SCHEDULE 14A INFORMATION

                   Proxy Statement Pursuant to Section 14(a)
                     of the Securities Exchange Act of 1934
                               (Amendment No. __)

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     (2))
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[ ]  Soliciting Material Pursuant to Section 240.14a-12

                            BLACKHAWK BANCORP, INC.
                (Name of Registrant as Specified in Its Charter)

                                 Not Applicable
                                 --------------
    (Name of Person(s) Filing Proxy Statement if other than the Registrant)

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                            BLACKHAWK BANCORP, INC.
                                400 Broad Street
                            Beloit, Wisconsin 53511
                                 (608) 364-8911

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                                on May 19, 2004

To the Shareholders of BLACKHAWK BANCORP, INC.:

     The 2004 Annual Meeting of the Shareholders of Blackhawk Bancorp, Inc. (the
"Corporation") will be  held on  Wednesday, May 19,  2004 at  10:00 A.M.,  local
time, at the Beloit  Inn, 500 Pleasant Street,  Beloit, Wisconsin 53511 for  the
following purposes:

     (1) Election of four directors to serve for a term of three years;

     (2) Ratification  of  the  appointment  of  the  Corporation's  independent
         accountants for fiscal 2004; and

     (3) Transaction of  such other  business as  may properly  come before  the
         Annual Meeting or any adjournment thereof.

     Only shareholders of record on the books of the Corporation at the close of
business on April 1, 2004 will be entitled to vote at the Annual Meeting or  any
adjournment thereof.  If you do not vote by proxy and plan to attend the meeting
and hold your stock in a brokerage account ("street name" holders), please bring
a copy  of  your brokerage  statement  to  the annual  meeting  of  shareholders
reflecting your stock ownership as of April 1, 2004.

     Your attention is called  to the Proxy  Statement accompanying this  notice
for a more complete description of  the matters to be  acted upon at the  Annual
Meeting.

                              BY ORDER OF THE BOARD OF DIRECTORS

                              /s/Todd J. James

                              TODD J. JAMES
                              Executive Vice President and Secretary

Beloit, Wisconsin
April 9, 2004

A PROXY, WHICH IS SOLICITED  ON BEHALF OF THE  BOARD OF DIRECTORS, IS  ENCLOSED.
PLEASE INDICATE YOUR  VOTING DIRECTIONS, SIGN  AND DATE THE  ENCLOSED PROXY  AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF FOR ANY REASON YOU LATER  DESIRE
TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE YOUR PROXY IS VOTED.

                            BLACKHAWK BANCORP, INC.
                                400 Broad Street
                            Beloit, Wisconsin 53511
                                 (608) 364-8911

                                PROXY STATEMENT

                  This Proxy Statement and accompanying proxy
          were first mailed to Shareholders on or about April 9, 2004.

     This Proxy Statement is  furnished in connection  with the solicitation  of
proxies by  the Board  of  Directors of  Blackhawk  Bancorp, Inc.,  a  Wisconsin
corporation (the "Corporation"), for  the annual meeting  of shareholders to  be
held on Wednesday, May 19, 2004, beginning at 10:00 A.M.

     Shareholders of record at the  close of business on  April 1, 2004 will  be
entitled to one vote on each matter presented for  each share so held.  At  that
date there were  2,526,145 shares of  Common Stock outstanding  and entitled  to
vote at the meeting. Any shareholder entitled to vote may vote either in  person
or by  duly  authorized  proxy.    Shares  of  the  Corporation's  Common  Stock
represented by properly  executed proxies received  by the  Corporation will  be
voted at the meeting and any adjournment thereof in accordance with the terms of
such proxies, unless revoked. If no choice is specified, the proxy will be voted
in favor of the nominees listed in  Item 1, for ratification of the  appointment
of McGladrey & Pullen,  LLP as auditors for  2004 and in  the discretion of  the
proxy holder on any other matter which may properly come before the meeting  and
all adjournments or postponements of the meeting. Proxies may be revoked at  any
time prior  to  the voting  thereof  either by  written  notice filed  with  the
secretary or  the acting  secretary of  the meeting  or by  oral notice  to  the
presiding officer during  the meeting.   The  representation at  the meeting  in
person or by proxy of shareholders of the Corporation holding a majority of  the
Corporation's shares of Common Stock entitled to vote shall constitute a  quorum
for the transaction of business.  For the purpose of determining the presence of
a quorum,  shares represented  on any  matter  will be  counted as  present  and
represented on all matters to be  acted upon, including any matter with  respect
to which the holder  of such shares abstains  from voting, and including  shares
which are not voted by a holder of record who is a broker because the broker has
not received authority from the beneficial  owner, as required under  applicable
laws and rules, to vote the shares on such matter ("broker nonvotes").

     Directors are elected by a  plurality of the votes  cast by the holders  of
the Corporation's  Common Stock  at a  meeting  at which  a quorum  is  present.
"Plurality" means that the individuals who  receive the largest number of  votes
cast are elected as directors up to the maximum number of directors to be chosen
at the meeting.   Consequently,  any shares  not voted  (whether by  abstention,
broker nonvote or otherwise) have no impact on the election of directors  except
to the extent  that the failure  to vote for  an individual  results in  another
individual receiving a comparatively  larger number of  votes.  Under  Wisconsin
law, votes cast "AGAINST" a director nominee  are given no legal effect and  are
not counted as votes cast in the election of directors.

     Approval of  any other  matter which  properly  comes before  the  meeting,
including ratification of McGladrey & Pullen, LLP, as the Corporation's auditors
for 2004,  will  require  the affirmative  vote  of  a majority  of  the  shares
represented at the meeting and  entitled to vote on  the particular matter.   In
tabulating votes cast on any such  other matter, abstentions will be  considered
votes cast,  and accordingly  will have  the  same effect  as a  negative  vote.
Broker nonvotes, on the other hand, will not be counted as shares entitled to be
voted on the particular matter, and therefore will have no impact on the outcome
of the vote.

     Expenses in connection with the solicitation of proxies will be paid by the
Corporation.  Upon  request, the  Corporation will  reimburse brokers,  dealers,
banks and voting trustees, or their  nominees, for reasonable expenses  incurred
in forwarding copies of the proxy  material and annual report to the  beneficial
owners of shares  which such persons  hold of record.   Solicitation of  proxies
will be principally by  mail.  Proxies may  also be solicited  in person, or  by
telephone, by  officers  and regular  employees  of the  Corporation,  who  will
receive no additional or special compensation  for their services.  Shares  held
for the accounts of participants in  the Corporation's Employee Stock  Ownership
Plan ("ESOP")  will  be  voted  in  accordance  with  the  instructions  of  the
participants or  otherwise in  accordance with  the terms  of the  ESOP.   Under
provisions of the  ESOP, if  no instructions  are received  from a  participant,
their shares cannot be voted.

                       BENEFICIAL OWNERSHIP OF SECURITIES

     The table below sets forth  information regarding the beneficial  ownership
of Common Stock of the Corporation, as of March 1, 2004, by each 5% shareholder,
by each director  and nominee for  director, by each  of the executive  officers
named in the Summary  Compensation Table, and by  all nominees for director  and
individuals who served as directors and executive officers of the Corporation on
March 1, 2004 as a group.   Other than Mr. Hendricks, who  is a director of  the
Corporation, and Dennis M. Conerton, no person is known to the Corporation to be
the beneficial  owner  of  more  than  5%  of  the  outstanding  shares  of  the
Corporation's Common Stock.

