<PAGE> 1
Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission file number 0-18599
BLACKHAWK BANCORP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1659424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Broad Street 53511
Beloit, Wisconsin (Zip Code)
(Address of principal executive offices)
(608) 364-8911
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock June 30, 1996
--------------------- ----------------
$.01 par value 2,285,364 shares
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income for the
three months ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Income for the
six months ended June 30, 1996 and 1995 5
Consolidated Condensed Statements of Shareholders'
Equity as of June 30, 1996 and December 31, 1995 6
Consolidated Condensed Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 7-8
Notes to Consolidated Condensed Financial Statements 9-11
ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II - OTHER INFORMATION
ITEM 6. A) EXHIBITS 15
B) REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30 DECEMBER 31,
------ 1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 5,249,235 $ 7,589,600
Federal funds sold and other short-term
investments 249,050 11,734,905
Securities available for sale 15,554,284 11,571,581
Securities held to maturity 27,682,933 25,794,108
Total loans 94,053,409 94,476,844
Allowance for loan losses (Note 3) <992,749> <928,817>
------------ ------------
Net loans 93,060,660 93,548,027
Bank premises and equipment, net 3,599,103 3,732,418
Accrued interest receivable 1,263,358 1,217,561
Other assets 318,027 343,248
------------ ------------
Total Assets $146,976,650 $155,531,448
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
Non-interest bearing $ 11,470,795 $ 22,513,544
Interest bearing 96,629,643 97,203,385
------------ ------------
Total deposits 108,100,438 119,716,929
Borrowed Funds:
Short-term borrowings (Note 4) 13,934,278 9,679,833
Other borrowings (Note 5) 2,302,242 3,629,027
Accrued interest payable 657,972 693,364
Other liabilities 511,793 622,811
------------ ------------
Total Liabilities 125,506,723 134,341,964
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock
1,000,000 shares, $.01 par value per share
authorized, none issued or
outstanding - -
Common stock
10,000,000 shares, $.01 par value
per share authorized, 2,285,364 and
2,282,615 shares issued and outstanding 22,854 22,826
Additional paid-in capital 6,958,396 6,946,370
Employee stock options earned 61,556 52,165
Retained Earnings 14,601,095 14,210,036
Less 7.578 shares held in treasury, at cost <84,305> -
FASB 115 Adjustment <37,427> 37,114
------------ ------------
Less: Deferred compensation related
to employee stock ownership
plan debt guarantee <52,242> <79,027>
------------ ------------
Total Shareholders' Equity 21,469,927 21,189,484
------------ ------------
Total Liabilities and
Shareholders' Equity 146,976,650 155,531,448
============ ============
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
<PAGE> 4
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,181,640 $ 2,074,969
Interest on deposits with other banks 817 365
Interest on investment securities:
Taxable 532,644 454,024
Exempt from federal income taxes 66,420 49,597
Dividends 7,790 7,560
Interest on federal funds sold
and other short-term investments 50,200 21,196
------------ ------------
Total Interest Income 2,839,511 2,607,711
------------ ------------
INTEREST EXPENSE:
Interest on deposits 1,142,011 1,122,547
Interest on short-term borrowings 186,602 92,981
Interest on other borrowings 46,395 53,033
------------ ---------
Total Interest Expense 1,375,008 1,268,561
------------ ----------
Net Interest Income 1,464,503 1,339,150
Provision for loan losses (Note 3) 40,000 45,000
------------ --------
Net Interest Income After
Provision For Loan Losses 1,424,503 1,294,150
------------ ------------
OTHER OPERATING INCOME:
Investment securities gains (losses) - 2,424
Gain on sale of loans 23,036 7,532
Trust department income 39,915 32,231
Service fees 137,430 108,781
