UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB

                [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

                 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
                              OF THE EXCHANGE ACT

                  FOR THE TRANSITION PERIOD FROM ---- TO ----

                         COMMISSION FILE NUMBER 0-18599

                            BLACKHAWK BANCORP, INC.
       (EXACT NAME OF SMALL BUSINESS ISSUER 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
                          (ISSUER'S TELEPHONE NUMBER)
                                 NOT APPLICABLE
   (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
                                    REPORT)

Check whether the issuer (1) filed all  reports required to be filed by  Section
13 or 15(d) of the Exchange Act during the  past 12 months (or for such  shorter
period that the registrant was required to file such reports), and (2) has  been
subject to such filing requirements for the past 90 days.

                YES    X             NO
                     -----              -----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                                                      OUTSTANDING AT
          CLASS OF COMMON STOCK                       APRIL 21, 2004
          ---------------------                       --------------
          $.01 PAR VALUE                             2,526,145 SHARES

Transitional Small Business Disclosure Format (Check one): Yes        No  X
                                                              -----     -----

                                     INDEX

                         PART I - FINANCIAL INFORMATION

                                                                       Page
                                                                       ----

ITEM 1.  FINANCIAL STATEMENTS

     Unaudited Consolidated Balance Sheets as of
           March 31, 2004 and December 31, 2003                          4

     Unaudited Consolidated Statements of Income for the
           Three Months Ended March 31, 2004 and 2003                    5

     Unaudited Consolidated Statements of Stockholders'
           Equity for the Three Months Ended March 31, 2004 and 2003     6

     Unaudited Consolidated Statements of Cash Flows for the
           Three Months Ended March 31, 2004 and 2003                  7-8

     Notes to Unaudited Consolidated Financial Statements             9-12

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
             OF OPERATION                                            13-23

ITEM 3.  CONTROLS AND PROCEDURES                                        24

                          PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS                                           24

ITEM 2.     CHANGES IN SECURITIES                                       24

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES                             24

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE
              OF SECURITY HOLDERS                                       24

ITEM 5.     OTHER INFORMATION                                           24

ITEM 6.          A) EXHIBITS                                            24

                 B) REPORTS ON FORM 8-K                                 24

SIGNATURES                                                              25

INDEX TO EXHIBITS                                                       26


                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                     UNAUDITED CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                                          MARCH 31,   DECEMBER 31,
                                                                             2004         2003
                                                                          ---------   ------------
<S>                                                                          <C>          <C>
ASSETS                                                                     (Dollars in thousands)
------
Cash and due from banks                                                   $ 13,669     $ 17,250
Federal funds sold and securities purchased under agreements to resell      12,254        6,120
Interest-bearing deposits in banks                                           3,224        2,841
Available-for-sale securities                                              102,225      118,107
Held to maturity securities, at amortized cost                              16,531       17,606
Loans, less allowance for loan losses of $3,173 and $3,302
  at March 31, 2004 and December 31, 2003, respectively                    238,370      230,142
Office buildings and equipment, net                                          9,822        9,981
Intangible assets                                                            7,147        7,246
Bank-owned life insurance                                                    6,327        6,263
Other assets                                                                 9,576        9,846
                                                                          --------     --------
     Total Assets                                                         $419,145     $425,402
                                                                          --------     --------
                                                                          --------     --------

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
     Noninterest-bearing                                                  $ 47,615     $ 47,999
     Interest-bearing                                                      266,501      275,640
                                                                          --------     --------
          Total deposits                                                   314,116      323,639
Short-term borrowings                                                        9,169        9,486
Subordinated debentures                                                      7,217        7,217
Long-term borrowings                                                        57,997       55,913
Other liabilities                                                            4,388        3,384
                                                                          --------     --------
     Total Liabilities                                                     392,887      399,639
                                                                          --------     --------

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: 2,526,145 at March 31, 2004, 2,522,995
     at December 31, 2003                                                       25           25
Surplus                                                                      8,845        8,818
Retained earnings                                                           16,271       16,092
Accumulated other comprehensive income                                       1,117          828
                                                                          --------     --------
     Total Stockholders' Equity                                             26,258       25,763
                                                                          --------     --------
     Total Liabilities and Stockholders' Equity                           $419,145     $425,402
                                                                          --------     --------
                                                                          --------     --------
</TABLE>

            See Notes to Unaudited Consolidated Financial Statements

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                  UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
                                                                        THREE MONTHS ENDED MARCH 31,
                                                                             2004         2003
                                                                             ----         ----
<S>                                                                          <C>          <C>
INTEREST INCOME:                                               (Dollars in thousands, except per share data)
  Interest and fees on loans                                                $3,541       $3,249
  Interest and dividends on securities:
     Taxable                                                                 1,056          927
     Nontaxable                                                                313          253
  Interest on fed funds sold and securities purchased under
          agreements to resell                                                  13           41
  Interest on interest-bearing deposits in banks                                17           10
                                                                            ------       ------
     Total Interest Income                                                   4,940        4,480
                                                                            ------       ------
INTEREST EXPENSE:
  Interest on deposits                                                       1,124        1,266
  Interest on short-term borrowings                                             29           34
  Interest on subordinated debentures                                          103           84
  Interest on long-term borrowings                                             560          505
                                                                            ------       ------
     Total Interest Expense                                                  1,816        1,889
                                                                            ------       ------
  Net Interest Income                                                        3,124        2,591
  Provision for loan losses                                                    104          222
                                                                            ------       ------
  Net Interest Income After Provision For Loan Losses                        3,020        2,369
                                                                            ------       ------
NONINTEREST INCOME:
  Service charges on deposit accounts                                          486          339
  Gain on sale of loans                                                        147          158
  Securities gains, net                                                         80          329
  Increase in cash value of bank-owned life insurance                           69           77
  Other                                                                        246          136
                                                                            ------       ------
     Total Noninterest Income                                                1,028        1,039
                                                                            ------       ------
NONINTEREST EXPENSES:
  Salaries and employee benefits                                             1,818        1,458
  Occupancy                                                                    290          189
  Equipment                                                                    308          230
  Data processing services                                                     278          196
  Advertising and marketing                                                     93           63
  Amortization of intangibles                                                   95           77
  Professional fees                                                            128          185
  Office supplies                                                               72           63
  Telephone                                                                     96           75
  Postage                                                                       51           57
  Transportation                                                                64           44
  Other                                                                        289          313
                                                                            ------       ------
     Total Noninterest Expenses                                              3,582        2,950
                                                                            ------       ------
Income Before Income Taxes                                                     466          458
Income Taxes                                                                    60           60
                                                                            ------       ------
Net Income                                                                  $  406       $  398
                                                                            ------       ------
                                                                            ------       ------
Basic Earnings Per Share                                                    $ 0.16       $ 0.16
                                                                            ------       ------
                                                                            ------       ------
Diluted Earnings Per Share                                                  $ 0.16       $ 0.16
                                                                            ------       ------
                                                                            ------       ------
Dividends Per Share                                                         $ 0.09       $ 0.09
                                                                            ------       ------
                                                                            ------       ------
</TABLE>

