FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
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
BELOIT, WISCONSIN 53511
(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 July 23, 2002
--------------------- --------------
$.01 par value 2,501,321 shares
INDEX
PART I - FINANCIAL INFORMATION
Page
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
June 30, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Income for the
Three Months Ended June 30, 2002 and 2001 4
Consolidated Condensed Statements of Income for the
Six Months Ended June 30, 2002 and 2001 5
Consolidated Condensed Statements of Shareholders'
Equity for the Six Months Ended June 30, 2002 and 2001 6
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 7-8
Notes to Consolidated Condensed Financial Statements 9-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 12-21
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 22
ITEM 6. A) EXHIBITS 23
B) REPORTS ON FORM 8-K 23
SIGNATURES 24
INDEX TO EXHIBITS 25
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
ASSETS (Dollars in thousands)
------
Cash and cash equivalents $12,514 $11,746
Interest-bearing deposit accounts 326 7,857
Federal funds sold and other short-term investments 5,431 16,417
Securities available for sale 69,007 42,623
Securities held to maturity, fair value
of $25,789 and $24,172 24,203 23,735
Federal Home Loan Bank of Chicago stock, at cost 2,449 2,385
Loans held for sale 624 2,752
Loans, net of allowance for loan losses
of $2,519 and $2,404 192,773 206,383
Bank premises and equipment, net 6,443 6,716
Accrued interest receivable 2,136 2,067
Intangible assets 4,845 5,040
Other assets 2,211 2,554
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Total Assets $322,962 $330,275
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
Non-interest bearing $ 31,399 $ 36,618
Interest bearing 208,361 212,987
-------- --------
Total deposits 239,760 249,605
-------- --------
Borrowed Funds:
Short-term borrowings 14,408 6,087
Other borrowings 41,167 48,388
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Total borrowed funds 55,575 54,475
-------- --------
Accrued interest payable 860 1,044
Other liabilities 1,363 1,410
-------- --------
Total Liabilities 297,558 306,534
-------- --------
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,
2,502,199 and 2,371,398 shares issued 25 24
Additional paid-in capital 8,668 7,555
Retained earnings 15,750 15,447
Treasury stock, 2,260 and 4,980 shares, at cost (26) (58)
Accumulated other comprehensive income 987 773
-------- --------
Total Shareholders' Equity 25,404 23,741
-------- --------
Total Liabilities and Shareholders' Equity $322,962 $330,275
-------- --------
-------- --------
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
---- ----
INTEREST INCOME: (Dollars in thousands)
Interest and fees on loans $3,673 $4,806
Interest on securities:
Taxable 926 741
Exempt from federal income taxes 209 192
Interest on fed funds sold and
other short-term investments 19 20
Interest on interest-bearing deposits 5 13
------ ------
Total Interest Income 4,832 5,772
------ ------
INTEREST EXPENSE:
Interest on deposits 1,547 2,374
Interest on short-term borrowings 49 294
Interest on other borrowings 555 531
------ ------
Total Interest Expense 2,151 3,199
------ ------
Net Interest Income 2,681 2,573
Provision for loan losses (Note 3) 122 171
------ ------
Net Interest Income After Provision For Loan Losses 2,559 2,402
------ ------
OTHER OPERATING INCOME:
Service charges on deposit accounts 396 381
Gain on sale of mortgage loans 54 142
Gain on sale of securities 225 94
Brokerage and annuity commissions 53 65
Net loss on sale of other assets (17) ---
Other income 159 143
------ ------
Total Other Operating Income 870 825
------ ------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,338 1,330
Occupancy expense, net 261 182
Furniture and equipment 208 200
Data processing 188 172
Amortization of intangible assets 78 124
Legal and professional fees 117 117
Office supplies 69 68
Telephone and telecommunications 79 71
Other operating expenses 501 442
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Total Other Operating Expenses 2,839 2,706
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Income Before Income Taxes 590 521
Provision for Income Taxes 160 169
------ ------
Net Income $ 430 $ 352
------ ------
------ ------
Basic Earnings Per Share $ 0.17 $ 0.15
------ ------
------ ------
Diluted Earnings Per Share $ 0.17 $ 0.15
------ ------
------ ------
Dividends Per Share $ 0.09 $ 0.12
------ ------
------ ------
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
---- ----
INTEREST INCOME: (Dollars in thousands)
Interest and fees on loans $7,581 $9,534
Interest on securities:
Taxable 1,612 1,629
Exempt from federal income taxes 417 363
Interest on fed funds sold and
other short-term investments 55 38
Interest on interest-bearing deposits 29 26
------ ------
Total Interest Income 9,694 11,590
------ ------
INTEREST EXPENSE:
Interest on deposits 3,108 4,886
Interest on short-term borrowings 95 681
Interest on other borrowings 1,119 1,024
------ ------
Total Interest Expense 4,322 6,591
------ ------
Net Interest Income 5,372 4,999
Provision for loan losses (Note 3) 261 275
------ ------
Net Interest Income After Provision For Loan Losses 5,111 4,724
------ ------
OTHER OPERATING INCOME:
Service charges on deposit accounts 745 718
Gain on sale of mortgage loans 127 230
Gain on sale of securities 229 94
Brokerage and annuity commissions 82 83
Net loss on sale of other assets (1) 5
Other income 330 297
------ ------
Total Other Operating Income 1,512 1,427
------ ------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 2,731 2,597
Occupancy expense, net 449 388
Furniture and equipment 428 399
Data processing 387 320
Amortization of intangible assets 154 248
Legal and professional fees 296 211
Office supplies 125 150
Telephone and telecommunications 151 147
Other operating expenses 899 795
------ ------
Total Other Operating Expenses 5,620 5,255
------ ------
Income Before Income Taxes 1,003 896
Provision for Income Taxes 256 278
------ ------
Net Income $ 747 $ 618
------ ------
------ ------
Basic Earnings Per Share $ 0.31 $ 0.26
------ ------
------ ------
Diluted Earnings Per Share $ 0.31 $ 0.26
------ ------
------ ------
Dividends Per Share $ 0.18 $ 0.24
------ ------
------ ------
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
(Dollars in thousands)
Common Stock:
Balance at beginning of period $ 24 $ 23
Stock options exercised 1 1
------- -------
Balance at end of period 25 24
------- -------
Additional Paid-in Capital:
Balance at beginning of period 7,555 7,417
Stock options exercised 1,117 118
Sale of treasury stock (4) --
------- -------