Other income 58,886 37,751
Total Other Operating Income 259,267 188,719
------------ ------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 537,707 461,006
Occupancy expense of bank premises, net 81,284 65,520
Furniture and equipment 90,827 86,048
Data processing 84,410 71,043
Other operating expenses 249,480 290,829
------------ ------------
Total Other Operating Expenses 1,043,708 974,446
------------ ------------
Income Before Income Taxes 640,062 508,423
Provision for Income Taxes 209,365 163,177
------------ ------------
Net Income $ 430,697 $ 345,246
============ ============
Earnings Per Share $.18 $ .15 (1)
============ ============
Dividends Per Share $.10 $.07 (1)
============ ============
</TABLE>
(1) Adjusted for 3 for 2 stock split paid as a 50% stock dividend on
June 15, 1995
See Notes to Unaudited Consolidated Condensed Financial Statements
<PAGE> 5
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,306,099 $4,604,848
Interest on deposits with other banks 1,234 524
Interest on investment securities:
Taxable 1,026,927 913,542
Exempt from federal income taxes 117,471 99,720
Dividends 16,390 5,750
Interest on federal funds sold
and other short-term investments 139,158 33,314
------------ ------------
Total Interest Income 5,607,279 5,127,698
------------ ------------
INTEREST EXPENSE:
Interest on deposits 2,280,977 2,156,344
Interest on short-term borrowings 354,603 184,659
Interest on other borrowings 102,378 70,334
------------ ------------
Total Interest Expense 2,737,958 2,411,337
------------ ------------
Net Interest Income 2,869,321 2,716,361
Provision for loan losses (Note 3) 85,000 90,000
------------ ------------
Net Interest Income After
Provision For Loan Losses 2,784,321 2,626,361
------------ ------------
OTHER OPERATING INCOME:
Investment securities gains (losses) 99 2,424
Gain on sale of loans 40,647 8,991
Trust department income 63,694 46,721
Service fees 261,145 196,066
Other income 128,242 70,377
------------ ------------
Total Other Operating Income 493,827 324,579
------------ ------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,064,324 955,315
Occupancy expense of bank premises, net 161,400 136,242
Furniture and equipment 180,843 168,709
Data processing 165,140 145,360
Other operating expenses 515,478 548,313
------------ ------------
Total Other Operating Expenses 2,087,185 1,953,939
------------ ------------
Income Before Income Taxes 1,190,963 997,001
Provision for Income Taxes 388,619 316,915
------------ ------------
Net Income $ 802,344 $ 680,086
============ ============
Earnings Per Share $ .34 $ .30 (1)
============ ============
Dividends Per Share $ .18 $ .14 (1)
============ ============
</TABLE>
(1) Adjusted for 3 for 2 stock split paid as a 50% stock dividend on
June 15, 1995
See Notes to Unaudited Consolidated Condensed Financial Statements
<PAGE> 6
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended Ended
June 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Common Stock:
Balance at beginning of period $ 22,826 $ 15,006
Stock split - 7,593
Stock options exercised 28 227
------------ ------------
Balance at end of period 22,854 22,826
------------ ------------
Additional Paid-in Capital:
Balance at beginning of period 6,946,370 6,791,012
Stock options exercised 12,026 155,358
------------ ------------
Balance at end of period 6,958,396 6,946,370
------------ ------------
Employee Stock Options Earned:
Balance at beginning of period 52,165 26,642
Stock options exercised <24,786> <8,174>
Unearned employee compensation 34,177 33,697
------------ ------------
Balance at end of period 61,556 52,165
------------ ------------
Retained Earnings:
Balance at beginning of period 14,210,036 13,421,900
Net income 802,344 1,471,887
Dividends declared on common stock <411,285> <676,140>
Stock Split - <7,611>
------------ ------------
Balance at end of period 14,601,095 14,210,036
------------ ------------
Treasury Stock, at Cost:
Balance at Beginning of Period - -
Purchase of Treasury Stock <84,305> -