                                             NUMBER OF SHARES
                                          BENEFICIALLY OWNED AND
NAME AND ADDRESS                           NATURE OF BENEFICIAL      PERCENT
OF BENEFICIAL OWNER                      OWNERSHIP(1)(2)     OF CLASS
-------------------                      -----------------------     --------

R. Richard Bastian, III                      40,000 shares            1.56%
   130 Eaglewood
   Rockton IL 61072

Roger G. Bryden                              76,767 shares            3.04%
   c/o Bryden Motors, Inc.
   548 Broad Street
   Beloit WI 53511

Stephen P. Carter                             1,000 shares            0.04%
   3131 Talbot Trail
   Rockford IL 61114

John B. Clark                                88,400 shares(4)     3.48%
   1840 Sherwood Drive S.W.
   Beloit WI 53511

Prudence A. Harker                            8,667 shares             .34%
   c/o LifeCircle, LLC
   500 S. Park Avenue
   South Beloit IL 61080

Charles Hart                                 23,800 shares             .94%
   c/o Tricor, Inc.
   520 W. Grand Avenue
   Beloit WI 53511

Kenneth A. Hendricks                        320,634 shares(4)    12.64%
   c/o ABC Supply Co., Inc.
   One ABC Parkway
   Beloit WI 53511

Charles J. Howard                            22,000 shares             .87%
   4920 Forest Hills Road
   Loves Park IL 61111

Todd J. James                                 9,167 shares            0.36%
   505 West 7th Street
   Pecatonica IL 61063

Marco T. Lenis                                   no shares            0.00%
   412 Market Street
   Rockford IL 61107

George D. Merchant                           84,725 shares            3.34%
   2413 Liberty Avenue
   Beloit WI 53511

Merritt J. Mott                              17,000 shares             .67%
   c/o Rockford Sanitary Systems, Inc.
   5159 28th Avenue
   Rockford IL 61109

Stephen R. Thomas                                no shares            0.00%
 1003 Beach Bay Rd.
 Poplar Grove IL 61065

All directors and executive officers        705,031 shares(3)(4)     26.82%
of the Corporation on March 1, 2004                      
as a group (18 persons)

Dennis M. Conerton                          146,741 shares(3)     5.81%
 1352 Middle Road
 South Beloit IL 61080

(1)   Except  as  noted  otherwise,  each  person  holds  sole  voting   and
          dispositive powers with respect  to all shares  shown opposite his  or
          her name.

(2)   Includes options to purchase shares exercisable currently or within 60
          days of March 1, 2004 for each of the persons identified in the  table
          as follows: Bastian - 30,000; Bryden  - 667; Clark - 12,200; Harker  -
          667; Hart - 12,200; Hendricks - 10,100; Howard - 4,000; James - 8,667;
          Merchant -  12,200  and  Mott  - 2,000,  and  for  all  directors  and
          executive officers as a group - 102,368.

(3)   Includes shares  allocated  to  the  individual's  account  under  the
          Corporation's ESOP as follows:  Mr. Conerton  - 1,883 shares; and  for
          all directors and executive officers as a group - 4 shares.

(4)   For Messrs. Clark and Hendricks,  includes 76,200 shares, and  310,534
          shares, respectively, held jointly with such person's spouse, and  for
          all directors  and executive  officers as  a group,  includes  386,734
          shares held jointly with such persons' spouses.

     The information presented in the table is based on information furnished by
the specified persons and was determined in accordance with Rule 13d-3 under the
Securities Exchange Act of  1934 (the "1934 Act"),  as required for purposes  of
this Proxy Statement. Briefly  stated, under that Rule  shares are deemed to  be
beneficially owned by any person or group having the power to vote or direct the
vote of, or the power to dispose or  direct the disposition of, such shares,  or
who has  the right  to  acquire beneficial  ownership  thereof within  60  days.
Beneficial ownership for the purposes of this Proxy Statement is not necessarily
to be construed as an admission of beneficial ownership for other purposes.

                             ELECTION OF DIRECTORS

     The Corporation's Bylaws, and actions of the Board taken pursuant  thereto,
provide that there shall be 12  directors divided into three classes, as  nearly
equal in number as practicable, each to  serve 3-year staggered terms.  At  each
annual meeting the term of office of one of the three classes expires, and a new
class must be elected or re-elected to serve for a term of three years or  until
their successors are duly elected and qualified.

     The four nominees standing for election as directors of the Corporation  at
the 2004 annual meeting are Mrs. Prudence A. Harker, Mr. Charles J. Howard,  Mr.
Marco T. Lenis and  Mr. Merritt J. Mott  for terms expiring  at the 2007  annual
meeting of shareholders.   Mr.  Howard has been  a director  of the  Corporation
since 2000. Mr. Mott  has been a  director of the  Corporation since 2001.  Mrs.
Harker has been a  director of the  Corporation since 2002.  Mr. Lenis has  been
nominated to a newly created directorship in 2004 and was initially  recommended
to the  Nominating  and  Director  Evaluation  Committee  by  Mr.  Bastian,  the
Corporation's President and Chief Executive Officer.

     The Board recommends that the shareholders elect the four nominees to serve
as directors  of the  Corporation for  a  term of  three  years or  until  their
successors have been  duly elected and  qualified.   Unless otherwise  directed,
proxies will be  voted for the  election of the  four nominees.   If any of  the
nominees should  decline  or be  unable  to act  as  a director,  which  is  not
foreseen, proxies may  be voted with  discretionary authority  for a  substitute
nominee designated by the Board of Directors.

NOMINEES FOR ELECTION TO TERM EXPIRING  IN 2007:

                                                                        DIRECTOR
NAME AND AGE                           PRINCIPAL OCCUPATION(1)       SINCE
------------                           ---------------------------      --------

Prudence A. Harker, 59(3)          President of LifeCircle, LLC.      2002
                                       Investment Advisor
                                       Representative, AXA Advisors,
                                       LLC.

Charles J. Howard,                     Chairman of the Board and          2000
57(2) (4) (5)              Chief Executive Officer of
                                       William Charles, Ltd. (a
                                       company engaged in heavy
                                       manufacturing, waste
                                       management, truck sales, and
                                       real estate development).

Marco T. Lenis, 53                     President and CEO of La Voz        ----
                                       Latina (the largest Hispanic
                                       community-based organization
                                       in Illinois).

Merritt J. Mott, 58(3) (4)     Mr. Mott is the owner and          2001
                                       Chief Executive Officer of
                                       Rockford Sanitary Systems,
                                       Inc. (designer and
                                       manufacturer of fluid
                                       filtration/separation systems
                                       for commercial plumbing use).
                                       Mr. Mott also serves as a
                                       member of the Board of
                                       Directors of Landstar System,
                                       Inc., a publicly traded
                                       transportation technology
                                       services company.

     In addition to  those four persons,  the following  eight individuals  also
presently serve as directors of the Corporation for the indicated terms.

CLASS OF DIRECTORS WHOSE TERM EXPIRES IN 2005:

                                                                        DIRECTOR
NAME AND AGE                           PRINCIPAL OCCUPATION (1)      SINCE
------------                           ----------------------------     --------

R. Richard Bastian, III, 57(2)     President and Chief                2001
                                       Executive Officer of the
                                       Corporation since 2002 and
                                       of its subsidiary, Blackhawk
                                       State Bank (the "Bank")
                                       since 2001. Previously,
                                       President of the Bank of
                                       Kenosha from 1999 to 2001
                                       and Executive Vice President
                                       and Director of the Clean
                                       Air Action Corporation from
                                       1994 to 2000.