Balance at end of period 8,668 7,535
------- -------
Retained Earnings:
Balance at beginning of period 15,447 15,573
Net income 747 618
Dividends declared on common stock (444) (565)
------- -------
Balance at end of period 15,750 15,626
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Treasury Stock, at cost:
Balance at beginning of period (58) (120)
Sale of treasury stock 32 18
------- -------
Balance at end of period (26) (102)
------- -------
Accumulated other comprehensive income:
Balance at beginning of period 773 102
Other comprehensive income, net of taxes 214 421
------- -------
Balance at end of period 987 523
------- -------
Total Shareholders' Equity $25,404 $23,606
------- -------
------- -------
See Notes to Unaudited Consolidated Condensed Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 747 $ 618
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 261 275
Provision for depreciation and amortization 617 698
Amortization of premiums and (accretion of
discounts) on Investment securities, net 41 29
Gain on sale of loans held for sale (127) (230)
FHLB stock dividends (60) (75)
(Gain) loss on sale of property,
equipment and OREO 76 (5)
Gain on sale of securities (229) (94)
Loans originated for sale (9,971) (16,316)
Proceeds from sale of loans held for sale 12,226 13,633
Change in assets and liabilities:
Decrease in other assets 122 458
(Increase) decrease in accrued interest receivable (74) 223
Decrease in accrued interest payable (184) (497)
Increase (decrease) in other liabilities 8 (183)
-------- --------
Net cash provided by (used in)
operating activities 3,453 (1,466)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in federal funds sold,
interest-bearing deposits and
other short-term investments, net 18,517 2,451
Proceeds from maturities and calls
of securities available-for-sale 6,263 23,608
Purchase of securities available-for-sale (40,600) (13,952)
Proceeds from maturities and calls
of securities held-to-maturity 2,363 1,629
Purchase of securities held-to-maturity (2,868) (4,528)
Proceeds from sale of securities
available-for-sale 8,523 96
(Loans originated), net of principal collected 13,064 (1,265)
Proceeds from the sale of property,
equipment and OREO 376 641
Purchase of bank premises and equipment (225) (661)
-------- --------
Net cash provided by investing activities 5,413 8,019
-------- --------
See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised $ 1,050 $ 119
Sale of treasury stock 28 18
Net decrease in deposits (9,845) (24,665)
Net increase in borrowings 1,100 18,965
Dividends paid (431) (565)
-------- --------
Net cash used in financing activities (8,098) (6,128)
-------- --------
Increase in cash and cash equivalents 768 425
CASH AND CASH EQUIVALENTS:
Beginning 11,746 13,336
-------- --------
Ending $12,514 $13,761
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 4,506 $ 7,088
Income taxes $ (118) $ 108
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Other assets acquired in settlement of loans $ 285 $ 741
See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2002
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 June 30, 2002, and the results of
operations for the three and six months ended June 30, 2002 and 2001.
The results of operations for the three and six months ended June 30,
2002 and 2001 are not necessarily indicative of the results to be
expected for the full year.
Certain reclassifications have been made to the 2001 historical
financial statements to conform to the 2002 presentation.
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:
JUNE 30, DECEMBER 31,
-------- ------------
(Dollars in thousands) 2002 2001
---- ----
Non-accruing loans $3,065 $2,808
Past due 90 days or more and still accruing 56 356
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Total non-performing loans $3,121 $3,164
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Performing loans classified as impaired $ 638 $1,147
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2002
(CONTINUED)
Note 3. Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
THREE MONTHS ENDED
JUNE 30,
--------
(Dollars in thousands) 2002 2001
---- ----
Balance at beginning of period $2,517 $3,912
Provision charged to expense 122 171
Loans charged off 131 2,076
Recoveries 11 50
------ ------
Balance at end of period $2,519 $2,057
------ ------
------ ------
SIX MONTHS ENDED
JUNE 30,
--------
(Dollars in thousands) 2002 2001
---- ----
Balance at beginning of period $2,404 $3,894
Provision charged to expense 261 275
Loans charged off 182 2,168
Recoveries 36 56
------ ------
Balance at end of period $2,519 $2,057
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Note 4. Earnings Per Share
Presented below are the calculations for basic and diluted earnings
per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Basic:
Net income available to common stockholders $ 430,000 $ 352,000 $ 747,000 $ 618,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding 2,478,283 2,348,125 2,431,572 2,343,687
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share $ 0.17 $ 0.15 $ 0.31 $ 0.26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted:
Net income available to common stockholders $ 430,000 $ 352,000 $ 747,000 $ 618,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding 2,478,283 2,348,125 2,431,572 2,343,687
Effect of dilutive stock options outstanding 9,782 42,685 9,782 42,685
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 2,488,065 2,390,810 2,441,354 2,386,372
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.17 $ 0.15 $ 0.31 $ 0.26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2002
(CONTINUED)
Note 5. Recent Accounting Developments
Business Combinations
In September 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 supersedes Accounting Principles
Board (APB) Opinion No. 16, "Business Combinations", and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased
Enterprises." SFAS No. 141 requires the use of the purchase method of
accounting for business combinations initiated after September 30,
2001. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 addresses how intangible assets acquired outside
of a business combination should be accounted for upon acquisition and
how goodwill and other intangible assets should be accounted for after
they have been initially recognized. SFAS No. 142 eliminates the
amortization for goodwill and other intangible assets with indefinite
lives. Other intangible assets with a finite life will be amortized
over their useful life. Goodwill and other intangible assets with
indefinite useful lives shall be tested for impairment annually or
more frequently if events or changes in circumstances indicate that
the asset may be impaired. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001.
