Hawthorn Bancshares Announces Second Quarter Earnings

Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported consolidated financial results for the Company for the second quarter ended June 30, 2016.

Net income for the current quarter was $1.4 million, or $0.25 per diluted share, compared to $2.0 million, or $0.35 per diluted share, for the linked quarter ended March 31, 2016 and $1.9 million, or $0.34 per diluted share, for the quarter ended June 30, 2015. For the six months ended June 30, 2016, net income was $3.4 million, or $0.60 per diluted share, compared to $4.1 million, or $0.72 per diluted share, for the six months ended June 30, 2015.

The return on average common equity was 6.26% and the return on average assets was 0.46% for the second quarter ended June 30, 2016, compared to 9.21% and 0.65%, respectively, for the second quarter ended June 30, 2015. For the current year, return on average common equity was 7.62% and the return on average assets was 0.56% compared to 9.89% and 0.69% for the prior year-to-date, respectively.

Commenting on earnings performance, Chairman David T. Turner said, “Hawthorn reported lower earnings for the current quarter compared to the linked quarter and the prior year quarter. These decreases were primarily the result of a higher loan loss provision in the current quarter driven mostly by loan growth and a $472,000 securities gain recognized in the linked quarter. We have experienced loan growth with gross loans increasing by approximately $48 million, or 5.4%, from the linked quarter-end and $59 million, or 6.9%, from the prior year quarter-end. This loan growth contributed to net interest income remaining strong in spite of a continued tight interest rate environment putting continued pressure on our net interest margin. In spite of the yield on our investment securities continuing to fall due to higher yielding securities being replaced with current lower market yields, our net interest margin only decreased 2 basis points from the linked quarter to 3.49% for the current quarter. Due to continued loan growth and our analysis of the risks in the loan portfolio, the company recorded a provision for loan losses of $425,000 during the current quarter compared to $250,000 recorded for both the linked quarter and the prior year quarter. Non-interest income decreased $499,000 from the linked quarter primarily due to the above mentioned $472,000 securities gain recognized in that quarter and decreased $512,000 from the prior year quarter mostly due to lower real estate servicing fees, net and gain on sale of mortgage loans, net. Non-interest expense of $9.4 million was higher than the linked quarter by $270,000, or 3%, and relatively unchanged from the prior year quarter.”

Net Interest Income

Net interest income increased by $0.1 million, or 1.2%, from $9.9 million for the linked quarter to $10.0 million for the current quarter ended June 30, 2016 and was unchanged from the prior year quarter. Average loans increased $30.2 million, or 3.5%, from the linked quarter and $35.1 million, or 4.1%, from the prior year quarter. The net interest margin of 3.49% for the current quarter was down 2 basis points from the linked quarter and decreased 14 basis points from the prior year quarter ended June 30, 2015.

Non-Interest Income and Expense

Non-interest income for the quarter ended June 30, 2016 was $1.9 million compared to $2.4 million for the linked quarter ended March 31, 2016 and $2.5 million for the prior year quarter ended June 30, 2015. The $0.5 million decrease from the linked quarter was primarily due to investment securities gains of $0.5 million realized in the previous quarter. The $0.6 million decrease from the prior year quarter was primarily due to a $0.5 million decrease in combined real estate service fees, net and gain on sale of mortgage loans, net resulting from reduced market demand.

Non-interest expense was $9.4 million for the quarter ended June 30, 2016 compared to $9.1 million for the linked quarter, and $9.3 million for the prior year quarter ended June 30, 2015. The $0.3 million increase from the linked March 2016 quarter primarily resulted from increased fraud losses on debit cards and increased employee training related expenses. The $0.1 million increase from the prior year quarter was mostly due to increased debit card fraud losses and employee training related expense partially offset by reduced real estate foreclosure expense, net.

