Hawthorn Bancshares Reports Results for the Fourth Quarter and the Year Ended December 31, 2023
- Net income for 2023 was $1.0 million with EPS of $0.14, compared to $20.8 million and EPS of $2.94 for the prior year.
- Non-performing loans decreased to 0.42% compared to 1.23% in the prior year.
- The company's capital ratios remained strong, with a total risk-based capital ratio of 13.99% and a tier 1 leverage ratio of 10.29%.
- The company reported a net loss of $7.4 million for the fourth quarter of 2023, with a decrease in deposits by $61.2 million or 3.8% compared to the prior year.
- Non-interest income for 2023 decreased by $6.4 million compared to 2022, primarily due to the recognition of a $4.7 million valuation write-down on other real estate owned properties.
- Non-interest expense for 2023 increased by $3.8 million, or 7.9%, from the prior year.
Insights
The reported net loss of $7.4 million for Hawthorn Bancshares in the fourth quarter of 2023 represents a significant downturn from both the previous quarter and the same quarter in the prior year. This decline is attributed to strategic decisions, including the sale of investment securities at a loss and adjustments related to mortgage servicing rights. A critical factor for stakeholders is the impact of these decisions on the company's balance sheet and future earnings potential. The sale of securities, despite resulting in a realized loss, may position the company for improved profitability if the proceeds are reinvested into higher-yielding assets.
The increase in provision for credit losses, particularly due to the downgrade of a commercial relationship, suggests a cautious approach to credit risk management. The company's adoption of the CECL model at the beginning of the year has also adjusted their allowance for credit losses, which could affect investor confidence in the company's asset quality. However, the improvement in credit quality, as indicated by the decrease in non-performing loans to total loans ratio, may offset some concerns.
From a capital perspective, the company remains well-capitalized, which is reassuring for stakeholders. The decision not to renew brokered deposits, which led to a decrease in total deposits, may reflect a strategic shift towards more stable funding sources, potentially reducing future interest expense and improving net interest margin.
Hawthorn Bancshares' efficiency ratio has increased year-over-year and quarter-over-quarter, indicating higher costs relative to revenue. This uptick could be a concern for operational efficiency and profitability. The banking industry typically aims for lower efficiency ratios, with figures around 50-60% considered optimal. An efficiency ratio of over 80% suggests that the company may need to reassess its cost structures or find new revenue streams to improve its financial health.
Additionally, the company's stock price has experienced volatility, as reflected in the difference between the book value per share and the market price per share. This disparity may signal market perceptions of risk or skepticism regarding the company's strategic decisions and future earnings capacity. Stakeholders would be interested in the company's plans to address these challenges and restore investor confidence.
The broader economic context, including market interest rates and economic growth, plays a critical role in the banking sector's performance. Hawthorn Bancshares' net interest margin (NIM) has shown resilience despite a challenging rate environment, which is a positive indicator of the bank's ability to manage interest income versus interest expenses. However, the overall decrease in net income year-over-year suggests that external economic factors may be exerting pressure on the company's earnings.
Furthermore, the decrease in loan and deposit growth rates could be reflective of a cooling economy or increased competition in the banking sector. The company's strategic repositioning suggests it is actively managing its portfolio in response to these economic challenges. Stakeholders should monitor how these strategic changes align with economic trends and whether the bank can leverage them to enhance its competitive position and financial performance in the long term.