The Company's strategy over the past several years has included
business combinations accounted for under the purchase accounting
method which created goodwill upon the transactions' closings. The
Company has goodwill of $3.1 million on its balance sheet as of June
30, 2002. It was previously being amortized over 20 years. The
pronouncement eliminates amortization of this asset and subjects it
to periodic impairment analysis.
The Company adopted SFAS No. 142 on January 1, 2002. The Company
passed step one of the goodwill impairment test at January 1, 2002.
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 company's consolidated financial statements and footnotes thereto
for the year ended December 31, 2001.
This quarterly Report contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the Company's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Company's market areas and competition, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, which speak
only as of the date made. The company wishes to advise readers that the
factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake, and specifically declines any obligation, to
publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30
The company reported net income of $747,000 for the six months ended June 30,
2002, an increase of $129,000 or 20.9% from the $618,000 reported for the
same six month period in 2001. Net income for the six months ended June 30,
2002 includes the effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets."
Accordingly, amortization of intangible assets with indeterminable useful
lives resulting from prior acquisitions accounted for under the purchase
method of accounting was discontinued. The adoption of SFAS No. 142 had the
impact of increasing net income by $94,000 for the six months ended June 30,
2002 compared to the same period in 2001. In the second quarter of 2002 the
company recorded an after tax charge of $45,000 to reflect the consolidation
of it's Wal-Mart branch into a nearby full service branch. The charge
reflects the current write-off of the net book value of the branch's fixed
assets and the estimated cost to return the leased space to its condition
prior to the company's use as a branch. The Company also recorded a $117,000
charge for officer severance agreements. Diluted earnings per share for the
six months ended June 30, 2002 were $0.31, a $0.05 or 19.2% increase
compared to the $0.26 per diluted share for the same period in 2001.
NET INTEREST INCOME
Net interest income, which is the sum of interest and certain fees generated
by earning assets minus interest paid on deposits and other funding sources,
is the primary source of the company's earnings. Net interest income
increased by $373,000, or 7.5%, to $5,372,000 for the six months ended June
30, 2002, compared to $4,999,000 for the comparable period in 2001. The net
interest margin, which is the tax equivalent net interest income divided by
average interest earning assets increased 35 basis points to 3.87% for the
six months ended June 30, 2002 compared to 3.52% for the six months ended
June 30, 2001.
The following table sets forth the company's consolidated average balances of
assets, liabilities and shareholders' equity as well as interest income and
expense on related items, and the company's average rate for the six month
periods ended June 30, 2002 and 2001:
AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES
(yields on a tax-equivalent basis) Six months ended June 30, 2002 Six months ended June 30, 2001
----------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
INTEREST EARNING ASSETS:
Interest-bearing deposit
Accounts $ 3,267 $ 29 1.79% $ 1,004 $ 26 5.22%
Federal funds sold &
short-term investments 6,734 55 1.65% 1,574 38 4.87%
Investment securities:
Taxable investment securities 61,421 1,612 5.29% 52,517 1,629 6.26%
Tax-exempt investment
securities 19,453 417 6.55% 17,115 363 6.48%
-------- ------ ----- -------- ------- -----
Total investment securities 80,874 2,029 5.60% 69,632 1,992 6.31%
Loans 199,928 7,581 7.65% 224,643 9,534 8.56%
TOTAL EARNING ASSETS $290,803 $9,694 6.87% $296,853 $11,590 8.00%
------ ----- ------- -----
Allowance for loan losses (2,519) (3,874)
Cash and cash equivalents 9,820 10,038
Other assets 17,203 18,477
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TOTAL ASSETS $315,307 $321,494
-------- --------
-------- --------
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits $ 32,148 $ 172 1.08% $ 26,755 $ 340 2.56%
Savings deposits 53,778 321 1.20% 49,856 647 2.62%
Time deposits 121,435 2,615 4.34% 133,325 3,899 5.90%
-------- ------ ----- -------- ------- -----
Total interest bearing deposits 207,361 3,108 3.02% 209,936 4,886 4.69%
Short-term borrowings 10,338 95 1.85% 24,416 681 5.62%
Other borrowings 41,833 1,119 5.39% 35,665 1,024 5.79%
TOTAL INTEREST-BEARING
LIABILITIES $259,532 $4,322 3.36% $270,017 $ 6,591 4.92%
------ ----- ------- -----
NET INTEREST SPREAD 3.51% 3.08%
----- -----
Demand deposits 29,257 25,090
Other liabilities 2,113 2,574
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Total liabilities 290,902 297,681
Shareholders' equity 24,405 23,813
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $315,307 $321,494
-------- --------
-------- --------
NET INTEREST MARGIN $5,372 3.87% $ 4,999 3.52%
------ ----- ------- -----
------ ----- ------- -----
For the six months ended June 30, 2002, total interest income decreased by
$1,896,000, or 16.4%, to $9,694,000 compared to $11,590,000 for the same period
in 2001. The decrease in interest income is due to a 2.0% decrease in average
earning assets, and a 113 basis point decrease in the yield on average earning
assets to 6.87% for the first six months of 2002, compared to 8.00% for the same
period in 2001. The decrease in the yield on average earning assets reflects a
shift in the asset mix from loans to investment securities and short-term
investments for the first six months of 2002 compared to 2001. The decrease in
the yield on average earning assets also reflects the lower interest rate
environment during the first six months of 2002 compared to the same period in
2001. Interest and fees on loans decreased 20.5% to $7,581,000 for the six
months ended June 30, 2002 compared to $9,534,000 in same period of 2001. This
decrease was the result of a $24.7 million or 11.0% decrease in average loans
outstanding and a 91 basis point decrease in yield on the portfolio. The lower
overall portfolio yield reflects the Federal Reserve Bank's lowering of managed
rates by 3.75% during 2001.
