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Blackhawk Bancorp Earns Record $13.64 Million in 2022 and $4.05 Million in Fourth Quarter 2022

BELOIT, WI / ACCESSWIRE / January 24, 2023 / Blackhawk Bancorp, Inc. (OTCQX:BHWB), (the "Company") the parent company of Blackhawk Bank (the "Bank"), reported record earnings for the year ended December 31, 2022, with net income of $13.64 million slightly exceeding the previous year's net income of $13.62 million. Diluted Earnings per Share (EPS) for 2022 increased 6.26% to $4.75 compared to the previous record of $4.47 reported for 2021. The Company's results for the year ended 2022 produced a Return on Average Equity (ROAE) of 16.23% and a Return on Average Assets (ROAA) of 1.01%.

The increase in earnings for 2022 as compared to 2021 includes an increase in net interest income of $4.64 million and a decrease in the provision for loan losses of $1.45 million. The growth in net interest income was achieved despite a $2.37 million decrease in Paycheck Protection Program (PPP) fees recognized. These earnings improvements were partially offset by a $4.11 million decrease in noninterest income and a $2.32 million increase in operating expenses, which include a $1.34 one-time charge related to the branch closures.

The Company reported net income of $4.05 million for the fourth quarter of 2022, a 16% increase compared to $3.49 million earned in the preceding quarter, and a 39% increase compared to the $2.91 million earned during the fourth quarter of 2021. Diluted EPS for the current quarter was $1.41, an increase of $0.20, or 17%, over the preceding quarter, and a $0.39, or 38%, increase compared to the fourth quarter a year ago. Fourth quarter 2022 results yielded a ROAE of 22.31% and a ROAA of 1.19%.

The fourth quarter earnings increase over the prior quarter included a $428,000 increase in net interest income and a $487,000 decrease in operating expenses. These earnings improvements were partially offset by an increase of $350,000 in the provision for loan losses and a $327,000 decrease in noninterest income, primarily due to reduced mortgage banking activity.

The increase in net income for the fourth quarter of 2022, compared to the fourth quarter of 2021, included a $2.45 million, or 25%, increase in net interest income. Additionally, operating expenses decreased by $301,000, or 3%. This earnings growth was partially offset by a $1.31 million decrease in income from the sale and servicing of mortgage loans.

"Our continued strong net interest income generation during the fourth quarter reflects rising rates and controlled funding costs, which more than offset the slowdown in mortgage lending," said Todd James, Chairman and CEO. "Our hedge between net interest margin growth and mortgage banking revenue allows us the opportunity to generate revenue growth throughout the economic cycles. During an economic downturn when rates decline our mortgage banking revenue increases helping to offset declining net interest margin and potential credit losses, and when interest rates increase and mortgage lending slows, we benefit from net interest margin expansion."

"Due to the current rate environment and increased deposit competition, we experienced an uptick in in deposit costs during the quarter. With more potential rate sensitivity going forward, we are starting to see some funds move to higher yielding accounts, and we anticipate deposit pricing pressure could be a challenge to future NIM expansion," said James.

Fourth Quarter 2022 Financial Highlights (at or for the three months ended December 31, 2022)

  • Net income was $4.05 million, or $1.41 per diluted share, compared to $2.91 million, or $1.02 per diluted share, in the fourth quarter of 2021.
  • Net interest margin was 3.82%, compared to 3.63% in the preceding quarter and 3.12% in the fourth quarter a year ago.
  • Annualized return on average assets was 1.19%, compared to 0.89% in the fourth quarter of 2021.
  • Annualized return on average equity was 22.31%, compared to 11.41% in the fourth quarter a year ago.
  • Excluding PPP loans, average total loans increased $139.5 million, or 22% to $785.4 million for the quarter ended December 31, 2022, compared to $645.9 million for the fourth quarter of 2021.
  • Total deposits decreased by $5.93 million to $1.19 billion at December 31, 2022 compared to $1.20 billion a year earlier.
  • Allowance for loan losses to total loans was 1.11% at quarter end.
  • Nonperforming assets to total assets was 0.36% at December 31, 2022 compared to 0.54% a year ago.
  • On December 23, 2022, the Company paid a quarterly cash dividend of $0.12 per share, marking the 34th consecutive quarterly cash dividend paid.