Roger G. Bryden, 61                    Owner/Operator, Bryden             2002
                                       Motors, Inc. (Dodge-
                                       Chrysler-Jeep automotive
                                       dealership in Beloit, WI).

John B. Clark, 61(3) (5)       Retired since 1997; prior          1989
                                       thereto Senior Vice
                                       President, Wachovia
                                       Securities, Inc. (securities
                                       investment firm).

Charles Hart, 70(2)                Salesperson at Tricor, Inc.        1993
                                       (full service insurance
                                       agency) since 1999;
                                       Director, Hart, Kruse &
                                       Boutelle, Inc. (real
                                       estate).

CLASS OF DIRECTORS WHOSE TERM EXPIRES IN 2006:

                                                                        DIRECTOR
NAME AND AGE                           PRINCIPAL OCCUPATION(1)       SINCE
------------                           ---------------------------      --------

Stephen P. Carter, 52 (3)          Executive Vice President,          2003
                                       Chief Financial Officer and
                                       Treasurer of Woodward
                                       Governor Company
                                       (manufacturer of energy
                                       control systems for
                                       engines).

Kenneth A. Hendricks,                  Chairman and Chief                 1996
62(2)(4)                       Executive Officer of ABC
                                       Supply Co., Inc. (roofing
                                       and siding wholesaler).

George D. Merchant, 71(3) (5)  Retired; prior thereto,            1989
                                       Owner/Operator of two Dairy
                                       Queen ice cream store
                                       franchises.

Stephen R. Thomas, 51                  President of Cirrus Trails,        2003
                                       Inc., holding company for
                                       Poplar Grove Airmotive,
                                       Inc. and President of Emery
                                       Air, Inc.

(1)   Except as otherwise  noted, all directors  have been  employed in  the
          principal occupations noted above for the past five years or more.

(2)   Member of the Executive Committee in 2003.

(3)   Member of the Audit and Compliance Committee in 2003.

(4)   Member of  the Compensation  and Management  Development Committee  in
          2003.

(5)   Member of the Nominating and Director Evaluation Committee in 2003.

MEETINGS AND COMMITTEES

     The Board of Directors held 13 meetings during 2003.  Each of the directors
attended at  least 75%  of the  meetings  of the  Board (including  meetings  of
committees of which the director is a member) held during the period of 2003 for
which he or she served as a director. The Common Stock of the Corporation is not
listed or quoted on any securities  exchange or NASDAQ, and therefore there  are
no specific director independence requirements  that apply to the  Corporation's
Board of Directors.  However, using  the NASDAQ  independence requirements,  the
Board has determined  that all  of the  Corporation's directors  other than  Mr.
Bastian are considered  "independent". While the  Board does not  have a  formal
policy requiring director attendance at the Annual Meetings of Shareholders, the
Corporation encourages all of its directors  to attend the Annual Meetings,  and
all 11 current directors attended the Corporation's 2003 Annual Meeting.

     The Corporation has  an Executive Committee,  of which Mr.  Howard was  the
chairman.  The other  members of the  Executive Committee are  set forth on  the
tables above.  The Executive Committee  is authorized to exercise the powers  of
the Board of  Directors in the  management of the  business and  affairs of  the
Corporation when the Board is not in session, except for those powers which  are
non-delegable by law or have been delegated to other committees.  The  Executive
Committee did not meet in 2003.

     The Corporation has a Compensation and Management Development Committee  of
which Mr.  Mott was  the chairman.  The other  members of  the Compensation  and
Management Development  Committee  are set  forth  on  the tables  above.    The
Compensation  and   Management   Development   Committee   reviews   and   makes
recommendations with respect  to the Corporation's  and its subsidiary's  hiring
and compensation policies, and performs administrative functions with respect to
the Corporation's 1990 and 1994 Executive Stock Option Plans.  The Committee met
once in 2003.

     The Corporation has a Nominating and Director Evaluation Committee of which
Mr. Howard was the Chairman.  The  other members of the Nominating and  Director
Evaluation Committee are  set forth  on the tables  above.   The Nominating  and
Director  Evaluation  Committee  conducts  the  annual  Director's   performance
evaluation and makes recommendations  to the full  Board of Directors  regarding
director retention. In addition, the  Committee develops and reviews  background
information on candidates for the Board  of Directors and makes  recommendations
to the full Board of Directors regarding such candidates. The Committee does not
have a  formal charter.  All of  the  members of  the Committee  are  considered
independent within  the  meaning  of  the listing  standards  of  NASDAQ.    The
Nominating and Director Evaluation Committee met twice in 2003.

     The Corporation has an Audit and Compliance Committee of which Mrs.  Harker
was the chairperson. The other members of the Audit and Compliance Committee are
set forth on the tables above.  The Board of Directors believes that all of  the
current  members  of  the  Audit  and  Compliance  Committee  are   "independent
directors" as  defined  by the  listing  standards of  NASDAQ.   The  Board  has
determined that Mr. Carter is qualified  as an audit committee financial  expert
within the meaning  of SEC  regulations because  he has  accounting and  related
financial management expertise resulting from his educational background and his
position as  a corporate  chief financial  officer.   The Audit  and  Compliance
Committee's functions include meeting with the Corporation's independent  public
accountants and making recommendations to the  Board of Directors regarding  the
engagement or retention  of such  accountants, pre-approval  of the  independent
public accountant's fees, adoption of accounting methods and procedures,  public
disclosures required to comply with securities  laws and other matters  relating
to the  Corporation's financial  accounting.    The  Charter for  the Audit  and
Compliance Committee is attached to this Proxy Statement as Annex I.  The  Audit
and Compliance Committee met 10 times in 2003.

SELECTION OF NOMINEES FOR THE BOARD

     The Nominating and Director  Evaluation Committee considers candidates  for
Board membership suggested by its members and other Board members, as well as by
management and  shareholders.    To  permit  time  for  careful  and  thoughtful
investigation and consideration by  the Committee, a  shareholder who wishes  to
recommend a  prospective  nominee for  the  Board should  notify  the  Company's
Corporate Secretary  or any  member of  the Nominating  and Director  Evaluation
Committee in writing not later than 6  months before the next Annual Meeting  of
Shareholders  with  whatever  supporting  material  the  shareholder   considers
appropriate.  See also "Shareholder Proposals" below for further information  on
the  requirements   under  the   Corporations'  Bylaws   relating  to   director
nominations.   The  Nominating  and  Director  Evaluation  Committee  will  also
consider whether to nominate any person  nominated by a shareholder pursuant  to
the provisions of the Company's Articles of Incorporation and Bylaws relating to
the election of Directors on the same basis as any other person suggested to the
Committee by management or otherwise.

     Once the  Nominating and  Director Evaluation  Committee has  identified  a
prospective nominee, the Committee makes an initial determination as to  whether
to conduct a full  evaluation of the candidate.   This initial determination  is
based  on  whatever  information   is  provided  to   the  Committee  with   the
recommendation of  the prospective  candidate, as  well as  the Committee's  own
knowledge of the prospective candidate, which  may be supplemented by  inquiries
to  the  person  making   the  recommendation  or   others.    The   preliminary
determination is based  primarily on the  need for additional  Board members  to
fill vacancies or  expand the  size of  the Board  and the  likelihood that  the
prospective nominee can satisfy the evaluation factors described below.  If  the
Committee determines, in consultation with  other Board members as  appropriate,
that additional consideration is warranted, the Committee will gather additional
information about the prospective nominee's background and experience and report
its findings to the whole Board.

