FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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 MAY 12, 2003
--------------------- --------------
$.01 PAR VALUE 2,517,131 SHARES
INDEX
PART I - FINANCIAL INFORMATION
Page
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ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002 4
Unaudited Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002 5
Unaudited Consolidated Statements of Stockholders'
Equity for the Three Months Ended March 31, 2003 and 2002 6
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002 7-8
Notes to Unaudited Consolidated Financial Statements 9-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 12-20
ITEM 3. CONTROLS AND PROCEDURES 20
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 21
ITEM 2 CHANGES IN SECURITIES 21
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4 SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 21
ITEM 5 OTHER INFORMATION 21
ITEM 6. A) EXHIBITS 21
B) REPORTS ON FORM 8-K 21
SIGNATURES 22
CERTIFICATIONS 23-24
INDEX TO EXHIBITS 25
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
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ASSETS (Dollars in thousands)
Cash and due from banks $ 13,134 $ 12,572
Federal funds sold and securities purchased under agreements to resell 6,000 13,120
Interest-bearing deposits in banks 1,227 8,472
Available-for-sale securities 108,896 83,897
Held to maturity securities, at amortized cost 20,712 23,002
Loans, less allowance for loan losses of $2,197 and $2,079
at March 31, 2003 and December 31, 2002, respectively 177,478 186,300
Office buildings and equipment, net 6,612 6,770
Intangible assets 4,489 4,598
Other assets 16,213 13,646
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Total Assets $354,761 $352,377
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
Noninterest-bearing $ 35,710 $ 35,274
Interest-bearing 215,679 227,811
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Total deposits 251,389 263,085
Short-term borrowings 22,997 13,454
Long-term borrowings 43,900 38,900
Company Obligated Mandatorily Redeemable Preferred Securities
of subsidiary trust holding solely subordinated debentures 7,000 7,000
Other liabilities 3,729 4,140
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Total Liabilities 329,015 326,579
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STOCKHOLDERS' 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,
shares issued and outstanding: 2,517,131 at March 31, 2003,
2,507,065 at December 31, 2002 25 25
Surplus 8,763 8,698
Retained earnings 15,959 15,788
Accumulated other comprehensive income 999 1,287
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Total Stockholders' Equity 25,746 25,798
-------- --------
Total Liabilities and Stockholders' Equity $354,761 $352,377
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-------- --------
See Notes to Unaudited Consolidated Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
INTEREST INCOME: (Dollars in thousands,
except per share data)
Interest and fees on loans $3,249 $3,908
Interest and dividends on securities:
Taxable 927 691
Nontaxable 253 203
Interest on fed funds sold and securities purchased under
agreements to resell 41 33
Interest on interest-bearing deposits in banks 10 27
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Total Interest Income 4,480 4,862
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INTEREST EXPENSE:
Interest on deposits 1,266 1,561
Interest on short-term borrowings 34 46
Interest on long-term borrowings 505 564
Interest on Company Obligated Mandatorily Redeemable
Preferred Securities 82 --
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Total Interest Expense 1,887 2,171
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Net Interest Income 2,593 2,691
Provision for loan losses 222 139
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Net Interest Income After Provision For Loan Losses 2,371 2,552
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NONINTEREST INCOME:
Service charges on deposit accounts 337 349
Gain on sale of loans 158 73
Securities gains, net 329 4
Other 213 216
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Total Noninterest Income 1,037 642
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NONINTEREST EXPENSES:
Salaries and employee benefits 1,458 1,393
Occupancy 189 188
Equipment 230 220
Data processing services 196 199
Advertising and marketing 63 72
Amortization of intangibles 79 76
Professional fees 185 179
Office supplies 63 56
Telephone 75 72
Other 412 326
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Total Noninterest Expenses 2,950 2,781
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Income Before Income Taxes 458 413
Income Taxes 60 96
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Net Income $ 398 $ 317
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Basic Earnings Per Share $ 0.16 $ 0.13
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Diluted Earnings Per Share $ 0.16 $ 0.13
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Dividends Per Share $ 0.09 $ 0.09
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See Notes to Unaudited Consolidated Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED
MARCH 31,
2003 2002
-------- --------
(Dollars in thousands)
Common Stock:
Balance at beginning of period $ 25 $ 24
Stock options exercised -- --
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Balance at end of period 25 24
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Surplus:
Balance at beginning of period 8,698 7,555
Stock options exercised 65 485
Sale of treasury stock -- (2)
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Balance at end of period 8,763 8,038
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Retained Earnings:
Balance at beginning of period 15,788 15,447
Net income 398 317
Dividends declared on common stock (227) (219)
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Balance at end of period 15,959 15,545
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Treasury Stock, at cost:
Balance at beginning of period -- (58)
Sale of treasury stock -- 16
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Balance at end of period -- (42)