Net Interest Income

Net interest income for the year ended December 31, 2022 increased $4.6 million, or 12%, to $43.91 million compared to $39.28 million for 2021. For 2022, the company's net interest margin expanded 20 basis points to 3.47%, compared to 3.27% for the prior year. The tax-equivalent yield on earning assets increased by 33 basis points to 3.81% for 2022, compared to 3.48% for 2021. The cost of deposits increased by 11 basis points to 0.25% compared to 0.14% for 2021. The growth in net interest income and net interest margin reflects the $75.0 million increase in average total loans to $758.9 million compared to $683.9 million for 2021.

The benefit to net interest income from recognition of PPP fees was $904,000 for 2022, compared to $3.28 million for 2021. Net interest income for 2022 benefited from the repricing of variable rate loans and investments due to the increase in short term rates by the Federal Reserve Bank.

Net interest income totaled $12.07 million for the fourth quarter of 2022, an increase of $428,000, or 4%, compared to the third quarter of 2022, and an increase of $2.45 million, or 25%, compared to the fourth quarter of the prior year. The benefit to net interest income from the recognition of PPP loan fees decreased to $33,000 for the fourth quarter of 2022, compared to $53,000 the preceding quarter and $535,000 in the fourth quarter of 2021. As of December 31, 2022, no deferred PPP fee income remains to be recognized in future periods.

The Company's net interest margin was 3.82% for the fourth quarter of 2022, compared to 3.63% for the third quarter of 2022, and 3.12% for the fourth quarter of 2021. The tax-equivalent yield on earning assets increased by 46 basis points to 4.44% and the cost of deposits increased by 24 basis points to 0.50% for the fourth quarter of 2022, as compared to 3.98% and 0.26%, respectively, for the third quarter of 2022. The tax-equivalent yield on earning assets and cost of total deposits increased by 112 basis points and 39 basis points, respectively, compared to the fourth quarter of 2021.

Average total loans for the fourth quarter of 2022 were $786.1 million, a $5.2 million, or 1%, increase over the third quarter of 2022 and a $111.3 million, or 17%, increase compared to the fourth quarter of 2021.

Average deposits totaled $1.23 billion for the fourth quarter of 2022, a decrease of $6.1 million, or less than 1%, compared to the third quarter of 2022, and an increase of $69.7 million, or 6%, compared to the fourth quarter of 2021.

Provision for Loan Losses and Asset Quality

The provision for loan losses decreased by $1.45 million to a negative provision of $950,000 for 2022 compared to a provision of $500,000 for 2021. The decrease in provision reflects a reduction in qualitative factor adjustments in the allowance calculation for potential losses related to the pandemic. The Company recorded a provision for loan losses of $450,000 for the quarter ended December 31, 2022. This compares to a $100,000 provision in the third quarter of 2022, and no provision for loan losses in the fourth quarter of 2021.

Total nonperforming assets, which include troubled debt restructures performing in accordance with their modified terms, improved to $4.7 million as of December 31, 2022, as compared to $5.0 million as of September 30, 2022, and $7.3 million at December 31, 2021. At December 31, 2022, the ratio of nonperforming loans to total loans equaled 0.60%, as compared to 0.64% at September 30, 2022, and 1.02% at December 31, 2021.

The allowance for loan losses to total loans was 1.11% at December 31, 2022, compared to 1.14% at September 30, 2022, and 1.57% at December 31, 2021. The allowance for loan losses to nonperforming loans increased to 185.1% at December 31, 2022, compared to 179.0% at September 30, 2022, and 153.0% at December 31, 2021.

Noninterest Income and Operating Expenses

Noninterest income for the year ended December 31, 2022 totaled $14.89 million, a $4.11 million decrease compared to the $19.00 million for the prior year. The net revenue from the sale and servicing of mortgages decreased by $4.64 million. This was partially offset by a $892,000 increase in deposit service fees during 2022.

Noninterest income totaled $3.41 million for the fourth quarter of 2022, a $327,000 decrease compared to $3.74 million in the third quarter of 2022 and a $1.11 million decrease compared to $4.52 million in the fourth quarter of 2021. The net revenue from the sale and servicing of mortgage loans decreased $325,000 during the fourth quarter of 2022, compared to the preceding quarter and by $1.31 million compared to the fourth quarter of 2021.