     Prospective nominees  are evaluated  against  the following  standards  and
qualifications:

       o   The ability of the prospective nominee to represent the interests  of
           the Company's shareholders;
       o   The prospective  nominee's  standards of  integrity,  commitment  and
           independence of thought and judgment;
       o   The  prospective  nominee's  ability  to  dedicate  sufficient  time,
           energy and  attention  to the  diligent  performance of  his  or  her
           duties, including the prospective  nominee's service on other  public
           company boards;
       o   The extent to which the prospective nominee contributes to the  range
           of talent, skill and expertise appropriate for the Board;
       o   The extent to which the prospective nominee helps the Board meet  the
           needs of  its markets,  communities and  customers and  reflects  the
           diversity of  the Company's  shareholders, employees,  customers  and
           communities;
       o   The  prospective  nominee's  visibility  in  the  community  and  the
           nominee's ability  to actively  participate in  business  development
           for the Bank.

     The Corporation also requires that its directors own, or commit to  acquire
within 12 months of their election, at least 10,000 shares of Corporation Common
Stock.  Three of the current  directors, Mr. Carter, Mrs. Harker and  Mr.Thomas,
do not currently meet this requirement.  Messrs. Carter and Thomas will not have
been directors for 12 months until May 19, 2004, the date of the Annual Meeting.
Mrs. Harker has been a director for more  than 12 months and has acquired  8,000
shares  and  holds  667  vested  options  to  purchase  shares.  Directors  have
encountered difficulty in attaining this  requirement because of the  relatively
modest levels of market trading in the Corporation's stock coupled with periodic
restrictions on their ability, as insiders, to purchase shares.

     The Committee  also  considers such  other  relevant factors  as  it  deems
appropriate, including  the current  composition of  the Board,  the balance  of
management and independent directors, the need for Audit Committee expertise and
the evaluations  of  other  prospective  nominees.    In  connection  with  this
evaluation, the  Committee  determines  whether  to  interview  the  prospective
nominee, and if warranted, one or more  members of the Committee, and others  as
appropriate, interview the prospective nominee in person. After completing  this
evaluation and interview, the Committee makes a recommendation to the full Board
as to the persons who should be nominated by the Board, and the Board determines
the nominees after considering the recommendation and report of the Committee.

SHAREHOLDER COMMUNICATION WITH THE BOARD

     Shareholders and other  parties interested in  communicating directly  with
the non-management  directors  may do  so  by writing  to  any director  at  the
addresses shown on pages  2 and 3  of this proxy.   The non-management  director
will share  any such  communication (other  than  communications which  are,  in
essence,  customer  or  employee  complaints   not  relating  to  the   writer's
shareholder status)  with the  full Board  of Directors  at the  next  regularly
scheduled Board of Directors meeting in its executive session (excluding members
of management).  Concerns relating to accounting, internal controls or  auditing
matters are immediately brought to the attention of the Company's internal audit
department and handled in  accordance with procedures  established by the  Audit
and Compliance Committee with respect to such matters.

COMPANY CODE OF ETHICAL PRACTICES

     The Corporation has a Code of Ethical Practices, which is applicable to all
employees of the  Corporation and the  Bank, including  the principal  executive
officer, the principal financial officer  and the principal accounting  officer.
The Code of Ethical Practices has been filed as Exhibit 14 to the  Corporation's
Report on Form 10-KSB for the year ended  December 31, 2003. There have been  no
waivers or  exceptions from  the Code  of Ethical  Practices applicable  to  the
Corporation's principal  executive  officer,  principal  financial  officer  and
principal accounting officer.

                     AUDIT AND COMPLIANCE COMMITTEE REPORT

     The Corporation's  Audit  and Compliance  Committee  is comprised  of  five
directors who are not officers of the Corporation.  The members of the Audit and
Compliance Committee are  independent as  defined by  Rule 4200(a)  (15) of  the
National Association of Securities Dealers' listing standards. A  responsibility
of the Committee is to monitor and review the Corporation's financial  reporting
process on behalf of the Board  of Directors. Management is responsible for  the
Corporation's internal controls  and the financial  reporting process while  the
independent accountants are responsible for  performing an independent audit  of
the Corporation's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon.

     The Committee held ten meetings during  2003.  Quarterly meetings are  held
to review the company's financial statements  and Forms 10-QSB and 10-KSB  prior
to filing with the SEC.  The Company's independent public accountants, McGladrey
& Pullen, LLP are present at these quarterly meetings and also meet in executive
session with the Audit  and Compliance Committee with  no members of  management
present.

     The Audit and  Compliance Committee believes  that management maintains  an
effective system of internal controls that results in fairly presented financial
statements. The  Committee  discussed  with  McGladrey  &  Pullen,  LLP  matters
relating to communications  with audit committees  as required  by Statement  on
Auditing Standards  No. 61.   McGladrey  &  Pullen,  LLP also  provided  to  the
Committee the written disclosures relative  to auditor independence as  required
by Independence Standards Board Standard No.  1.  The Committee also reviewed  a
list of non-audit  services performed during  fiscal year  2003 and  determined,
based upon their scope,  that such services did  not affect the independence  of
McGladrey & Pullen, LLP in  performing their audit services.   Fees paid to  and
for the  2003 and  2002  financial statement  audits  performed by  McGladrey  &
Pullen, LLP  are as  summarized under  the caption  "Audit and  Non-Audit  Fees"
below.   The  Audit  and  Compliance Committee  considered  these  fees  in  its
assessment of the independence  of McGladrey & Pullen,  LLP and deemed that  the
services provided and  the fees  paid for  those services  were compatible  with
maintaining independence of the Corporation's independent public accountant.

     Based on these reviews and discussions, the Audit and Compliance  Committee
recommended to the Board of Directors  that the audited financial statements  be
included in the Corporation's  Annual Report on Form  10-KSB for the year  ended
December 31, 2003.

     Respectfully submitted to the Corporation's  shareholders by the Audit  and
Compliance Committee of the Board of Directors.

Prudence A Harker, Committee Chair                George D. Merchant
John B. Clark                                     Merritt J. Mott
Stephen P. Carter

                            AUDIT AND NON-AUDIT FEES

     The following table presents fees for professional audit services  rendered
by McGladrey & Pullen, LLP for  the audit of the Corporation's annual  financial
statements for fiscal 2003 and 2002, and fees billed for other services rendered
by McGladrey & Pullen, LLP for fiscal 2003 and 2002.

                                                  Fiscal         Fiscal
                                                  2003           2002
                                                  ------         ------
Audit fees (1)                               $67,171        $44,000
Audit-related fees (2)                       $21,263        $10,070
Tax fees (3)                                 $15,520        $ 8,537

(1)   Audit fees  consist of fees  for professional  services rendered  for
           the audit  of the Corporation's  financial statements  and review  of
           financial statements included in the Corporation's quarterly  reports
           and  services  normally  provided  by  the  independent  auditor   in
           connection with statutory and regulatory filings or engagements.
(2)   Audit-related fees  are fees  principally for  professional  services
           rendered for the audit of  the Corporation's employee benefits  plans
           and due diligence and technical accounting consulting and research.
(3)   Tax fees consist of compliance  fees for the preparation of  original
           and amended tax returns, claims for refunds and tax  payment-planning
           services for  tax  compliance, tax  planning  and tax  advice.    Tax
           service fees also include fees  relating to other tax consulting  and
           planning for other than tax compliance and preparation.

