Hawthorn Bancshares, Inc.
(NASDAQ: HWBK), (the
“Company” or “HWBK”) reported net income of $2.5 million for the
second quarter 2023, a decrease of $0.7 million compared to the
linked quarter and a decrease of $1.9 million from the second
quarter 2022 (the "prior year quarter"). Earnings per diluted share
(“EPS”) was $0.36 for the second quarter 2023 compared to $0.47 and
$0.64 for the linked quarter and prior year quarter, respectively.
Net income and EPS for the second quarter 2023 decreased from the
linked quarter primarily due to the recognition of a write-down on
other real estate owned properties with no additional provision
expense for credit losses being required in the current quarter
compared to $0.7 million in the linked quarter.
Brent Giles, Chief Executive Officer of
Hawthorn Bancshares Inc. commented, “Absent the write-down
on other real estate, our performance was in line with the first
quarter. As we continue to navigate this challenging economic
environment, we will be focused on stability and prudent financial
management.
For the second quarter of 2023, we delivered
$2.5 million of net income, equivalent to $0.36 per diluted share.
Although this represents a decrease of $0.7 million of net income
compared to the linked quarter, it is important to note that this
reduction was primarily due to the recognition of a $1.8 million
write-down on other real estate owned properties with no additional
provision expense for credit losses being required in the current
quarter compared to $0.7 million in the linked quarter.
Asset quality remains strong as evidenced by
improvement in our non-performing loans to total loans ratio.
During the second quarter, we reclassified $15.0 million in loans
from non-accrual to accruing status. Furthermore, our loan
portfolio saw an increase of $21.1 million, or 1.4%, compared to
the linked quarter.
While deposits decreased by $64.7 million, or
4.0%, compared to the linked quarter, it was primarily driven by
reductions in public funds deposits. Our non-interest bearing
demand deposits were stable. Our uninsured and uncollateralized
deposits are estimated to be 17% at the end of the second quarter,
reinforcing our commitment to sound financial practices and risk
management.
The bank's net interest margin, fully taxable
equivalent ("FTE"), increased to 3.19%, as compared to 3.16% in the
linked quarter. These financial results translate into a return on
average assets and equity of 0.54% and 7.99%, respectively.
Our liquidity and capital levels remain strong.
We have multiple sources of funds and unpledged securities
available to meet liquidity needs, plus additional borrowing
capacity through the FHLB and multiple secured/unsecured funding
lines. We remain “well capitalized” from a regulatory capital ratio
perspective. Our stockholder’s equity to assets ratio was 6.65% at
June 30, 2023 compared to 6.62% at December 31, 2022.
As we move forward, we must acknowledge the
prevailing challenges in the market. With the Federal Reserve
contemplating further rate hikes and other actions to curb
inflation, we anticipate continued pressure on the net interest
margin."
Highlights
-
Earnings – Net income of $2.5 million for the
second quarter 2023 decreased $0.7 million, or 22.1%, from the
linked quarter, and decreased $1.9 million, or 43.2%, from the
prior year quarter. EPS was $0.36 for the second quarter 2023
compared to $0.47 for the linked quarter, and $0.64 for the prior
year quarter.
- Net
interest income and net interest margin – Net interest
income of $14.2 million for the second quarter 2023, increased $0.3
million from the linked quarter, and decreased $0.4 million from
the prior year quarter. Net interest margin, on an FTE basis, was
3.19% for the second quarter, an increase from 3.16% for the linked
quarter, and a decrease from 3.64% for the prior year quarter.
-
Loans – Loans held for investment increased by
$21.1 million, or 1.4%, equal to $1.6 billion as of June 30,
2023 as compared to the end of the linked quarter. Year-over-year,
loans held for investment grew $135.4 million, or 9.5%, from $1.4
billion as of June 30, 2022.
- Asset
quality – Non-performing loans totaled $3.8 million
at June 30, 2023, a decrease of $15.8 million from
$19.6 million at the end of the linked quarter, and a decrease
of $14.0 million from $17.8 million at the end of the
prior year quarter. The decrease in non-performing loans in the
current quarter compared to the linked quarter is primarily due to
three large non-accrual loan relationships returning to accruing
status. The allowance for credit losses to total loans was 1.42% at
June 30, 2023, compared to the allowance for loan losses to
total loans of 1.02% at December 31, 2022 and 1.08% at
June 30, 2022.
-
Deposits – Total deposits decreased by
$64.7 million, or 4.0%, equal to $1.5 billion as of
June 30, 2023 as compared to the end of the linked quarter.