------------ -----------
Balance at End of Period <84,305> -
------------ -----------
FASB 115 Adjustment:
Balance at beginning of period 37,114 <159,701>
Net adjustment during period <74,541> 196,815
------------ ------------
Balance at end of period <37,427> 37,114
------------ ------------
Other:
Balance at beginning of period <79,027> <132,599>
Principal payments on ESOP loan 26,785 53,572
------------ ------------
Balance at end of period <52,242> <79,027>
------------ ------------
Total Shareholders' Equity $21,469,927 $21,189,484
============ ============
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
<PAGE> 7
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 802,344 680,086
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 85,000 90,000
Provision for depreciation and
amortization 168,960 146,318
Amortization of premiums (accretion of discounts)
on investment securities, net <18,548> 35,441
(Gains) losses on investment securities <99> <2,424>
(Gain) on sale of loans <40,647> <8,991>
Proceeds from sale of loans 3,273,046 908,908
Loans originated for sale <3,232,399> <899,917>
Change in assets and liabilities:
(Increase) decrease in accrued
interest receivable <45,797> <19,589>
(Increase) decrease in other assets 34,612 171,629
Increase (decrease) in accrued
interest payable <35,392> 80,497
Increase (decrease) in other
liabilities <35,032> 395,921
---------- ----------
Net cash provided by
operating activities 956,048 1,577,879
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-
for-sale securities 9,062,683 1,955,714
Purchase of available-for-sale securities <13,172,673> <748,562>
Proceeds from maturity of investment
securities 3,684,942 3,921,975
Purchase of investment securities <5,578,360> <3,518,750>
Decrease in federal funds sold and
other short-term investments, net 11,485,855 4,857,304
Loans originated, net of
principal collected 402,367 <4,007,842>
Purchase of bank premises and equipment <35,645> <1,084,447>
----------- ----------
Net cash provided by (used in)
investing activities 5,849,169 1,375,392
----------- ----------
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.<PAGE>
<PAGE> 8
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Month Ended
June 30
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 12,054 127,102
Net (decrease) in deposits <11,616,491> <6,853,042>
Net increase (decrease) in other
borrowings 2,954,445 4,266,900
Cash dividends paid <411,285> <311,148>
Purchase of Treasury Stock <84,305> --
------------ -----------
Net cash (used in)
financing activities <9,145,582> <2,770,188>
------------ ------------
Net increase (decrease) in cash and
cash equivalents <2,340,365> 183,083
CASH AND CASH EQUIVALENTS:
Beginning 7,589,600 5,155,930
------------ ------------
Ending 5,249,235 5,339,013
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest 2,773,350 2,330,840
Income taxes 236,825 435,520
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Other assets acquired in settlement of
loans 152,191 96,824
Principal payments on ESOP loan (Note 5) 26,785 26,788
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
<PAGE> 9
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
Note 1. General:
The accompanying consolidated condensed financial statements conform
to generally accepted accounting principles and to general practices
within the banking industry. The more significant policies used
by the Company in preparing and presenting its financial statements
are stated in the Corporation's Form 10-KSB.
The effect of timing differences in the recognition of revenue and
expense for tax liability is not determined until the end of each
fiscal year.
In the opinion of Management, the accompanying unaudited consol-
idated condensed financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the financial position of the Corporation as of June 30, 1996
and December 31, 1995, the results of operations for the three and
six months ended June 30, 1996 and 1995, and cash flows for the six
months ended June 30, 1996 and 1995.
