
%

Noninterest checking accounts
374,336 412,508 381,046
Other liabilities
6,742 5,965 7,381
Total liabilities
1,278,402 1,281,137 1,226,763
Total Stockholders' equity
82,687 83,308 101,680
Total Liabilities and
Stockholders' Equity
$ 1,361,089 $ 1,364,445 $ 1,328,443

Net Interest Income/Margin
$ 11,643 3.63 % $ 10,541 3.31 % $ 9,771 3.11
%

(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, 2022 September 30, 2021

Average
Average Average
Average

Balance Interest Rate Balance Interest Rate
Interest Earning Assets:






Interest-bearing deposits and other
$ 43,019 $ 281 0.87 % $ 99,997 $ 150 0.20 %
Investment securities:
Taxable investment securities
432,689 7,345 2.27 % 366,982 5,309 1.93 %
Tax-exempt investment securities
54,121 1,105 3.48 % 52,329 1,182 3.87 %
Total Investment securities
486,810 8,450 2.40 % 419,311 6,491 2.18 %
Loans
749,685 25,480 4.54 % 686,905 24,956 4.86 %

Total Earning Assets
$ 1,279,514 $ 34,211 3.61 % $ 1,206,213 $ 31,597 3.54 %
Allowance for loan losses
(10,284 ) (11,176 )
Cash and due from banks
15,064 16,668
Other assets
69,447 59,861

Total Assets
$ 1,353,741 $ 1,271,566

Interest Bearing Liabilities:
Interest bearing checking accounts
$ 330,152 $ 765 0.31 % $ 296,196 $ 521 0.23 %
Savings and money market deposits
423,135 321 0.10 % 392,575 290 0.10 %
Time deposits
79,278 427 0.72 % 78,529 447 0.76 %
Total interest bearing deposits
832,565 1,513 0.24 % 767,300 1,258 0.22 %
Subordinated debentures
19,896 577 3.88 % 12,847 353 3.67 %
Borrowings
18,237 280 2.06 % 19,811 334 2.25 %

Total Interest-Bearing Liabilities
$ 870,698 $ 2,370 0.36 % $ 799,958 $ 1,945 0.32 %

Interest Rate Spread
3.25 % 3.22 %

Noninterest checking accounts
388,404 358,500
Other liabilities
6,591 7,012
Total liabilities
1,265,693 1,165,470
Total Stockholders' equity
88,048 106,096
Total Liabilities and
Stockholders' Equity
$ 1,353,741 $ 1,271,566

Net Interest Income/Margin
$ 31,841 3.36 % $ 29,652 3.32 %

(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.

SOURCE: Blackhawk Bancorp, Inc.



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