<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 March 31, 1999
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 required
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 March 31, 1999
----------------------- ------------------
$.01 par value 2,315,373 shares
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income for the
three months ended March 31, 1999 and 1998 4
Consolidated Condensed Statements of Shareholders'
Equity as of March 31, 1999 and December 31, 1998 5
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 6-7
Notes to Consolidated Condensed Financial Statements 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-14
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 MARCH 31, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 20,483,000 $ 15,973,000
Federal funds sold and other short-term
investments 8,325,000 15,335,000
Securities available for sale 45,601,000 38,475,000
Securities held to maturity 17,927,000 21,896,000
Loans, net of allowance for loan losses of
$1,952,000 and $1,915,000 169,680,000 176,027,000
Bank premises and equipment, net 7,411,000 7,483,000
Accrued interest receivable 1,747,000 1,908,000
Other intangible assets 8,069,000 8,152,000
Other assets 1,692,000 1,857,000
------------- -------------
Total Assets $ 282,826,000 291,468,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 23,975,000 $ 33,110,000
Interest bearing 205,438,000 208,285,000
------------- -------------
Total deposits 229,413,000 241,395,000
------------- -------------
Borrowed Funds:
Short-term borrowings 9,306,000 4,576,000
Other borrowings 16,199,000 17,123,000
Accrued interest payable 749,000 1,046,000
Other liabilities 2,920,000 2,928,000
------------- -------------
Total Liabilities 258,587,000 267,068,000
------------- -------------
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, 2,291,264 and
2,285,864 shares issued and outstanding 23,000 23,000
Additional paid-in capital 7,122,000 7,099,000
Employee stock options earned 130,000 130,000
Retained Earnings 17,009,000 16,975,000
Treasury Stock (120,000) (120,000)
FASB 115 Adjustment 75,000 293,000
------------- -------------
Total Shareholders' Equity 24,239,000 24,400,000
------------- -------------
Total Liabilities and
Shareholders' Equity $ 282,826,000 $ 291,468,000
============= =============
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
3
<PAGE> 4
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
------------ --------
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $3,848,000 $3,179,000
Interest on deposits with other banks 110,000 18,000
Interest on investment securities:
Taxable 684,000 550,000
Exempt from federal income taxes 101,000 47,000
Interest on federal funds sold
and other short-term investments 164,000 72,000
---------- ----------
Total Interest Income 4,907,000 3,866,000
---------- ----------
INTEREST EXPENSE:
Interest on deposits 2,282,000 1,606,000
Interest on short-term borrowings 90,000 120,000
Interest on other borrowings 244,000 104,000
---------- ----------
Total Interest Expense 2,626,000 1,830,000
---------- ----------
Net Interest Income 2,291,000 2,036,000
Provision for loan losses (Note 3) 108,000 56,000
Net Interest Income After
Provision For Loan Losses 2,183,000 1,980,000
---------- ----------
OTHER OPERATING INCOME:
Gain on sale of loans 184,000 83,000
Trust department income 60,000 62,000
Service fees 459,000 232,000
Other income 53,000 134,000
---------- ----------
Total Other Operating Income 756,000 511,000
---------- ----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,241,000 919,000
Occupancy expense of bank premises, net 175,000 146,000
Furniture and equipment 189,000 101,000
Data processing 167,000 141,000
Intangible amortization 145,000 47,000
Other operating expenses 518,000 396,000
---------- ----------
Total Other Operating Expenses 2,435,000 1,750,000
---------- ----------
Income Before Income Taxes 504,000 741,000
Provision for income taxes 193,000 252,000
---------- ----------
Net Income $ 311,000 $ 489,000
========== ==========
Earnings Per Share $ .14 $ .21
========== ==========
Fully diluted earnings per share $ .13 $ .20
========== ==========
Dividends Per Share $ .12 $ .10
========== ==========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
4
<PAGE> 5
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1998
---------- ---------
<S> <C> <C>
Common Stock:
Balance at beginning of period $ 23,000 $ 23,000
Stock options exercised -- --
------------ ------------
Balance at end of period 23,000 23,000
Additional Paid-in Capital:
Balance at beginning of period 7,099,000 7,002,000
Stock options exercised 23,000 97,000
Balance at end of period 7,122,000 7,099,000
------------ ------------
Employee Stock Options Earned:
Balance at beginning of period 130,000 131,000
Unearned employee compensation -- (1,000)
------------ ------------
Balance at end of period 130,000 130,000
------------ ------------
Retained Earnings:
Balance at beginning of period 16,975,000 16,045,000