The results of operations for the three and six months ended June
30, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
Note 2. Non-Performing Loans
Non-performing loans includes loans which have been categorized by
management as non-accruing because collection of interest is not
assured, and loans which are past-due ninety days or more as to
interest and/or principal payments. The following summarizes
information concerning non-performing loans:
<TABLE>
<CAPTION>
June 30 December 31
1996 1995 1995
--------- ---------- -----------
<S> <C> <C> <C>
Impaired Loans $ - $ - $134,000
Non-accruing loans 719,000 195,000 206,000
Past due 90 days or more
and still accruing 73,000 292,000 238,000
--------- ---------- ---------
Total non-performing loan $792,000 $ 487,000 $578,000
========= ========== =========
</TABLE>
Note 3: Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30
1996 1995
-------- --------
<S> <C> <C>
Balance at beginning of
period $ 938,961 $851,144
Provision charged to expense 40,000 45,000
Loans charged off (14,905) ( 6,783)
Recoveries 28,693 564
--------- ----------
Balance at end of period $ 992,749 $ 889,925
========= ==========
</TABLE>
<PAGE> 10
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(CONTINUED)
<TABLE>
<CAPTION>
Six Month Ended
June 30
----------------
1996 1995
----------- ----------
<S> <C> <C>
Balance at beginning of
period $ 928,817 $ 814,115
Provision charged to expense 85,000 90,000
Loans charged off (53,766) ( 17,324)
Recoveries 32,698 3,134
---------- ----------
Balance at end of period $ 992,749 $ 889,925
========== ==========
</TABLE>
Note 4. Short-Term Borrowings:
A summary of short-term borrowings is as follows:
<TABLE>
<CAPTION>
June 30 December 31,
1996 1995
------------ ------------
<S> <C> <C>
Securities sold under agreement to
repurchase $13,934,278 $9,679,833
</TABLE>
Note 5. Other Borrowings:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ESOP Debt Guarantee $ 52,242 $ 79,027
FHLB Borrowings 2,250,000 3,550,000
------------ -----------
$ 2,302,242 $3,629,027
============ ===========
</TABLE>
The Company has an Employee Stock Ownership Plan for the benefit of
the employees of the Company and its subsidiary. The ESOP borrowed
funds from a third party lender and purchased 37,367 shares of the
Company's stock. Accordingly, the debt has been recorded in the
accompanying consolidated condensed balance sheets together
with the related deferred compensation. The debt and related defer-
red compensation are reduced as the ESOP makes principal payments.
The bank has established a line of credit with the Federal Home Loan
Bank ("FHLB"). Periodic draws are taken against this line to fund
specific loans. The total line of credit is $4,705,000, with an
available balance of $2,455,000.
Note 6. Stock Option Plan:
The Company's 1990 Directors' Stock Option Plan and the 1990 Executive
Stock Option Plan expired on January 24, 1995. At the time of exp-
iration, options outstanding under the 1990 Plans were 125,134 plus
another 160,000 options under the 1994 Directors' and Executives
Stock Option Plans. Options are granted at prices equal to the fair
market value for directors and at prices from 90% to 100% of fair
market value for key employees. The options vest over three years
and are exercisable to 10 years from the date of grant. Other pert-
inent information related to the plans is as follows:
<PAGE> 11
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(CONTINUED)
Note 6. Stock Option Plan (continued)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 (1)
------------ -----------
<S> <C> <C>
Shares under option, beginning of year 262,235 196,701
Granted during the year 6,300 108,350
Terminated and canceled during the year <510> <11,100>
Exercised during the year <2,749> <31,716>
-------- --------
Shares under option, end of period 265,286 262,235
======== ========
Options exercisable, end of period 167,496 113,543
======== ========
Available to grant, end of period 125,350 131,650
======== ========
Average prices: Granted during the period $ 11.13 $ 9.40
Exercised during the period $ 4.38 $ 4.65
Under option $ 6.85 $ 9.79
======== ========
</TABLE>
(1) Adjusted for 3-for-2 stock split payable June 15, 1995.
Note 7. Commitments and Contingent Liabilities:
Following are commitments and contingent liabilities with changes since
December 31, 1995.