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Accumulated other comprehensive income:
Balance at beginning of period 1,287 773
Other comprehensive loss, net of taxes (288) (330)
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Balance at end of period 999 443
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Total Stockholders' Equity $25,746 $24,008
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See Notes to Unaudited Consolidated Financial Statements
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
2003 2002
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(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 398 $ 317
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 328 309
Provision for loan losses 222 139
Gain on sale of loans (158) (73)
FHLB stock dividends (53) (30)
Amortization of premiums on securities, net 152 (5)
Securities gains, net (329) (4)
Decrease in accrued interest receivable 116 17
Decrease in accrued interest payable (3) (115)
Increase in other assets (2,701) (20)
Increase (decrease) in other liabilities (221) 174
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Net cash provided by (used in) operations before
loan originations and sales (2,249) 709
Origination of loans for sale (6,883) (5,839)
Proceeds from sale of loans 8,989 8,309
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Net cash provided by (used in) operating activities (143) 3,179
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits in banks 7,245 (424)
Net decrease in federal funds sold and securities
purchased under agreements to resell 7,120 11,642
Proceeds from sales of available-for-sale securities 10,884 507
Proceeds from maturities and calls of available-for-sale securities 9,032 4,388
Proceeds from maturities and calls of held-to-maturity securities 2,274 1,627
Purchase of available-for-sale securities (45,155) (17,257)
Purchase of held-to-maturity securities -- (1,621)
Net decrease in loans 6,587 10,569
Proceeds from the sale of office buildings, equipment, and
other real estate owned 131 55
Purchase of office buildings and equipment, net (83) (120)
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Net cash provided by (used in) investing activities (1,965) 9,366
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See Notes to Unaudited Consolidated Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-------- --------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits $(11,696) $(11,345)
Dividends paid (226) (213)
Proceeds from other borrowings 5,000 --
Payments on other borrowings -- (7,011)
Net increase in short-term borrowings 9,543 4,769
Proceeds from exercise of stock options 49 431
Sale of treasury stock -- 14
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Net cash provided by (used in) financing activities 2,670 (13,355)
-------- --------
Net increase (decrease) in cash and due from banks 562 (810)
CASH AND DUE FROM BANKS:
Beginning 12,572 11,746
-------- --------
Ending $ 13,134 $ 10,936
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,890 $ 2,287
Income taxes $ -- $ --
SUPPLEMENTAL SCHEDULES OF NON-CASH INVESTING
ACTIVITIES:
Change in accumulated other comprehensive income
unrealized gains (losses) on available-for-sale securities, net $ (288) $ (330)
Other assets acquired in settlement of loans $ 64 $ 238
See Notes to Unaudited Consolidated Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
Note 1. General:
The unaudited consolidated financial statements include the accounts
of Blackhawk Bancorp, Inc. and its subsidiaries. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial
position, results of operation and cash flows for the interim periods
have been made. The results of operations for the three months ended
March 31, 2003 are not necessarily indicative of the results to be
expected for the entire fiscal year.
The unaudited interim financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America and industry practice. Certain information in
footnote disclosure normally included in financial statements prepared
in accordance with accounting principles generally accepted in the
United States of America and industry practice has been condensed or
omitted pursuant to rules and regulations of the Securities and
Exchange Commission. The more significant policies used by the Company
in preparing and presenting its financial statements are stated in the
Corporation's Form 10-KSB. These financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's December 31, 2002 audited financial
statements.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions which affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements, as well as
the reported amounts of income and expenses during the reported
periods. Actual results could differ from those estimates.
Certain reclassifications have been made to the 2002 historical
financial statements to conform to the 2003 presentation.
Stock-Based Compensation Plan: At March 31, 2003, the Company had a
------------------------------
stock-based director, key officer and employee compensation plan. The
Company accounts for this plan under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee
compensation cost is reflected in income, as all options granted under
those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The table on the
following page illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions
of Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended March 31,
(Dollars in thousands,
except per share data)
2003 2002
--- ---
Net income, as reported $ 398 $ 317
Deduct total stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects (21) (18)
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PRO FORMA NET INCOME $ 377 $ 299
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Earnings per share:
Basic:
As reported $ 0.16 $ 0.13
Pro forma 0.15 0.13
Diluted:
As reported 0.16 0.13
Pro forma 0.15 0.12
In determining compensation cost using the fair value method prescribed
in Statement No. 123, the value of each grant is estimated at the grant
date with the following weighted-average assumptions used for grants:
dividend yield of 4 percent; expected price volatility of 25 percent;
risk-free interest rates of 4 percent; and expected lives of 10 years.