Interest income on taxable securities decreased by $17,000 or 1.0% in the first
six months of 2002 to $1,612,000 from $1,629,000 for the same period in 2001.
Average balances of taxable investment securities increased 17.0% to $61.4
million for the six months ended June 30, 2002 compared to $52.5 million for the
same period in the prior year. The increase in average balances outstanding was
offset by a decrease of 97 basis points in average yield to 5.29% for the first
six months of 2002 compared to 6.26% for the first six months of 2001. Average
tax exempt securities increased to $19.5 million for the six months ended June
30, 2002 compared to $17.1 for the same period in 2001 while their average tax
equivalent yield increased from 6.48% for the six months ended June 30, 2001 to
6.55% for the similar period in 2002.
Interest from fed funds sold and short-term investments increased to $55,000 for
the six months ended June 30, 2002 from $38,000 during the same period in 2001
and reflect higher average invested balances kept in the first quarter of 2002.
Interest on interest-bearing deposit accounts increased to $29,000 for the first
six months of 2002 compared to $26,000 for the same period in 2001 and also
reflects higher average balances from the first quarter of 2002. Excess
liquidity from loan and investment scheduled payments and prepayments were
invested short-term for much of the first three months of 2002 before being re-
deployed into investment securities during the second quarter of 2002.
Total interest expense decreased by $2,269,000, or 34.4%, to $4,322,000 for the
six months ended June 30, 2002 compared to $6,591,000 for the same period in
2001. This decrease is the result of the aforementioned lower interest rate
environment coupled with favorable shifts in the company's funding mix. While
interest paid on deposits decreased $1,778,000, or 36.4%. to $3,108,000 during
the six months ended June 30, 2002 compared to $4,886,000 for the same period in
2001, average interest bearing deposits decreased only $2.6 million or 1.2% year
over year. The average balance of time deposits decreased $11.9 million, or
8.9%, to $121.4 million for the six months ended June 30, 2002 compared to
$133.3 million for the same period in 2001. The decrease in the average balance
of time deposits was offset with increases in the average balances of demand
deposits, interest-bearing demand deposits and savings accounts of $4.2 million,
$5.4 million and $3.9 million, respectively.
Interest on short-term borrowings decreased $586,000 to $95,000 for the six
months ended June 30, 2002 compared to $681,000 for the same period in 2001.
This decrease is the result of the decrease in managed interest rates as
mentioned earlier and a $14.1 million, or 57.7% decrease in average short-term
borrowings to $10.3 million for the six months ended June 30, 2002 compared to
the same period in 2001.
Interest expense on other borrowings increased $95,000, or 9.3%, to $1,119,000
for the first six months of 2002 compared to $1,024,000 for the first six months
of 2001. The increase is the result of a $6.2 million, or 17.3% increase in the
average balance of other borrowings to $41.8 million for the six months ended
June 30, 2002 compared to $35.7 million for the first six months of 2001. The
increase in other borrowings is the result of refinancing FHLB daily advances to
term notes during 2001.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an amount added to the allowance for loan
losses to provide for the known and estimated amount of loans that will not be
collected. Loan losses are charged against the allowance when management
believes the uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. Management determines the
appropriate provision based upon a number of criteria, including a detailed
evaluation of certain credits, historical performance, economic conditions and
overall quality of the loan portfolio. Activity in the allowance for loan
losses account for the first six months of 2002 and 2001 is detailed in note 3
to the consolidated condensed financial statements.
The provision for loan losses recorded in the first six months of 2002 was
$261,000 compared to $275,000 in 2001. At June 30, 2002 the allowance for loan
losses was equal to 1.29% of portfolio loans compared to 1.15% at December 31,
2001. It is management's opinion that this amount represents an adequate
allowance for loan losses.
OTHER OPERATING INCOME
Total other operating income increased $85,000, or 6.0%, to $1,512,000 for the
six months ended June 30, 2002 compared to $1,427,000 for the same period in
2001. The Company recognized securities gains of $229,000 in the first six
months of 2002 compared to $94,000 in the same period of 2001. Gain on sale of
mortgage loans decreased $103,000 or 44.8% to $127,000 for the six months ended
June 30, 2002 compared to $230,000 for the same period in 2001. The decrease is
due to lower volume and less favorable market pricing. The average gain in 2002
was 1.04% on the $12.2 million in loans sold to the secondary market compared to
an average gain of 1.72% on the $13.6 million of loans sold in the same period
in 2001. Service charges on deposit accounts increased $27,000, or 3.8%, to
$745,000 for the first six months of 2002 compared to $718,000 the prior year.