Financial instruments with off-balance-sheet risk:
A summary of the amount of exposure to credit loss for loan commit-
ments (unfunded loans and unused lines of credit) and standby let-
ters of credit outstanding is as follows:
<TABLE>
<CAPTION>
June 30 December 31,
1996 1995
------------- -----------
<S> <C> <C>
Loan commitments $10,678,938 $7,733,617
Standby letters of credit 308,247 201,793
------------- -----------
$10,987,185 $7,935,410
============= ===========
</TABLE>
<PAGE>
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The purpose of Management's discussion and analysis is to provide relevant
infomation regarding the Registrant's financial condition and its results of
operations. The information included herein should be read in conjunction
with the consolidated condensed balance sheets as of June 30, 1996 and
December 31, 1995 and the consolidated condensed statements of income for the
six months ended June 30, 1996 and 1995. This information is not meant to be
a substitute for the balance sheets and income statements.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1996 was approximately $429,000
compared to $345,000 for the similar period in 1995. For the six months
ended June 30, 1995 net income was $801,000 compared to $680,000 for six
months ended June 30, 1995. The discussion that follows will provide infor-
mation about the various areas of income and expense that resulted in the
aforementioned results.
THREE MONTHS ENDED JUNE 30
For the three months ended June 30, 1996, interest income was $2,840,000 comp-
ared to $2,608,000 for the same period in 1995. This increase of approxi-
mately 8.9%, $231,000, was the result of increased volume. The average yield
on interest earning assets was slightly less in 1996 than in 1995, 7.90% and
8.03% respectively.
Interest and fees on loans increased to $2,182,000 in the second quarter of
1996 compared to $2,075,000 in same period of 1995. The average balance of
loans were $92.4 million in 1996 compared to $91.8 in 1995. The average
yield on loans increased to 8.95% in the second quarter of 1996 from 8.83%
in the same period in 1995. As noted above, the total loans increased
slightly, however, there was a shift from real estate loans to commercial
loans while consumer loans, including credit cards, remained nearly the same.
The average yield on commercial loans was less in the second quarter of 1996
compared to the same period in 1995. The average yield on real estate and
consumer loans increased.
Investment income on taxable securities was $533,000 for the three months ended
June 30, 1996 compared to $454,000 for the same three months in 1995. The
average yield on taxable securities during this period was less in 1996 than
in 1995, however, the additional volume was sufficient to result in an
increase of income. Interest income from tax exempt securities increased to
$66,000 from $50,000 in 1995. The average yield declined but the additional
volume more than made up the deficiency from the lower yield.
Interest from fed funds sold and other short-term investments increased to
$50,000 in 1996 from $21,000 in 1995. The increased volume in this category
was responsible for the increased income. The average yield was lower during
this three month period in 1996 than in 1995.
Interest paid on deposits increased to $1,142,000 in the three months ended
June 30, 1996 compared to $1,123,000 for the same period in 1995. Although
average deposits increased slightly in 1996, the major reason for the in-
rease was increased interest rates. This is because the average rate on mat-
uring deposits was lower than the rate on new and renewed deposits. This is
expected to continue through much of the third quarter of 1996. The actions of
the Federal Reserve will affect the level and direction of interest rates in
the future. Management, at this time, is not able to predict their actions.
Interest on short-term borrowings increased to $187,000 from $93,000 in 1995, or
an increase of $94,000. Repurchase agreements had a much higher average
balance in 1996 compared to 1995. The decrease in average interest rate on
repurchase agreements was more than offset by the higher volume. The int-
erest expense on repurchase agreements was approximately $115,000 higher in
1996 than in 1995. The other major item in this category is fed funds purch-
ased. The average balance of fed funds purchased during the quarter in 1996
was approximately $334,000 compared to $1.5 million in 1995. The average
rate paid also decreased to 5.60% in 1996 from 6.00% in 1995.
Other borrowings are represented by Federal Home Loan Bank ("FHLB") advances.
Average borrowings from the FHLB decreased to $3.0 million from $3.4 million
in 1995. The average rate on the borrowings also declined slightly.