Year-over-year deposits grew $12.5 million, or 0.8%, from $1.5
billion as of June 30, 2022.
-
Capital – On January 1, 2023, the Company adopted
ASU 2016-13 and recorded a one-time cumulative effect adjustment to
retained earnings totaling $5.6 million. Total stockholders'
equity was $126.5 million and the common equity to assets
ratio was 6.65% at June 30, 2023 as compared to 6.77% and
6.93% at the end of the linked quarter and the prior year quarter,
respectively. Regulatory capital ratios remain “well-capitalized”,
with a tier 1 leverage ratio of 10.46% and a total risk-based
capital ratio of 13.99% at June 30, 2023.
Pursuant to the Company's 2019 Repurchase Plan,
management is given discretion to determine the number and pricing
of the shares to be purchased under the plan, as well as the timing
of any such purchases. The Company did not repurchase any shares
during the current quarter. As of June 30, 2023,
$2.1 million remained available for share repurchases pursuant
to the plan.
During the third quarter of 2023, the Company's
Board of Directors approved a quarterly cash dividend of $0.17 per
common share payable October 1, 2023 to shareholders of record
at the close of business on September 15, 2023.
Net Interest Income and Net Interest
Margin
Net interest income of $14.2 million for
the second quarter 2023, increased $0.3 million from the
linked quarter, and decreased $0.4 million from the prior year
quarter. Driving the decrease from the prior year quarter was
significantly higher interest expense for interest bearing deposit
accounts and other borrowings which reprice in a rising rate
environment, more than offsetting the increase in interest income
and fees from loans and other earning assets. While interest income
increased $5.8 million in the current quarter compared to the
prior year quarter, driven primarily by higher yields on interest
earning assets and growth in loans, interest expense increased
$6.1 million resulting in a $0.4 million decrease in net
interest income. Net interest margin, on an FTE basis, was 3.19%
for the second quarter, compared to 3.16% for the linked quarter,
and 3.64% for the prior year quarter.
Net interest income for the six months ended
June 30, 2023 was $28.2 million, a decrease of
$0.5 million compared to $28.7 million for the six months
ended June 30, 2022. Interest income on earning assets increased
$11.3 million over the same comparative periods. Interest
expense on deposits and borrowings increased $11.8 million, or
over 400%, reflecting the competitive marketplace and ever
increasing interest rates for securing all sources of funding.
Loans
Loans held for investment increased by $21.1
million, or 1.4%, to $1.6 billion as of June 30, 2023 as
compared to the end of the linked quarter and increased by $135.4
million, or 9.5%, from the end of the prior year quarter.
The yield earned on average loans held for
investment was 5.23%, on an FTE basis, for the second quarter 2023,
compared to 5.03% for the linked quarter and 4.33% for the prior
year quarter. The increase in yield as of June 30, 2023
compared to the end of the linked quarter is reflective of recent
market conditions where most loan types have seen an increase in
yield, consistent with recent increases in the prime rate.
Asset Quality
On January 1, 2023, the Company adopted ASU
2016-13, Financial Instruments - Credit Losses (Topic 326) which
provides for an expected credit loss model, referred to as the
"Current Expected Credit Loss" ("CECL") model. The adoption of the
standard resulted in an increase to the allowance for credit losses
of $5.8 million and a new liability for unfunded commitments
totaling $1.3 million. These one-time cumulative adjustments
resulted in a $5.6 million tax-effected decrease to retained
earnings which was recognized in the first quarter 2023.
Non-performing loans totaled $3.8 million
at June 30, 2023, a decrease of $15.8 million from
$19.6 million at the end of the linked quarter, and a decrease
of $14.0 million from $17.8 million at the end of the
prior year quarter. The decrease in non-performing loans in the
current quarter compared to the linked quarter is primarily due to
three large non-accrual loan relationships returning to accruing
status. Non-performing loans to total loans was 0.25% at
June 30, 2023, compared to 1.27% and 1.25% at the end of the
linked quarter and prior year quarter, respectively.
At June 30, 2023, with the adoption of ASU
2016-13, $0.1 million of the Company’s allowance for credit
losses was allocated to loans individually analyzed totaling
$4.1 million compared to $0.2 million of the Company's
allowance for credit losses allocated to loans individually
analyzed totaling $19.8 million at the end of the linked
quarter. These loans were valued using a collateral-dependent
practical expedient.