OPERATING EXPENSES
Total operating expenses increased $365,000, or 6.9%, to $5,620,000 for the six
months ended June 30, 2002 compared to $5,255,000 for the same period in 2001.
This includes a $134,000, or 5.2% increase in compensation and benefits. The
increase reflects the addition of a number of key management personnel as part
of the company's restructuring efforts. Occupancy expenses increased 15.7%, or
$61,000, to $449,000 for the six months ended June 30, 2002 compared to $388,000
for the six months ended June 30, 2001 and include $75,000 in pre-tax charges
related to the Wal-Mart branch consolidation previously discussed. Data
processing costs increased $67,000, or 20.9%, to $387,000 for the six months
ended June 30, 2002. This increase reflects the cost of the company's internet
banking and platform systems, which were implemented at the end of 2001, and a
conversion credit that was received in the first six months of 2001.
Amortization of intangible assets decreased $94,000 to $154,000 for the six
months ended June 30, 2002, which reflects the adoption of SFAS No. 142, as
discussed in Note 5 to the consolidated condensed financial statements. Legal
and professional fees increased $85,000 to $296,000 as a result of increased
legal fees related to the Company's claim against a former data processing
service provider and charges in the first quarter of 2002 for a bank regulatory
exam. Office supplies decreased by $25,000 to $125,000 for the six months ended
June 30, 2002 reflecting company efforts to control supply costs. Other
operating expenses increased $104,000 to $899,000 for the six months ended June
30, 2002 reflecting higher costs for marketing, postage and loan collection
expense. Other operating expense also includes $117,000 of charges to accrue
severance payments for executive officers that left the company in 2002. In
addition, the company realized an $87,000 credit against other operating
expenses due to an adjustment related to stale reconciling items.
Income taxes decreased $22,000, or 7.9%, to $256,000 for the six months ended
June 30, 2002 from $278,000 for the same period in 2001. The decline in
effective tax rate to 25.5% for the 2002 period from 31.0% in the same period of
2001 is reflective of greater tax efficiency brought about by an increase in
non-taxable income and a reduction in nondeductible purchase accounting
amortization.
BALANCE SHEET ANALYSIS
OVERVIEW
Total assets decreased to $323.0 million at June 30, 2002 compared to $330.3
million at December 31, 2001, a decrease of 2.2%. The December 31, 2001 balance
sheet included short-term year-end deposits of $14.4 million, which were
invested in federal funds sold at December 31, 2001. Excluding these deposits,
total assets increased 2.2% from December 31, 2001 to June 30, 2002. While
total assets, excluding the short-term year-end deposits, increased by $7.1
million, there was a considerable shift in balances from loans and short-term
investments to investment securities. Securities available for sale increased by
$26.4 million, while loans, net of allowance for loan losses, decreased by $13.6
million and short-term investments, excluding the year-end deposits of $14.4
million, decreased by $4.1 million.
LOANS
Net portfolio loans decreased $13.6 million, or 6.6%, to $192.8 million on June
30, 2002 compared to $206.4 million on December 31, 2001. The bank experienced
decreases in consumer, commercial and real estate loans outstanding at June 30,
2002 compared to December 31, 2001. The economic conditions in the markets
served by the bank adversely effected loan demand leading to decreases in all
categories of loans outstanding.
The allowance for loan losses was $2.5 million or 1.29% of portfolio loans at
June 30, 2002 compared to $2.4 million or 1.15% of portfolio loans at December
31, 2001. The increase in the reserve percentage reflects the company's
commitment to provide an adequate reserve given the weak economy in our markets.
As of June 30, 2002, non-performing loans totaled $3.8 million compared to $4.3
million at December 31, 2001. Management believes that the allowance is adequate
at this time.
SHORT-TERM INVESTMENTS
Fed funds sold and other short-term investments decreased $11.0 million to $5.4
million at June 30, 2002 compared to $16.4 million at December 31, 2001. The
decrease primarily reflects the liquidation of short-term year-end investments
on January 2, 2002 associated with the December 31, 2001 year-end deposits of
$14.4 million.
INVESTMENT SECURITIES
Securities available for sale increased $26.4 million, or 61.9%, to $69.0
million at June 30, 2002 compared to $42.6 million at December 31, 2001. The
increase in investments in securities available for sale resulted from the
redeployment of cash flows from the decrease in loans and increase in deposits.
Securities held to maturity increased $.5 million or 2.0% to $24.2 million at
June 30, 2002 from $23.7 million at December 31, 2001.
DEPOSITS
Total deposits decreased $9.8 million to $239.8 million at June 30, 2002
compared to $249.6 million at December 31, 2001. As noted above, the Company's
December 31, 2001 financial statements reflect short-term year-end deposits of
$14.4 million. Excluding the short-term year-end deposits, total deposits
increased 1.9% from December 31, 2001. Excluding the short-term year-end
deposits of $5.9 million and $8.5 million included in non-interest bearing and
interest bearing deposits, respectively, non-interest bearing deposits increased
by $0.7 million and interest bearing deposits increased by $3.9 million at June
30, 2002 compared to December 31, 2001.