Note 2. Allowance for Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
THREE MONTHS ENDED
MARCH 31,
(Dollars in thousands)
2003 2002
---- ----
Balance at beginning of period $2,079 $2,404
Provision charged to expense 222 139
Loans charged off 157 51
Recoveries 53 25
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Balance at end of period $2,197 $2,517
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Note 3. Earnings Per Share
Presented below are the calculations for basic and diluted earnings
per share:
THREE MONTHS ENDED
MARCH 31,
2003 2002
---- ----
Basic:
Net income available to common stockholders $ 398,000 $ 317,000
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Weighted average shares outstanding 2,514,018 2,384,341
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Basic earnings per share $ 0.16 $ 0.13
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Diluted:
Net income available to common stockholders $ 398,000 $ 317,000
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---------- ----------
Weighted average shares outstanding 2,514,018 2,384,341
Effect of dilutive stock options outstanding 4,721 9,796
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Diluted weighted average shares outstanding 2,518,739 2,394,137
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Diluted earnings per share $ 0.16 $ 0.13
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Note 4. Recent Accounting Developments
The Financial Accounting Standards Board has issued Statement 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging".
This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities
under Statement 133. The Statement is effective for contracts entered
into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. Implementation of the Statement is not
expected to have a material impact on the company's financial
statements.
Note 5. Recent Regulatory Developments
On July 30, President Bush signed the Sarbanes-Oxley Act of 2002 (the
"Act"). This legislation impacts corporate governance of public
companies, affecting their officers and directors, their audit
committees, their relationships with their accountants and the audit
function itself. Certain provisions of the Act became effective on
July 30, 2002. Other provisions will become effective as the SEC
adopts appropriate rules.
The Act implements a broad range of corporate governance and
accounting measures for public companies designed to promote honesty
and transparency in corporate America and better protect investors
from corporate wrongdoing. The Act includes the creation of an
independent accounting oversight board to oversee the audit of public
companies and their auditors, provisions restricting non-audit
services performed by independent accountants for public companies and
additional corporate governance and responsibility provisions.
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, 2002.
This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of Blackhawk Bancorp, Inc. Statements that are not
historical facts, including statements about beliefs and expectations, are
forward-looking statements. These statements are based upon beliefs and
assumptions of Blackhawk's management and on information currently available
to such management. The use of the words "believe", "expect", "anticipate",
"plan", "estimate", "may", "will" or similar expressions are forward-looking
statements. Forward-looking statements speak only as of the date they are
made, and Blackhawk undertakes no obligation to update publicly any of them
in light of new information or future events.
Contemplated, projected, forecasted or estimated results in such forward-
looking statements involve certain inherent risks and uncertainties. A number
of factors - many of which are beyond the ability of the company to control
or predict - could cause actual results to 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; 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; and the inability of third party
vendors to perform critical services for the company or its customers.
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
The company reported net income of $398,000 for the three months ended March
31, 2003, an increase of $81,000 or 25.5% from the $317,000 reported for the
same three month period in 2002. Diluted earnings per share were $0.16 for
the three months ended March 31, 2003 compared to $0.13 for the same period
in 2002 and represents an increase of 23.1% year over year.
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. All discussions of interest
income amounts and rates are on a tax-equivalent basis, which accounts for
income earned on loans and securities that are not fully subject to income
taxes as if they were fully subject to income taxes. The following table sets
forth the company's consolidated average balances of assets, liabilities and
shareholders' equity, interest income and expense on related items, and the
company's average rate for the three month periods ended March 31, 2003 and
2002. The tax-equivalent yield calculations assume a Federal Tax Rate of 34%:
AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES
(yields on a tax-equivalent basis) Three Months ended March 31, 2003 Three Months ended March 31, 2002
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
INTEREST EARNING ASSETS:
Interest-bearing deposits in banks $ 2,144 $ 10 1.89% $ 6,283 $ 27 1.74%
Federal funds sold & securities
purchased under agreements to
resell 8,543 41 1.95% 8,448 33 1.58%
Investment securities:
Taxable investment securities 84,642 927 4.44% 50,381 691 5.56%
Tax-exempt investment securities 24,978 383 6.22% 19,306 308 6.47%
-------- ------ ----- -------- ------ -----