     The Audit and Compliance Committee requires  that all fees for services  to
be performed by  the Corporation's independent  public accountants, McGladrey  &
Pullen, LLP, be pre-approved by the Committee. All fees for services which  were
performed by the Corporation's independent public  accountants in 2003 and  2002
were pre-approved by the Committee.

                           COMPENSATION OF DIRECTORS

DIRECTORS' FEES

     Directors of the Corporation who are not employees of the Corporation or of
the Bank  receive a  $6,000 annual  retainer  and $250  for each  board  meeting
attended and $100 for each committee meeting attended. Employee directors do not
receive any additional compensation for serving  as a director. The  Corporation
has also  established stock  option plans  in which  non-employee directors  are
eligible to participate.

DIRECTORS' STOCK OPTION PLANS

     Prior to its expiration in 1995,  the Corporation maintained the  Blackhawk
Bancorp, Inc. 1990 Directors'  Stock Option Plan  (the "1990 Directors'  Plan"),
which was intended to provide an incentive for directors of the Corporation  who
are not active full-time employees of the Corporation or of a subsidiary of  the
Corporation ("Outside Directors")  to improve corporate  performance on a  long-
term basis.  To replace the expired 1990 Directors' Plan, the Board of Directors
adopted, and the shareholders of the  Corporation on May 11, 1994 approved,  the
Blackhawk Bancorp, Inc. 1994 Directors' Stock Option Plan (the "1994  Directors'
Plan"), which is  substantially similar  in all  material respects  to the  1990
Directors'  Plan.    The  1994  Directors'  Plan  has  150,000  shares  of   the
Corporation's Common Stock reserved for issuance  and provides for the  granting
of non-qualified stock options.

     On March 3,  2003, each  of the  ten  Outside Directors  automatically  was
granted an option under the 1994 Directors' Plan to purchase 2,000 shares of the
Corporation's Common Stock at a per share exercise price of $9.90 (the per share
market price of the Corporation's Common Stock on that date).  On March 1, 2002,
each of  the  ten Outside  Directors  automatically  was granted  an  option  to
purchase 2,000 shares at an  exercise price of $9.50,  the market price on  that
date.   Giving  effect to  those  grants, the  total  number of  shares  of  the
Corporation's Common Stock subject to outstanding grants under the 1990 and 1994
Directors' Plans as  of March  1, 2004  was 68,700.   The  1990 Directors'  Plan
expired in  1995  and  the  1994 Directors'  Plan  expired  December  31,  2003;
therefore, no more options will be granted under those Plans.

                             EXECUTIVE COMPENSATION

COMPENSATION SUMMARY

     The following table  summarizes certain information  for each  of the  last
three years concerning  all compensation  awarded or paid  to or  earned by  the
Chief Executive Officer and the only other executive officer of the  Corporation
who had total compensation exceeding $100,000 in 2003.



                                                             SUMMARY COMPENSATION TABLE
                                  ------------------------------------------------------------------------------------------
                                                                                                Long Term
                                        ANNUAL COMPENSATION                                    Compensation
                                  ------------------------------------------------------  ----------------------------------
            Name and                                     Bonus          Other Annual        Options/       Other
       Principal Position         Year   Salary ($)   ($)(1)   Compensation(2)  SARs(3)  Compensation(4)
       ------------------         ----   ----------   -----------   --------------------  ------------  --------------------
                                                                                           

R. Richard Bastian, III(5)   2003    $ 160,000     $      0          $11,959             11,250      $  9,339
President and Chief Executive     2002    $ 142,904     $      0          $ 8,721             10,000      $  9,052
Officer of the Corporation since  2001    $  85,917     $ 25,000          $ 4,690             40,000      $  8,320
February 2002 and the Bank
Since May 2001

Todd J. James(6) -Executive  2003    $ 100,883     $  2,000          $ 1,167              8,000      $  1,513
Vice President and Chief          2002    $  85,865     $ 15,000          $   -0-             16,000      $    714
Financial Officer


(1)   Annual  bonus  amounts  are  earned  and  accrued  during  the  years
           indicated and paid  at the beginning of  the next calendar year.  Mr.
           Bastian's bonus  for  2001 was  paid  upon the  commencement  of  his
           employment with  the Bank. Mr.  James' bonus  in 2003  was paid  upon
           successful completion of the DunC  Corp merger. $5,000 of Mr.  James'
           bonus for 2002 was paid upon the commencement of his employment  with
           the Bank.

(2)   Represents  taxable value  of  company  provided  automobile  in  the
           amount of  $4,375, $4,375 and  $2,188 for  Mr. Bastian  in the  years
           2003, 2002 and  2001, respectively and  country club memberships  for
           Mr. Bastian of  $7,584 in 2003,  $4,346 in 2002  and $2,502 in  2001,
           respectively and for Mr. James of $1,167 in 2003.

(3)   In 2003, Mr. Bastian received  stock appreciation rights relating  to
           3,750 shares and  non-qualified executive stock  options to  purchase
           7,500  shares, and  Mr.  James  received  stock  appreciation  rights
           relating to 1,000  shares and non-qualified  executive stock  options
           to purchase 7,000 shares. In 2002 and 2001 the amounts shown  consist
           entirely of non-qualified executive stock options.

(4)   Includes:   (a)  employer  contributions to  each  named  executive's
           account under a 401(k) profit  sharing plan in the amounts of  $2,339
           and $4,542 for Mr. Bastian and $1,513  and $714 for Mr. James in  the
           years  2003  and  2002,  respectively;  (b) premiums  paid  for  life
           insurance in the amount of $4,510 annually on behalf of Mr.  Bastian;
           and (c) additional  insurance benefits in  the amount  of $2,490  and
           $3,810 for Mr. Bastian in 2003 and 2001.

(5)   Mr. Bastian became employed by the Corporation in May 2001.

(6)   Mr. James became employed by the Corporation in February 2002.

EXECUTIVE STOCK OPTIONS

     Prior to its expiration on January 24, 1995, the Corporation maintained the
Blackhawk Bancorp, Inc. 1990  Executive Stock Option  Plan (the "1990  Executive
Plan"), which provided an incentive for executive officers of the Corporation or
any of its subsidiaries to improve  corporate performance on a long-term  basis.
To replace  the expired  1990 Executive  Plan,  the Board  of Directors  of  the
Corporation  adopted,  and  on  May 11,  1994  the  shareholders  approved,  the
Blackhawk Bancorp, Inc. 1994  Executive Stock Option  Plan (the "1994  Executive
Plan"), which is  substantially similar  in all  material respects  to the  1990
Executive Plan.  The 1994 Executive Plan provides for the granting of  incentive
stock options ("ISOs") intended to qualify as such within the meaning of Section
422 of the Internal  Revenue Code of 1986,  nonqualified stock options  ("NSOs")
and stock appreciation  rights ("SARs").   The 1994 Executive  Plan has  405,000
shares of the Corporation's Common Stock reserved for issuance.

     Options for 76,250  shares were granted  in 2003 and  at December 31,  2003
there were outstanding under this  Plan options for the  purchase of a total  of
200,500 shares.    The  1994  Executive  Plan  expired  on  December  31,  2003,
therefore, no more options will be granted under that Plan.