            See Notes to Unaudited Consolidated Financial Statements

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
           UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                           2004          2003
                                                           ----          ----
                                                         (Dollars in thousands)
Common Stock:
   Balance at beginning of period                         $    25      $    25
   Stock options exercised                                     --           --
                                                          -------      -------
   Balance at end of period                                    25           25
                                                          -------      -------

Surplus:
   Balance at beginning of period                           8,818        8,698
   Stock options exercised                                     27           65
                                                          -------      -------
   Balance at end of period                                 8,845        8,763
                                                          -------      -------

Retained Earnings:
   Balance at beginning of period                          16,092       15,788
   Net income                                                 406          398
   Dividends declared on common stock                        (227)        (227)
                                                          -------      -------
   Balance at end of period                                16,271       15,959
                                                          -------      -------

Accumulated other comprehensive income:
   Balance at beginning of period                             828        1,287
   Other comprehensive income (loss), net of taxes            289         (288)
                                                          -------      -------
   Balance at end of period                                 1,117          999
                                                          -------      -------



Total Stockholders' Equity                                $26,258      $25,746
                                                          -------      -------
                                                          -------      -------

            See Notes to Unaudited Consolidated Financial Statements

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                                THREE MONTHS ENDED
                                                                                    MARCH 31,
                                                                              2004            2003
                                                                              ----            ----
<S>                                                                           <C>             <C>
                                                                              (Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                              $    406         $     398
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
   Depreciation and amortization                                                357               328
   Provision for loan losses                                                    104               222
   Gain on sale of loans                                                       (147)             (158)
   FHLB stock dividends                                                         (87)              (53)
   Amortization of premiums on securities, net                                  171               152
   Securities gains, net                                                        (80)             (329)
   Decrease in accrued interest receivable                                       98               116
   Decrease in accrued interest payable                                          (3)               (3)
   (Increase) decrease in other assets                                           10            (2,701)
   Increase (decrease) in other liabilities                                     855              (221)
                                                                           --------          --------
      Net cash provided by (used in) operations before
        loan originations and sales                                           1,684            (2,249)
   Origination of loans for sale                                            (10,868)           (6,883)
   Proceeds from sale of loans                                                9,856             8,989
                                                                           --------          --------
   Net cash provided by (used in) operating activities                          672              (143)
                                                                           --------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) decrease in interest-bearing deposits in banks               (383)            7,245
   Net (increase) decrease in federal funds sold and securities
      purchased under agreements to resell                                   (6,134)            7,120
   Proceeds from sales of available-for-sale securities                      19,501            10,884
   Proceeds from maturities and calls of available-for-sale securities        8,463             9,032
   Proceeds from maturities and calls of held-to-maturity securities          1,064             2,274
   Purchase of available-for-sale securities                                (11,601)          (45,155)
   Net (increase) decrease in loans                                          (7,378)            6,587
   Proceeds from the sale of office buildings, equipment, and
     other real estate owned                                                    209               131
   Purchase of office buildings and equipment, net                             (118)              (83)
                                                                           --------          --------
   Net cash provided by (used in) investing activities                        3,623            (1,965)
                                                                           --------          --------
</TABLE>

           See Notes to Unaudited Consolidated Financial Statements.

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (CONTINUED)

<TABLE>
                                                                                THREE MONTHS ENDED
                                                                                     MARCH 31,
                                                                              2004               2003
                                                                              ----               ----
<S>                                                                           <C>                <C>
                                                                              (Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net decrease in deposits                                                 $(9,453)         $(11,696)
   Dividends paid                                                              (227)             (226)
   Proceeds from long-term borrowings                                         6,000             5,000
   Payments on long-term borrowings                                          (3,900)               --
   Net increase (decrease) in short-term borrowings                            (317)            9,543
   Proceeds from exercise of stock options                                       21                49
                                                                            -------           -------
   Net cash provided by (used in) financing activities                       (7,876)            2,670
                                                                            -------           -------
   Net increase (decrease) in cash and due from banks                        (3,581)              562

CASH AND DUE FROM BANKS:
   Beginning                                                                 17,250            12,572
                                                                            -------           -------

   Ending                                                                   $13,669           $13,134
                                                                            -------           -------
                                                                            -------           -------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
       Interest                                                             $ 1,904           $ 1,890
       Income taxes                                                         $    --           $    --

SUPPLEMENTAL SCHEDULES OF NON-CASH INVESTING
   ACTIVITIES:
   Change in accumulated other comprehensive income:
       Unrealized gains (losses) on available-for-sale securities, net      $   390           $  (288)
       Unrealized gains (losses) on interest rate swap contract, net           (101)               --
   Other assets acquired in settlement of loans                             $   163           $    64
</TABLE>

           See Notes to Unaudited Consolidated Financial Statements.

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2004

Note 1.   General:

          The unaudited consolidated financial  statements include the  accounts
          of Blackhawk Bancorp,  Inc. and its  subsidiary.  Effective  September
          30, 2003, Blackhawk Bancorp,  Inc. acquired the  assets of DunC  Corp.
          and its subsidiary, First Bank, bc., in a transaction accounted for as
          a purchase.  The assets and  liabilities and results of operations  of
          those acquired  companies  have  been  included  in  the  consolidated
          financial statements of Blackhawk Bancorp, Inc. subsequent to the date
          of acquisition and effect comparability of 2004 results with 2003.

