Thursday, October 4, 2012

Blackhawk Bancorp, Beloit, WI (BHWB)

A Case of Shareholders Shivering in their Shoes at a Crossroad


Will Blackhawk deal shareholders the same sort of scalping that Mackinac did? Although Richard Bastion told shareholders not long ago that he wouldn't sell stock, it's looking to me like BHWB is strongly considering a dilutive capital raise. As I review the backgrounds of BHWB's directors, I fear ties to their community and opportunities for personal gain may override their duty to the bank's shareholders. But when your stock trades at barely 40% of stated book value and you've proven unable to earn decent returns, it's immoral to harm hundreds of people in such a fashion.

Disclosure: As of this posting, I own shares of BHWB and may subsequently either dispose of them or purchase more.
    Prospective Buyers
    Blackhawk has several compelling selling opportunities, especially to BMO and Heartland, both of which have been acquiring banks similar to Blackhawk for years.
    Associated Banc-Corp, Green Bay, WI (ASBC)
    BMO Financial, Toronto, Canada (BMO)
    Heartland Financial USA, Dubuque, IA (HTLF)
    Financial Snapshot
    (as of 06/30/2012)

    Total assets:
    $558M
    Tangible book value per share:
    $13.77
    NPAs to assets:
    4.7%
    Price to book:
    43%
    Market cap:
    $15.3M
    Dividend yield:
    0.0%
    Trailing 12-month return on assets:
    0.5%
    Trailing 12-month return on equity:
    6.2%
    TARP:
    $10M
    The Crew
    Merrit J. Mott, Chairman
    Rick Bastian III, President and CEO
    Todd James, Executive VP, Treasurer, Secretary, and CFO
    Red Flags
    Five Reasons Blackhawk Financial Should Sell Instead of Diluting Long-Suffering Shareholders
    • NPAs have grown for three quarters in a row and now equal 4.7% of BHWB's assets, while NPAs have declined to half that in many US banks, including ASBC (2.17%), BMO (1.9%), and HTLF (2.3%)
    • Reserves as a percentage of NPAs have dropped for three quarters in a row and are now below 27% of NPAs. In contrast, HTLF has a reserves to NPA assets ratio of 40%, ASBC's is 73%, and BMO's is 187%
    • Returns on assets have been sub-par for over five years
    • Earnings and capital are insufficient to repay TARP anytime soon
    • Investment banking partner River Branch Holdings is the same firm that reportedly advised Mackinac Financial to effect a dilutive capital raise to detriment of its shareholders
    Sources

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