OPTIONS OF NAMED EXECUTIVES

     Options to purchase shares of the  Corporation's Common Stock were  granted
to the named executive officers as reflected in the table below. Pursuant to the
terms of the 1994 Executive Plan, such options will become exercisable in  equal
thirds on each of the first three anniversaries of the date of grant.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

                          NUMBER OF    % OF TOTAL
                         SECURITIES   OPTIONS/SARS
                         UNDERLYING    GRANTED TO     EXERCISE
                        OPTIONS/SARS  EMPLOYEES IN     PRICE        EXPIRATION
NAME                      GRANTED     FISCAL YEAR    ($/SHARE)     DATE(3)
----                    ------------  ------------   ----------    ------------

R. Richard Bastian, III    7,500         8.5%      $11.77(1)  November 2013

R. Richard Bastian, III    3,750         4.2%      $11.77(2)  November 2013

Todd J. James              7,000         7.9%      $11.77(1)  November 2013

Todd J. James              1,000         1.1%      $11.77(2)  November 2013

(1)   Represents the  option exercise  price, based  upon the  fair  market
           value (determined  under provisions of  1994 Executive  Plan) of  the
           Corporation's Common Stock as of the date of grant.

(2)   Represents the stock appreciation rights' base price, based upon the
           fair market value (determined under the provision of the 1994
           Executive Plan) of the Corporation's Common Stock as of the date of
           grant.

(3)   Options  and SARs  generally  expire  three  months  following  named
           executive officer's death,  disability, retirement or termination  of
           his employment with the Corporation and/or the Bank.

     The following table  sets forth certain  information concerning  individual
exercises of stock options by the named executive officers during 2003 including
the number and value of options outstanding at the  end of 2003 for each of  the
named executive officers. Value is calculated  using the difference between  the
exercise price and the market  price on the day  of exercise, for those  options
exercised in fiscal year 2003, or year-end market price, for all other  options,
multiplied by the number of shares underlying the option.

           AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                      FISCAL YEAR-END OPTION/SAR VALUES


                                                            NUMBER OF SECURITIES
                                                           UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                                                              OPTIONS/SARS AT            IN-THE-MONEY OPTIONS/SARS
                                                             FISCAL YEAR-END(#)            AT FISCAL YEAR-END($)
                                                       -----------------------------    ---------------------------
                          SHARES
                        ACQUIRED ON       VALUE
       NAME             EXERCISE(#)    REALIZED($)     EXERCISABLE     UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
       ----             -----------    -----------     -----------     -------------    -----------   -------------
                                                                                        
Richard Bastian, III        0           $      0         30,000           31,250         $95,167        $66,308
Todd J James                0                  0          5,333           18,667         $16,812        $37,308


                      EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes share information,  as of December 31, 2003,  for
Blackhawk's equity compensation plans.  The option plans  have been approved  by
Blackhawk's shareholders.


                               NUMBER OF COMMON                                 NUMBER OF SECURITIES
                              SHARES TO BE ISSUED       WEIGHTED-AVERAGE      REMAINING AVAILABLE FOR
                               UPON EXERCISE OF        EXERCISE PRICE OF       FUTURE ISSUANCE UNDER
                             OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,      EQUITY COMPENSATION
      PLAN CATEGORY           WARRANTS AND RIGHTS     WARRANTS AND RIGHTS              PLANS
      -------------          ---------------------    --------------------     ----------------------
                                                                               

Equity compensation plans
approved by shareholders            272,350                  $10.32                     -0-

Equity compensation plans
not approved by
shareholders                          -0-                     N/A                       -0-
                                    -------                  -----                      ---

Total                               272,350                  $10.32                     -0-
                                    -------                  -----                      ---
                                    -------                  -----                      ---


SEVERANCE PAYMENT AGREEMENTS

     The Bank has agreements with potential severance amounts payable in  excess
of $100,000 per individual currently in  effect with three officers, R.  Richard
Bastian, III,  Richard J.  Rusch  and Dale  Blachford.   Messrs.  Bastian's  and
Blachford's provisions  are in  their employment  agreements; Mr.  Rusch's in  a
severance agreement. The agreements remain in effect until the earliest to occur
of  the  officer's:    (i)  death;  (ii)  disability;  (iii)  retirement;   (iv)
termination of employment (whether voluntary or involuntary); or (v) termination
in connection  with a  change in  control of  the Bank  or the  Corporation.  In
addition, Mr. Blachford's agreement terminates on September 30, 2005, the second
anniversary of the DunC acquisition.  When Todd James, Executive Vice  President
and Chief Financial Officer of the  Corporation, accepted employment it was,  in
part, on the condition that  he be provided with  a change in control  severance
agreement, similar to those described herein, with a term of 3 years, subject to
extension only at the option of  the Corporation, and providing for payment,  in
the event of a change in  control of the Bank or  the Corporation, of an  amount
equal to his average annual compensation.   While a change in control  severance
agreement has not  been formalized, it  is the intention  of the Corporation  to
negotiate and formalize an agreement with Mr. James.

     The agreements with Messrs. Bastian and Rusch provide that, in the event of
termination of his employment in connection with a change in control of the Bank
or the Corporation, the officer would  receive a severance payment in an  amount
equal to his average  annual compensation (defined to  include his then  current
base annual salary plus the average bonus, if any, received by him in the  three
years preceding termination) multiplied  by three, plus an  amount equal to  the
dollar equivalent of  all contributions by  the Bank on  behalf of  and for  the
benefit of the officer to any pension, profit sharing or employee stock  benefit
plan, including the  Corporation's ESOP,  during the  three years  prior to  the
termination.  Mr.  Bastian's agreement provides  for payment within  15 days  of
termination.  Mr.  Rusch's  agreement  requires  payment  of  one-third  of  the
severance payment in a lump sum within 30 days of termination with the remaining
two-thirds to be paid in monthly installments commencing in the thirteenth month
following termination.  In addition to this severance payment, the officer would
also be entitled to continue receiving,  for three years following  termination,
medical, life and  disability insurance benefits  and vested benefits  otherwise
payable to  him under  any Bank  plan  or agreement  relating to  retirement  or
deferred compensation benefits,  if any.   In the  event Mr.  Rusch finds  other
full-time employment,  his  severance  payment in  the  second  and  third  year
following termination would be  reduced by an amount  equal to salary and  other
benefits received  from his  new employer  during  the period  for which  he  is
entitled  to  receive  payments  under  his  Severance  Payment  Agreement;  Mr.
Bastian's agreement is not  subject to that adjustment.   Mr. Rusch's  Severance
Payment Agreement provides that, in the event the officer is under the age of 55
and physically  and  medically able  to  perform duties  with  another  employer
comparable to  those  performed  by  him  with the  Bank  at  the  time  of  his
termination, he must take reasonable steps  to obtain such employment within  50
miles of the Bank's main office.