          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, 2004 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, 2003 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 2003 historical
          financial statements to conform to the 2004 presentation.

          Stock-Based Compensation Plan: The Company's stock-based director, key
          -----------------------------
          officer and employee compensation plans  expired on December 31, 2003.
          The  Company  accounts  for  these  plans  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.  The pro-forma compensation expense
          is recognized over the three year option vesting period.

          (Dollars in thousands, except per share data)       Three Months
                                                             Ended March 31,
                                                             2004        2003
                                                             ----        ----
          Net income, as reported                            $ 406       $ 398
          Deduct total stock-based employee and director
            compensation expense determined under fair
            value based method for all awards, net of
            related tax effects                                (17)        (21)
                                                             -----       -----
          Pro forma net income                               $ 389       $ 377
                                                             -----       -----
                                                             -----       -----

          Earnings per share:
             Basic:
                As reported                                  $0.16       $0.16
                Pro forma                                     0.15        0.15

          Diluted:
             As reported                                      0.16        0.16
             Pro forma                                        0.15        0.15


          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 in 2003 and 2002, respectively: dividend yield of 3 percent
          and 4 percent; expected price volatility of 23 percent and 25 percent;
          risk-free interest rates of 3 percent and 4 percent; and expected
          lives of 7 years and 10 years, respectively.

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)
                                                       2004           2003
                                                       ----           ----
          Balance at beginning of period             $ 3,302        $ 2,079
          Provision charged to expense                   104            222
          Loans charged off                              257            157
          Recoveries                                      24             53
                                                     -------         ------
          Balance at end of period                   $ 3,173         $2,197
                                                     -------         ------
                                                     -------         ------

Note 3.   Earnings Per Share

          Presented below are  the calculations for  basic and diluted  earnings
          per share:

<TABLE>
                                                                        THREE MONTHS ENDED
                                                                            MARCH 31,
                                                                    2004                 2003
                                                                    ----                 ----
          <S>                                                       <C>                  <C>
          Basic:
          Net income available to common stockholders            $  406,000          $  398,000
                                                                 ----------          ----------
                                                                 ----------          ----------
          Weighted average shares outstanding                     2,524,472           2,514,018
                                                                 ----------          ----------
                                                                 ----------          ----------
          Basic earnings per share                               $     0.16          $     0.16
                                                                 ----------          ----------
                                                                 ----------          ----------

          Diluted:
          Net income available to common stockholders            $  406,000          $  398,000
                                                                 ----------          ----------
                                                                 ----------          ----------
          Weighted average shares outstanding                     2,524,472           2,514,018
          Effect of dilutive stock options outstanding               27,668               4,721
                                                                 ----------          ----------
          Diluted weighted average shares outstanding             2,552,140           2,518,739
                                                                 ----------          ----------
                                                                 ----------          ----------
          Diluted earnings per share                             $     0.16          $     0.16
                                                                 ----------          ----------
                                                                 ----------          ----------
</TABLE>

Note 4.   Derivative Instrument

          During June, 2003, the Company entered into an interest rate swap
          transaction, which resulted in the Company converting its $7,000,000
          of variable rate subordinated debentures into fixed rate debt. This
          swap transaction requires the payment of interest by the Company at a
          fixed rate equal to 2.47% using an actual/360 day basis. In turn the
          Company receives a variable rate interest payment based on the 90 day
          LIBOR rate adjusted quarterly.

          Summary information about the interest rate swap at March 31 is as
          follows:

                                                     2004             2003
                                                     ----             ----
                                                    (Dollars in thousands)
          Notional amount                           $7,000             --
          Weighted average fixed rate                2.51%             --
          Weighted average variable rate             1.13%             --
          Weighted average maturity             3.75 years             --
          Fair value                                   $70             --

Note 5.   Acquisition of DunC Corp.

          As more fully described in Item 2 of this report under the caption
          "Acquisition or Disposition of Assets", Blackhawk Bancorp, Inc.
          acquired DunC Corp on September 30, 2003 in a transaction accounted
          for as a purchase. The assets and liabilities of DunC Corp., valued at
          fair market value, on the date of acquisition are included in the
          unaudited consolidated balance sheet of Blackhawk Bancorp, Inc. and
          Subsidiary at March 31, 2004 and in the audited consolidated balance
          sheet of Blackhawk Bancorp, Inc. and Subsidiary at December 31, 2003.
          The results of operations have been included in the unaudited
          consolidated statement of income for the three months ended March 31,
          2004 and will effect the comparability to 2003 results.

Note 6.   Recent Accounting Developments

          FIN  No.   46  Consolidation   of  Variable   Interest  Entities,   an
          Interpretation  of  Accounting  Research  Bulletin  No.  51   (Revised
          December  2003).     FIN  46  establishes   accounting  guidance   for
          consolidation of  variable interest  entities (VIE)  that function  to
          support the  activities  of  the primary  beneficiary.    The  primary
          beneficiary of a  VIE is  the entity that  absorbs a  majority of  the
          VIE's expected  losses,  receives a  majority  of the  VIE's  expected
          residual returns,  or  both, as  a  result of  ownership,  controlling
          interest, contractual relationship or other business relationship with
          a VIE.   Prior to the  implementation of FIN  46, VIEs were  generally
          consolidated by an  enterprise when the  enterprise had a  controlling
          financial interest through ownership of a majority of voting  interest
          in the entity.   The provisions of FIN  46 were effective  immediately
          for all arrangements entered  into after January  31, 2003.   However,
          subsequent revisions to the interpretation deferred the implementation
          date of FIN 46 until the first period ending after March 15, 2004.

          The Company  adopted  FIN  46, as  revised,  in  connection  with  its
          consolidated financial  statements for  the  quarter ended  March  31,
          2004.   The implementation  of  FIN 46  required  the Company  to  de-
          consolidate  its  investment  in  Blackhawk  Statutory  Trust  I  (the
          "Trust") because the Company  is not the  primary beneficiary.   There
          was no impact on stockholders' equity, or net income upon adoption  of
          the standard.