Allowance for Loan Losses

The Company’s level of non-performing loans was 1.02% of total loans at June 30, 2016, compared to 1.03% at March 31, 2016 and 2.09% at June 30, 2015. During the quarter ended June 30, 2016, the Company recorded net recoveries of $336,000, or (0.04%) of average loans compared to net charge-offs of $223,000, or 0.03% of average loans for the quarter ended March 31, 2016 and net charge-offs of $25,000, or 0.00% of average loans for the quarter ended June 30, 2015. The allowance for loan losses at June 30, 2016 was $9.4 million, or 1.02% of outstanding loans, 99.37% of non-performing loans and 257.03% of nonperforming loans when excluding accruing TDR’s. At December 31, 2015, the allowance for loan losses was $8.6 million, or 0.99% of outstanding loans, 83.75% of non-performing loans and 194.48% of nonperforming loans when excluding accruing TDR’s. The allowance for loan losses represents management’s best estimate of probable losses inherent in the loan portfolio and is commensurate with risks in the loan portfolio as of June 30, 2016.

Financial Condition

Comparing June 30, 2016 balances with December 31, 2015, total assets increased $64.8 million to $1.3 billion. Asset growth occurred primarily in gross loans which increased $57.9 million, or 6.7%. Total deposits increased $58.0 million to $1.0 billion and FHLB advances increased $24.0 million to $74.0 million, while federal funds purchased and securities sold under agreements to repurchase decreased $21.1 million to $35.7 million at June 30, 2016. During the same period, stockholders’ equity increased 5.1% to $91.7 million, or 7.25% of total assets. The total risk based capital ratio of 14.19% and the leverage ratio of 9.88% at June 30, 2016 far exceed minimum regulatory requirements of 8.00% and 4.00%, respectively.

FINANCIAL SUMMARY

(unaudited)

$000

Three Months Ended

Statement of income information:

June 30, 2016

March 31, 2016

June 30, 2015

        
      
      
        
          Total interest income
        
        
        
        
          $
        
        
          11,350
        
        
        
        
        
        
          $
        
        
          11,176
        
        
        
        
        
        
          $
        
        
          11,214
        
      
      
        
          Total interest expense
        
        
        
        
        
        
          1,379
        
        
        
        
        
        
        
        
          1,328
        
        
        
        
        
        
        
        
          1,230
        
      
      
        
          Net interest income
        
        
        
        
        
        
          9,971
        
        
        
        
        
        
        
        
          9,848
        
        
        
        
        
        
        
        
          9,984
        
      
      
        
          Provision for loan losses
        
        
        
        
        
        
          425
        
        
        
        
        
        
        
        
          250
        
        
        
        
        
        
        
        
          250
        
      
      
        
          Noninterest income
        
        
        
        
        
        
          1,949
        
        
        
        
        
        
        
        
          2,448
        
        
        
        
        
        
        
        
          2,461
        
      
      
        
          Noninterest expense
        
        
        
        
        
        
          9,353
        
        
        
        
        
        
        
        
          9,083
        
        
        
        
        
        
        
        
          9,267
        
      
      
        
          Pre-tax income
        
        
        
        
        
        
          2,142
        
        
        
        
        
        
        
        
          2,963
        
        
        
        
        
        
        
        
          2,928
        
      
      
        
          Income taxes
        
        
        
        
        
        
          730
        
        
        
        
        
        
        
        
          965
        
        
        
        
        
        
        
        
          1,001
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          1,412
        
        
        
        
        
        
          $
        
        
          1,998
        
        
        
        
        
        
          $
        
        
          1,927
        
      
      
        
          

Earnings per share:

        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic:
        
        
        
        
          $
        
        
          0.25
        
        
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.34
        
      
      
        
          Diluted:
        
        
        
        
          $
        
        
          0.25
        
        
        
        
        
        
          $
        
        
          0.35
        
        
        
        
        
        
          $
        
        
          0.34
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
           
        
        
           
        
        
           
        
        
          

 

For the Six Months Ended

Statement of income information:

June 30, 2016

June 30, 2015

        
      
      
        
          Total interest income
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          22,527
        
        
        
        
        
        
          $
        
        
          22,412
        
      
      
        
          Total interest expense
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          2,708
        
        
        
        
        
        
        
        
          2,450
        
      
      
        
          Net interest income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          19,819
        
        
        
        
        
        
        
        
          19,962
        
      
      
        
          Provision for loan losses
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          675
        
        
        
        
        
        
        
        
          250
        
      
      
        
          Noninterest income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          4,397
        
        
        
        
        
        
        
        
          4,448
        
      
      
        
          Noninterest expense
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          18,436
        
        
        
        
        
        
        
        
          17,975
        
      
      
        
          Pre-tax income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          5,105
        