The provision for loan loss was $40,000 for the three months in 1996 compared to
<PAGE> 13
$45,000 in 1995. It is management's opinion that this amount is an adequate
provision. The rationale for this decrease is due in part to the analysis of
potential loss in the loan portfolio.
Total other operating income increased to $259,000 from $189,000 for the three
months ended June 30, 1996 and 1995 respectively. The service fee category
represents $29,000 of the increase. These are primarily fees associated with
checking accounts, resulting from more accounts and increased fee schedules.
Trust fees also increased significantly, $40,000 and $32,000, 1996 and 1995
respectively. The profit from the sale of fixed rate mortgages increased
to $23,000 from $7,500 in 1995. Net income from the sale of non-deposit invest-
ments was nearly $18,000 for the quarter ended June 30, 1996. There was no
income from this category in 1995. It is anticipated that this item will
continue to increase in the future.
Total other operating expenses increased approximately $69,000, $1,044,000
and $975,000, 1996 and 1995, respectively. The increases in salaries and
employee benefits, occupancy, and furniture and equipment were offset to some
extent by reduced FDIC insurance costs and lower other operating expenses.
The increases in salaries and benefits, including a large increase in health
insurance premiums, was approximately $77,000. This increase was partially
offset by a $61,000 decrease in our FDIC premium. Increases in depreciation
and taxes were the cause of the increased occupancy and equipment costs.
<PAGE> 12
Income taxes increased to $210,000 from $163,000. This increase was due to
a larger amount of income before taxes and a higher effective tax rate, 33% and
32%, 1996 and 1995 respectively.
SIX MONTHS ENDED JUNE 30
Total interest income for the six months ended June 30 was $5,607,000 and
$5,128,000, in 1996 and 1995, respectively. The loan area accounted for
nearly one-half of the $479,000 increase. Income from fed funds sold repres-
ented a significant portion of the balance and will be discussed more fully
below. The outlook for loan interest income during the second half of 1996
is not clear. The demand for loans seems to be moderating since the Federal
Reserve has increased short term interest rates and some are predicting fut-
ure increases.
Interest on taxable securities increased to $1,027,000 for the six months
ended June 30, 1996 from $914,000 for the same period in 1995. Nearly all of
the increase, $113,000, was the result of increased volume. Most of the vol-
ume was in the U.S. Agency category. Short maturity agency securities were
used as an alternative to fed funds sold as well as a substitute for maturity
treasury issues.
Interest from tax exempt securities was $117,000 in 1996 compared to $100,000
in 1995. The yield was slightly lower for the six month period in 1996
compared to 1995. Additional volume more than made up for the lower income
due to rate.
The income from fed funds sold was $125,000 for the first half of 1996 compared
to $16,000 in 1995. The average balance in fed funds was nearly $4.5 million
greater in 1996 than in 1995. Although the average rate on these investments
decreased to 4.96% in 1996 from 5.79% in 1995, the increase in volume was
more than enough to offset this, and resulted in the increase of income noted
above.
Interests on deposits was $2,281,000 for the six months ended June 30, 1996
compared to $2,156,000 for the same period in 1995. Nearly all of this
increase can be attributed to higher interest rates. The increased rates
were the result of certificates of deposit and individual retirement accounts
renewing at rates higher than the maturing rates. It is anticipated that this
situation will continue for the third quarter of 1996, but the rate of
increase is expected to moderate.
Interest on short-term borrowings, repurchase agreements and fed funds purch-
ased, was $457,000 in 1996 compared to $225,000 in 1995. Repurchase agree-
ment volume increased dramatically. Although the average rate declined, the
increased cost in this area was up dramatically. The reduction in the cost
of fed funds sold was offset by an increase in other borrowings when comp-
aring the first six months of 1996 with the same period in 1995. The prov-
ision for loan loss was $85,000 in 1996 compared to $90,000 in 1995. Manage-
ment is of the opinion that the current provision is adequate.