Total investment securities 109,620 1,310 4.85% 69,687 999 5.81%
Loans 182,957 3,249 7.20% 203,840 3,909 7.78%
-------- ------ ----- -------- ------ -----
TOTAL EARNING ASSETS $303,264 $4,610 6.16% $288,258 $4,968 6.99%
------ ----- ------ -----
Allowance for loan losses (2,146) (2,519)
Cash and due from banks 10,453 9,455
Other assets 21,606 17,471
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TOTAL ASSETS $333,177 $312,665
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INTEREST BEARING LIABILITIES:
Interest bearing checking accounts $ 37,974 $ 87 .93% $ 31,116 $ 84 1.09%
Savings deposits 52,577 110 .85% 53,829 164 1.24%
Time deposits 122,800 1,069 3.53% 121,030 1,313 4.40%
-------- ------ ----- -------- ------ -----
Total interest bearing deposits 213,351 1,266 2.41% 205,975 1,561 3.07%
Short-term borrowings 12,448 34 1.11% 9,781 46 1.91%
Long-term borrowings 40,844 505 5.01% 42,388 564 5.40%
Trust Preferred Securities 7,000 82 4.75% -0- -0- -0-%
-------- ------ ----- -------- ------ -----
TOTAL INTEREST-BEARING LIABILITIES $273,643 $1,887 2.80% $258,144 $2,171 3.41%
------ ----- ------ -----
NET INTEREST SPREAD 3.37% 3.58%
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Noninterest bearing deposits 31,789 28,235
Other liabilities 1,878 2,259
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Total liabilities 307,310 288,638
Stockholders' equity 25,867 24,027
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $333,177 $312,665
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NET INTEREST MARGIN $2,723 3.64% $2,797 3.94%
------ ----- ------ -----
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Net interest income decreased by $74,000, or 2.6%, to $2,723,000 for the
quarter ended March 31, 2003, compared to $2,797,000 for the comparable
period in 2002. The net interest margin, which is the tax equivalent net
interest income divided by average interest earning assets was 3.64% for the
three months ended March 31, 2003 compared to 3.94% for the same period in
2002. The 30 basis point decrease in net interest margin is primarily due to
shifts in the Company's earning asset mix and the impact of the sustained low
interest rate environment.
For the three months ended March 31, 2003, total interest income decreased by
$358,000, or 7.2%, to $4,610,000 compared to $4,968,000 for the same period in
2002. The yield on average earning assets decreased 83 basis points to 6.16%
for the first quarter of 2003, compared to 6.99% for the same period in 2002.
The decreases in interest income and the yield on earning assets is the result
the shift in the Bank's earning assets from loans to investment securities and
the sustained lower market interest rates, which are at 40-year lows. Average
loans decreased $20,883,000 or 10.2% to $182,957,000 for the quarter ended March
31, 2003 compared to $203,840,000 for the same period in 2002. Average
investment securities increased $39,933,000 or 57.3% to $109,620,000 for the
three months ended March 31, 2003 compared to $69,687,000 for the first quarter
of 2002. The decrease in interest income due to shifts in the asset mix and the
low interest rate environment were partially offset by a $15,006,000 or 5.2%
increase in average earning assets.
Interest and fees on loans decreased 16.9% to $3,249,000 for the three months
ended March 31, 2003 compared to $3,909,000 for the same period of 2002. This
decrease was the result of a $20,833,000 or 10.2% decrease in average loans
outstanding and a 58 basis point decrease in yield on the portfolio. Of the
$20,833,000 decrease in average total loans, $14,886,000 was in the 1-4 family
residential real estate loans and $5,249,000 was in the direct and indirect
consumer loan categories. These decreases reflect the refinancing activity due
to interest rates reaching 40- year lows, as consumers re-finance their
existing mortgages and use equity in their homes to consolidate other debt into
secondary market loan products. The lower yield on average loans reflects the
overall lower interest rate environment and competitive pricing pressure for
quality credit customers.
Interest income on taxable securities increased by $236,000 or 34.2% in the
first quarter of 2003 to $927,000 compared to $691,000 for the same period in
2002. Average balances of taxable investment securities increased 68.0% to
$84,642,000 for the quarter ended March 31, 2003 compared to $50,381,000 for the
same period in the prior year. However, the yield on average taxable investment
securities decreased 112 basis points to 4.44% for the first quarter of 2003
compared to 5.56% for the first quarter of 2002. Tax exempt investment
securities increased $5,672,000, or 29.4% to an average balance of $24,978,000
for the three months ended March 31, 2003 compared to $19,306,000 for the same
period in 2002, while the yield decreased 25 basis points to 6.22%.
Interest from fed funds sold and securities purchased under agreements to resell
increased to $41,000 for the three month period ended March 31, 2003, compared
to $33,000 during the same periods in 2002. The increase reflects an increased
use of securities purchased under agreements to resell as a short-term
investment vehicle, which achieves a higher yield than fed funds, in 2003
compared to 2002.
Total interest expense decreased by $284,000, or 13.1%, to $1,887,000 for the
three months ended March 31, 2003 compared to $2,171,000 for the same period in
2002. The decrease in total interest expense is primarily the result of the
aforementioned lower market interest rate environment. The decrease from the
lower rate environment was partially offset by a $15,499,000 or 6.0% increase
in total interest-bearing liabilities.