Net income 311,000 2,010,000
Dividends declared on common stock (277,000) (1,080,000)
------------ ------------
Balance at end of period 17,009,000 16,975,000
------------ ------------
Treasury Stock, at cost:
Balance at beginning of period (120,000) (104,000)
Purchase -- (16,000)
------------ ------------
Balance at end of period (120,000) (120,000)
------------ ------------
Accumulated other comprehensive income:
Balance at beginning of period 293,000 38,000
Other comprehensive income, net of taxes (218,000) 255,000
------------ ------------
Balance at end of period 75,000 293,000
------------ ------------
Total Shareholders' Equity $ 24,239,000 $ 24,400,000
============ ============
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements
5
<PAGE> 6
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 311,000 $ 489,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Compensatory options recognized -- 9,000
Provision for loan losses 108,000 56,000
Provision for depreciation and
Amortization 307,000 161,000
Amortization of premiums (accretion
Discounts) on investment securities, net 38,000 (33,000)
(Gain) on sale of loans (184,000) (83,000)
Loans originated for sale (20,077,000) (4,633,000)
Proceeds from sale of loans 22,732,000 4,128,000
Change in assets and liabilities:
(Increase) decrease in other assets 165,000 (1,143,000)
(Increase) decrease in accrued
interest receivable 161,000 730,000
Increase (decrease) in accrued
interest payable (297,000) (138,000)
Increase (decrease) in other
Liabilities (8,000) 593,000
------------ ------------
Net cash provided by operating
Activities 3,256,000 136,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of available-
for-sale securities 4,643,000 547,000
Purchase of available-for-sale securities (12,022,000) (7,087,000)
Proceeds from maturity of investment
Securities 6,270,000 3,210,000
Purchase of investment securities (2,304,000) (530,000)
Decrease in federal funds sold and
other short-term investments, net 7,010,000 5,061,000
Loans originated, net of
principal collected 6,239,000 860,000
Purchase of bank premises and equipment (152,000) (97,000)
------------ ------------
Net cash provided by (used in)
investing activities 9,684,000 1,964,000
------------ ------------
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
6
<PAGE> 7
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised $ 23,000 $ 28,000
Net (decrease) in deposits (11,982,000) (433,000)
Net increase (decrease) in borrowed
Funds 3,806,000 (1,121,000)
Cash dividends paid (277,000) (252,000)
Purchase of common stock for Treasury -- (16,000)
Net cash (used in)
financing activities (8,430,000) (1,794,000)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 4,510,000 306,000
CASH AND CASH EQUIVALENTS:
Beginning 15,973,000 8,680,000
------------ ------------
Ending $ 20,483,000 $ 8,986,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 2,913,000 $ 1,968,000
Income taxes $ 274,000 $ 228,000
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Other assets acquired in settlement of
loans $ 185,000 $ 74,000
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
7
<PAGE> 8
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
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 consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position of the Corporation as of March 31, 1999 and December 31,
1998, the results of operations for the three months ended March 31,
1999 and 1998, and cash flows for the three months ended March 31,
1999 and 1998.
The results of operations for the three months ended March 31, 1999
and 1998 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>
MARCH 31 DECEMBER 31
---------------------------- -----------
1999 1998 1998
--------- -------- -------
<S> <C> <C> <C>
Impaired loans $ 957,000 $ 526,000 $1,479,000
Non-accruing loans 1,014,000 772,000 857,000
Past due 90 days or more
and still accruing 598,000 402,000 240,000
---------- ---------- ----------
Total non-performing loan $2,569,000 $1,700,000 $2,576,000
========== ========== ==========
</TABLE>
8
<PAGE> 9
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(CONTINUED)
Note 3: Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------
1998 1998
---- ----
<S> <C> <C>
Balance at beginning of
period $1,915,000 $1,523,000
Provision charged to expense 108,000 47,000
Loans charged off 86,000 106,000
Recoveries 15,000 5,000
--------- ---------
Balance at end of period $1,952,000 $1,469.000
========== ==========
</TABLE>
Note 4. Future Accounting Change
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. This statement
requires an entity to recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. This statement is effective for fiscal years beginning
after June 15, 1999. Management, at this time, cannot determine the
effect adoption of this statement may have on the consolidated
financial statements of the Company as the accounting for derivatives
is dependent on the amount and nature of derivatives in place at the
time of adoption.