For the first six months of 1996, total other operating income was $494,000
compared to $325,000 for the same period in 1995. Included in these figures are
service fees which were $261,000 in 1996 compared to $196,000 in 1995. The
majority of these are fees associated with deposit accounts, primarily check-
ing and are the result of a larger number of accounts and an increased fee
schedule. Other areas that experienced increases in 1996 when compared to
1995 were credit card fees, trust income, gain on sale of mortgages and net
income from the sale of non-deposit investments. Credit card fees increased
to $37,000 from $30,000. Trust income increased $17,000, $64,000 compared to
$47,000. The first six months of 1996 was much more conducive to mortgage
lending and as a result, the gain on the sale of mortgages was $32,000
greater in 1996. Net income from the sale of non-deposit was $44,000 greater in
1996 than the same period in 1995. This activity was initiated during the
second quarter of 1995 and did not generate any net income.
Other operating expenses were $2,087,000 for the first half of 1996 compared to
$1,954,000 for the first half of 1995. The largest area of increase was sal-
aries and employee benefits, approximately $109,000. Normal salary increases
and increased health insurance premiums were the primary areas of increase.
Increases in occupancy and furniture expenses were the result of costs assoc-
iated with the South Branch and the expansion at the main office. The red-
uction of FDIC insurance premiums by $123,000 was sufficient to offset most of
the increases in the other expense categories.
The income tax provision was $489,000 in 1996 compared to $317,000 in 1995.
These amounts represents effective tax rates of 33% and 32% respectively.
BALANCE SHEET ANALYSIS
This analysis of the Company's financial position is comparing June 30, 1996 to
December 31, 1995. Total assets were $147.0 million compared to $155.5 million,
June 30, 1996 and December 31, 1995, respectively. This represents an dec-
rease of approximately 5.5%.
Total loans were $93.1 million on June 30, 1996 and $93.6 million on December
31, 1995, a decrease of $.5 million. Of the three major categories of loans,
commercial and consumer loans increased during this period of time. Real estate
loans were $54.7 million compared to $56.5 million, June 30, 1996 and Dec-
ember 31, 1995 respectively. Consumer loans increased to $17.8 million at
June 30, 1996 compared to $17.6 million at December 31, 1995. Commercial loans
increased to $20.4 million at June 30, 1996 compared to $20.3 million at
December 31, 1995. Commercial paper was $1.0 million at June 30, 1996 compared
to $0 at the year end. Loan demand has remains slow during the first half of
this year. The bank has placed more emphasis on consumer installment based
lending.
Allowance for loan losses was $993,000 at June 30, 1996 compared to $929,000 at
December 31, 1995. As of June 30, 1996 non-performing loans totaled $792,000
compared to $578,000 at December 31, 1995. Management believes that the all-
owance is adequate at this time.
Bank premises and equipment was $3.6 million at June 30, 1996 compared to $3.7
million at
<PAGE> 14
December 31, 1995. This decrease was primarily the depreciation of buildings
and equipment with no major purchases.
The reduction of deposits discussed below were funded in part by a reduction in
fed funds sold and other short term investments. As of June 30, 1996 fed funds
sold and other short-term investments were $.2 million compared to $11.7 million
at December 31, 1995. Securities available for sale were $15.6 million at June
30, 1996 compared to $11.6 million at December 31, 1995. Securities held to
maturity were $27.7 million compared to $25.8 million, June 30, 1996 and
December 31, 1995, respectively. The increase in securities available for sale
will provide additional collateral for repurchase agreements between the bank
and some of it's corporate customers. The increase in securities held to
maturity relates to the Company investing more of it's available dollars into
municipal securities.