Interest paid on deposits decreased $295,000, or 18.9% to $1,266,000 during the
three months ended March 31, 2003 compared to $1,561,000 for the same period in
2002. The decrease in interest paid on deposits, which was due to the overall
lower interest rate environment, was partially offset by a $7,376,000 or 3.6%
increase in total interest-bearing deposits. The majority of the interest-
bearing deposit growth was in interest-bearing checking accounts, which
increased $6,858,000 or 22.0% for the first quarter of 2003 to
$37,974,000 compared to $31,116,000 for the same period in 2002. The average
balance of noninterest-bearing demand deposits increased by 12.6% or
$3,554,000 to $31,789,000 for the three months ended March 31, 2003 compared
to $28,235,000 for the first quarter of 2002.
Interest on short-term borrowings decreased $12,000 to $34,000 for the three
months ended March 31, 2003 compared to $46,000 for the same period in 2002.
This decrease is the result of lower market rates paid on short-term borrowings.
The decrease due to lower rates was partially offset by a $2,667,000 or 27.3%
increase in the average balance of short-term borrowings.
Interest expense on long-term borrowings decreased $59,000 to $505,000 for the
three month period ended March 31, 2003 compared to $564,000 for the first three
months of 2002. The decrease is the result of a 39 basis point decrease in the
average rate to 5.01% for the first quarter of 2003 compared to 5.40% for the
first quarter of 2002 and a $1,544,000 or 3.6% decrease in the average balance
comparing the same two periods. The decrease in the average balance of long-
term borrowings is due to a reduced usage of bank debt as a result of the
issuance of $7,000,000 in trust preferred securities in December 2002. The
decrease in the usage of bank debt was partially offset by increases in Federal
Home Loan Bank Advances.
Interest expense of trust preferred securities was $82,000 for the first quarter
of 2003 compared to none in the first quarter of 2002. In December of 2002
the Company issued $7,000,000 of trust preferred securities through a
special purpose statutory trust. The proceeds from these securities were used
to reduce reliance on bank debt.
PROVISION FOR LOAN LOSSES
The provision for loan losses (provision) is an amount added to the allowance
for loan losses (allowance) to provide for the known and estimated amount of
loans that will not be collected. Actual loan losses are charged against
(reduce) the allowance when management believes that the collection of principal
will not occur. Subsequent recoveries of amounts previously charged to the
allowance, if any, are credited to (increase) 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.
The provision was $222,000 in the first quarter of 2003, an increase of $83,000
or 59.7% from the $139,000 in the first quarter of 2002.
Activity in the allowance for loan losses is detailed in note 2 to the
unaudited consolidated financial statements. Charge-offs, net of recoveries for
the first quarter of 2003 increased by $78,000 or 300.0% to $104,000 compared to
$26,000 for the first quarter of 2002.
The increases in the provision and a decrease in the loan portfolio, partially
offset by higher net charge-offs have resulted in an increase in the ratio of
the allowance to total loans to 1.22% at March 31, 2003 compared to 1.10% at
December 31, 2002.
NONINTEREST INCOME
Total noninterest income increased $395,000, or 61.5%, to $1,037,000 for the
three months ended March 31, 2003 compared to $642,000 for the same period in
2002 primarily as the result of increases in security gains recognized and an
increase in gains on the sale of mortgage loans sold to the secondary market.
Service charges on deposit accounts were $337,000 for the quarter ended March
31, 2003 compared to $349,000 for the first quarter of 2002. The decrease
reflects a lower volume of overdraft fees assessed.
Gain on the sale of mortgage loans increased $85,000 or 116.4% to $158,000 for
the first quarter of 2003 compared to the $73,000 of gains recognized during the
first quarter of 2002. In the first quarter of 2003, $8,989,000 of mortgage
loans were sold to the secondary market compared to $8,309,000 for the same
period in 2002. The average gain in 2003 was 1.76% compared to an average gain
of .88% on the loans sold in the first quarter of 2002. The higher margins
realized on the sale of loans is due to a change in investors buying the loans,
more consistent pricing practices and closer management of the delivery
commitments.
The Company recognized $329,000 of securities gains in the first quarter of 2003
compared to $4,000 in the first quarter of 2002. Due to available liquidity from
increased deposits and reductions in the loan portfolio, $10,884,000 of
investment securities that would have matured or been called in the next 12 to
18 months were sold and the proceeds invested in longer term securities.
Other noninterest income decreased $3,000 or 1.4% for the three months ended
March 31, 2003. Increase in cash surrender value of life insurance increased by
$68,000 quarter over quarter, but was offset by decreases in foreign ATM fees
from the closure of the Wal-Mart branch in October 2002, higher mortgage
servicing rights amortization and a decrease in the volume of credit life and
A&H insurance sold.
