Hawthorn Bancshares, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 18, 2024. Hawthorn Bancshares is a Missouri bank holding company whose primary subsidiary, Hawthorn Bank, operates 21 banking offices and provides commercial, consumer, residential mortgage, trust, and related banking services, primarily in central and west-central Missouri.
Financial performance and condition
The supplied filing text incorporates the consolidated financial statements and management’s discussion from the 2023 Annual Report to Shareholders but does not include their detailed figures. Accordingly, it does not provide clear values here for revenue, net income, earnings per share, cash flow, net interest margin, loan and deposit balances, debt, or liquidity measures, nor enough information to compare those measures with 2022.
- Capital: At December 31, 2023, the Company reported a 10.29% Tier 1 leverage ratio, 9.73% CET1 risk-based capital ratio, 12.59% Tier 1 risk-based capital ratio, and 13.99% total risk-based capital ratio. The Company stated it complied with regulatory capital guidelines.
- Bank capital: Hawthorn Bank was classified as well-capitalized, with a 10.31% Tier 1 leverage ratio, 12.67% CET1 ratio, 12.67% Tier 1 risk-based ratio, and 13.91% total risk-based ratio.
- Interest-rate sensitivity: Management’s year-end models indicated that annual net interest income could change by as much as 5.92% if rates rose 200 basis points or 7.05% if rates fell 200 basis points over one year. These are modeled estimates, not reported results.
- Liquidity and funding: No clear year-end liquidity amount or ratio is provided in the supplied text. The Company identifies customer deposits, including brokered deposits, and, to a lesser extent, Federal Home Loan Bank advances and federal funds purchased as funding sources.
Material changes and unusual items
- In the fourth quarter, the Company sold securities with $83.7 million of book value, recording an after-tax realized loss of $9.1 million as part of a balance-sheet repositioning. The filing does not give the resulting effect on full-year earnings in the supplied text.
- The Company adopted CECL on January 1, 2023. Adoption increased the allowance for credit losses by $5.8 million and established a $1.3 million liability for unfunded commitments; the tax-effected cumulative adjustment reduced retained earnings by $5.6 million.
- The Company dissolved its wholly owned subsidiary Union on December 29, 2023, simplifying ownership of Hawthorn Bank. It also dissolved its captive insurer, Hawthorn Risk Management, Inc., effective December 1, 2023.
- Leadership changes included the appointment of Brent Giles as CEO and Gregg Bexten as president in May 2023, and Chris Hafner as CFO in October 2023.
- No fourth-quarter share repurchases or recent securities issuances were reported. The 2019 repurchase plan had $5.0 million remaining at year-end.
Outlook, risks, and controls
The filing provides no quantified earnings or growth guidance. Management describes the interest-rate strategy as seeking to stabilize net interest income and preserve capital, while noting that actual results can differ from modeled sensitivities. Key risks include local economic and real-estate deterioration, borrower defaults and credit-loss estimates, deposit competition and liquidity access, interest-rate changes, competition, regulatory and compliance costs, and cybersecurity, technology, and third-party service-provider risks. The filing also notes uncertainty following 2023 bank failures and potential effects on customer confidence, funding, and regulation; the FDIC special assessment related to those failures did not apply to Hawthorn Bank.
Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2023. KPMG LLP issued an unqualified opinion on the consolidated financial statements and an unqualified opinion on internal control over financial reporting.
Important facts for investors to verify
- Review the incorporated 2023 Annual Report for full-year revenue, net income, EPS, net interest margin, cash flows, balance-sheet balances, asset quality, and year-over-year comparisons; these values are not clear in the supplied filing text.
- Examine the securities sale’s full accounting and effects on earnings, capital, liquidity, and future interest income.
- Assess deposit composition and concentration, brokered-deposit reliance, available borrowing capacity, and liquidity coverage under stress.
- Review loan concentrations, delinquency and nonperforming-asset trends, allowance adequacy, and the effects of CECL adoption.
- Compare capital ratios with regulatory requirements and evaluate the implications of the Company’s decision not to elect the community bank leverage ratio framework.