Under the incurred method, $0.3 million of
the Company's allowance for loan losses was allocated to impaired
loans totaling $19.3 million at the end of the prior year
quarter. Management determined that $16.0 million, or 83%, of
total impaired loans required no reserve allocation at the end of
the prior year quarter, primarily due to adequate collateral
values.
In the second quarter 2023, the Company had net
loan recoveries of $92,000 compared to net loan charge-offs of
$52,000 and $126,000 in the linked quarter and the prior year
quarter, respectively.
The Company did not recognize a provision for
credit losses on loans and unfunded commitments for the second
quarter 2023 compared to $0.7 million provision for credit losses
on loans and unfunded commitments for the linked quarter and a
provision for loan losses of $1.2 million for the prior year
quarter.
For the six months ended June 30, 2023, the
Company recognized a provision for credit losses on loans and
unfunded commitments of $0.7 million, compared to a $1.3 million
release of provision expense for the six months ended June 30,
2022, or an increase of $2.0 million. The release of provision
expense for the six months ended June 30, 2022 was driven in part
from the release of specific reserves totaling $2.8 million in
the first quarter of 2022 due to returning significant loan
balances to accruing from non-accrual status or other collateral
valuation adjustments.
The allowance for credit losses at June 30,
2023 was $22.2 million, or 1.42% of outstanding loans, and 578.01%
of non-performing loans. At December 31, 2022, the allowance
for loan losses was $15.6 million, or 1.02% of outstanding loans,
and 83.35% of non-performing loans. At June 30, 2022, the
allowance for loan losses was $15.4 million, or 1.08% of
outstanding loans, and 86.17% of non-performing loans. The
allowance for credit losses represents management’s best estimate
of expected losses inherent in the loan portfolio and is
commensurate with risks in the loan portfolio as of June 30,
2023.
Deposits
Total deposits at June 30, 2023 were $1.5
billion, a decrease of $64.7 million, or 4.0%, from March 31,
2023, and an increase of $12.5 million, or 0.8%, from
June 30, 2022. The decrease in deposits at the end of the
second quarter of 2023 as compared to the linked quarter was
primarily driven by a reduction in certain public funds depositor
balances. Non-interest bearing demand deposits as a percent of
total deposits were 28.4%, 27.6% and 30.8% as of June 30, 2023,
compared to the end of the linked quarter, and the end of the prior
year quarter, respectively.
Non-interest Income
Total non-interest income for the second quarter
ended June 30, 2023 was $1.6 million, a decrease of $1.6
million, or 49.8%, from the linked quarter, and a decrease of $2.1
million, or 56.3%, from the prior year quarter. The decline in the
current quarter compared to the linked quarter and prior year
quarter is primarily due to the recognition of a $1.8 million
write-down on other real estate owned properties.
For the six months ended June 30, 2023,
non-interest income was $4.8 million, a decrease of $2.6 million as
compared to $7.4 million for the six months ended June 30, 2022.
This decrease is driven primarily by a $0.5 million lower gain on
sales of mortgages in the six months ended June 30, 2023 in
addition to the write-down of $1.8 million for other real estate
owned in the second quarter 2023.
Non-interest Expense
Total non-interest expense for the second
quarter 2023 was $12.7 million, an increase of $0.2 million, or
2.0%, from the linked quarter, and an increase of $1.2 million, or
10.3%, from the prior year quarter. The second quarter efficiency
ratio was 80.5% compared to 72.8% and 63.4% for the linked quarter
and prior year quarter, respectively.
Capital
The Company maintains its “well capitalized”
regulatory capital position. At the end of the second quarter 2023,
capital ratios were as follows: total risk-based capital to
risk-weighted assets 13.99%, tier 1 capital to risk-weighted assets
12.51%, tier 1 leverage 10.46% and common equity to assets
6.65%.
