Hawthorn Bancshares, Inc. (HWBK) - 2024 Annual Report (10-K) Summary
Business Context and Reporting Period
This filing is the Annual Report on Form 10-K for Hawthorn Bancshares, Inc., a Missouri-based bank holding company, for the fiscal year ended December 31, 2024. The Company operates primarily through its wholly-owned subsidiary, Hawthorn Bank, which maintains 18 banking offices in central, west-central, and southwest Missouri, as well as eastern Kansas. The Company is classified as an "Accelerated Filer" and a "Smaller Reporting Company." As of March 17, 2025, the Company had 6,981,769 shares of common stock outstanding.
Key Financial Metrics
Note: Specific revenue, net income, cash flow, and debt figures are incorporated by reference to the 2024 Annual Report to Shareholders (Exhibit 13) and are not explicitly detailed in the text of this 10-K filing. The following metrics are derived from the regulatory capital disclosures provided in the text.
- Regulatory Capital Status: Both the Company and the Bank are classified as "well-capitalized" as of December 31, 2024.
- Company Capital Ratios (Basel III):
- Tier 1 Leverage Ratio: 11.46% (Minimum: 4%)
- CET1 Risk-Based Capital Ratio: 10.49% (Minimum + Buffer: 7.0%)
- Tier 1 Risk-Based Capital Ratio: 13.54% (Minimum + Buffer: 8.5%)
- Total Risk-Based Capital Ratio: 14.79% (Minimum + Buffer: 10.5%)
- Bank Capital Ratios:
- Tier 1 Leverage Ratio: 10.83% (Minimum: 5.0%)
- CET1 Risk-Based Capital Ratio: 12.85% (Minimum: 6.5%)
- Tier 1 Risk-Based Capital Ratio: 12.85% (Minimum: 8.0%)
- Total Risk-Based Capital Ratio: 14.10% (Minimum: 10.0%)
- Community Bank Leverage Ratio (CBLR): The Company and Bank qualified to elect the CBLR framework (requiring >9%) but have no immediate plans to do so.
- Real Estate Subsidiary: HB Realty, LLC held mortgage loans with an approximate aggregate book value of $595.5 million as of December 31, 2024.
- Stock Repurchases: In Q4 2024, the Company withheld 98 shares to satisfy tax obligations at an average price of $32.01. Approximately $3.9 million remains available under the 2019 Repurchase Plan.
Material Changes and Operational Updates
- Executive Leadership: Significant leadership changes occurred in 2023 and 2024. Brent M. Giles (CEO) and Gregg A. Bexten (President) joined in May 2023. Chris E. Hafner joined as CFO in October 2023. Kathleen L. Bruegenhemke was promoted to Executive Vice President in May 2024.
- Corporate Structure: On December 29, 2023, the Company dissolved its subsidiary Union State Bancshares to streamline ownership of Hawthorn Bank. Hawthorn Risk Management, Inc. (a captive insurance subsidiary) was dissolved on December 1, 2023.
- Real Estate Strategy: HB Realty, LLC continues to hold mortgage loans. As of September 30, 2022, participation interests were converted to mortgage loans to comply with Federal Home Loan Bank collateral requirements.
- Property Portfolio: The Bank owns 15 of its 18 facilities. Three locations (Columbia, Kansas City, Lee's Summit, and Overland Park) are leased, with new lease terms initiated in late 2024.
Outlook, Risks, and Management Commentary
Interest Rate Risk: Management utilizes rate shock modeling to manage interest rate risk. As of December 31, 2024, models indicated that a 200 basis point rise in rates could decrease annual net interest income by 2.75%, while a 200 basis point fall could decrease it by 0.38%. Management considers this within acceptable limits.
Key Risks:
- Local Economic Dependence: Profitability is heavily tied to the economic conditions of central and west-central Missouri and eastern Kansas. Deterioration in local real estate values or unemployment could increase loan delinquencies.
- Credit Risk: The Company faces risks related to borrower repayment ability, particularly for small-to-medium-sized commercial borrowers. The provision for credit losses may need to increase if economic conditions worsen.
- Cybersecurity: The Company faces ongoing threats from cyber-attacks, phishing, and social engineering. While no material adverse impact has occurred to date, the risk remains significant.
- Regulatory Environment: Changes in laws, including the Community Reinvestment Act (modernized rules effective April 2024) and potential FDIC special assessments, could impact costs and operations.
- Liquidity: The Company relies on customer deposits and FHLB advances. While historically able to replace funds, market conditions could impair access to liquidity.
Internal Controls: Management and the independent auditor (Forvis Mazars, LLP) concluded that internal controls over financial reporting were effective as of December 31, 2024.
Investor Verification Checklist
- Financial Statements: Review the "Consolidated Financial Statements" in the 2024 Annual Report to Shareholders (Exhibit 13) for specific revenue, net income, and cash flow figures not detailed in this 10-K text.
- Loan Portfolio Quality: Verify the current levels of non-performing assets, delinquency rates, and the specific allowance for credit losses in the full financial statements.
- Net Interest Margin (NIM): Analyze the impact of the interest rate environment on NIM, given the sensitivity analysis showing potential income reduction in both rising and falling rate scenarios.
- Capital Election: Monitor future announcements regarding the potential election of the Community Bank Leverage Ratio (CBLR) framework, which could simplify capital reporting.
- Executive Retention: Assess the stability of the new leadership team (Giles, Bexten, Hafner) and their impact on strategic execution.