BORROWINGS
Short-term borrowings increased $8.3 million to $14.4 million at June 30, 2002
from $6.1 million at year-end. The increase is due to higher outstanding
balances of repurchase agreements with commercial customers. Other borrowings,
consisting of long-term borrowings incurred in part to complete the First
Financial acquisition and term advances from the Federal Home Loan Bank
("FHLB"), were $41.2 million at June 30, 2002 compared to $48.4 million at
December 31, 2001. The decrease primarily reflects the repayment of $6.8
million in FHLB advances during January 2002.
SHAREHOLDERS' EQUITY
Total shareholders' equity increased $1.7 million to $25.4 million at June 30,
2002 compared to $23.7 million at December 31, 2001. During the first six
months of 2002 additional paid in capital increased by $1.1 million from stock
options exercised. Accumulated other comprehensive income, which is the
adjustment of securities available for sale to market value, net of tax,
increased $.2 million to $1.0 million at June 30, 2002 from $.8 million at
December 31, 2001. In addition the company declared two dividends of $0.09 per
share on common stock, which totaled $444,000.
The Company is subject to certain regulatory capital requirements and continues
to remain in a well-capitalized position. The following table shows the
company's capital ratios and regulatory requirements to maintain a well-
capitalized rating.
JUNE 30, DECEMBER 31, REGULATORY
2002 2001 REQUIREMENTS
---- ---- ------------
Total Capital (To Risk-Weighted Assets) 11.0% 9.6% 8.0%
Tier I Capital (To Risk-Weighted Assets) 9.8% 8.5% 4.0%
Tier I Capital (To Average Assets) 6.3% 5.9% 4.0%
LIQUIDITY
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, short-term borrowings
and income from operations. Additional sources include purchasing fed funds,
sale of securities, sale of loans, borrowing from both the Federal Reserve Bank
and Federal Home Loan Bank, and dividends paid by Nevahawk, a wholly owned
subsidiary of the Bank.
The liquidity needs of the Company generally consists of payment of dividends to
its shareholders, payments of principal and interest on borrowed funds, and a
limited amount of expenses. The sources of funds to provide this liquidity are
issuance of capital stock and dividends from its subsidiary bank. Certain
restrictions are imposed upon the Bank, which could limit its ability to pay
dividends if it did not have net earnings or adequate capital in the future.
The Company maintains adequate liquidity to pay its expenses.
OFF BALANCE SHEET ITEMS AND CONTINGENCIES
Off-balance sheet items consist of credit card lines of credit, mortgage
commitments, letters of credit and other commitments totaling approximately
$20.5 million as of June 30, 2002. This compares to $25.8 million at December
31, 2001. The Bank has historically funded off-balance sheet commitments with
its primary sources of funds and management anticipates that this will continue.
At June 30, 2002 the Company continues to carry a $271,000 receivable related to
a $541,000 claim against its former data processor. The claim relates to an
improper charge made by a former data processing service provider ("Provider")
to the Company's check clearing account maintained with the Federal Home Loan
Bank of Chicago. Trial in this matter has been rescheduled for October 2002.
The receivable will be adjusted based on the results of the upcoming trial or
other developments as they occur. Legal fees relating to this matter are being
expensed as incurred. Management intends to aggressively pursue recovery of the
entire $541,000, that was improperly charged, and related legal fees.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30
The company reported net income of $430,000 for the three months ended June 30,
2002, an increase of $78,000 or 22.2% from the $352,000 reported for the same
three month period in 2001. Net income for the quarter ended June 30, 2002
includes the second quarter effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Accordingly,
amortization of intangible assets with indeterminable useful lives resulting
from prior acquisitions accounted for under the purchase method of accounting
was discontinued. The adoption of SFAS No. 142 had the impact of increasing
net income by $46,000 for the second quarter of 2002 compared to the same period
in 2001. Diluted earnings per share for the second quarter of 2002 were
$0.17, a $0.02 or 13.3% increase compared to the $0.15 per diluted share for the
second quarter of 2001.
NET INTEREST INCOME
Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
primary source of the company's earnings. Net interest income increased by
$108,000, or 4.2%, to $2,681,000 for the quarter ended June 30, 2002, compared
to $2,573,000 for the comparable period in 2001. The net interest margin, which
is the tax equivalent net interest income divided by average interest earning
assets increased 19 basis points to 3.81% for the second quarter of 2002
compared to 3.62% the similar period in 2001.