Operating expenses for the year ended December 31, 2022 totaled $42.32 million, a $2.32 million, or 6%, increase compared to 2021. The increase includes a $665,000 increase in salaries and employee benefits as well as a $1.34 million non-recurring charge related to the branch closures. Excluding the one-time charge, total operating expenses for the year ended December 31, 2022 increased $984,000, or 2%, compared to 2021.

Operating expenses for the fourth quarter of 2022, totaled $10.20 million, a decrease of $487,000, or 5%, compared to the third quarter of 2022, and a decrease of $301,000, or 3%, compared to the fourth quarter of 2021. The decrease compared to the preceding quarter was primarily due to a $459,000 decrease in salaries and employee benefits.

Excluding the one-time charge related to the branch closures, the efficiency ratio was 65.54% for the fourth quarter of 2022. This compared to 69.04% for the preceding quarter and 73.75% for the fourth quarter a year ago.

Capital

Tangible book value per share was $22.60 at December 31, 2022, compared to $21.01 at September 30, 2022 and $31.41 at December 31, 2021. The increase in tangible book value per share compared to the preceding quarter includes a $557,000 increase in accumulated other comprehensive income ("AOCI") related to a decrease in the unrealized losses on available for sale securities. Excluding AOCI, tangible book value per share was $35.03 at December 31, 2022, an increase of $1.41 and $4.39 compared to September 30, 2022 and December 31, 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

Matthew McDonnell, SVP & CFO
mmcdonnell@blackhawkbank.com

Phone: (608) 364-8911

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


December 31, December 31,
Assets
2022 2021

(Dollars in thousands, except

share and per share data)
Cash and due from banks
$ 16,686 $ 10,846
Interest-bearing deposits in banks and other institutions
6,071 55,720
Total cash and cash equivalents
22,757 66,566

Certificates of deposit in banks and other institutions
1,463 2,161
Equity securities at fair value
3,455 2,553
Securities available-for-sale
443,772 504,341
Loans held for sale
2,190 2,585
Federal Home Loan Bank stock, at cost
1,705 2,150
Loans, less allowance for loan losses of $8,714 and $11,125
at December 31, 2022 and December 31, 2021, respectively
771,468 696,292
Premises and equipment, net
17,192 20,778
Goodwill and core deposit intangible
11,286 11,628
Mortgage servicing rights
3,985 3,833
Cash surrender value of bank-owned life insurance
11,761 11,440
Other assets
30,764 16,911
Total assets
$ 1,321,798 $ 1,341,238

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Noninterest-bearing
$ 352,647 $ 380,601
Interest-bearing
838,469 816,440
Total deposits
1,191,116 1,197,041
Subordinated debentures and notes, net of issuance costs (including $1,031
at fair value at December 31, 2022 and December 31, 2021)
19,856 19,775
Senior secured term note
9,722 11,278
Other borrowings
18,000 5,000
Other liabilities
7,043 6,985
Total liabilities
1,245,737 1,240,079

Stockholders' equity
Common stock, $0.01 par value, 10,000,000 shares authorized;
3,507,220 and 3,479,069 shares issued as of December 31, 2022 and
December 31, 2021, respectively
35 35
Additional paid-in capital
36,694 35,890
Retained earnings
94,243 81,987
Treasury stock, 640,594 and 630,991 shares at cost as of December 31, 2022
and December 31, 2021, respectively
(19,276 ) (18,952 )
Accumulated other comprehensive income (loss)
(35,635 ) 2,199
Total stockholders' equity
76,061 101,159
Total liabilities and stockholders' equity
$ 1,321,798 $ 1,341,238

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)
For the Quarter Ended

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

2022 2022 2022 2022 2021

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





Interest and fees on loans
$ 10,115 $ 9,306 $ 8,366 $ 7,808 $ 7,876
Interest on available-for-sale securities:
Taxable
3,284 2,913 2,364 2,068 1,960
Tax-exempt
379 372 369 365 369
Interest on deposits in other financial institutions
246 184 72 24 33
Total interest income
14,024 12,775 11,171 10,265 10,238
Interest Expense:
Interest on deposits
1,555 815 375 322 319
Interest on subordinated debentures
219 196 186 195 196
Interest on senior secured term note
120 89 45 91 98
Interest on other borrowings
59 32 24 - -
Total interest expense
1,953 1,132 630 608 613
Net interest income before provision for loan losses
12,071 11,643 10,541 9,657 9,625
Provision for loan losses
450 100 (1,500 ) - -
Net interest income after provision for loan losses
11,621 11,543 12,041 9,657 9,625