JEFFERSON CITY, Mo., Jan. 30, 2024 (GLOBE NEWSWIRE) -- Hawthorn Bancshares, Inc. (NASDAQ: HWBK), (the “Company”), the holding company for Hawthorn Bank, reported fourth quarter net loss of
2023 Results
- Net income of
$1.0 million , or$0.14 per diluted share - Net interest margin, fully taxable equivalent ("FTE") of
3.29% - Return on average assets and equity of
0.05% and0.76% , respectively - Deposits decreased
$61.2 million , or3.8% , compared to 2022 ("prior year") - Loans increased
$17.9 million , or1.2% , compared to the prior year - The Company sold
$83.7 million in book value of investment securities, with an average yield of1.57% , for an after-tax realized loss of$9.1 million - Significant improvement in credit quality with non-performing loans to total loans decreasing to
0.42% compared to1.23% in the prior year
Fourth Quarter 2023 Results
- Net loss of
$7.4 million , or$(1.05) per diluted share - Net interest margin (FTE) of
3.48% - Return on average assets and equity of (1.57)% and (24.54)%, respectively
- Deposits decreased
$9.5 million , or0.6% , compared to the third quarter 2023 ("linked quarter") - Continued strong credit quality with non-performing loans to total loans of
0.42%
Brent Giles, Chief Executive Officer of Hawthorn Bancshares Inc. commented, “During the fourth quarter, several strategic decisions were made, which significantly impacted our financial results. These decisions align with our commitment to improving our balance sheet position, improved profitability, and concentration on our core lines of business. We repositioned our balance sheet by selling a portion of our investment portfolio, which allows us the ability to reinvest the proceeds into higher earning assets. In addition, we made a valuation adjustment related to the sale of our mortgage servicing rights and a write off of an investment in an account acquisition project that is not part of our strategy going forward. We also realized an increase of
FINANCIAL SUMMARY
(unaudited)
| December 31, | September 30, | December 31 | |||||||||
| Balance sheet information: | 2023 | 2023 | 2022 | ||||||||
| Total assets | $ | 1,875,350 | $ | 1,879,005 | $ | 1,923,540 | |||||
| Loans held for investment | 1,539,147 | 1,556,969 | 1,521,252 | ||||||||
| Investment securities | 195,042 | 240,521 | 257,100 | ||||||||
| Deposits | 1,570,844 | 1,580,365 | 1,632,079 | ||||||||
| Total stockholders’ equity | $ | 136,085 | $ | 118,404 | $ | 127,411 | |||||
| Key ratios and per share data | |||||||||||
| Book value per share | $ | 19.33 | $ | 16.82 | $ | 18.04 | |||||
| Market price per share | $ | 25.37 | $ | 16.25 | $ | 20.57 | |||||
| Diluted earnings (loss) per share (YTD) | $ | 0.14 | $ | 1.19 | $ | 2.94 | |||||
| Diluted earnings (loss) per share (QTR) | $ | (1.05 | ) | $ | 0.36 | $ | 0.67 | ||||
| Net interest margin (FTE) (YTD) | 3.29 | % | 3.23 | % | 3.53 | % | |||||
| Net interest margin (FTE) (QTR) | 3.48 | % | 3.35 | % | 3.43 | % | |||||
| Efficiency ratio (YTD) | 78.5 | % | 77.6 | % | 66.7 | % | |||||
| Efficiency ratio (QTR) | 81.1 | % | 79.8 | % | 69.4 | % | |||||
Financial Results for the Quarter and the Year Ended December 31, 2023
Earnings
Net income for 2023 was
Net loss of
Net interest income and net interest margin
Net interest income for 2023 was
Net interest income of
Non-interest Income
Total non-interest income for 2023 was
Total non-interest income for the fourth quarter of 2023 was
Non-interest Expense
Non-interest expense for 2023 was
Compared to the prior year, salaries and benefits increased
The fourth quarter efficiency ratio was
Loans
Loans held for investment decreased by
The yield earned on average loans held for investment was
Investments
Investments decreased by
The Company elected to proactively reposition the securities portfolio during the fourth quarter, which is expected to be accretive to earnings, net interest margin and return on assets in future periods. The Company sold
The loss on the sale of securities is expected to have a neutral impact on the Company's consolidated shareholders' equity and tangible book value per share. After the repositioning, the Company's regulatory capital levels remained above those required to be categorized as well-capitalized.