     The agreements with Messrs. Bastian and Rusch define a change in control to
include: (i) acquisition of beneficial ownership of securities of the Bank or of
the Corporation in a transaction subject to the notice provisions of the  Change
in Bank Control Act of 1978  or approval under the  Bank Holding Company Act  of
1956; (ii) someone other than the Corporation becoming owner of more than 25% of
the voting securities of the Bank;  (iii) the persons constituting the Board  of
Directors of the Bank or the Corporation at any particular time ceasing,  during
any two-year period thereafter, to constitute at least a majority thereof;  (iv)
a person or group of persons or entity succeeding to all or substantially all of
the business and/or  assets of  the Bank or  the Corporation  as a  result of  a
purchase, merger, consolidation or similar transaction; or (v) the filing by the
Corporation of a  report or  proxy statement  with the  Securities and  Exchange
Commission disclosing that  a change in  control of the  Corporation has or  may
have occurred pursuant  to any  contract or transaction.   A  termination of  an
officer is deemed to have  occurred in connection with  a change in control  if,
following an  event  defined  as  a change  in  control,  either  the  officer's
employment is  terminated by  the Bank  or  a successor  other than  for  death,
disability, retirement  or  certain wrongful  conduct  by the  officer,  or  the
officer terminates his employment on 90 days prior written notice following such
change in  control and  the  occurrence of  specified  events, including:    (i)
demotion in his position  or reduction in his  duties or responsibilities;  (ii)
reduction in compensation;  (iii) transfer  to a  remote location;  (iv) a  good
faith determination by the officer that he is unable, and it would not be in the
best interests  of  the Bank  for  him to  carry  out the  authorities,  powers,
functions, responsibilities or duties attached to  his position; or (v)  failure
on the part of the Bank  to obtain a commitment from  a successor to assume  the
Bank's duties and obligations under the agreements.  If an officer is terminated
within six months prior  to a change  in control for  reasons other than  death,
disability or cause, such termination will  be treated as being in  anticipation
of the  change in  control and  the  officer will  be  entitled to  receive  the
benefits he  would have  received  had the  termination  occurred after  and  in
connection with a change in control.

     The agreement with Mr. Blachford provides that, in the event of termination
of his employment  in connection with  a change in  control of the  Bank or  the
Corporation, the officer would receive a severance payment in an amount equal to
150% of his then current base salary reduced by bonuses paid to him on September
30, 2004 and 2005. Mr. Blachford is  also eligible to participate in the  Bank's
health, dental and life insurance plans  over the payout period.  The  agreement
provides for payment  over 18 months  or in a  lump sum at  the election of  the
officer. Mr. Blachford is restricted from obtaining employment within a 25  mile
radius of his principal  place of business for  either 6 months  or one year  of
termination.

     The agreement with Mr. Blachford defines a change in control to include the
sale of all or  substantially all of the  assets of Blackhawk or  the Bank or  a
transaction resulting in fifty percent or  more of its voting stock being  owned
by a person or entity (other than Blackhawk or its affiliates) that does not own
fifty percent of such stock on September  30, 2003. A termination of an  officer
is deemed  to have  occurred in  connection with  a change  in control  if,  the
Executive's Employment with the  Bank (or its successor)  is the result of:  (1)
the Executive's voluntary resignation following any Change in Duties during  the
sixty (60) day period  prior to a Change  in Control, provided such  resignation
occurs within thirty  (30) days of  the Change in  Control, (2) the  Executive's
voluntary resignation  due to  a  Change in  Duties  within twelve  (12)  months
following a  Change in  Control;  and (3)  the  termination of  the  Executive's
employment by  the  Bank  (or  its  successor)  other  than  death,  disability,
retirement or for cause within twelve (12) months following a Change in Control.

     Mr. Bastian's  employment  agreement provides  that  he shall  receive  the
severance amounts described  above, regardless  of whether  or not  a change  in
control has occurred, if he is terminated by the Corporation or the Bank without
cause or if he  terminates his employment for  cause.  The employment  agreement
further provides a  base salary  of $160,000 (subject  to annual  change by  the
board), specified benefits and  a term of three  years, commencing on  August 1,
2002, subject to  annual extensions. The  Board granted Mr.  Bastian a one  year
extension on August 1, 2003.

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Corporation's directors, executive officers and any person holding more than 10%
of the Corporation's Common Stock are required to report their initial ownership
of the Corporation's Common Stock and  any subsequent changes in that  ownership
to the Securities and Exchange Commission.  Specific due dates for these reports
have been established and the Corporation is required to disclose in this  Proxy
Statement any failure to file  such reports by these  dates during 2003.   Based
solely on a review of  copies of such reports  furnished to the Corporation,  or
written representations that no reports were required, the Corporation  believes
that during  2003  all  filing requirements  applicable  to  its  directors  and
executive officers were satisfied with the following exception.  On December 10,
2003 Mr. Hendricks purchased 36,200 shares. Due to an administrative error,  the
broker did not inform  us of the  purchase until December  15, 2003. The  proper
Form 4 was filed three days late on December 15, 2003.

                CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS

     The Bank occasionally extends home mortgage loans, home improvement  loans,
home equity  loans,  consumer  loans and  commercial  loans  to  its  directors,
officers and employees, and affiliates of the foregoing.  Such loans are made in
the ordinary course of business and do not, in the opinion of management of  the
Bank, involve  more than  the normal  risk of  collectability or  present  other
unfavorable features, and are  made on substantially  the same terms,  including
interest rate and  collateral, as those  prevailing at the  time for  comparable
transactions with other persons.  Where the  borrower is also a director of  the
Bank or the Corporation,  it is the policy  of the Bank  that the director  must
leave the meeting  of the  Bank's Board  of Directors  while his  loan is  being
considered and the director neither participates in that consideration nor votes
on approval of the  loan.  Messrs. Bastian,  James, Hendricks, Clark and  Bryden
and Mrs. Holt or their affiliates, each had one or more loans with the Bank with
an aggregate outstanding balance at December 31, 2003 in excess of $60,000.   As
of that date, those loans aggregated $5,937,217, which represented approximately
15.26% of the capital of the  Bank at December 31, 2003.   Those loans were  all
made in accordance with the policy described above.

                               OTHER INFORMATION

INDEPENDENT AUDITORS

     On August 27,  2002, the  Audit and Compliance  Committee of  the Board  of
Directors of  the  Corporation approved  a  change  in auditors.  The  Board  of
Directors ratified the Audit Committee's engagement  of McGladrey & Pullen,  LLP
to serve as the Corporation's independent public accountants and replacement  of
Wipfli Ullrich Bertelson LLP ("Wipfli") as the Corporation's independent  public
accountants, effective August 28, 2002.

     Wipfli performed audits  of the consolidated  financial statements for  the
two years ended December  31, 2001 and  2000. Their reports  did not contain  an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.

     During the two years  ended December 31, 2001,  and from December 31,  2001
through  the  effective  date   of  the  Wipfli   termination,  there  were   no
disagreements between the  Corporation and Wipfli  on any  matter of  accounting
principles or practice,  financial statement  disclosure, or  auditing scope  or
procedure, which disagreements would have caused Wipfli to make reference to the
subject matter of such disagreements in connection with this report.

     During the two years  ended December 31, 2001,  and from December 31,  2001
until the effective date of the dismissal  of Wipfli, Wipfli did not advise  the
Corporation of any of the following matters:

1.   That the  internal  controls  necessary  for  the  Corporation  to  develop
reliable financial statements did not exist;

2.   That information had  come to  Wipfli's attention that  had lead  it to  no
longer be able  to rely  on management's representations,  or that  had made  it
unwilling to be associated with the financial statements prepared by management;

3.   That there was a need to expand significantly the scope of the audit of the
Corporation, or that information had come to Wipfli's attention that if  further
investigated: (i) may materially impact the fairness or reliability of either  a
previously-issued audit  report  or  underlying  financial  statements,  or  the
financial statements  issued  or  to  be  issued  covering  the  fiscal  periods
subsequent to the  date of the  most recent financial  statements covered by  an
audit report  (including  information that  may  prevent it  from  rendering  an
unqualified audit report on those financial statements) or (ii) may cause it  to
be unwilling to rely  on management's representation or  be associated with  the
Corporation's financial statements and  that, due to  its dismissal, Wipfli  did
not so expand the scope of its audit or conduct such further investigation;

4.   That information  had come  to Wipfli's  attention  that it  had  concluded
materially impacted the  fairness or reliability  of either:  (i) a  previously-
issued audit report or the underlying financial statements or (ii) the financial
statements issued or to be issued  covering the fiscal period subsequent to  the
date of  the  most  recent  financial statements  covered  by  an  audit  report
(including information that, unless  resolved to the accountant's  satisfaction,
would prevent it from rendering an  unqualified audit report on those  financial
statements), or that, due to its dismissal, there were no such unresolved issues
as of the date of its dismissal.