[Tables follow]
FINANCIAL SUMMARY(unaudited)$000, except per
share data
|
Three Months Ended |
|
June 30, |
|
March 31, |
|
June 30, |
Statement of income
information: |
2023 |
|
2023 |
|
2022 |
Total interest income |
$ |
21,927 |
|
$ |
20,933 |
|
$ |
16,142 |
|
Total interest expense |
|
7,725 |
|
|
6,985 |
|
|
1,581 |
|
Net interest income |
|
14,202 |
|
|
13,948 |
|
|
14,561 |
|
Provision for credit losses on loans and unfunded commitments |
|
— |
|
|
680 |
|
|
1,200 |
|
Non-interest income |
|
1,596 |
|
|
3,182 |
|
|
3,648 |
|
Investment securities gains (losses), net |
|
7 |
|
|
8 |
|
|
(9 |
) |
Non-interest expense |
|
12,725 |
|
|
12,478 |
|
|
11,540 |
|
Pre-tax income |
|
3,080 |
|
|
3,980 |
|
|
5,460 |
|
Income taxes |
|
531 |
|
|
709 |
|
|
971 |
|
Net income |
$ |
2,549 |
|
$ |
3,271 |
|
$ |
4,489 |
|
Earnings per
share: |
|
|
|
|
|
Basic: |
$ |
0.36 |
|
$ |
0.47 |
|
$ |
0.64 |
|
Diluted: |
$ |
0.36 |
|
$ |
0.47 |
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
Statement of income
information: |
|
|
2023 |
|
2022 |
Total interest income |
|
|
$ |
42,860 |
|
$ |
31,578 |
|
Total interest expense |
|
|
|
14,710 |
|
|
2,872 |
|
Net interest income |
|
|
|
28,150 |
|
|
28,706 |
|
Provision for (release of) credit losses on loans and unfunded
commitments |
|
|
|
680 |
|
|
(1,300 |
) |
Non-interest income |
|
|
|
4,778 |
|
|
7,374 |
|
Investment securities gains (losses), net |
|
|
|
15 |
|
|
(13 |
) |
Non-interest expense |
|
|
|
25,202 |
|
|
23,767 |
|
Pre-tax income |
|
|
|
7,061 |
|
|
13,600 |
|
Income taxes |
|
|
|
1,241 |
|
|
2,502 |
|
Net income |
|
|
$ |
5,820 |
|
$ |
11,098 |
|
Earnings per
share: |
|
|
|
|
|
Basic: |
|
|
$ |
0.83 |
|
$ |
1.57 |
|
Diluted: |
|
|
$ |
0.83 |
|
$ |
1.57 |
|
FINANCIAL SUMMARY
(continued)(unaudited)$000, except per share
data
|
June 30, |
|
March 31, |
|
December 31, |
|
June 30, |
|
2023 |
|
2023 |
|
2022 |
|
2022 |
Key financial
ratios: |
|
|
|
|
|
|
|
Return on average assets (YTD) |
0.62 |
% |
|
0.70 |
% |
|
1.16 |
% |
|
1.28 |
% |
Return on average common equity (YTD) |
9.07 |
% |
|
10.14 |
% |
|
15.94 |
% |
|
16.33 |
% |
Return on average assets (QTR) |
0.54 |
% |
|
0.70 |
% |
|
1.01 |
% |
|
1.04 |
% |
Return on average common equity (QTR) |
7.99 |
% |
|
10.14 |
% |
|
15.72 |
% |
|
14.00 |
% |
|
|
|
|
|
|
|
|
Asset Quality
Ratios |
|
|
|
|
|
|
|
Allowance for credit losses to total loans |
1.42 |
% |
|
1.43 |
% |
|
1.02 |
% |
|
1.08 |
% |
Non-performing loans to total loans (a) |
0.25 |
% |
|
1.27 |
% |
|
1.23 |
% |
|
1.25 |
% |
Non-performing assets to loans (a) |
0.66 |
% |
|
1.81 |
% |
|
1.81 |
% |
|
1.89 |
% |
Non-performing assets to assets (a) |
0.54 |
% |
|
1.47 |
% |
|
1.43 |
% |
|
1.51 |
% |
Allowance for credit losses on loans to |
|
|
|
|
|
|
|
non-performing loans (a) |
578.01 |
% |
|
112.14 |
% |
|
83.35 |
% |
|
86.17 |
% |
|
|
|
|
|
|
|
|
Capital
Ratios |
|
|
|
|
|
|
|
Average stockholders' equity to average total assets (YTD) |
6.81 |
% |
|
6.87 |
% |
|
7.27 |
% |
|
7.81 |
% |
Period-end stockholders' equity to period-end assets (YTD) |
6.65 |
% |
|
6.77 |
% |
|
6.62 |
% |
|
6.93 |
% |
Total risk-based capital ratio |
13.99 |
% |
|
13.81 |
% |
|
13.85 |
% |
|
13.97 |
% |
Tier 1 risk-based capital ratio |
12.51 |
% |
|
12.47 |
% |
|
12.52 |
% |
|
12.53 |
% |
Common equity Tier 1 capital |
9.92 |
% |
|
9.77 |
% |
|
9.89 |
% |
|
9.85 |
% |
Tier 1 leverage ratio |
10.46 |
% |
|
10.43 |
% |
|
10.76 |
% |
|
10.98 |
% |
(a) Non-performing loans include loans 90 days
past due and accruing and non-accrual loans.