NONINTEREST EXPENSES
Total noninterest expense increased $169,000, or 6.1%, to $2,950,000 for the
three months ended March 31, 2003 compared to $2,781,000 for the same period in
2002. The increase includes a $65,000 or 5% increase in salary and employee
benefits to $1,458,000 for the first quarter of 2003 compared to $1,393,000 for
the first quarter of 2002. This increase is partially due to the expansion of
health benefits to certain part-time employees.
Other expenses increased $86,000 or 26.4% to $412,000 for the three months ended
March 31, 2003 compared to $326,000 for the same period a year ago. This
increase includes $56,000 related to a sales and use tax audit covering the
period from 1998 through 2002 and higher costs related to the Company's courier
service and loan collection costs.
Income taxes decreased $36,000, or 37.5%, to $60,000 for the three months ended
March 31, 2003 from $96,000 for the same period in 2002. The decline in
effective tax rate to 13.1% for the three month period ended March 31, 2003 from
23.2% for the same period of 2002 is reflective of greater tax efficiency
brought about by an increase in non-taxable interest from the municipal bond
portfolio, an increase in non-taxable life insurance cash surrender value build-
up and security gains recognized by the Bank's investment subsidiary that are
not taxable for state income tax purposes.
BALANCE SHEET ANALYSIS
OVERVIEW
Total assets increased to $354,761,000 at March 31, 2003 compared to
$352,377,000 at December 31, 2002, an increase of .7%. The December 31, 2002
balance sheet included short-term year-end deposits of $18,600,000, which were
invested in federal funds sold and interest bearing deposits in banks at
December 31, 2002. Excluding these deposits, total assets increased 6.3% from
December 31, 2002 to March 31, 2003. While total assets excluding the short-
term year-end deposits increased by $20,984,000, there was a considerable shift
in balances from loans to investment securities. Securities available for sale
increased by $24,999,000, while loans, net of allowance for loan losses,
decreased by $8,822,000.
LOANS
Net loans decreased $8,822,000, or 4.7%, to $177,478,000 on March 31, 2003
compared to $186,300,000 on December 31, 2002. The composition of loans is shown
in the following table:
As a % of Total Loans
March 31, December 31, Change in March 31, December 31,
2003 2002 Balance 2003 2002
--------- ------------ --------- --------- ------------
(Dollars in millions)
Residential Real Estate $68.1 $71.8 ($3.7) 37.9% 38.1%
Commercial Real Estate $33.8 $32.7 $1.1 18.8% 17.4%
Construction and Land
Development $6.3 $6.4 ($0.1) 3.5% 3.4%
Commercial $50.0 $54.6 ($4.6) 27.8% 29.0%
Consumer $20.9 $22.3 ($1.4) 11.6% 11.8%
Other $0.6 $0.6 $0.0 0.4% 0.3%
The historically low interest rate environment has led to substantial
prepayments on the company's 1-4 family residential real estate portfolio. Also,
the economic conditions in the company's primary markets have adversely affected
loan demand leading to decreases in all categories of loans outstanding, except
for commercial real estate. In addition, the company's focus on relationship
banking has resulted in the subsidiary bank not pursuing certain "transactions"
that may have resulted in increased loan balances, but offered no opportunity to
form other relationships with the client.
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:
MARCH 31, DECEMBER 31,
(Dollars in thousands) 2003 2002
-------- ------------
Non-accruing loans $ 3,028 $2,560
Past due 90 days or more and still accruing 10 26
------ ------
Total non-performing loans $3,038 $2,586
------ ------
------ ------
Restructured loans performing in accordance
with modified terms $ 400 $ 418
ASSET QUALITY
The allowance for loan losses was $2,197,000 or 1.22% of total loans at March
31, 2003 compared to $2,079,000 or 1.10% of total loans at December 31, 2002. As
of March 31, 2003, non-performing loans and restructured loans performing in
accordance with modified terms (restructured loans) totaled $3,438,000 compared
to $3,004,000 at December 31, 2002. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance for loan losses is
adequate to cover probable credit losses relating to specifically identified
loans, as well as probable credit losses inherent in the balance of the loan
portfolio. In accordance with FASB Statements 5 and 114, the allowance is
provided for losses that have been incurred as of the balance sheet date. The
allowance is based on past events and current economic conditions, and does not
include the effects of expected losses on specific loans or groups of loans that
are related to future events or expected changes in economic conditions.
Management reviews a calculation of the allowance for loan losses on a quarterly
basis. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions.
In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the bank to make additions to the
allowance for loan losses based on their judgments of collectibility based on
information available to them at the time of their examination. The policy of
the Company is to place a loan on non-accrual status if: (a) payment in full of
interest and principal is not expected, or (b) principal or interest has been in
default for a period of 90 days or more, unless the obligation is both in the
process of collection and well secured. Well secured is defined as collateral
with sufficient market value to repay principal and all accrued interest. A debt
is in the process of collection if collection of the debt is proceeding in due
course either through legal action, including judgement enforcement procedures,
or in appropriate circumstances, through collection efforts not involving legal
action which are reasonably expected to result in repayment of the dept or in
its restoration to current status.
