Business Overview and History
Hawthorn Bancshares, Inc. (NASDAQ: HWBK) is a financial holding company headquartered in Jefferson City, Missouri, with a storied history spanning over 150 years. As the parent company of Hawthorn Bank, the organization has weathered economic storms and evolved to meet the changing needs of its local communities, solidifying its reputation as a trusted financial institution.
Hawthorn Bancshares' roots trace back to 1874 when it was founded as a small community bank serving the Jefferson City area. Over the decades, the bank expanded its footprint, establishing additional branches and growing its commercial and retail banking operations. In 2007, Hawthorn Bancshares, Inc. was formed as a holding company to serve as the parent company for the Bank, marking a significant milestone in its corporate structure.
The early 2000s saw a pivotal moment for Hawthorn Bancshares as it began to significantly expand its presence in the greater Kansas City metropolitan area. This strategic move allowed the company to tap into the economic growth and business opportunities in the region, diversifying beyond its traditional Jefferson City market. However, this expansion was not without its challenges, as the company had to adapt its operations and lending practices to the different competitive landscape of the Kansas City area.
Another significant challenge in the company's history came during the 2008 financial crisis. Like many banks, Hawthorn experienced an increase in non-performing loans and had to carefully manage its asset quality and lending practices during this volatile period. The company's prudent risk management and focus on its core community banking model helped it weather the storm and emerge stronger.
Throughout its history, Hawthorn Bancshares has remained committed to its community banking philosophy, providing personalized service and local decision-making to its customers. The company's long-standing relationships with businesses and families in its markets have been a key driver of its success over the decades.
Today, Hawthorn Bancshares continues to focus on providing personalized financial services to small and medium-sized businesses, as well as individual customers. The company's core offerings include commercial banking, real estate lending, consumer loans, and a suite of deposit products and cash management services.
Financial Snapshot
As of the latest reported quarter ended September 30, 2024, Hawthorn Bancshares boasted total assets of $1.81 billion, with a loan portfolio of $1.47 billion and deposits of $1.50 billion. The company's net income for the nine-month period ending September 30, 2024, stood at $13.66 million, with earnings per diluted share of $1.95.
The bank's net interest margin, a key measure of profitability, has remained relatively stable, averaging 3.36% for the first nine months of 2024. This consistent performance is a testament to the company's disciplined approach to asset-liability management and its ability to navigate changing interest rate environments.
Hawthorn Bancshares has also maintained a strong capital position, with a total risk-based capital ratio of 14.91% as of September 30, 2024, well above the regulatory requirements for a "well-capitalized" institution. This solid capital foundation provides the bank with the flexibility to pursue strategic growth opportunities and weather potential economic turbulence.
For the most recent fiscal year (2023), Hawthorn Bancshares reported annual revenue of $55.13 million, annual net income of $956,000, annual operating cash flow of $17.61 million, and annual free cash flow of $15.51 million. In the most recent quarter (Q3 2024), the company achieved revenue of $18.12 million and net income of $4.57 million, representing significant year-over-year growth of 15% in revenue and 77% in net income compared to Q3 2023. This growth was primarily driven by higher net interest income and noninterest income, partially offset by higher noninterest expense.
Liquidity
Hawthorn Bancshares maintains a strong liquidity position, which is essential for meeting its operational needs and regulatory requirements. The company's liquidity management strategy involves maintaining a diverse mix of funding sources, including core deposits, wholesale funding, and access to various credit facilities. This approach ensures that the bank can meet its short-term obligations and capitalize on growth opportunities as they arise.
As of September 30, 2024, Hawthorn Bancshares reported cash and cash equivalents of $54.22 million. The company also has access to additional liquidity through an available credit line of $35 million from federal funds purchased and $8.5 million from securities sold under agreements to repurchase. The bank's strong liquidity position is further evidenced by its current ratio and quick ratio, both standing at 126.9 as of September 30, 2024.
The company's debt-to-equity ratio of 1.01 as of September 30, 2024, indicates a balanced approach to capital structure, allowing the bank to leverage debt while maintaining a solid equity base.
Diversified Loan Portfolio and Prudent Risk Management
Hawthorn Bancshares' loan portfolio is well-diversified, with a balanced mix of commercial, real estate, and consumer loans. As of September 30, 2024, the company's commercial and commercial real estate loans comprised 71.6% of the total loan portfolio, with commercial, financial, and agricultural loans representing 13.8% and commercial real estate loans accounting for 57.8%. Residential real estate loans accounted for 25.2% of the portfolio, while consumer loans made up the remaining 1.0%.
The bank's underwriting standards and credit risk management practices have played a key role in maintaining the overall quality of its loan book. Non-performing assets as a percentage of total assets stood at 0.47% as of the end of the third quarter of 2024, a slight increase from the 0.43% reported at the end of 2023 but still well below industry averages.
Hawthorn Bancshares has also been proactive in addressing potential credit risks, with the allowance for credit losses representing 1.50% of total loans as of September 30, 2024. This level of provisioning reflects the company's commitment to maintaining a conservative approach to credit risk management, which has served it well during periods of economic uncertainty.
Diversified Revenue Streams and Expanding Product Offerings
In addition to its core lending activities, Hawthorn Bancshares has sought to diversify its revenue streams by leveraging its expertise in areas such as wealth management, trust services, and mortgage banking. The company's trust department, for example, contributed $960,000 to non-interest income during the first nine months of 2024, reflecting the bank's ability to capitalize on the growing demand for comprehensive financial planning and asset management services.
Moreover, Hawthorn Bancshares has continually expanded its product suite to better serve the evolving needs of its customer base. The bank's recent introduction of enhanced cash management solutions and digital banking platforms has enabled it to attract and retain a broader range of commercial and retail clients, further strengthening its competitive position within its core markets.
Business Segments and Geographic Markets
Hawthorn Bancshares operates through two main business segments: Commercial Banking and Retail Banking. The Commercial Banking segment serves as the primary driver of the company's business, offering a broad range of commercial and corporate banking services to small and mid-sized businesses. This includes commercial loans, commercial real estate loans, and cash management services. The Retail Banking segment focuses on personal banking products and services, including real estate mortgage lending, installment and consumer loans, and various deposit products.
Geographically, Hawthorn Bancshares primarily operates in the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. This regional focus allows the bank to maintain strong relationships with local businesses and individuals, leveraging its deep understanding of the local economic landscape.
Navigating Challenges and Seizing Opportunities
Like many financial institutions, Hawthorn Bancshares has faced its share of challenges in recent years. The COVID-19 pandemic, for instance, tested the bank's resilience as it navigated the economic disruptions and evolving regulatory landscape. However, the company's proactive risk management strategies, coupled with its deeply-rooted community ties, have allowed it to weather the storm and emerge as a stronger, more agile organization.
Looking ahead, Hawthorn Bancshares is well-positioned to capitalize on the favorable economic trends in its markets, particularly the continued growth and development of the greater Kansas City metropolitan area. The bank's strategic investments in technology, talent, and customer-centric initiatives will be critical in enabling it to meet the evolving needs of its diverse client base and drive sustainable long-term growth.
Despite the headwinds facing the banking industry, Hawthorn Bancshares has demonstrated its ability to adapt and thrive. With a steadfast commitment to its community banking model, prudent risk management practices, and a diversified revenue stream, the company is poised to continue its legacy of serving the financial needs of its local communities for generations to come.