BELOIT, WI / ACCESSWIRE / July 21, 2023 / Blackhawk Bancorp, Inc. (OTCQX:BHWB), (the "Company") the parent company of Blackhawk Bank (the "Bank"), today reported net income of $3.19 million for the quarter ended June 30, 2023, a 10% increase from the $2.89 million earned the in the preceding quarter, and an 8% decrease compared to the $3.48 million earned during the second quarter of 2022. Diluted Earnings per Share (EPS) for the current quarter was $1.10, an increase of $0.10, or 10%, compared to the preceding quarter, and a $0.11 decrease, or 9%, compared to the quarter ended June 30, 2022. The second quarter of 2023 results yielded a Return on Average Equity (ROAE) of 15.64% and a Return on Average Assets (ROAA) of 0.96%.

Results for the second quarter of 2023 included $202,000 (after-tax) of expenses related to the pending merger with First Mid Bancshares, Inc. (NASDAQ: FMBH) ("First Mid"). Excluding these expenses, the 2023 second-quarter net income would have been $3.40 million, a $503,000, or 17%, increase compared to the linked quarter ending March 31, 2023, and a $82,000, or 2%, decrease over the second quarter of last year.

The decrease in net income for the second quarter of 2023, compared to the second quarter of the prior year was driven by a $1.97 million increase in the provision for loan losses and a $476,000 decrease in revenue from the sale and servicing of mortgage loans. The increase in the provision for loan losses was due to a $1.50 million negative provision in the second quarter of last year. These variances were partially offset by an $812,000 increase in net interest income and a $1.42 million reduction in other operating expenses. The reduction in other operating expenses reflects the $1.27 million charge related to branch closures in the second quarter of 2022.

Second Quarter 2023 Financial Highlights (at or for the three months ended June 30, 2023) :

• Net income was $3.19 million, or $1.10 per diluted share, compared to $3.48 million, or $1.21 per diluted share, in the second quarter of 2022.
• Net interest margin was 3.63%, compared to 3.77% in the preceding quarter and 3.31% in the second quarter a year ago.
• Annualized return on average assets was 0.96%, compared to 1.02% in the second quarter of 2022.
• Annualized return on average equity was 15.64%, compared to 16.75% in the second quarter a year ago.
• Total deposits decreased by $31.29 million to $1.19 billion at June 30, 2023 compared to $1.22 billion a year earlier.
• Allowance for loan losses to total loans was 1.47% at quarter end.
• Nonperforming assets to total assets was 0.32% at June 30, 2023 compared to 0.45% a year ago.
• On June 16, 2023, the Company paid a quarterly cash dividend of $0.12 per share, marking the 36^nd consecutive quarterly cash dividend paid.

For the six months ended June 30, 2023 the Company reported net income of $6.09 million slightly less than the $6.10 million reported in the first half of 2022. Diluted Earnings per Share (EPS) for the six months ended June 30, 2023 decreased $0.02 to $2.11 compared to $2.13 the first six months of the prior year. The Company's results for the six months ended June 30, 2023 produced a Return on Average Equity (ROAE) of 15.38% and a Return on Average Assets (ROAA) of 0.92%.

Net Interest Income

Net interest income totaled $11.35 million for the quarter ended June 30, 2023, a decrease of $314,000, or 3%, compared to the first quarter of 2023, and an increase of $812,000, or 8%, compared to the second quarter of the prior year.

The Company's net interest margin was 3.63% for the second quarter of 2023, compared to 3.77% for the quarter ended March 31, 2023, and 3.31% for the second quarter of 2022. The tax-equivalent yield on earning assets increased by 17 basis points to 4.87% for the second quarter of 2023, compared to the first quarter of 2023, and the cost of deposits increased by 45 basis point to 1.13% for the second quarter of 2023, compared to 0.77% for the linked quarter. Tax-equivalent yield on earning assets increased 136 basis points compared to 3.51% for the second quarter of 2022, and the cost of deposits increased by 101 basis points compared to 0.12% for the second quarter of 2022.