          The trust  preferred  securities issued  by  the Trust  are  currently
          included in the Tier 1 capital  of the Company for regulatory  capital
          purposes.  However, because the financial statements of the Trust will
          no  longer  be  included  in  the  Company's  consolidated   financial
          statements, the  Federal  Reserve Board  may  in the  future  disallow
          inclusion of  the trust  preferred securities  in Tier  1 capital  for
          regulatory capital purposes.  In July 2003, the Federal Reserve  Board
          issued a  supervisory letter  instructing  bank holding  companies  to
          continue to include  the trust preferred  securities in  their Tier  1
          capital for regulatory capital purposes until  notice is given to  the
          contrary.  The Federal Reserve Board intends to review the  regulatory
          implications of  the  change  in accounting  treatment  of  subsidiary
          trusts that  issue trust  preferred securities  and, if  necessary  or
          warranted, provide  further appropriate  guidance.   There can  be  no
          assurance that  the  Federal Reserve  Board  will continue  to  permit
          institutions to include trust preferred  securities in Tier 1  capital
          for regulatory capital purposes.

          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 was effective for contracts entered into
          or  modified  after  June  30,  2003  and  for  hedging  relationships
          designated after June 30,  2003.  Implementation  of the Statement  on
          July 1,  2003 did  not  have a  material  impact on  the  consolidated
          financial statements.

Note 7.   Recent Regulatory Developments

          The  Sarbanes-Oxley  Act  of   2002  (the  "Act")  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 OR
                               PLAN 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, 2003.

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.

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.

                     ACQUISITION OR DISPOSITION OF ASSETS

On September 30, 2003 (the "Effective Date"), Blackhawk Bancorp, Inc., (the
"Corporation") consummated its acquisition of DunC Corp. ("DunC"), a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended, and DunC's wholly owned subsidiary, First Bank, bc  ("First Bank"),
an Illinois state bank.

The Corporation acquired DunC and First Bank pursuant to an Agreement and Plan
of Merger dated as of March 17, 2003 (the "Merger Agreement"), between the
Corporation, DunC Merger Corporation ("Merger Corp"), a wholly owned
subsidiary of the Corporation, and DunC through a series of mergers.

Pursuant to the Merger Agreement, Merger Corp was merged with and into DunC at
the close of business on the Effective Date, and DunC became a wholly owned
subsidiary of the Corporation.  The merger consideration was cash in the
aggregate amount of $7,223,000, which was paid to former DunC shareholders.
The price paid by the Corporation for the DunC common stock was arrived at
through arms-length negotiations.

The terms of the merger of Merger Corp with and into DunC are described more
fully in the Merger Agreement filed as Exhibit 2.1 to the Corporation's Form
10-QSB for the quarterly period ended March 31, 2003, which is incorporated
herein by reference.  The description of the transaction set forth above is
qualified in its entirety by the terms set forth in the Merger Agreement.

Immediately following the merger of Merger Corp into DunC, DunC merged with
and into the Corporation, and First Bank merged with and into Blackhawk State
Bank, a wholly owned subsidiary of the Corporation.  As a result of these
mergers the Corporation and Blackhawk State Bank were the surviving entities,
and DunC and First Bank ceased to exist.

The merger consideration paid to the former shareholders of DunC was funded
through a term loan with U.S. Bank National Association, Milwaukee,
Wisconsin. The term loan for $7.5 million was entered into in the ordinary
course of business and on terms commensurate with prevailing market
conditions on September 26, 2003. The term loan matures on September 26,
2008. A copy of the term loan agreement was filed as an exhibit on the
Corporation's Current Report on Form 8-K dated September 30, 2003 and is
incorporated herein by reference.

In accordance with the requirements of  purchase accounting, the operations
of the acquired  companies have  been included with  the operations  of the
Company since date  of acquisition.   Because of the  relative size  of the
Company and DunC, the acquisition has had a significant  effect on both the
operations and  balance sheets  of the  Company, and  significantly affects
comparisons  between  2003  and  2004.    In  addition,  as  part  of  that
acquisition, the Company committed to its regulators to maintain the Bank's
Tier 1 leverage capital at not  less than 7% for three years,  and to raise
capital in the event that the  cash flow required to  service debt incurred
in the acquisition exceeds 80% of Bank net income.

The following  provides  certain  summary financial  information  about  the
financial condition of DunC and the  assets and liabilities acquired in  the
acquisition, and DunC's operations, prior  to the acquisition to  illustrate
their impact upon the corporation:

Balance Sheet
(Dollars in thousands)                At September 30, 2003
----------------------                ---------------------
Loans                                         $46,781
Allowance for Loan Losses                        (889)
Investments                                    11,104
Total Assets                                   77,726
Deposits                                       64,237
Borrowings                                      3,631

Income Statement                         Nine Months Ended         Year Ended
(Dollars in thousands)                  September 30, 2003     December 31, 2002
----------------------                  ------------------     -----------------
Total Interest Income                          $ 3,645              $4,602
Total Interest Expense                             850               1,453
                                               -------              ------
Net Interest Income                              2,795               3,149
Provision for Loan Losses                          200                 628
Non-Interest Income                              1,819               2,497
Non-Interest Expense                             4,701               4,208
                                               -------              ------
Net Income (Loss) before Tax                      (287)                810


On the acquisition date,  the First Bank branch  located at 417 Ware  Avenue,
Rockford, Illinois was closed with its  accounts being consolidated into  the
Bank's Rockford office located at 2475 North Perryville Road. On January  31,
2004 the Bank closed  its branch office located  at 1021 North State  Street,
Belvidere, Illinois and consolidated the accounts into the office located  at
2141 North State Street,  Belvidere, Illinois, which is  a former First  Bank
branch obtained in the acquisition.

                            RESULTS OF OPERATIONS

The company reported net income of $406,000 for the three months  ended March
31, 2004, an increase  of $8,000 or 2.0%  from the $398,000 reported  for the
same three month period  in 2003. Diluted earnings  per share were $0.16  for
the three months ended March 31, 2004 and 2003.