9
<PAGE> 10
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
information 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 March 31, 1999 and December 31,
1998 and the consolidated condensed statements of income for the three months
ended March 31, 1999 and 1998. 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 March 31, 1999 was approximately $311,000
compared to $489,000 for the similar period in 1998. The discussion that follows
will provide information about the various areas of income and expense that
resulted in the aforementioned results.
THREE MONTHS ENDED MARCH 31
For the three months ended March 31, 1999, interest income was $4,907,000
compared to $3,866,000 for the same period in 1998. This increase of
approximately 26.9%, $1,041,000, was primarily the result of increased volume
attributable to the acquisition of First Financial Bancorp in September, 1998.
Interest and fees on loans increased to $3,848,000 in the three months ended
March 31, 1999 compared to $3,179,000 in same period of 1998. Interest from real
estate loans, the largest part of loan interest, also contributed the most the
increase. This was the result of increased volumes, being partially offset by
lower yields. A substantial portion of the real estate portfolio earns interest
at a variable rate, therefore has been affected by the lower overall rate
environment. Commercial loan interest income increased almost entirely to
additional volume. Income from consumer loans, including home equity, credit
cards, and installment loans, increased due to higher volumes.
Investment income on taxable securities increased nearly $134,000 in the first
three months of 1999 compared to 1998, $684,000 and $550,000 respectively. This
increase was the result of increased volumes partially offset by lower yields.
The volume increase was again the result of the First Financial transaction.
Income from tax exempt securities increased by 114.9%, $101,000 in 1999 compared
to $47,000 in the same period in 1998. This was the result of a shift from U.S.
Treasury and Agency securities to municipal securities. This shift was to take
advantage of relatively good spreads on municipal securities compared to
treasury and agency bonds.
Interest from fed funds sold and other short-term investments increased
substantially to $164,000 in 1999 from $72,000 in 1998. The increased volume in
fed funds sold, an average balance of $15.8 million in 1999 compared to $7.1
million in 1998, was the primary reason for the increased income in this
category. This excess liquidity was the result of real estate loan payoffs and
security maturities. Late in the first quarter and early second quarter of 1999,
this excess liquidity has been invested in either longer-term securities or the
loan portfolio.
Interest paid on deposits increased to $2,282,000 in the three months ended
March 31, 1999. This was an increase of 42.1%, or $676,000 when compared to the
same period in 1998. Average deposits increased due to the First Financial
acquisition and growth in non-interest bearing demand accounts. The average rate
paid on deposits decreased when comparing 1999 to 1998, but not in the same
10
<PAGE> 11
magnitude as earning assets. The actions of the Federal Reserve will continue to
affect the level and direction of interest rates in the future.
Interest on short-term borrowings decreased to $90,000 from $120,000 in 1999, or
a decrease of $30,000 or 25.0%. Both repurchase agreements and fed funds
purchased had a lower average balance in 1999 compared to 1998. The interest
rates paid also decreased in 1999 compared to 1998.
Other borrowings are represented by Federal Home Loan Bank ("FHLB") advances and
borrowings with a third-party bank in part to finance the First Financial
acquisition. Average borrowings from the FHLB increased to $8.7 million from
$6.7 million in 1998. The average rate on the borrowings decreased because of
favorable advance rates taken in 1998 and the addition of First Financial
advances, which had a lower relative rate. As a result of these items the
interest cost of the other borrowings category was approximately $140,000 more
in 1999 than in 1998.
The provision for loan loss was $108,000 for the three months in 1999 compared
to $56,000 in 1998. It is management's opinion that this amount is an adequate
provision.
Total other operating income increased to $756,000 from $511,000 for the three
months ended March 31, 1999 and 1998 respectively. Gain on sale of loans in the
first quarter of 1999 was $184,000 compared to $83,000 in 1998. As fixed
mortgage rates remain relatively low, the activity in this area continues to be
robust. All fixed rate loans originated are sold. Service fees increased to
nearly $459,000 in 1999 from $232,000 in 1998. Most of this amount results from
checking account fees. The increase was due to an increased number of accounts
and an increased fee schedule. Other income in the three months ended March 31,
1997 was $53,000 compared to $134,000 in the comparable period of 1996.
