Hawthorn Bancshares, Inc. (HWBK) - Q2 2025 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 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 reports two segments: the Bank and Wealth Management. As of June 30, 2025, total assets were $1.88 billion.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | YTD 2025 (6 Months) | Q2 2024 (3 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Net Income | $6.1 million | $11.5 million | $4.6 million | $9.1 million |
| Earnings Per Share (Diluted) | $0.88 | $1.65 | $0.66 | $1.29 |
| Net Interest Income | $16.1 million | $31.4 million | $14.2 million | $28.9 million |
| Net Interest Margin (FTE) | 3.89% | 3.78% | 3.33% | 3.36% |
| Non-Interest Income | $3.5 million | $7.0 million | $4.0 million | $7.0 million |
| Non-Interest Expense | $12.3 million | $24.8 million | $12.0 million | $24.6 million |
| Efficiency Ratio | 62.32% | 64.43% | 66.24% | 68.48% |
| Return on Assets (ROA) | 1.36% | 1.28% | 1.02% | 0.99% |
| Return on Equity (ROE) | 15.85% | 15.08% | 13.75% | 13.43% |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 31.8% year-over-year for the quarter and 26.4% year-over-year for the six-month period, driven by higher net interest income and a release of provision for credit losses.
- Net Interest Margin Expansion: NIM improved to 3.89% in Q2 2025 from 3.33% in Q2 2024, reflecting higher yields on loans (5.98% vs. 5.75%) and lower costs of deposits (2.35% vs. 2.69%).
- Asset Quality Improvement: Non-performing assets decreased to $5.2 million (0.35% of loans) from $8.1 million (0.54% of loans) in the prior year. Net charge-offs were minimal at $0.05 million for the quarter compared to $2.0 million in Q2 2024.
- Balance Sheet Shifts: Total loans decreased slightly to $1.46 billion. Cash and cash equivalents increased significantly to $100.3 million. Borrowings from the Federal Home Loan Bank (FHLB) increased to $140.1 million to fund liquidity needs.
- Expense Management: Non-interest expense increased slightly due to occupancy costs from new branch openings, but the efficiency ratio improved to 62.32%.
Guidance, Outlook, and Risks
- Capital Position: The company maintains a "well-capitalized" status. Total risk-based capital ratio is 15.12%, and Tier 1 leverage ratio is 11.87%.
- Shareholder Returns: The Board approved a new $10.0 million stock repurchase program in June 2025. The company repurchased 79,777 shares in the first half of 2025. Quarterly dividends of $0.20 per share were declared.
- Liquidity: Liquidity is considered adequate with $251.9 million in available funding capacity from FHLB, Federal Reserve, and federal funds lines.
- Regulatory & Tax: The company is evaluating the impact of the "One Big Beautiful Bill Act" signed July 4, 2025, but does not expect a material impact on operations. No material changes to risk factors were reported.
- Segment Reporting: Beginning Q1 2025, Wealth Management is reported as a separate segment, contributing $137,000 to net income in Q2 2025.
Investor Verification Checklist
- Loan Yield Sustainability: Verify if the 5.98% loan yield can be maintained as existing higher-rate loans mature.
- Deposit Cost Trends: Monitor if the reduced cost of deposits (2.35%) remains stable in a competitive rate environment.
- CRE Exposure: Review the composition of the $767 million commercial real estate portfolio, which represents 52.4% of total loans.
- Unrealized Losses: Note the $30.4 million unrealized loss on available-for-sale securities, though management attributes this to interest rates rather than credit quality.
- Stock Repurchase Execution: Track the utilization of the new $10 million buyback authorization.