Noninterest Income:
Service charges on deposits accounts
1,029 1,023 968 913 901
Net gain on sale of loans
551 868 1,063 1,146 1,865
Net loan servicing income
195 203 209 402 186
Debit card interchange fees
1,141 1,177 1,165 1,079 1,168
Net gains on sales of securities available-for-sale
20 - (20 ) - -
Net other gains (losses)
- - 11 (4 ) 5
Increase in cash surrender value of bank-owned life insurance
79 78 77 86 77
Other
399 392 347 296 317
Total noninterest income
3,414 3,741 3,820 3,918 4,519

Noninterest Expenses:
Salaries and employee benefits
5,963 6,422 6,066 6,222 6,403
Occupancy and equipment
1,083 1,176 1,132 1,212 1,109
Data processing
724 705 681 708 694
Debit card processing and issuance
596 661 528 513 533
Advertising and marketing
81 138 140 108 115
Amortization of intangibles
84 88 88 96 95
Professional fees
439 417 392 389 436
Office Supplies
125 96 97 86 127
Telephone
133 136 146 140 143
Other
976 852 1,984 697 850
Total noninterest expenses
10,204 10,691 11,254 10,171 10,505
Income before income taxes
4,831 4,593 4,607 3,404 3,639
Provision for income taxes
779 1,107 1,129 785 728
Net income
$ 4,052 $ 3,486 $ 3,478 $ 2,619 $ 2,911

Key Ratios

Basic Earnings Per Common Share
$ 1.41 $ 1.21 $ 1.21 $ 0.92 $ 1.02
Diluted Earnings Per Common Share
1.41 1.21 1.21 0.92 1.02
Dividends Per Common Share
0.12 0.12 0.12 0.12 0.11

Book Value Per Common Share
26.53 24.97 27.89 30.59 35.50
Tangible Book Value Per Share
22.60 21.01 23.91 26.58 31.41
Tangible Book Value Excluding AOCI Per Share
35.03 33.62 32.42 31.27 30.64
Number of Shares Outstanding
2,866,626 2,870,754 2,875,430 2,873,528 2,848,078
Average Number of Shares Outstanding
2,867,915 2,872,232 2,874,254 2,864,082 2,848,109

Net Interest Margin (1)
3.82 % 3.63 % 3.31 % 3.13 % 3.12 %
Efficiency Ratio (1)(2)(3)
65.54 % 69.04 % 68.96 % 74.35 % 73.75 %
Return on Assets
1.19 % 1.02 % 1.02 % 0.80 % 0.89 %
Return on Common Equity
22.31 % 16.73 % 16.75 % 10.82 % 11.41 %

(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 $1.34 million related to the previously announced branch closures.

(UNAUDITED)
As of
December 31, September 30, June 30, March 31, December 31,

2022 2022 2022 2022 2021

(Amounts in thousands, except per share data)
Cash and due from banks
$ 16,686 $ 18,618 $ 15,682 $ 13,413 $ 10,846
Interest-bearing deposits in banks and other
7,534 60,116 12,990 42,103 57,882
Securities
447,227 452,198 472,977 484,420 506,894
Net loans/leases
773,658 770,279 765,979 716,456 698,877
Goodwill and core deposit intangible
11,286 11,369 11,453 11,536 11,628
Other assets
65,407 67,801 63,109 62,715 55,428
Total assets
$ 1,321,798 $ 1,380,381 $ 1,342,190 $ 1,330,643 $ 1,341,555

Deposits
$ 1,191,116 $ 1,263,183 $ 1,220,667 $ 1,199,627 $ 1,197,041
Subordinated debentures
19,856 19,841 19,827 19,812 20,155
Senior secured term note
9,722 10,111 10,500 10,889 11,278
Borrowings
18,000 5,000 5,000 5,000 5,000
Other liabilities
7,043 10,568 5,998 7,414 6,985
Stockholders' equity
76,061 71,678 80,198 87,901 101,096
Total liabilities and stockholders' equity
$ 1,321,798 $ 1,380,381 $ 1,342,190 $ 1,330,643 $ 1,341,555


