Hawthorn Bancshares, Inc. (HWBK) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026. Hawthorn Bancshares, Inc. operates as a bank holding company for Hawthorn Bank, providing commercial and personal banking services primarily in Missouri communities including Jefferson City, Columbia, and Kansas City. The Company reports two segments: the Bank and Wealth Management.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | YTD 2026 (6 Months) | Q2 2025 (3 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Net Income | $7.33 million | $13.07 million | $6.10 million | $11.48 million |
| Diluted EPS | $1.06 | $1.89 | $0.88 | $1.65 |
| Net Interest Income | $17.26 million | $34.36 million | $16.14 million | $31.44 million |
| Non-Interest Income | $5.38 million | $8.48 million | $3.55 million | $7.01 million |
| Non-Interest Expense | $13.75 million | $26.75 million | $12.27 million | $24.77 million |
| Net Interest Margin (FTE) | 4.16% | 4.11% | 3.89% | 3.78% |
| Efficiency Ratio | 60.73% | 62.44% | 62.32% | 64.43% |
| Total Assets | $1.77 billion | As of June 30, 2026 | ||
| Total Loans | $1.42 billion | |||
| Total Deposits | $1.49 billion | As of June 30, 2026 | ||
| Stockholders' Equity | $182.79 million |
Material Changes vs. Prior Period
- Profitability: Net income increased 20.1% year-over-year for the quarter and 13.8% year-over-year for the six-month period, driven by higher net interest income and non-interest income.
- Net Interest Income: Increased due to a higher Net Interest Margin (NIM) of 4.16% (Q2 2026) compared to 3.89% (Q2 2025), resulting from improved yields on loans (6.18% vs 5.98%) and lower costs of deposits (2.13% vs 2.35%).
- Non-Interest Income: Surged 51.7% in the quarter, primarily due to a $0.34 million gain on the sale of other real estate owned (OREO) and premises held for sale, compared to a loss in the prior year. Wealth management revenue also grew 20.7%.
- Expense Management: Non-interest expenses rose 12.0% in the quarter, largely due to a 120.6% increase in legal and professional fees associated with the pending acquisition of FSC Bancshares, Inc., and higher salaries/benefits due to incentive payouts.
- Balance Sheet: Total loans decreased $70.4 million from year-end 2025. Total deposits decreased $66.0 million. FHLB borrowings were significantly reduced by $72.7 million.
- Asset Quality: Non-performing assets (NPA) increased to $7.5 million (0.53% of loans) from $7.0 million at year-end 2025. Net charge-offs were $0.14 million for the quarter.
Guidance, Outlook, Risks, and Unusual Items
- Pending Acquisition: On April 29, 2026, the Company agreed to acquire FSC Bancshares, Inc. for approximately $28.3 million in a cash-and-stock merger. Closing is expected in Q3 2026, subject to shareholder approval.
- Material Weakness in Internal Controls: Management identified a material weakness in internal control over financial reporting related to the evaluation of U.S. GAAP for non-routine transactions (specifically a sale-leaseback and a tax credit investment). This weakness was not remediated as of June 30, 2026, though management is implementing remediation measures.
- Capital Position: The Company maintains a "well-capitalized" status. Total risk-based capital ratio was 16.40% and Tier 1 leverage ratio was 12.91% as of June 30, 2026.
- Dividends and Buybacks: The Company declared a quarterly dividend of $0.21 per share. A stock repurchase program with $8.0 million remaining was active as of June 30, 2026, and was subsequently amended on July 29, 2026, to increase the authorized limit to $10.0 million.
- Interest Rate Risk: Management models indicate that a 200 basis point increase in rates would increase projected net interest income by 2.80% over the next 12 months.
Investor Verification Checklist
- Internal Control Remediation: Verify the progress of remediation for the material weakness in accounting for non-routine transactions to ensure future financial statement reliability.
- Acquisition Integration: Monitor the closing timeline and integration costs associated with the FSC Bancshares, Inc. acquisition.
- Asset Quality Trends: Track the increase in non-performing assets (specifically commercial real estate and residential mortgages) and the adequacy of the allowance for credit losses (1.46% of loans).
- Deposit Stability: Assess the impact of the $66 million deposit outflow on future liquidity and funding costs.
- One Big Beautiful Bill Act (OBBBA): Review the Company's ongoing evaluation of the tax reform provisions signed into law in July 2025 for potential material impacts on future operations.