At March 31, 2003 the allowance for loan losses to total non-performing and
restructured loans equaled 63.9% compared to 69.2% at December 31, 2002. Total
nonperforming and restructured loans increased by $434,000 primarily due to
increases in non-accrual single family first mortgage loans and consumer loans.
Non-accrual first mortgage loans and consumer loans were $1,932,000 and $358,000
at March 31, 2003 compared to $1,661,000 and $206,000 at December 31, 2002,
respectively.
SHORT-TERM INVESTMENTS
Fed funds sold and securities purchased under agreements to resell decreased
$7,120,000 to $6,000,000 at March 31, 2003 compared to $13,120,000 at December
31, 2002. The decrease reflects the liquidation of short-term year-end
investments on January 2, 2003 associated with the December 31, 2002 year-end
deposits of $18,600,000 referred to above.
Interest-bearing deposits in banks decreased $7,245,000 to $1,227,000 at March
31, 2003 compared to $8,472,000 at December 31, 2002. The decrease reflects the
liquidation of $7,000,000 in short-term year-end investments at the Federal home
Loan Bank of Chicago on January 2, 2003 associated with the December 31, 2002
year-end deposits of $18,600,000 referred to above.
INVESTMENT SECURITIES
Securities available for sale increased $24,999,000, or 29.8%, to $108,896,000
at March 31, 2003 compared to $83,897,000 at December 31, 2002. The increase in
investments in securities available for sale resulted from the redeployment of
cash flows from the decrease in loans, investment of funds from increased
deposits, net of the year end short-term deposits, and the purchase of
$5,400,000 in securities during the first quarter of 2003 that were funded with
Federal Home Loan Bank advances. Securities held to maturity decreased
$2,290,000 or 10.0% to $20,712,000 at March 31, 2003 from $23,002,000 at
December 31, 2002 as a result of securities maturing.
DEPOSITS
Total deposits decreased $11,696,000 to $251,389,000 at March 31, 2003 compared
to $263,085,000 at December 31, 2002. As noted above, the Company's December 31,
2002 financial statements reflect short-term year-end deposits of $18,600,000.
Excluding the short-term year-end deposits, total deposits increased 2.8% from
December 31, 2002. Excluding the short-term year-end deposits, non-interest
bearing deposits increased by $436,000 and interest bearing deposits increased
by $6,468,000 at March 31, 2003 compared to December 31, 2002.
BORROWINGS
Short-term borrowings increased $9,543,000 to $22,997,000 at March 31, 2003 from
$13,454,000 at year-end. The increase is due to purchasing $14,901,000 of fed
funds at March 31, 2003 offset by lower outstanding balances of repurchase
agreements with commercial customers, which decreased by $5,358,000 since
December 31, 2002. Long-term borrowings consist of term advances from the
Federal Home Loan Bank ("FHLB") and were $43,900,000 at March 31, 2003 compared
to $38,900,000 at December 31, 2002. The increase reflects an additional
$5,000,000 in FHLB advances invested into investment securities in the first
quarter of 2003.
SHAREHOLDERS' EQUITY
Total shareholders' equity decreased $52,000 to $25,746,000 at March 31, 2003
compared to $25,798,000 at December 31, 2002. During the first three months of
2003 surplus increased by $65,000 from the sale of stock for options exercised.
Accumulated other comprehensive income which is the adjustment of securities
available for sale to market value, net of tax, decreased $288,000 to $999,000
at March 31, 2003 from $1,287,000 at December 31, 2002. The decrease reflects a
reduction for the securities gains of $329,000 realized in the first quarter of
2003. In addition the company declared a dividend of $0.09 per share on common
stock, which totaled $227,000.
The Company is subject to certain regulatory capital requirements and continues
to remain in compliance with the requirements. The following table shows the
company's capital ratios and regulatory requirements.
MARCH 31, DECEMBER 31, REGULATORY
2003 2002 REQUIREMENTS
-------- ------------ -------------
Total Capital (To Risk-Weighted Assets) 14.4% 13.9% 8.0%
Tier I Capital (To Risk-Weighted Assets) 13.3% 12.9% 4.0%
Tier I Capital (To Average Assets) 8.4% 8.3% 4.0%
The Company's subsidiary bank meets regulatory capital requirements to be
considered well capitalized.
ASSET/LIABILITY MANAGEMENT
Asset/liability management is the process of identifying, measuring and managing
the risk to the Company's earnings and capital resulting from the movements in
interest rates. It is the Company's objective to protect earnings and capital
while achieving liquidity, profitability and strategic goals.