Total other operating expenses increased approximately $685,000 to $2,435,000
from $1,750,000. The increases in other operating expense are mostly
attributable to the First Financial acquisition. The Bank also opened a new
branch in the Roscoe, Illinois market, late in the first quarter of 1998, which
will affect other operating expenses, until the branch reaches the break-even
point. Currently, this location is closer to the break-even point, then
originally planned.
Income taxes decreased to $193,000 from $252,000. This decrease was due to a
lower amount of income before taxes and a higher effective tax rate, 38.3% and
34.0%, 1999 and 1998 respectively. This higher effective rate is primarily the
result of higher non-deductible amortization expenses, attributable to the
purchase method of accounting the Company has used for its acquisitions.
BALANCE SHEET ANALYSIS
This analysis of the Company's financial position is comparing March 31, 1999 to
December 31, 1998. Total assets were $282.8 million compared to $291.5 million,
March 31, 1999 and December 31, 1998, respectively. This represents an decrease
of approximately 3.0%.
Net loans were $169.7 million on March 31, 1999 and $176.0 million on December
31, 1998, an decrease of $6.3 million or 3.6%. Real estate loans experienced the
largest decline as the consumer continues to take advantage of low fixed
mortgage rates. These fixed rate mortgages generally have a longer maturity
date, therefore the Company sells these mortgages into the secondary loan
market. Commercial and consumer loans have increased since December 31, 1998.
During the second quarter of 1999, loan demand, especially for commercial
mortgages, has increased. Loan demand will be greatly affected by future changes
in overall interest rates, as customers have become more price sensitive.
Allowance for loan losses was $1.95 million at March 31, 1999 compared to $1.92
million at December 31, 1998. As of March 31, 1999, non-performing loans totaled
$2.6 million compared to $2.6 million
11
<PAGE> 12
at December 31, 1998. Management believes that the allowance is adequate at this
time.
Bank premises and equipment was $7.4 million at March 31, 1999 compared to $7.5
million at December 31, 1998. 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 March 31, 1999 fed funds
sold and other short-term investments were $8.3 million compared to $15.3
million at December 31, 1998. Securities available for sale were $45.6 million
at March 31, 1999 compared to $38.5 million at December 31, 1998. Securities
held to maturity were $17.9 million compared to $21.9 million, March 31, 1999
and December 31, 1998, respectively.
Total deposits were $229.4 million at March 31, 1999 compared to $241.4 million
at December 31, 1998. Non-interest bearing deposits were approximately $9.1
million lower on March 31, 1999 than December 31, 1998, $24.0 million and $33.1
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. Interest bearing deposits
were down slightly, $205.4 million at March 31, 1999 and $208.3 million at
December 31, 1998. Competition for deposit dollars continues to be intense. As a
result, dramatic growth of interest-bearing deposits is not anticipated during
the balance of 1999.
Other borrowings, the main component of which is long-term borrowings incurred
in part to complete the First Financial acquisition, was $16.2 million at March
31, 1999 compared to $17.1 million at December 31, 1998. Also part of other
borrowings are advances from the FHLB. The advances were used to fund some loans
in the past and to also provide liquidity. The use of FHLB advances in the
future will depend on the Bank's need for funds and the rates at which they may
be obtained.
The company continues to maintain an excellent capital position regardless of
the measurement used. The following table shows three different measurements as
of March 31, 1999 and December 31, 1998, and the regulatory requirement, if any.
Management does not anticipate the need for additional capital resources in the
near future.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, REGULATORY
1999 1998
---- ----
REQUIREMENTS
------------
<S> <C> <C> <C>
Leverage capital ratio 6.24% 6.00% 3.00%
Tier I capital as a percent
of risk-based assets 6.23% 8.36% 4.00%
Total capital as a percent
of risk-based assets 9.46% 9.31% 8.00%
</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,
12
<PAGE> 13
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 primarily consist of payment of dividends to
its shareholders and a limited amount of expenses. The sources of funds to
provide this liquidity are cash balances, dividends from the Bank, and a line of
credit with a third-party 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
commitments, letters of credit and other commitments totaling approximately
$21.6 million as of March 31, 1999. This compares to $33.7 million at December
31, 1998. The bank historically funds off-balance sheet commitments with its
primary sources of funds, and management anticipates that this will continue.