Average total deposits for the second quarter of 2023 decreased by $18.5 million to $1.21 billion compared to $1.23 billion in the second quarter of 2022. Average total loans for the second quarter of 2023 increased by $29.1 million, or 4%, compared to the prior year's second quarter.

Net interest income for the six months ended June 30, 2023 increased $2.82 million to $23.02 million compared to $20.20 million for the first half of 2022. For the first six months of 2023, the company's net interest margin was 3.70%, compared to 3.22% for the same period in the prior year. The tax-equivalent yield on earning assets increased by 137 basis points to 4.78% for the first six months of 2023, compared to 3.41% the first six months of 2022. The cost of deposits increased by 42 basis points to 0.06% compared to the first six months of 2022.

Provision for Loan Losses and Asset Quality

The provision for loan losses for the quarter ended June 30, 2023, totaled $466,000, as compared to $415,000 for the quarter ended March 31, 2023, and negative $1.5 million for the second quarter of 2022. The provision for loan losses for the first-half 2023 increased by $2.38 million to $881,000 compared to negative $1.50 million first-half of 2022. Net charge-offs for the six months ended June 30, 2023, equaled $392,000.

Total nonperforming assets, which include troubled debt restructures that are performing in accordance with their modified terms, equaled $4.19 million as of June 30, 2023, as compared to $4.36 million as of March 31, 2023, and $6.04 million at June 30, 2022. At June 30, 2023, the ratio of nonperforming assets to total assets equaled 0.32%, as compared to 0.34% at March 31, 2023, and 0.45% at June 30, 2022.

The allowance for loan losses to total loans was 1.47% as of June 30, 2023, as compared to 1.46% at March 31, 2023, and 1.22% as of June 30, 2022. The ratio of the allowance for loan losses to nonperforming loans increased to 276.9% as of June 30, 2023, as compared to 262.9% at March 31, 2023, and 157.3% at June 30, 2022.

Noninterest Income and Operating Expenses

Noninterest income for the quarter ended June 30, 2023, totaled $3.54 million, a $353,000 increase compared to $3.19 million the prior quarter and a $282,000 decrease from the $3.82 million recorded in the second quarter of 2022. The decline in noninterest income compared to the second quarter of 2022 includes a $476,000 decrease in revenue from the sale and servicing of mortgage loans.

Noninterest income for the six months ended June 30, 2023 totaled $6.72 million, a $1.02 million decrease compared to the $7.74 million for the same period in the prior year. The decrease was mainly driven by a $1.38 million decrease in revenue the sale and servicing of mortgage loans.

Operating expenses for the quarter ended June 30, 2023, totaled $10.14 million, a decrease of $509,000, or 5%, compared to the first quarter of 2023, and decrease of $1.12 million, or 10%, compared to the second quarter of 2022. The first and second quarters of 2023 include $314,000 and $279,000 of merger related expenses. The decrease compared to the second quarter of 2022 includes a $1.27 million charge related to branch closures.

Operating expenses for the six months ended June 30, 2023 totaled $20.78 million, a $642,000, or 3%, decrease compared to the same period in 2022. Excluding the merger related one-time charges of $593,000, operating expenses for the six months ended June 30, 2023 would have been $20.19 million, a $1.24 million decrease over the same period in 2022.

Capital

Tangible book value per share was $23.99 at June 30, 2023, compared to $24.02 at March 31, 2023 and $23.91 at June 30, 2022. The decrease in tangible book value per share during the current quarter was primarily due to a $3.26 million decrease in accumulated other comprehensive income ("AOCI") related primarily to an increase in the unrealized loss on available for sale securities. Excluding AOCI, tangible book value per share was $36.11 at June 30, 2023, an increase of $1.11 and $3.70 compared to March 31, 2023 and June 30, 2022, respectively.

About Blackhawk Bancorp

Blackhawk Bancorp, Inc. is headquartered in Beloit, Wisconsin, and is the parent company of Blackhawk Bank. The combined entity operates ten full-service banking centers located in Rock County, Wisconsin, and the Illinois counties of Winnebago, Boone, McHenry, and Kane. The Company offers a variety of value-added consultative services to its business customers and their employees related to the financial products it provides.