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

2022 2022 2022 2022 2021

Non-accrual loans
$ 3,036 $ 3,254 $ 4,125 $ 4,983 $ 5,430
Accruing loans past due 90 days or more
- - - - -
Troubled debt restructures - accruing
1,671 1,720 1,910 1,802 1,843
Total nonperforming loans
$ 4,707 $ 4,974 $ 6,035 $ 6,785 $ 7,273
Other real estate owned
17 - - 75 24
Total nonperforming assets
$ 4,724 $ 4,974 $ 6,035 $ 6,860 $ 7,297

Total loans
$ 782,372 $ 779,181 $ 775,474 $ 727,451 $ 710,002
Allowance for loan losses
8,714 8,902 9,495 10,995 11,125
Loans, less allowance for loan losses
$ 773,658 $ 770,279 $ 765,979 $ 716,456 $ 698,877
Nonperforming Assets to total Assets
0.36 % 0.36 % 0.45 % 0.52 % 0.54 %
Nonperforming loans to total loans
0.60 % 0.64 % 0.78 % 0.93 % 1.02 %
Allowance for loan losses to total loans
1.11 % 1.14 % 1.22 % 1.51 % 1.57 %
Allowance for loan losses to nonperforming loans
185.1 % 179.0 % 157.3 % 162.0 % 153.0 %


For the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
ROLLFORWARD OF ALLOWANCE
2022 2022 2022 2022 2021

Beginning Balance
$ 8,902 $ 9,495 $ 10,995 $ 11,125 $ 11,224
Provision
450 100 (1,500 ) - -
Loans charged off
679 758 95 214 181
Loan recoveries
41 65 95 84 82
Net charge-offs
638 693 - 130 99
Ending Balance
$ 8,714 $ 8,902 $ 9,495 $ 10,995 $ 11,125

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)
Twelve months ended December 31,

2022 2021

(Amounts in thousands, except per share data)



Interest Income:


Interest and fees on loans
$ 35,596 $ 32,832
Interest and dividends on available-for-sale securities:
Taxable
10,629 7,268
Tax-exempt
1,484 1,550
Interest on deposits in other financial institutions
527 184
Total interest income
48,236 41,834
Interest Expense:
Interest on deposits
3,068 1,576
Interest on subordinated debentures
796 549
Interest on senior secured term note
344 412
Interest on other borrowings
115 20
Total interest expense
4,323 2,557
Net interest income before provision for loan losses
43,913 39,277
Provision for loan losses
(950 ) 500
Net interest income after provision for loan losses
44,863 38,777

Noninterest Income:
Service charges on deposits accounts
3,933 3,041
Net gain on sale of loans
3,629 8,592
Net loan servicing income
1,009 681
Debit card interchange fees
4,561 4,559
Net gains on sales of securities available-for-sale
- -
Net other gains (losses)
7 106
Increase in cash surrender value of bank-owned life insurance
320 314
Change in value of equity securities
(201 ) (28 )
Other
1,635 1,739
Total noninterest income
14,893 19,004

Noninterest Expenses:
Salaries and employee benefits
24,673 24,008
Occupancy and equipment
4,604 4,656
Data processing
2,818 2,614
Debit card processing and issuance
2,297 1,950
Advertising and marketing
467 390
Amortization of core deposit intangible
342 425
Professional fees
1,637 1,660
Office Supplies
404 371
Telephone
555 568
Other
4,524 3,355
Total noninterest expenses
42,321 39,997
Income before income taxes
17,435 17,784
Provision for income taxes
3,800 4,165
Net income
$ 13,635 $ 13,619

Key Ratios

Basic Earnings Per Common Share
$ 4.75 $ 4.47
Diluted Earnings Per Common Share
4.75 4.47
Dividends Per Common Share
0.48 0.44

Net Interest Margin (1)
3.47 % 3.27 %
Efficiency Ratio (1)(2)(3)
69.22 % 68.63 %
Return on Assets
1.01 % 1.06 %
Return on Common Equity
16.23 % 12.99 %

(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 $1.34 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

December 31, 2022 September 30, 2022 December 31, 2021

Average
Average Average
Average Average
Average

Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest Earning Assets:
Interest-bearing deposits and other
$ 29,253 $ 246 3.34 % $ 30,655 $ 184 2.39 % $ 61,530 $ 33 0.21 %
Investment securities:
Taxable investment securities
393,291 3,284 3.31 % 417,110 2,913 2.77 % 447,836 1,960 1.74 %
Tax-exempt investment securities
54,914 379 3.49 % 54,353 372 3.46 % 52,749 369 3.57 %
Total Investment securities
448,205 3,663 3.33 % 471,463 3,285 2.85 % 500,585 2,329 1.93 %
Loans
786,108 10,115 5.11 % 780,878 9,306 4.73 % 674,818 7,876 4.63 %

