Hawthorn Bancshares, Inc. 2009 10-K Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2009. Hawthorn Bancshares, Inc. is a bank holding company registered under the Bank Holding Company Act of 1956 and has elected to be a financial holding company. Its primary subsidiary is Hawthorn Bank, a Missouri state trust company operating 24 banking offices in central and west central Missouri. The company's activities are limited to ownership of its banking subsidiary and related financial activities.
Key Financial Metrics
The filing text incorporates detailed financial statements (Revenue, Profit, Cash Flow) by reference to the 2009 Annual Report to Shareholders; therefore, specific dollar values for revenue, net income, and cash flow are not present in this document. However, the following capital and liquidity metrics are explicitly disclosed:
- Regulatory Capital Status: Both the holding company and the bank were classified as "well-capitalized" as of December 31, 2009.
- Hawthorn Bancshares Capital Ratios:
- Tier 1 Risk-Based Capital: 14.01% (Minimum: 4%)
- Total Risk-Based Capital: 16.49% (Minimum: 8%)
- Leverage Ratio: 11.35% (Minimum: 3%)
- Hawthorn Bank Capital Ratios:
- Tier 1 Risk-Based Capital: 12.36% (Minimum: 6%)
- Total Risk-Based Capital: 13.62% (Minimum: 10%)
- Leverage Ratio: 10.04% (Minimum: 5%)
- Market Data: As of March 3, 2010, there were 4,301,955 shares of common stock outstanding. The aggregate market value of non-affiliate equity was approximately $36.3 million as of June 30, 2009.
Material Changes and Operational Highlights
While specific year-over-year financial comparisons are incorporated by reference, the filing highlights several material operational and structural factors:
- Goodwill Impairment: The bank recorded an impairment of goodwill in 2008, resulting in an accumulated deficit (negative unappropriated retained earnings) as of December 31, 2009.
- Asset Quality Management: Hawthorn Real Estate, LLC was formed in December 2008 to purchase and hold nonperforming assets to facilitate orderly disposition and strengthen the bank's financial position.
- Employee Count: As of December 31, 2009, the company employed approximately 311 full-time and 74 part-time employees.
- Stock Repurchases: No shares were repurchased in the fourth quarter of 2009 due to restrictions imposed by the Treasury's Capital Purchase Program (CPP).
Guidance, Risks, and Contingencies
Dividend and Share Repurchase Restrictions: Participation in the U.S. Treasury's Capital Purchase Program (CPP) restricts the company's ability to pay dividends on common stock (capped at $0.20 per share without Treasury consent) and prohibits share repurchases until December 19, 2011, or until the preferred stock is redeemed/transferred. Additionally, the bank requires regulatory approval to pay dividends to the holding company until unappropriated retained earnings are restored to a positive balance.
Interest Rate Risk: Management models indicate that a 300 basis point shift in interest rates could change annual net interest income by between -18.6% and +22.3%.
Key Risks Identified:
- Local Economic Dependence: Profitability is heavily dependent on the economic conditions of central and west central Missouri.
- Asset Quality: Deterioration in the housing market and local economy could increase non-performing assets and loan loss provisions.
- Regulatory Changes: Potential new financial services legislation and increased FDIC assessment rates could increase non-interest expenses.
- Liquidity: Access to capital markets may be constrained by broader economic conditions.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the 2009 Annual Report to Shareholders, as these are incorporated by reference and not listed in this 10-K text.
- Confirm the current status of the bank's unappropriated retained earnings to assess the timeline for restoring dividend-paying capacity to the holding company.
- Review the Allowance for Loan Losses and non-performing asset ratios in the full financial statements to gauge credit risk exposure in the Missouri market.
- Monitor the FDIC assessment rate changes and their impact on non-interest expense in future quarters.
- Check for any updates on the Treasury's Capital Purchase Program restrictions regarding dividend caps and share buybacks.