Year 2000 Issues
Year 2000 ("Y2K") issues affect the Company to the extent that it operates in an
industry which heavily relies upon information technology systems and has
material relationships with third parties, both vendors and customers.
Therefore, the Company has undertaken a four-phase process to determine to what
extent the Company is vulnerable to Y2K issues. The four phases set-forth by the
Company are awareness by major area, assessment of Y2K compliance, system
renovation (if necessary) and validation of Y2K preparedness. The Company's Y2K
progress, by major area, is set-forth in the table that follows.
System Awareness Assessment Renovation Validation
General
Ledger Complete Complete Complete Complete
Loan
System Complete Complete Complete Complete
Deposit
System Complete Complete Complete Complete
Item
Capture Complete Complete Complete Complete
Hardware Complete Complete In Process June '99
Individual
Loan
Customers Complete Complete Basis Ongoing
The Company has approved a budget for $600,000 for the cost of hardware and
software remediation. A majority of these costs were planned expenditures to
upgrade existing hardware and software regardless of Y2K. Most of these funds
have been expended and will be amortized over the useful life of the asset.
As is shown in the table, the Company has completed a majority of the validation
phase of several critical areas. A Y2K contingency plan has been formulated. The
validation processes completed indicate that mission critical systems are Y2K
compliant. If the results of the validation processes not yet completed lead
management to believe otherwise, then a contingency plan, with a timetable will
be implemented for those additional areas.
13
<PAGE> 14
Because of the potential negative effect of Y2K non-compliance by some of the
Bank customers, the Bank has implemented an external Y2K awareness campaign that
provides them with information that will assist them in becoming compliant.
Requests have been sent to larger commercial customers to provide the bank with
information as to their status of compliance.
Private Securities Litigation Reform Act of 1995
When used in this report, the words "believes," "expects," and similar
expressions are intended to identify forward-looking statements. The Company's
actual results may differ materially from those described in the forward-looking
statements. Factors which could cause such a variance to occur include, but are
not limited to, changes in interest rates, levels of consumer bankruptcies,
customer loan and deposit preferences, and other general economic conditions
14
<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 first
quarter of 1999.
15
<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: May 14, 1999 /s/Dennis M. Conerton
---------------------
Dennis M. Conerton
President and
Chief Executive Officer
Date: May 14, 1999 /s/ Jesse L. Calkins
--------------------
Jesse L. Calkins
Senior Vice President
(Chief Financial and
Accounting Officer)
16
<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>
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>
17
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,483,000
<INT-BEARING-DEPOSITS> 11,791,000
<FED-FUNDS-SOLD> 8,325,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,601,000
<INVESTMENTS-CARRYING> 17,927,000
<INVESTMENTS-MARKET> 17,950,000
<LOANS> 171,632,000
<ALLOWANCE> 1,952,000
<TOTAL-ASSETS> 262,826,000
<DEPOSITS> 229,413,000
<SHORT-TERM> 9,306,000
<LIABILITIES-OTHER> 3,669,000
<LONG-TERM> 16,199,000
0
0
<COMMON> 23,000
<OTHER-SE> 24,216,000
<TOTAL-LIABILITIES-AND-EQUITY> 262,826,000
<INTEREST-LOAN> 3,848,000
<INTEREST-INVEST> 765,000
<INTEREST-OTHER> 274,000
<INTEREST-TOTAL> 4,907,000
<INTEREST-DEPOSIT> 2,262,000
<INTEREST-EXPENSE> 2,636,000
<INTEREST-INCOME-NET> 2,291,000
<LOAN-LOSSES> 108,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,435,000
<INCOME-PRETAX> 504,000
<INCOME-PRE-EXTRAORDINARY> 504,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
<YIELD-ACTUAL> 3.69
<LOANS-NON> 1,014,000
<LOANS-PAST> 598,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 957,000
<ALLOWANCE-OPEN> 1,915,000
<CHARGE-OFFS> 86,000
<RECOVERIES> 15,000
<ALLOWANCE-CLOSE> 1,952,000
<ALLOWANCE-DOMESTIC> 1,952,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,952,000
</TABLE>