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,  2004 and
2003. The tax-equivalent yield calculations assume a Federal Tax Rate of 34%:

AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES

<TABLE>
(yields on a tax-equivalent basis)          Three Months ended March 31, 2004        Three Months ended March 31, 2003
                                            ---------------------------------        ---------------------------------
                                            Average                   Average        Average                   Average
                                            Balance      Interest       Rate         Balance      Interest       Rate
                                            -------      --------     -------        -------      --------     -------
<S>                                           <C>          <C>          <C>            <C>          <C>          <C>
INTEREST EARNING ASSETS:
  Interest-bearing deposits in banks        $  2,847      $   17       2.40%         $  2,144      $   10       1.89%
  Federal funds sold & securities
    purchased under agreements to
    resell                                     3,985          13       1.31%            8,543          41       1.95%
  Investment securities:
     Taxable investment securities           102,043       1,056       4.16%           86,439         927       4.35%
     Tax-exempt investment securities         32,303         474       5.90%           24,978         383       6.22%
                                            --------      ------       -----         --------      ------       -----
           Total investment securities       134,346       1,530       4.58%          111,417       1,310       4.77%
  Loans                                      237,601       3,542       6.00%          182,957       3,249       7.20%
                                            --------      ------       -----         --------      ------       -----

TOTAL EARNING ASSETS                        $378,779      $5,102       5.42%         $305,061      $4,610       6.13%
                                                          ------       -----                       ------       -----

  Allowance for loan losses                  (3,251)                                   (2,146)
  Cash and due from banks                     13,450                                   10,453
  Other assets                                27,721                                   20,026
                                            --------                                 --------

TOTAL ASSETS                                $416,699                                 $333,394
                                            --------                                 --------
                                            --------                                 --------

INTEREST BEARING LIABILITIES:
  Interest bearing checking accounts        $ 47,327      $   68        .58%         $ 37,974      $   87        .93%
  Savings and money market deposits           76,796         150        .79%           52,577         110        .85%
  Time deposits                              139,174         906       2.62%          122,800       1,069       3.53%
                                            --------      ------       -----         --------      ------       -----

      Total interest bearing deposits        263,297       1,124       1.72%          213,351       1,266       2.41%

   Short-term borrowings                      14,062          29        .83%           12,448          34       1.11%
   Subordinated debentures                     7,217         103       5.74%            7,217          84       4.67%
   Long-term borrowings                       56,461         560       3.99%           40,844         505       5.01%
                                            --------      ------       -----         --------      ------       -----


TOTAL INTEREST-BEARING LIABILITIES          $341,037      $1,816       2.14%         $273,860      $1,889       2.80%
                                                          ------       -----                       ------       -----


INTEREST RATE SPREAD                                                   3.28%                                    3.33%
                                                                       -----                                    -----
                                                                       -----                                    -----

  Checking accounts                           46,447                                   31,789
  Other liabilities                            3,113                                    1,878
                                            --------                                 --------
  Total liabilities                          390,597                                  307,527
  Stockholders' equity                        26,102                                   25,867
                                            --------                                 --------

TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY                      $416,699                                 $333,394
                                            --------                                 --------
                                            --------                                 --------



NET INTEREST INCOME/MARGIN                                $3,286       3.49%                       $2,721       3.62%
                                                          ------       -----                       ------       -----
                                                          ------       -----                       ------       -----
</TABLE>

Net interest income increased  by $565,000, or 20.8%,  to $3,286,000 for  the
quarter ended  March 31,  2004, compared  to  $2,721,000 for  the  comparable
period in 2003.  The net  interest margin, which  is the  tax equivalent  net
interest income divided by average interest earning assets was 3.49% for  the
three months ended March 31,  2004 compared to 3.62%  for the same period  in
2003. The 13 basis point decrease in net interest margin is primarily due  to
the impact of the sustained low  interest rate environment and the  inability
of the Company  to offset  the effects  of asset  repricings with  equivalent
reductions in funding costs.

For the three months  ended March 31, 2004,  total interest income increased  by
$492,000, or 10.7%, to $5,102,000 compared to $4,610,000 for the same period  in
2003.  The yield on  average earning assets decreased  71 basis points to  5.42%
for the first quarter of 2004,  compared to 6.13% for  the same period in  2003.
The decrease  in the  yield  on earning  assets  is due  to  the impact  of  the
sustained low interest rate environment on the Bank's asset repricing.  Interest
rates continued  to remain  at  45-year lows.  The  average balance  sheet  with
resultant interest and rates reflects the  earning assets of DunC for the  first
quarter of 2004, but not in  the first quarter of  2003, as the acquisition  was
completed on September 30, 2003.  At September 30, 2003 DunC had earning  assets
of $69,300,000.  Other earning assets increased $4,418,000 or 1.2% quarter  over
quarter.  The increase in total interest income is primarily due to the  effects
of the DunC  acquisition offset  by the Bank's  lower overall  yield on  earning
assets.

Interest and fees  on loans increased  9.0% to $3,542,000  for the three  months
ended March 31, 2004 compared to $3,249,000 for  the same period of 2003.   This
increase was the  result of  a $54,644,000 or  29.9% increase  in average  loans
outstanding, which was partially offset by  a 120 basis point decrease in  yield
on the portfolio.  The Company acquired $46,781,000 of gross loans at  September
30, 2003 in connection with the DunC acquisition.  Excluding the loans  obtained
in the DunC acquisition,  average total loans increased  $7,863,000 or 4.3%  and
reflect the Company's efforts  to reverse negative trends  due to loan  run-off.
The lower  yield on  average  loans reflects  the  overall lower  interest  rate
environment previously discussed  and competitive pricing  pressure for  quality
credit customers.

Interest income on  taxable securities  increased by  $129,000 or  13.9% in  the
first quarter of 2004 to $1,056,000 compared to $927,000 for the  same period in
2003. Average  balances  of taxable  investment  securities increased  18.1%  to
$102,043,000 for the quarter  ended March 31,  2004 compared to  $86,439,000 for
the same  period  in the  prior  year. However,  the  yield on  average  taxable
investment securities decreased 19 basis points  to 4.16% for the  first quarter
of 2004 compared to 4.35% for  the first quarter of 2003. Tax  exempt investment
securities increased $7,325,000, or 29.3%  to an average balance  of $32,303,000
for the three months ended March  31, 2004 compared to $24,978,000 for  the same
period in 2003,  while the  tax-equivalent yield  decreased 32  basis points  to
5.90%. The DunC  acquisition added $8,800,000  of taxable  investment securities
and $2,300,000  of tax-exempt  investment securities  at  the acquisition  date.
Excluding the securities  acquired in  the DunC  acquisition taxable  investment
securities increased $6,804,000  or 7.9%  and tax  exempt investment  securities
increased $5,025,000 or 20.1%.