Total Earning Assets
$ 1,263,566 $ 14,024 4.44 % $ 1,282,996 $ 12,775 3.98 % $ 1,236,933 $ 10,238 3.32 %
Allowance for loan losses
(8,819 ) (9,120 ) (11,192 )
Cash and due from banks
15,834 15,331 16,557
Other assets
76,693 71,882 62,310

Total Assets
$ 1,347,274 $ 1,361,089 $ 1,304,608

Interest Bearing Liabilities:
Interest bearing checking accounts
$ 367,443 $ 982 1.06 % $ 359,146 $ 451 0.50 % $ 308,166 $ 116 0.15 %
Savings and money market deposits
401,432 320 0.32 % 419,116 177 0.17 % 423,311 77 0.07 %
Time deposits
84,817 253 1.18 % 82,736 187 0.90 % 78,625 126 0.64 %
Total interest bearing deposits
853,692 1,555 0.72 % 860,998 815 0.38 % 810,102 319 0.16 %
Subordinated debentures and notes
19,849 219 4.37 % 19,834 196 3.93 % 20,155 196 3.85 %
Borrowings
17,962 179 3.95 % 16,492 121 2.90 % 16,306 98 2.40 %

Total Interest-Bearing Liabilities
$ 891,503 $ 1,953 0.87 % $ 897,324 $ 1,132 0.50 % $ 846,563 $ 613 0.29 %

Interest Rate Spread
3.57 % 3.48 % 3.03 %

Noninterest checking accounts
375,569 374,336 349,482
Other liabilities
8,151 6,742 7,342
Total liabilities
1,275,223 1,278,402 1,203,387
Total Stockholders' equity
72,051 82,687 101,221
Total Liabilities and
Stockholders' Equity
$ 1,347,274 $ 1,361,089 $ 1,304,608

Net Interest Income/Margin
$ 12,071 3.82 % $ 11,643 3.63 % $ 9,625 3.12 %

(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 Twelve Months Ended

December 31, 2022 December 31, 2021

Average
Average Average
Average

Balance Interest Rate Balance Interest Rate
Interest Earning Assets:






Interest-bearing deposits and other
$ 39,549 $ 527 1.33 % $ 90,300 $ 183 0.20 %
Investment securities:
Taxable investment securities
422,758 10,629 2.51 % 387,361 7,269 1.88 %
Tax-exempt investment securities
54,321 1,484 3.48 % 52,435 1,550 3.76 %
Total Investment securities
477,079 12,113 2.62 % 439,796 8,819 2.10 %
Loans
758,866 35,596 4.69 % 683,859 32,832 4.80 %

Total Earning Assets
$ 1,275,494 $ 48,236 3.81 % $ 1,213,955 $ 41,834 3.48 %
Allowance for loan losses
(9,915 ) (11,180 )
Cash and due from banks
15,258 16,640
Other assets
71,274 60,379

Total Assets
$ 1,352,111 $ 1,279,794

Interest Bearing Liabilities:
Interest bearing checking accounts
$ 339,552 $ 1,748 0.51 % $ 299,213 $ 636 0.21 %
Savings and money market deposits
417,665 640 0.15 % 400,323 366 0.09 %
Time deposits
80,674 680 0.84 % 78,553 574 0.73 %
Total interest bearing deposits
837,891 3,068 0.37 % 778,089 1,576 0.20 %
Subordinated debentures
19,884 796 4.00 % 14,689 548 3.73 %
Borrowings
18,167 459 2.53 % 18,928 433 2.29 %

Total Interest-Bearing Liabilities
$ 875,942 $ 4,323 0.49 % $ 811,706 $ 2,557 0.32 %

Interest Rate Spread
3.32 % 3.16 %

Noninterest checking accounts
385,169 356,227
Other liabilities
6,984 6,995
Total liabilities
1,268,095 1,174,928
Total Stockholders' equity
84,016 104,866
Total Liabilities and
Stockholders' Equity
$ 1,352,111 $ 1,279,794

Net Interest Income/Margin
$ 43,913 3.47 % $ 39,277 3.27 %

(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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