Disclosures Regarding non-GAAP Measures

This report refers to financial measures that are identified as non-GAAP that the Company believes help to evaluate and measure the Company's performance, including the presentation of the net interest margin ratio and efficiency ratio calculations on a taxable-equivalent basis. Non-GAAP measures are also used to assist investor comparison by identifying nonrecurring events such as acquisition-related expenses, securities gains and losses and other non-recurring gains or losses and the impact such items have on the performance measures of return on average assets, return on average equity, diluted earnings per share, and the efficiency ratio. This supplemental information should not be considered in isolation or as a substitute for the related GAAP measures.

Forward-Looking Statements

When used in this communication, the words "believes," "expects," "likely", "would", and similar expressions are intended to identify forward-looking statements. The Company's actual results may differ materially from those described in the forward-looking statements. Factors which could cause such a variance to occur include, but are not limited to: heightened competition; adverse state and federal regulation; failure to obtain new or retain existing customers; ability to attract and retain key executives and personnel; changes in interest rates; unanticipated changes in industry trends; unanticipated changes in credit quality and risk factors, including general economic conditions particularly in the Company's markets; potential deterioration in real estate values, success in gaining regulatory approvals when required; changes in the Federal Reserve Board monetary policies; unexpected outcomes of new and existing litigation in which Blackhawk or its subsidiaries, officers, directors or employees is named defendants; technological changes; changes in accounting principles generally accepted in the United States; changes in assumptions or conditions affecting the application of "critical accounting policies"; inability to recover previously recorded losses as anticipated, and the inability of third party vendors to perform critical services for the Company or its customers. The inclusion of forward-looking information should not be construed as a representation by the Company or any person that future events or plans contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information or otherwise.

Further information is available on the Company's website at www.blackhawkbank.com.

Blackhawk Bancorp, Inc.
Todd J. James, Chairman & CEO
tjames@blackhawkbank.com
Phone: (608) 364-8911

Matthew McDonnell, SVP & CFO
mmcdonnell@blackhawkbank.com

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2023 AND DECEMBER 31, 2022
(UNAUDITED)

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(1) Non-GAAP Presentations: Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance, including the presentation of net interest income, net interest margin and efficiency ratio calculations on a taxable equivalent basis ("TE"). The net interest margin is calculated by dividing net interest income on a TE basis by average earning assets for the period. Management believes this measure provides investors with information regarding comparative balance sheet profitability.

(2) The efficiency ratio is calculated as noninterest expense divided by the sum of net interest income on an TE basis, noninterest income less any securities gains (losses) or other gains (losses), and also includes a TE adjustment on interest on tax-exempt securities, loans, and the increases in cash surrender value of bank-owned life insurance.

(3) The efficiency ratio excludes one time charges related to branch closures in 2022.

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
ANALYSIS of AVERAGE BALANCES & TAX EQUIVALENT INTEREST RATES

Average Balance Sheet with Resultant Interest and Rates
(Dollars in thousands - unaudited)
(Yields on a tax-equivalent basis) (1)

(1) Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance including a presentation of net interest income with a net interest margin ratio on a tax-equivalent (TE) basis. The net interest margin is calculated by dividing net interest income on a TE basis by average earning assets for the period. Management believes this measure provides investors with information regarding comparative balance sheet profitability. Nonaccrual loans are included in the above-stated average balances.

BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES

Average Balance Sheet with Resultant Interest and Rates
(Amounts in thousands)
(yields on a tax-equivalent basis)(1)

(1) Management discloses certain non-GAAP financial measures to evaluate and measure the Company's performance including a presentation of net interest income with a net interest margin ratio on a tax-equivalent (TE) basis. The net interest margin is calculated by dividing net interest income on a TE basis by average earning assets for the period. Management believes this measure provides investors with information regarding comparative balance sheet profitability. Nonaccrual loans are included in the above-stated average balances.

SOURCE: Blackhawk Bancorp, Inc.