Interest from fed funds sold and securities purchased under agreements to resell
decreased to $13,000 for the three  month period ended March 31, 2004,  compared
to $41,000 during the same period in 2003. The average balance of fed funds sold
and securities purchased under agreements to  resell decreased by $4,558,000  or
53.4% to $3,985,000 for the three months  ended March 31, 2004 and reflects  the
reinvestment of excess funds into higher yielding investment securities.

Total interest expense  decreased by  $73,000, or  3.9%, to  $1,816,000 for  the
three months ended March 31, 2004 compared to $1,889,000 for the same period  in
2003.  The decrease  in total interest  expense is primarily  the result of  the
aforementioned lower market interest rate environment which reduced the  average
cost of interest-bearing liabilities by 66 basis points to 2.14% for the quarter
ended March 31, 2004 compared to  2.80% for the same period  in 2003.  The  DunC
acquisition  increased  interest  bearing  liabilities  by  $54,000,000  at  the
acquisition date.    Excluding  the acquisition,  interest  bearing  liabilities
increased by $13,177,000 or 4.8% and partially offset the impact of lower rates.

Interest paid on deposits decreased $142,000, or 11.2% to $1,124,000 during  the
three months ended March 31, 2004 compared to $1,266,000 for the same period  in
2003.  The DunC acquisition added $50,300,000 in interest bearing deposits as of
September 30,  2003.    Excluding the  acquisition,  interest  bearing  deposits
decreased $354,000 or 0.2% for the quarter ended March 31, 2004 compared to  the
same period in 2003.   The decrease in interest  paid on deposits was  primarily
due to the overall lower interest rate environment.

Interest on  short-term borrowings  decreased $5,000  to $29,000  for the  three
months ended March 31,  2004 compared to  $34,000 for the  same period in  2003.
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 $1,614,000 or  13.0%
increase in the average balance of short-term borrowings.

Interest expense on long-term borrowings increased  $55,000 to $560,000 for  the
three month period ended March 31, 2004 compared to $505,000 for the first three
months of 2003.  The increase is the  result of a $15,617,000 or 38.2%  increase
in the average balance outstanding offset by  a 102 basis point decrease in  the
average rate to 3.99% for the  first quarter of 2004  compared to 5.01% for  the
first quarter  of  2003.   The  increase in  the  average balance  of  long-term
borrowings outstanding reflects the  $7,500,000 in bank  debt issued to  finance
the DunC acquisition and additional dependence on FHLBC borrowings in 2004.

Interest expense on  subordinated debentures increased  $19,000 to $103,000  for
the first quarter of 2004 compared to $84,000 in the first quarter of 2003.  The
increase reflects the use of  an interest rate swap,  which was entered into  by
the company on  June 26, 2003  to fix the  cost of this  borrowing.  During  the
first quarter of 2003 the  interest rate adjusted quarterly  and was set at  325
basis points over the 3 month  LIBOR rate.  The interest  rate swap was part  of
the Company's overall interest rate risk management strategy and was utilized to
minimize significant unplanned fluctuations in earnings caused by interest  rate
volatility.

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 $104,000 in the first quarter of 2004, a  decrease of $118,000
or 53.2% from the $222,000 in the first quarter of 2003.

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 2004 increased by $129,000 or 124.0% to $233,000 compared to $104,000
for the first quarter of 2003.

The ratio  of the allowance to total  loans was 1.31% at March 31, 2004 compared
to 1.22% at March 31, 2003.

NONINTEREST INCOME

Total noninterest income decreased $11,000, or 1.1%, to $1,028,000 for the three
months ended March 31, 2004 compared to $1,039,000 for the same period in 2003.

Service  charges on deposit accounts  were $486,000 for the  quarter ended March
31, 2004 compared  to  $339,000  for the first  quarter of  2003.  The  increase
reflects a  higher number  of accounts as a  result of the DunC acquisition  and
increased fee realization on previously existing accounts.

Gain on the sale of mortgage loans decreased $11,000 or 7.0% to $147,000 for the
first quarter of  2004 compared  to the  $158,000 of gains recognized during the
first quarter of  2003 primarily as the result of lower margins in  2004. In the
first quarter of  2004, $9,856,000  of mortgage loans were sold to the secondary
market compared to $8,989,000 for the same period in  2003. The  average gain in
2004  was 1.49% compared  to an average  gain of 1.76% on  the loans sold in the
first  quarter of  2003.  The  decrease  in  the  margin  is the result  of more
competitive pricing in 2004.

The Company recognized $80,000 of securities gains in the first  quarter of 2004
compared to $329,000 in the first quarter of 2003. The decrease is primarily due
to the  one time sale  of  $10,884,000 of  investment securities in the  quarter
ended March 31, 2003. These securities would have matured or  been called in the
next  12 to  18 months  and  the  proceeds  were  reinvested  into  longer  term
securities.

Other noninterest income increased $110,000 or 80.9% for the three months ended
March 31, 2004.  Serviced loan fees increased $25,000 due to reduced
amortization of mortgage servicing rights as mortgage prepayments slowed in the
first quarter of 2004 compared to 2003.  Service charges for customer services
increased $40,000. Insurance commissions increased $16,000 and the Company
recognized gains on the sale of OREO properties of $29,000 in 2004.

NONINTEREST EXPENSES

Total noninterest expense increased $632,000, or  21.4%,  to $3,582,000  for the
three months ended March 31, 2004 compared to $2,950,000 for the  same period in
2003. The  increase reflects  increased costs  in  2004 as  a result of the DunC
acquisition offset by the accretive benefits from the elimination of duplicative
expenses.

Professional fees decreased  $57,000 or  30.8%, to $128,000 for the three months
ended March 31, 2004 compared to $185,000 for the same period  in 2003 primarily
as a result of lower legal fees in 2004 related to the Fiserv, Inc. litigation.