FINANCIAL SUMMARY
(continued)(unaudited)$000, except per share
data
|
June 30, |
|
March 31, |
|
December 31 |
|
June 30, |
Balance sheet
information: |
2023 |
|
2023 |
|
2022 |
|
2022 |
Total assets |
$ |
1,900,709 |
|
|
$ |
1,895,821 |
|
|
$ |
1,923,540 |
|
|
$ |
1,789,976 |
|
Loans held for investment |
|
1,563,206 |
|
|
|
1,542,074 |
|
|
|
1,521,252 |
|
|
|
1,427,828 |
|
Allowance for credit / loan losses |
|
(22,236 |
) |
|
|
(21,979 |
) |
|
|
(15,588 |
) |
|
|
(15,353 |
) |
Loans held for sale |
|
2,130 |
|
|
|
1,753 |
|
|
|
591 |
|
|
|
1,716 |
|
Investment securities |
|
260,714 |
|
|
|
265,893 |
|
|
|
257,100 |
|
|
|
272,383 |
|
Deposits |
|
1,543,270 |
|
|
|
1,608,012 |
|
|
|
1,632,079 |
|
|
|
1,530,808 |
|
Liability for unfunded commitments |
|
1,137 |
|
|
|
1,302 |
|
|
$ |
— |
|
|
|
— |
|
Total stockholders’ equity |
$ |
126,473 |
|
|
$ |
128,352 |
|
|
$ |
127,411 |
|
|
$ |
124,058 |
|
|
|
|
|
|
|
|
|
Book value per share |
$ |
17.97 |
|
|
$ |
18.23 |
|
|
$ |
18.04 |
|
|
$ |
17.50 |
|
Market price per share |
$ |
17.95 |
|
|
$ |
22.27 |
|
|
$ |
20.57 |
|
|
$ |
23.72 |
|
Net interest spread (FTE) (YTD) |
|
2.55 |
% |
|
|
2.57 |
% |
|
|
3.26 |
% |
|
|
3.41 |
% |
Net interest margin (FTE) (YTD) |
|
3.17 |
% |
|
|
3.16 |
% |
|
|
3.53 |
% |
|
|
3.57 |
% |
Net interest spread (FTE) (QTR) |
|
2.54 |
% |
|
|
2.57 |
% |
|
|
3.00 |
% |
|
|
3.47 |
% |
Net interest margin (FTE) (QTR) |
|
3.19 |
% |
|
|
3.16 |
% |
|
|
3.43 |
% |
|
|
3.64 |
% |
Efficiency ratio (YTD) |
|
76.54 |
% |
|
|
72.84 |
% |
|
|
66.73 |
% |
|
|
65.87 |
% |
Efficiency ratio (QTR) |
|
80.55 |
% |
|
|
72.84 |
% |
|
|
69.46 |
% |
|
|
63.38 |
% |
About Hawthorn Bancshares
Hawthorn Bancshares, Inc., a financial-bank
holding company headquartered in Jefferson City, Missouri, is the
parent company of Hawthorn Bank of Jefferson City with locations in
the Missouri communities of Lee's Summit, Liberty, St. Louis,
Springfield, Independence, Columbia, Clinton, Osceola, Warsaw,
Belton, Drexel, Harrisonville, California and St. Robert.
The financial results in this press release
reflect preliminary, unaudited results, which are not final until
the Company's Quarterly Report on Form 10-Q is filed. Statements
made in this press release that suggest Hawthorn Bancshares' or
management's intentions, hopes, beliefs, expectations, or
predictions of the future include "forward-looking statements"
within the meaning of Section 21E of the Securities and Exchange
Act of 1934, as amended. It is important to note that actual
results could differ materially from those projected in such
forward-looking statements. Additional information concerning
factors that could cause actual results to differ materially from
those projected in such forward-looking statements is contained
from time to time in the Company's quarterly and annual reports
filed with the Securities and Exchange Commission. These
forward-looking statements are made as of the date of this
communication, and the Company disclaims any obligation to update
any forward-looking statement or to publicly announce the results
of any revisions to any of the forward-looking statements included
herein, except as required by law.
Contact:
Hawthorn Bancshares, Inc.
Stephen E. Guthrie
Chief Financial Officer
TEL: 573.761.6100
Fax: 573.761.6272
www.HawthornBancshares.com
Hawthorn Bancshares (NASDAQ:HWBK)
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Hawthorn Bancshares (NASDAQ:HWBK)
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