The Company focuses its measure of interest rate risk on the effect a shift in
interest rates would have on earnings rather than on the amount of assets and/or
liabilities subject to repricing in a given time period. Since not all assets
or liabilities move at the same rate and at the same time, a determination must
be made as to how each interest earning asset and each interest bearing
liability adjusts with each change in the base rate. The Company develops,
evaluates and amends its assumptions on an ongoing basis and analyzes its
earnings exposure quarterly.
In addition to the effect on earnings, a quarterly evaluation is made to
determine the change in the economic value of the equity with various changes in
interest rates. This determination indicates how much the value of the assets
and the value of the liabilities change with a specified change in interest
rates. The net difference between the economic values of the assets and
liabilities results in an economic value of equity.
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 consist 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.
The following table summarizes The Company's significant contractual obligations
and other potential funding needs at March 31, 2003 (in thousands):
Time Long-term Operating
Deposits debt(1) Leases Total
--------- --------- --------- -----
2004 $ 69,331 $ 10,000 $ 50 $ 79,381
2005 29,986 16,250 50 46,286
2006 11,820 1,950 50 13,820
2007 6,029 1,450 50 7,529
2008 5,297 4,250 38 9,585
Thereafter 0 17,000 0 17,000
-------- ------- ---- --------
Total $122,463 $50,900 $238 $173,601
-------- ------- ---- --------
-------- ------- ---- --------
Commitments to extend credit $ 30,534
(1) Long-term debt includes company-obligated mandatorily redeemable
preferred securities.
OFF BALANCE SHEET ITEMS AND CONTINGENCIES
Off-balance sheet items consist of commitments to originate mortgage loans,
unused lines of credit and standby letters of credit totaling approximately
$30,534,000 as of March 31, 2003. This compares to $30,939,000 at December 31,
2002. The Company's commitments to originate mortgage loans are on a best effort
basis; therefore there are no contingent liabilities associated with them. The
Bank has historically funded off-balance sheet commitments with its primary
sources of funds and management anticipates that this will continue.
On August 18, 2000, the Bank filed a lawsuit in Waukesha County, Wisconsin,
against Fiserv, Inc., a former data processing services provider, for breach of
contract. The Bank was seeking to recover damages sustained due to a processing
error in which approximately $500,000 was improperly charged to the Bank's check
clearing account at the FHLB of Chicago. On February 14, 2003, a jury delivered
a verdict that Fiserv, Inc. did not breach its contract with the Bank. Fiserv,
Inc. has filed a counterclaim seeking approximately $380,000 in reimbursement of
legal fees. On May 12, 2003 the judge denied Fiserv's motion for reimbursement
of legal fees.
ITEM 3. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us in the reports filed by
us under the Securities Exchange Act of 1934, as amended ("Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Within the 90 days prior to the date of this
report, we carried out an evaluation, under the supervision and with the
participation of our management, including our President and Chief Executive
Officer, and Executive Vice President and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Exchange Act. Based on that
evaluation, our President and Chief Executive Officer, and Executive Vice
President and Chief Financial Officer concluded that our disclosure controls and
procedures are effective.
There have been no significant changes in our internal controls or other factors
that could significantly affect those controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
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 two reports on Form 8-K filed during the first quarter of
2003.
A report dated February 21 2003 announced 2002 earnings and provided
details of the outcome of the Bank's litigation against Fiserv, Inc.
A report dated March 17, 2003 announced that the Company had entered
into an Agreement and Plan of Merger with DunC Corp. and First
Bank,bc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Blackhawk Bancorp, Inc.
----------------------------------------------------
(Registrant)
Date: May 12, 2003 /s/ R. Richard Bastian, III
----------------------------------------------------
R. Richard Bastian, III
President and Chief Executive Officer
/s/ Todd J. James
----------------------------------------------------
Todd J. James
Executive Vice President and Chief Financial Officer
/s/ Thomas L. Lepinski
----------------------------------------------------
Thomas L. Lepinski, CPA
Principal Accounting Officer
SECTION 302 CERTIFICATION
I, R. Richard Bastian, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Blackhawk Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/ R. Richard Bastian, III
------------------------------
R. Richard Bastian, III
President and CEO
SECTION 302 CERTIFICATION
I, Todd J. James, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Blackhawk Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/Todd J. James
-------------------------------
Todd J. James
Executive Vice President and CFO
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
Incorporated Filed
Exhibit Herein By Here-
Number Description Reference To: with
------ ----------- ------------ ----
2.1 Agreement and Plan of Merger,
dated as of March 17, 2003 by
and among Blackhawk Bancorp,
Inc., DUNC Merger Corporation,
And DUNC Corp. X
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)
99.1 Certification Pursuant to 18
U. S. C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002 X
99.2 Certification Pursuant to 18
U. S. C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002 X