Other expenses decreased $24,000 or 7.7% to $289,000 for the three months ended
March 31, 2004 compared to $313,000 for the same period a year ago. Other
expenses for the quarter ended March 31, 2003 included a non-recurring expense
of $56,000 related to a sales and use tax audit.

Income taxes  were $60,000 for the three  months ended  March 31, 2004 and 2003.
The  decline in effective  tax rate to  12.9% for the three  month period  ended
March 31, 2004  from 13.1% for the same period  of 2003 is reflective of greater
tax  efficiency brought  about by an  increase in non-taxable  interest from the
municipal  bond portfolio  offset by a reduction  in non-taxable  life insurance
cash surrender  value increases and a  higher level of nondeductible  intangible
amortization as a result of the DunC acquisition.

                             BALANCE SHEET ANALYSIS

OVERVIEW

Total   assets  decreased   to  $419,145,000  at  March  31, 2004  compared   to
$425,402,000 at December 31,  2003, a  decrease of 1.5%.  The December  31, 2003
balance sheet included short-term year-end deposits  of $11,750,000, which  were
invested  in  federal  funds  sold and  interest bearing  deposits in  banks  at
December 31, 2003.  Excluding these deposits, total assets increased $5,493,000,
or  1.3% from December 31, 2003 to March 31, 2004.   In addition, excluding  the
effect of the short-term year end  deposits there  was a  considerable  shift in
balances   from  investment   securities  to  loans.   Securities  decreased  by
$16,957,000, while  loans,  net  of  allowance  for  loan  losses,  increased by
$8,228,000.

LOANS

Net loans  increased  $8,228,000, or 3.6%,  to  $238,370,000  on March  31, 2004
compared to $230,142,000 on December 31, 2003. 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,
                       2004         2003       Balance     2004         2003
                     ---------  ------------  ---------  ---------  ------------
                      (Dollars in millions)
Residential Real
   Estate             $101.7        $97.5       $4.2       42.1%        41.8%
Commercial Real
   Estate              $69.2        $67.0       $2.2       28.7%        28.7%
Construction and Land
   Development         $16.3        $11.3       $5.0        6.7%         4.8%
Commercial             $32.1        $35.6      ($3.5)      13.3%        15.3%
Consumer               $19.3        $19.2       $0.1        8.0%         8.2%
Other                   $2.9         $2.8       $0.1        1.2%         1.2%

All categories of loans except for commercial loans increased at March 31, 2004
compared to December 31, 2003. The bank held a consumer loan promotion during
the first quarter of 2004 and has adopted strategies to aggressively price
quality credits.  In addition, improved loan demand in its primary markets is
expected to lead to higher loan balances outstanding.

NON-PERFORMING LOANS

Non-performing loans  include loans  that are  determined  by management  to  be
impaired because full  collection of interest  and principal  is doubtful,  have
been placed in non-accrual status, and accruing 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)                             2004           2003
                                                      ---------    ------------
     Impaired loans-still accruing                     $1,016         $  923
     Impaired loans-non-accrual                         2,301          2,058
     Other non-accrual                                  1,300          1,030
     Past due 90 days or more and still accruing          622             42
                                                       ------         ------
     Total non-performing loans                        $5,239         $4,053
                                                       ------         ------
                                                       ------         ------


ASSET QUALITY

The allowance  for loan losses was $3,173,000  or 1.31%  of total loans at March
31, 2004 compared to $3,302,000 or 1.41% of total loans at December 31, 2003. As
of  March  31,  2004,  non-performing  loans  totaled  $5,239,000  compared   to
$4,053,000 at December 31, 2003.  The increase during the  first quarter of 2004
is due to three commercial loan relationships totaling $1,196,000 being added to
non-performing loans. These loans  are considered in determining the adequacy of
the allowance for loan losses. Management believes the allowance for loan losses
is adequate at March 31, 2004.

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  debt or in
its restoration to current status.

At March  31, 2004  the  allowance for loan  losses to  total non-performing and
restructured loans equaled 60.6% compared to 81.5% at December 31, 2003.

SHORT-TERM INVESTMENTS

Fed funds  sold  and securities purchased  under agreements to  resell increased
$6,134,000 to  $12,254,000 at  March 31, 2004 compared to $6,120,000 at December
31, 2003.

Interest-bearing deposits in banks increased $383,000 to $3,224,000 at March 31,
2004 compared  to $2,841,000  at  December 31, 2003.   The  increase reflects an
increase in  reinvestable balances at the  company's Nevahawk subsidiary  net of
decreases in bank owned certificates of deposit.

INVESTMENT SECURITIES

Securities  available  for sale decreased $15,882,000, or 13.4%, to $102,225,000
at March 31, 2004 compared to $118,107,000 at December 31, 2003. The decrease in
investments in securities  available for  sale resulted from the redeployment of
balances to fund  increased loan demand and the holding  of funds  in short-term
investments awaiting appropriate reinvestment opportunities. Securities  held to
maturity decreased  $1,075,000  or 6.1%  to  $16,531,000 at March  31, 2004 from
$17,606,000 at December 31, 2003 as a result of security maturities.

DEPOSITS

Total deposits  decreased $9,523,000 to $314,116,000  at March 31, 2004 compared
to $323,639,000 at December 31, 2003. As noted above, the Company's December 31,
2003 financial statements reflect short-term year-end deposits  of  $11,750,000.
Excluding the  short-term year-end  deposits, total deposits increased 0.7% from
December 31,  2003.  Excluding  the  short-term year-end  deposits, non-interest
bearing  deposits decreased by $384,000  and interest bearing deposits increased
by $2,611,000 at March 31, 2004 compared to December 31, 2003.

BORROWINGS

Short-term borrowings  decreased $317,000 to $9,169,000 at  March 31,  2004 from
$9,486,000 at  year-end. The  decrease is  due  to lower outstanding balances of
repurchase agreements with commercial customers. Long-term borrowings consist of
Blackhawk Bancorp's  bank term loan  of $7,500,000 and  term  advances  from the
Federal Home Loan Bank ("FHLB") that were $50,497,000 at March 31, 2004 compared
to $48,413,000  at  December 31, 2003.  The increase  reflects a  net additional
$2,100,000 in FHLB advances outstanding at March 31, 2004.