     Wipfli furnished a letter to the SEC stating that it agrees with the  above
statements.

     During the two years  ended December 31, 2001,  and from December 31,  2001
through engagement of McGladrey & Pullen,  LLP as the Corporation's  independent
accountant, neither  the Corporation  nor anyone  on  its behalf  had  consulted
McGladrey &  Pullen, LLP  with  respect to  any  accounting or  auditing  issues
involving the  Corporation. In  particular, there  was  no discussion  with  the
Corporation regarding the  application of accounting  principles to a  specified
transaction, the type of audit opinion  that might be rendered on the  financial
statements, or any related item.

              RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

     The Audit and Compliance  Committee, with the concurrence  of the Board  of
Directors, has appointed  the firm  of McGladrey  & Pullen,  LLP as  independent
public accountants to audit the books and accounts of the Corporation for fiscal
2004. They have  audited the Corporation  since 2002. Services  provided to  the
Corporation and its subsidiaries by McGladrey  & Pullen, LLP in fiscal 2003  and
2002 are described under "Audit and Non-Audit Fees" above.

     Representatives of McGladrey &  Pullen, LLP are expected  to be present  at
the annual meeting to respond to  appropriate questions and to make a  statement
if they so desire.

     THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF MCGLADREY &  PULLEN, LLP AS THE CORPORATION'S  INDEPENDENT
ACCOUNTANTS FOR FISCAL 2004.

     In the event shareholders  do not ratify  the appointment, the  appointment
will be  reconsidered  by  the  Audit and  Compliance  Committee  and  Board  of
Directors.

                             SHAREHOLDER PROPOSALS

     Shareholder proposals must  be received by  the Corporation  no later  than
December 10, 2004 in order to be considered for inclusion in next year's  annual
meeting proxy materials. Shareholders who intend  to present a proposal at  next
year's annual meeting of shareholders without inclusion of such proposal in  the
Corporation's proxy materials, or who propose to nominate a person for  election
as a director  at the  annual meeting,  are required  by the  Bylaws to  provide
notice  of  such   proposal  containing   the  information   described  in   the
Corporation's Bylaws to the Secretary of the Corporation not later than 90  days
in advance of next year's annual meeting.

                               OTHER AGENDA ITEMS

     The Board of  Directors has not  been informed and  is not  aware that  any
other matters will be brought before the meeting.  However, proxies may be voted
with discretionary authority with respect to any other matters that may properly
be presented at the meeting or any adjournment thereof.

     A COPY (WITHOUT EXHIBITS) OF THE CORPORATION'S ANNUAL REPORT FILED WITH THE
SECURITIES AND EXCHANGE  COMMISSION ON  FORM 10-KSB  FOR THE  FISCAL YEAR  ENDED
DECEMBER 31, 2003 IS AVAILABLE WITHOUT CHARGE TO EACH RECORD OR BENEFICIAL OWNER
OF SHARES OF THE CORPORATION'S COMMON STOCK AS  OF APRIL 1, 2004 ON THE  WRITTEN
REQUEST OF SUCH  PERSON DIRECTED TO:  TODD J. JAMES,  EXECUTIVE VICE  PRESIDENT-
SECRETARY AND  TREASURER, BLACKHAWK  BANCORP, INC.,  400 BROAD  STREET,  BELOIT,
WISCONSIN 53511.

                                                                         ANNEX I

                            BLACKHAWK BANCORP, INC.
                     AUDIT AND COMPLIANCE COMMITTEE CHARTER

                                    PURPOSE
                                    -------

The Audit Committee ("Committee")  is appointed by  the Blackhawk Bancorp,  Inc.
("Bank") Board  of  Directors  ("Board"),  and is  formed  for  the  purpose  of
assisting the Board  in performing its  oversight responsibilities.   While  the
Audit Committee has the authority and responsibilities outlined below, it is not
responsible for  performing  audits to  ensure  the accuracy  of  the  financial
statements, in accordance of Generally Accepted  Accounting Principles.  Nor  is
it the duty of  the Committee to  conduct investigations, resolve  disagreements
between management and  the auditors, or  provide assurance  of compliance  with
laws and regulations.

                                  COMPOSITION
                                  -----------

The Committee shall be composed of at least 3 members of the Board, who meet the
independence and  financial  literacy guidelines  as  outlined by  the  National
                                                                   -------------
Association of Securities Dealers and the Securities and Exchange Commission.
-----------------------------------------------------------------------------

                                   AUTHORITY
                                   ---------

The Committee has the authority to initiate any investigations or  consultations
it deems necessary  to fulfill  its oversight function  on behalf  of the  Board
including  retaining  legal  counsel,  consulting  with  accounting  and   other
applicable professionals, and requesting assistance from any officer or employee
of the Bank.

                                RESPONSIBILITIES
                                ----------------

In performing the oversight function, the Committee shall:

o    FINANCIAL REPORTING: Review with management and the independent  auditor(s)
     matters relating to the Bank's interim and annual financial statements,  as
     indicated by auditing/accounting standards or securities laws.  This  could
     include review  of footnotes  and any  significant reserves,  accruals  and
     estimates used in preparing the financial statements.

o    INDEPENDENT/EXTERNAL AUDITOR:  Recommend the  independent auditors  to  the
     Board,  based  on  review   of  the  independent  auditors'   independence;
     performance with the Bank in prior years, if possible; fees charged in  the
     past and  proposed for  the current  year; and,  the independent  auditors'
     reputation within the community.

o    INTERNAL AUDIT:   Oversee  the Bank's  Internal Audit  function,  including
     review of the appointment of the Auditor, review and approval of the Bank's
     Risk Assessment  and Annual  Internal Audit  Plan;  review the  reports  on
     internal audits performed,  including management's  responses; and  monitor
     any material or sensitive projects assigned  to the Auditor by  Management,
     the Board, or the Committee.

o    REGULATORY COMPLIANCE:  Oversee the Bank's Regulatory Compliance  function,
     including review of the appointment of  the Compliance Officer, review  and
     approval of  the  Compliance  Program; review  the  reports  on  compliance
     testing  performed,  including  management's  responses;  and  review   any
     material reports received from the Examiners.

                                    MEETINGS
                                    --------

The Committee shall meet regularly, at least 4 times annually, or more often  as
needed.  Additionally, the Committee shall meet with the independent auditor(s),
the internal  auditor,  or  the Compliance  Officer,  without  the  presence  of
management, when/if privacy is deemed necessary.

                                     OTHER
                                     -----

The Audit Committee shall review and update this Charter, as needed, and  submit
it to the Board for approval, annually.

Adopted July 14, 2003

     Prudence A. Harker, Committee Chairman               George Merchant
     John B. Clark                                        Merritt Mott
     Stephen P. Carter