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
Non-performing loans totaled
In the fourth quarter of 2023, the Company had net loan charge-offs of
The Company recognized a
For 2023, the Company recognized a provision for credit losses on loans and unfunded commitments of
The allowance for credit losses at December 31, 2023 was
Deposits
Total deposits at December 31, 2023 were
The average cost of deposits was
Capital
On January 1, 2023, the Company adopted ASU 2016-13 and recorded a one-time cumulative effect adjustment to retained earnings totaling
The Company maintains its “well capitalized” regulatory capital position. At the end of the fourth quarter 2023, capital ratios were as follows: total risk-based capital to risk-weighted assets
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 fourth quarter of 2023. As of December 31, 2023,
On January 30, 2024, the Company's Board of Directors approved a quarterly cash dividend of
[Tables follow]
FINANCIAL SUMMARY
(unaudited)
| Three Months Ended | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| Statement of income information: | 2023 | 2023 | 2022 | ||||||||
| Total interest income | $ | 25,220 | $ | 23,888 | $ | 19,785 | |||||
| Total interest expense | 9,376 | 8,741 | 4,795 | ||||||||
| Net interest income | 15,844 | 15,147 | 14,990 | ||||||||
| Provision for loan losses | 1,550 | 110 | 100 | ||||||||
| Non-interest income | 2,152 | 606 | 3,119 | ||||||||
| Investment securities (losses) gains, net | (11,565 | ) | 3 | (2 | ) | ||||||
| Non-interest expense | 14,587 | 12,569 | 12,576 | ||||||||
| Pre-tax (loss) income | (9,706 | ) | 3,077 | 5,431 | |||||||
| Income taxes (benefit) | (2,263 | ) | 498 | 705 | |||||||
| Net (loss) income | $ | (7,443 | ) | $ | 2,579 | $ | 4,726 | ||||
| Earnings (loss) per share: | |||||||||||
| Basic: | $ | (1.05 | ) | $ | 0.36 | $ | 0.67 | ||||
| Diluted: | $ | (1.05 | ) | $ | 0.36 | $ | 0.67 | ||||
| For the Years Ended | |||||||
| December 31, | |||||||
| Statement of income information: | 2023 | 2022 | |||||
| Total interest income | $ | 91,968 | $ | 69,256 | |||
| Total interest expense | 32,826 | 10,493 | |||||
| Net interest income | 59,142 | 58,763 | |||||
| Provision for (release of) credit losses | 2,340 | (900 | ) | ||||
| Non-interest income | 7,536 | 13,978 | |||||
| Investment securities (losses) gains, net | (11,547 | ) | (14 | ) | |||
| Non-interest expense | 52,359 | 48,538 | |||||
| Pre-tax income | 432 | 25,089 | |||||
| Income taxes (benefit) | (524 | ) | 4,338 | ||||
| Net income | $ | 956 | $ | 20,751 | |||
| Earnings per share: | |||||||
| Basic: | $ | 0.14 | $ | 2.94 | |||
| Diluted: | $ | 0.14 | $ | 2.94 | |||
FINANCIAL SUMMARY (continued)
(unaudited)
| December 31, | September 30, | December 31, | ||||||
| 2023 | 2023 | 2022 | ||||||
| Key financial ratios: | ||||||||
| Return on average assets (YTD) | 0.05 | % | 0.59 | % | 1.16 | % | ||
| Return on average common equity (YTD) | 0.76 | % | 8.73 | % | 15.94 | % | ||
| Return on average assets (QTR) | (1.57 | )% | 0.54 | % | 1.01 | % | ||
| Return on average common equity (QTR) | (24.54 | )% | 8.05 | % | 15.72 | % | ||
| Net interest margin (FTE) (YTD) | 3.29 | % | 3.23 | % | 3.53 | % | ||
| Efficiency ratio (YTD) | 78.5 | % | 77.6 | % | 66.7 | % | ||
| Asset Quality Ratios | ||||||||
| Allowance for credit losses to total loans | 1.54 | % | 1.44 | % | 1.02 | % | ||
| Non-performing loans to total loans (a) | 0.42 | % | 0.25 | % | 1.23 | % | ||
| Non-performing assets to loans (a) | 0.53 | % | 0.48 | % | 1.81 | % | ||
| Non-performing assets to assets (a) | 0.43 | % | 0.39 | % | 1.43 | % | ||
| Allowance for credit losses to non-performing loans (a) | 370.25 | % | 583.88 | % | 83.35 | % | ||
| Capital Ratios | ||||||||
| Average stockholders' equity to average total assets (YTD) | 6.68 | % | 6.78 | % | 7.27 | % | ||
| Period-end stockholders' equity to period-end assets (YTD) | 7.26 | % | 6.30 | % | 6.62 | % | ||
| Total risk-based capital ratio | 13.99 | % | 14.20 | % | 13.85 | % | ||
| Tier 1 risk-based capital ratio | 12.59 | % | 12.54 | % | 12.52 | % | ||
| Common equity Tier 1 capital | 9.73 | % | 10.09 | % | 9.89 | % | ||
| Tier 1 leverage ratio | 10.29 | % | 10.43 | % | 10.76 | % | ||
| (a) | Non-performing loans include loans 90 days past due and accruing and non-accrual loans. |
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, and California.
The financial results in this press release reflect preliminary, unaudited results, which are not final until the Company's Annual Report on Form 10-K 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, including those relating to the Company's balance sheet repositioning strategy and the anticipated effects thereof. 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.
FAQ
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