SHAREHOLDERS' EQUITY

Total shareholders' equity  increased $495,000 to $26,258,000 at March  31, 2004
compared to $25,763,000 at December 31, 2003.   During the first three months of
2004 surplus increased by  $27,000 from the sale of stock for options exercised.
Accumulated other comprehensive income increased $289,000 to $1,117,000 at March
31, 2004 from $828,000 at December 31, 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
                                             2004         2003      REQUIREMENTS
                                           ---------  ------------  ------------
Total Capital (To Risk-Weighted Assets)      10.8%        10.9%         8.0%

Tier I Capital (To Risk-Weighted Assets)      9.6%         9.6%         4.0%

Tier I Capital (To Average Assets)            6.1%         6.0%         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 re-pricing 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.

During June 2003, the  Company entered into  an interest rate  SWAP agreement
related to  the subordinated  debentures.   This SWAP  is utilized  to manage
variable interest rate exposure and is designated as  a highly effective cash
flow hedge.  The differential to be paid or received on the SWAP agreement is
accrued as  interest rates  change and  is recognized  over the  life of  the
agreement in interest expense.   The SWAP agreement expires  in December 2007
and essentially fixes the rate to  be paid at 5.72%.  The  notional amount is
$7,000,000.  Included  in other  comprehensive income is  a gain  of $70,000,
less $24,000 of deferred income tax, relating to the fair market value of the
SWAP agreement as of March 31, 2004.  Risk management  results for the period
ended March 31,  2004 related  to the  balance sheet  hedging of  the company
obligated mandatorily redeemable preferred securities indicate that the hedge
was 100%  effective  and  that  there  was no  component  of  the  derivative
instrument's gain or  loss which  was excluded from  the assessment  of hedge
effectiveness.

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,  amortization,   prepayment  and  maturity  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
subordinated debentures, 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,  2004  (in
thousands):

              Time      Long-term    Operating   Data Processing
            Deposits   debt(1)<F1>    Leases       Commitment        Total
            --------   -----------   ---------   ---------------     -----
2005        $ 81,560     $17,729      $  164         $  534        $ 99,987
2006          31,262       5,090         164            534          37,050
2007          11,146       7,147         164            534          18,991
2008          11,167       4,875         148            534          16,724
2009           1,745      13,156         114            267          15,282
Thereafter       102      17,217         966              0          18,285
            --------     -------      ------         ------        --------
Total       $136,982     $65,214      $1,720         $2,403        $206,319
            --------     -------      ------         ------        --------
            --------     -------      ------         ------        --------

Commitments to extend credit                       $   39,135

(1)<F1>  Long-term debt includes subordinated debentures.

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
$39,135,000 as of March 31, 2004.  This compares to $34,356,000 at December  31,
2003. The  Company's  commitments to  originate  mortgage loans  are  offset  by
commitments of  third  party investors  to  purchase the  loans.  The  Company's
obligation to deliver the loans is 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. Fiserv has filed an appeal of the judge's decision. The company
plans to aggressively contest their appeal of the initial decision and has not
accrued the legal fee reimbursement claimed by Fiserv.

Like  out-of-state  subsidiaries  of  many  Wisconsin  financial   institutions,
Nevahawk (an  out-of-state  subsidiary of  the  Bank) which  holds  and  manages
investment assets,  has  not  been subject  to  Wisconsin  tax.   The  Wisconsin
Department of Revenue  has instituted an  audit program, including  an audit  of
Blackhawk,  specifically  aimed  at  out-of-state  bank  subsidiaries  and   has
indicated that it may withdraw favorable rulings previously issued in connection
with such subsidiaries.  As a result  of these developments, the Department  may
take the position that the income of the out-of-state subsidiaries is taxable in
Wisconsin.  Such  a  determination  will  likely  be  challenged  by   financial
institutions in the state, including the Bank.  If the Department is  successful
in its efforts, it could result in a substantial negative impact on the earnings
of the Company, depending upon the determination made.   As of the date of  this
filing, the  Department  has  not  provided  the  Company  with  information  to
determine the negative impact of the Department's position in the matter.

ITEM 3. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS  AND PROCEDURES:     The Company's  management, with  the
participation of the  Company's Chief Executive  Officer and  Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures  (as such  term is  defined in  Rules 13a-15(e) and  15d-15(e)
under the Securities Exchange Act  of 1934, as amended  (the "Exchange Act"))
as of  the  end  of  the period  covered  by  this  report.   Based  on  such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the  end of such period,  the Company's disclosure
controls and procedures are  effective in recording,  processing, summarizing
and reporting, on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act.

INTERNAL CONTROL OVER FINANCIAL REPORTING:   There have  not been any changes
in the Company's internal control  over financial reporting (as  such term is
defined in Rules 13a-15(f) and  15d-15(f) under the Exchange  Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely  to materially affect,  the Company's  internal control
over financial reporting.

                                    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

          The Company furnished  a Report on  Form 8-K dated  February 10,  2004
          under Item 12 which reported 4th quarter 2003 results; that report  is
          not deemed "filed".

                                   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 3, 2004         /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

                            BLACKHAWK BANCORP, INC.

                               INDEX TO EXHIBITS

                                          Incorporated                  Filed
Exhibit                                   Herein By                     Here-
Number  Description                       Reference To:                  with
------- -----------                       -------------                 -----
2.1     Agreement and Plan of Merger      Exhibit 2.1 to Form 8-K dated
        By and Among Blackhawk            March 17, 2003
        Bancorp, Inc. DunC Merger
        Corporation and DunC Corp

3.1     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)

3.2     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       Credit Agreement with US Bank     Form 8-K dated September
        National Association dated        30, 2003
        September 26, 2003

31.1    Certification of Chief Executive
        Officer Pursuant to Rule 13a-14(a)/
        15d-14(a)                                                         X

31.2    Certification of Chief Financial
        Officer Pursuant to Rule 13a-14(a)/
        15d-14(a)                                                         X

32.1    Certification Pursuant to 18
        U. S. C. Section 1350, as
        Adopted Pursuant to Section
        906 of the Sarbanes-Oxley
        Act of 2002                                                       X

32.2    Certification Pursuant to 18
        U. S. C. Section 1350, as
        Adopted Pursuant to Section
        906 of the Sarbanes-Oxley
        Act of 2002                                                       X