Total deposits were $108.1 million at June 30, 1996 compared to $119.7 million
at December 31, 1995. Non-interest bearing deposits were approximately $11.0
million lower on June 30, 1996 than December 31, 1995, $11.5 million and
$22.5 million, respectively. Several commercial customers have historically
increased their demand deposit balances at year end. As a result, subsequent
reporting dates typically have balances lower than year-end. Also the period
ending with June is the banks low point for deposits during the year. Int-
erest bearing deposits were down slightly, $96.6 million at June 30, 1996 and
$97.2 million at December 31, 1995. The bank is emphasizing consumer retail
relationships as a source for new deposits. As a result, there has been some
outflow of higher cost interest bearing deposits. Competition for deposit
dollars continues to be intense. As a result, dramatic growth of deposits is
not anticipated during the balance of 1996.
Other borrowings, the main component of which are advances from the FHLB, was
$2.3 million at June 30, 1996 compared to $3.6 million at December 31, 1995.
The advances were used to fund some of the increase in loans during 1995.
The company continues to maintain an excellent capital position regardless of
the measurement used. The following table shows four different measurements as
of June 30, 1996 and December 31, 1995, and the regulatory requirement, if
any. Management does not anticipate the need for additional capital resourc-
es in the near future.
<TABLE>
<CAPTION>
June 30 Regulatory December 31
1996 Requirements 1995
<S> <C> <C> <C>
Leverage capital ratio 14.76% N/A 14.60%
Core capital as a percent
of assets 14.43% 5.50% 13.51%
Core capital as a percent
of risk-based assets 24.32% N/A
Total capital as a percent
of risk-based assets 25.38% 8.00% 23.89%
</TABLE>
Liquidity as it relates to the subsidiary bank is a measure of its ability to
fund loans and withdrawals of deposits in a cost-effective manner. The Bank's
principal sources of funds are deposits, scheduled amortization and prepayment
of loan principal, maturities of investment securities, income from operations,
and short term borrowings. Additional sources include purchasing fed funds,
sale of loans, borrowing from both the Federal Reserve Bank and Federal Home
Loan Bank capital loans, and dividends paid by Nevahawk to the Bank. Under
present law, accumulated earnings could be paid as dividends without
incurring a tax liability.
The liquidity needs of the Company consist of payment of dividends to its
shareholders and a limited amount of expenses. The sources of funds to provide
this liquidity are income from investments, maturities of investments, cash
balances and dividends from the Bank. Certain restrictions are imposed upon
the Bank which could limit its ability to pay dividends if it did not have
net earnings in the future. The Company maintains adequate liquidity to pay
its expenses.
Off-Balance sheet items consist of credit card lines of credit, mortgage commit
ments, letters of credit and other commitments totaling approximately $11.0
million as of June 30, 1996. This compares to $7.9 million at December 31,
1995. The bank has historically funded the off-balance sheet commitments with
its primary sources of funds, and management anticipates that this will cont-
inue.
<PAGE>
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 6. A)EXHIBITS
See Exhibit Index following the signature page in this report,
which is incorporated herein by this reference.
ITEM 6. B)REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the second quarter
of 1996.
<PAGE>
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Blackhawk Bancorp, Inc.
-----------------------
(Registrant)
Date: August 14, 1996
/s/ Dennis M. Conerton
--------------------------
President and
Chief Executive Officer
Date: August 14, 1996
/s/ Jesse L. Calkins
---------------------------
Senior Vice President
(Chief Financial and
Accounting Officer)
<PAGE>
<PAGE> 17
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated Filed
Exhibit Herein By Here- Page
Number Description Reference To: with No.
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.1 Amended and Exhibit 3.1 to
restated Articles Amendment No. 1 to
of Incorporation Registrant's
of the Registrant Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.2 By-laws of Regis- Exhibit 3.2 to
trant as amended Amendment No. 1 to
Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.3 Plan of Conversion Exhibit 1.2 to
Beloit Savings Amendment No. 1 to
Bank as amended Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)
</TABLE>
<PAGE>
