Hawthorn Bancshares, Inc. (HWBK) - Q1 2025 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2025. Hawthorn Bancshares, Inc. operates as a community bank holding company with its subsidiary, Hawthorn Bank, serving Missouri communities including Jefferson City, Columbia, and Kansas City. The Company provides commercial and personal banking services, as well as wealth management. Beginning in Q1 2025, the Company reorganized its reporting to include two segments: the Bank and Wealth Management.
Key Financial Metrics
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Net Income | $5.38 million | $4.46 million | +20.8% |
| Earnings Per Share (Diluted) | $0.77 | $0.63 | +22.2% |
| Net Interest Income | $15.29 million | $14.75 million | +3.7% |
| Net Interest Margin (FTE) | 3.67% | 3.39% | +28 bps |
| Non-Interest Income | $3.46 million | $3.02 million | +14.7% |
| Non-Interest Expense | $12.50 million | $12.58 million | -0.6% |
| Efficiency Ratio | 66.64% | 70.78% | -4.14 pts |
| Total Assets | $1.88 billion | $1.82 billion (Dec 2024) | +3.2% |
| Total Loans | $1.47 billion | $1.47 billion (Dec 2024) | +0.3% |
| Total Deposits | $1.54 billion | $1.53 billion (Dec 2024) | +0.7% |
| Cash & Equivalents | $102.26 million | $50.99 million (Dec 2024) | +100.5% |
| Return on Assets (ROA) | 1.20% | 0.97% | +23 bps |
| Return on Equity (ROE) | 14.29% | 12.49% | +180 bps |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by $0.92 million (20.8%) driven by higher net interest income and a release of provision for credit losses.
- Net Interest Margin Expansion: NIM improved to 3.67% from 3.39% year-over-year. This was achieved despite a decrease in average earning assets, as the yield on loans increased to 5.89% and the cost of interest-bearing liabilities decreased to 2.64%.
- Provision Release: The Company recorded a release of provision for credit losses of $0.34 million, compared to a $0.23 million release in Q1 2024, reflecting stable asset quality.
- Liquidity Position: Cash and cash equivalents more than doubled to $102.3 million, primarily due to a $42.1 million increase in demand deposits and a $42.6 million net increase in FHLB advances.
- Expense Management: Non-interest expense decreased slightly ($0.08 million) year-over-year. Significant reductions in legal fees (due to a prior-year settlement) and advertising were offset by increased occupancy costs from new branch openings.
Guidance, Outlook, and Risks
- Segment Reporting: The Company now reports Wealth Management as a separate segment. In Q1 2025, Wealth Management contributed $0.31 million to net income.
- Capital Position: The Company maintains a "well-capitalized" status. Total risk-based capital ratio stands at 14.94%, and Tier 1 leverage ratio is 11.64%, well above regulatory minimums.
- Asset Quality: Non-performing assets (NPA) decreased to $3.13 million (0.21% of total loans) from $4.19 million at year-end 2024. Net loan recoveries were $0.02 million.
- Dividends and Buybacks: The Company declared a quarterly dividend of $0.19 per share. It also repurchased 15,856 shares at an average price of $27.51, with $3.5 million remaining available under the repurchase plan.
- Risk Factors: Management notes standard risks including interest rate volatility, economic conditions in Missouri, and regulatory changes. No material changes to risk factors were reported since the 2024 10-K.
Investor Verification Checklist
- Deposit Mix Stability: Verify the sustainability of the $42 million increase in non-interest bearing demand deposits, which significantly lowered the cost of funds.
- Loan Yield Sustainability: Confirm if the 5.89% loan yield can be maintained as existing higher-rate loans mature and are refinanced.
- CRE Exposure: Review the composition of the $773.6 million commercial real estate portfolio, which represents 52.6% of total loans, for concentration risks.
- Unrealized Losses: Note the $31.0 million in unrealized losses on available-for-sale securities; verify management's intent to hold these to maturity to avoid realizing losses.
- Branch Expansion Costs: Monitor the impact of the two new branch locations and new operations facility on future occupancy expenses.