The following table sets forth the company's consolidated average balances of
assets, liabilities and shareholders' equity as well as interest income and
expense on related items, and the company's average rate for the three month
periods ended June 30, 2002 and 2001:
AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES
(yields on a tax-equivalent basis) Three months ended June 30, 2002 Three months ended June 30, 2001
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
INTEREST EARNING ASSETS:
Interest-bearing deposit
accounts $ 844 $ 5 2.38% $ 1,078 $ 13 4.84%
Federal funds sold &
short-term investments 4,469 19 1.71% 1,702 20 4.71%
Investment securities:
Taxable investment securities 72,345 926 5.13% 48,405 741 6.14%
Tax-exempt investment
securities 19,598 209 6.49% 18,188 192 6.42%
-------- ------ ----- -------- ------ -----
Total investment securities 91,943 1,135 5.42% 66,593 933 6.22%
Loans 196,087 3,673 7.51% 226,898 4,806 8.50%
TOTAL EARNING ASSETS $293,343 $4,832 6.75% $296,271 $5,772 7.95%
------ ----- ------ -----
Allowance for loan losses (2,518) (3,812)
Cash and cash equivalents 10,173 10,196
Other assets 16,980 18,072
-------- --------
TOTAL ASSETS $317,978 $320,727
-------- --------
-------- --------
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits $ 33,172 $ 89 1.08% $ 28,380 $ 176 2.49%
Savings deposits 53,730 157 1.17% 49,776 306 2.47%
Time deposits 121,827 1,301 4.28% 131,013 1,892 5.79%
-------- ------ ----- -------- ------ -----
Total interest bearing deposits 208,729 1,547 2.97% 209,169 2,374 4.55%
Short-term borrowings 10,879 49 1.81% 21,997 294 5.36%
Other borrowings 41,306 555 5.39% 37,160 531 5.73%
TOTAL INTEREST-BEARING
LIABILITIES $260,914 $2,151 3.31% $268,326 $3,199 4.78%
------ ----- ------ -----
NET INTEREST SPREAD 3.45% 3.17%
----- -----
----- -----
Demand deposits 30,274 26,113
Other liabilities 2,011 2,785
-------- --------
Total liabilities 293,199 297,224
Shareholders' equity 24,779 23,503
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $317,978 $320,727
-------- --------
-------- --------
NET INTEREST MARGIN $2,681 3.81% $2,573 3.62%
------ ----- ------ -----
------ ----- ------ -----
For the three months ended June 30, 2002, total interest income decreased by
$940,000, or 16.3%, to $4,832,000 compared to $5,772,000 for the same period in
2001. The decrease in interest income is due to a 1.0% decrease in average
earning assets, and a 120 basis point decrease in the yield on average earning
assets to 6.75% for the second three months of 2002, compared to 7.95% for the
same period in 2001. The decrease in the yield on average earning assets
reflects a shift in the asset mix from loans to investments for the second
quarter of 2002 compared to 2001. The decrease in the yield on average earning
assets also reflects the lower interest rate environment during the second three
months of 2002 compared to the same period in 2001. Interest and fees on loans
decreased 23.6% to $3,673,000 for the three months ended June 30, 2002 compared
to $4,806,000 in same period of 2001. This decrease was the result of a $30.8
million or 13.6% decrease in average loans outstanding and a 99 basis point
decrease in yield on the portfolio. The lower overall portfolio yield reflects
the Federal Reserve Bank's lowering of managed rates by 3.75% during 2001.
Interest income on taxable securities increased by $185,000 or 25.0% in the
second three months of 2002 to $926,000 from $741,000 for the same period in
2001. Average balances of taxable investment securities increased 49.4% to $72.3
million for the quarter ended June 30, 2002 compared to $48.4 million for the
same period in the prior year. However, the yield on average taxable investment
securities decreased 101 basis points to 5.13% for the second quarter of 2002
compared to 6.14% for the second quarter of 2001, reflecting the decrease in
managed rates which occurred throughout 2001. Tax exempt investment securities
increased $1.4 million, or 7.8% to an average balance of $19.6 million for the
three months ended June 30, 2002 compared to $18.2 for the same period in 2001.
Interest from fed funds sold and short-term investments decreased to $19,000 for
the three months ended June 30, 2002 from $20,000 during the same period in
2001. Interest on interest-bearing deposit accounts decreased to $5,000 for the
second quarter of 2002 compared to $13,000 for the same period in 2001. This is
the result of a $2.5 million increase in the average balance of interest-bearing
deposit accounts, fed funds sold and short-term investments to $5.3 million for
the three months ended June 30, 2002 compared to $2.8 for the same period in
2001 and reflects the lower yields earned in 2002.
Total interest expense decreased by $1,048,000, or 32.8%, to $2,151,000 for the
three months ended June 30, 2002 compared to $3,199,000 for the same period in
2001. This decrease is the result of the aforementioned lower interest rate
environment coupled with favorable shifts in the company's funding mix. While
interest paid on deposits decreased $827,000, or 34.8% to $1,547,000 during the
three months ended June 30, 2002 compared to $2,374,000 for the same period in
2001, average total deposits increased $3.7 million quarter over quarter. The
average balance of time deposits decreased $9.2 million, or 7.0%, to $121.8
million for the three months ended June 30, 2002 compared to $131.0 million for
the same period in 2001. The decrease in the average balance of time deposits
was offset with increases in the average balances of demand deposits, interest-
bearing demand deposits and savings accounts of $4.2 million, $4.8 million and
$4.0 million, respectively.
Interest on short-term borrowings decreased $245,000 to $49,000 for the three
months ended June 30, 2002 compared to $294,000 for the same period in 2001.
This decrease is the result of the decrease in managed interest rates as
mentioned earlier and an $11.1 million, or 50.5% decrease in average short-term
borrowings to $10.9 million for the three months ended June 30, 2002 compared to
$22.0 million in the same period in 2001. The decrease in short-term borrowings
is also the result of refinancing FHLB daily advances to term notes during 2001.
Interest expense on other borrowings increased $24,000, or 4.5%, to $555,000 for
the second quarter of 2002 compared to $531,000 for the second quarter of 2001.
The decrease is the result of a $4.1 million or 11.2% increase in the average
balance of other borrowings to $41.3 million for the three months ended June 30,
2002 compared to $37.2 million for the second quarter of 2001. The increase in
other borrowings is the result of refinancing FHLB daily advances to term notes
during 2001.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an amount added to the allowance for loan
losses to provide for the known and estimated amount of loans that will not be
collected. Loan losses are charged against the allowance when management
believes the uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. Management determines the
appropriate provision based upon a number of criteria, including a detailed
evaluation of certain credits, historical performance, economic conditions and
overall quality of the loan portfolio. Activity in the allowance for loan loss
account is detailed in note 3 to the consolidated condensed financial
statements.
The provision for loan losses recorded in the second quarter of 2002 was
$122,000 compared to $171,000 in 2001. At June 30, 2002 the allowance for loan
losses was equal to 1.29% of portfolio loans compared to 1.15% at December 31,
2001. It is management's opinion that this amount represents an adequate
allowance for loan losses.
OTHER OPERATING INCOME
Total other operating income increased $45,000, or 5.5%, to $870,000 for the
three months ended June 30, 2002 compared to $825,000 for the same period in
2001. Service charges on deposit accounts increased $15,000, or 3.9%, to
$396,000 for the second quarter of 2002 compared to $381,000 in the second
quarter of the prior year. The Company recognized security gains of $225,000
during the second quarter of 2002 compared to the $94,000 that was recognized in
the second quarter of 2001. Gain on the sale of mortgage loans decreased $88,000
or 62.0% to $54,000 for the second quarter of 2002 compared to $142,000 of gains
recognized during the second quarter of 2001. In the second quarter of 2002 $3.9
million of loans were sold to the secondary market compared to $9.0 million for
the same period in 2001.
OPERATING EXPENSES
Total operating expenses increased $133,000, or 4.9%, to $2,839,000 for the
three months ended June 30, 2002 compared to $2,706,000 for the same period in
2001. Occupancy expenses increased 43.4%, or $79,000, to $261,000 for the
quarter ended June 30, 2002 and include $75,000 in pre-tax charges related to
the Wal-Mart branch consolidation previously discussed. Data processing costs
increased $16,000, or 9.3%, to $188,000 for the quarter ended June 30, 2002.
This increase reflects the cost of the company's internet banking and platform
systems, which were implemented in 2001. Amortization of intangible assets
decreased $46,000 to $78,000 for the three months ended June 30, 2002, which
reflects the adoption of SFAS No. 142, as discussed in Note 5 to the
consolidated condensed financial statements. Other operating expenses increased
$59,000 to $501,000 for the three months ended June 30, 2002 reflecting higher
costs for marketing, postage, travel reimbursements and loan collection
expenses. Other operating expense also includes a $50,000 charge to accrue
severance agreements.
Income taxes decreased $9,000, or 5.3%, to $160,000 for the three months ended
June 30, 2002 from $169,000 for the same period in 2001. The decline in
effective tax rate to 27.1% for the 2002 period from 32.4% in the same period of
2001 is reflective of greater tax efficiency brought about by an increase in
non-taxable income and a reduction in nondeductible purchase accounting
amortization.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 15, 2002, at the annual meeting of shareholders of the Company, the
shareholders re-elected R. Richard Bastian, III, John B. Clark and Charles Hart
and elected Roger G. Bryden to three-year terms expiring in 2004. The vote,
with respect to the election of each director was as follows:
R. Richard Bastian, III
2,430,838 total votes eligible to be cast
2,072,698 votes were represented at the Annual Meeting
2,026,674 votes were cast "For" re-election
No votes were cast "Against" re-election
46,024 votes abstained
John B. Clark
2,430,838 total votes eligible to be cast
2,072,698 votes were represented at the Annual Meeting
2,029,274 votes were cast "For" re-election
No votes were cast "Against" re-election
43,424 votes abstained
Charles Hart
2,430,838 total votes eligible to be cast
2,072,698 votes were represented at the Annual Meeting
2,007,609 votes were cast "For" re-election
No votes were cast "Against" re-election
65,089 votes abstained
Roger G. Bryden
2,430,838 total votes eligible to be cast
2,072,698 votes were represented at the Annual Meeting
2,030,574 votes were cast "For" re-election
No votes were cast "Against" re-election
42,124 votes abstained
ITEM 6. A) EXHIBITS
See Exhibit Index following the signature page in this report, which
is incorporated herein by this reference.
B) REPORTS ON FORM 8-K
There were three reports on Form 8-K filed during the second quarter
of 2002.
A report dated April 5, 2002 announced the appointment of Todd J.
James as Senior Vice President and Chief Financial Officer of the
Company.
A report dated April 24, 2002 announced the resignation of David A.
Stearns, Executive Vice President effective May 1, 2002.
A report dated May 15, 2002 announced the results of the election of
directors at the Company's annual shareholders meeting and the
decision of Mr. Roger K. Taylor to step down as a director of
Blackhawk Bancorp, Inc.
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: July 23, 2002
/s/R. Richard Bastian, III
--------------------------------------
R. Richard Bastian, III
President and Chief Executive Officer
/s/Todd J. James
-------------------------------------
Todd J. James
Senior Vice President
and Chief Financial Officer
/s/Thomas L. Lepinski, CPA
--------------------------------------
Thomas L. Lepinski, CPA
Principal Accounting Officer
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
Incorporated Filed
Exhibit Herein By Here- Page
Number Description Reference To: with No.
------ ----------- ------------- ---- ---
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)
4.4 Severance Agreement Exhibit A X 26
with Dennis M. Conerton
4.5 Severance Agreement Exhibit B X 27-30
with David A. Stearns
4.6 Certification Pursuant Exhibit C X 31
to 18 U.S.C. Section
1350, as Adopted
Pursuant to Section
906 of the Sarbanes-
Oxley Act of 2002
4.7 Certification Pursuant Exhibit D X 32
to 18 U.S.C. Section
1350, as Adopted
Pursuant to Section
906 of the Sarbanes-
Oxley Act of 2002