        
        
        
        
        
        
        
          6,185
        
      
      
        
          Income taxes
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          1,695
        
        
        
        
        
        
        
        
          2,120
        
      
      
        
          Net income
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          3,410
        
        
        
        
        
        
          $
        
        
          4,065
        
      
      
        
          

Earnings per share:

        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic:
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          0.60
        
        
        
        
        
        
          $
        
        
          0.72
        
      
      
        
          Diluted:
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          0.60
        
        
        
        
        
        
          $
        
        
          0.72
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    
      
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
        
        
      
      
        
          

Key financial ratios:

June 30, 2016

March 31, 2016

June 30, 2015

December 31, 2015

        
      
      
        
          Return on average assets (YTD)
        
        
        
        
        
        
          0.56
        
        
          %
        
        
        
        
        
        
          0.66
        
        
          %
        
        
        
        
        
        
          0.69
        
        
          %
        
        
        
        
        
        
          0.72
        
        
          %
        
      
      
        
          Return on average common equity (YTD)
        
        
        
        
        
        
          7.62
        
        
          %
        
        
        
        
        
        
          9.02
        
        
          %
        
        
        
        
        
        
          9.89
        
        
          %
        
        
        
        
        
        
          10.14
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
          

June 30, 2016

March 31, 2016

June 30, 2015

December 31, 2015

        
      
      
        
          Allowance for loan losses to total loans
        
        
        
        
        
        
          1.02
        
        
          %
        
        
        
        
        
        
          0.99
        
        
          %
        
        
        
        
        
        
          1.16
        
        
          %
        
        
        
        
        
        
          0.99
        
        
          %
        
      
      
        
          Nonperforming loans to total loans
        
        
        
        
        
        
          1.02
        
        
          %
        
        
        
        
        
        
          1.03
        
        
          %
        
        
        
        
        
        
          2.09
        
        
          %
        
        
        
        
        
        
          1.19
        
        
          %
        
      
      
        
          Nonperforming assets to loans
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          and foreclosed assets
        
        
        
        
        
        
          2.98
        
        
          %
        
        
        
        
        
        
          2.75
        
        
          %
        
        
        
        
        
        
          3.49
        
        
          %
        
        
        
        
        
        
          2.98
        
        
          %
        
      
      
        
          Allowance for loan losses to
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          nonperforming loans
        
        
        
        
        
        
          99.37
        
        
          %
        
        
        
        
        
        
          96.01
        
        
          %
        
        
        
        
        
        
          55.30
        
        
          %
        
        
        
        
        
        
          83.75
        
        
          %
        
      
      
        
          Allowance for loan losses to nonperforming
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          loans - excluding performing TDRs
        
        
        
        
        
        
          257.03
        
        
          %
        
        
        
        
        
        
          275.05
        
        
          %
        
        
        
        
        
        
          83.48
        
        
          %
        
        
        
        
        
        
          194.48
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          

Balance sheet information:

June 30, 2016

March 31, 2016

June 30, 2015

December 31, 2015

        
      
      
        
          Loans, net of allowance for loan losses
        
        
        
        
          $
        
        
          913,550
        
        
        
        
        
        
          $
        
        
          866,681
        
        
        
        
        
        
          $
        
        
          853,668
        
        
        
        
        
        
          $
        
        
          856,476
        
        
        
      
      
        
          Investment securities
        
        
        
        
        
        
          244,194
        
        
        
        
        
        
        
        
          253,853
        
        
        
        
        
        
        
        
          247,403
        
        
        
        
        
        
        
        
          243,091
        
        
        
      
      
        
          Total assets
        
        
        
        
        
        
          1,265,724
        
        
        
        
        
        
        
        
          1,234,156
        
        
        
        
        
        
        
        
          1,204,363
        
        
        
        
        
        
        
        
          1,200,921
        
        
        
      
      
        
          Deposits
        
        
        
        
        
        
          1,005,241
        
        
        
        
        
        
        
        
          992,560
        
        
        
        
        
        
        
        
          988,866
        
        
        
        
        
        
        
        
          947,197
        
        
        
      
      
        
          Total stockholders’ equity
        
        
        
        
        
        
          91,741
        
        
        
        
        
        
        
        
          89,853
        
        
        
        
        
        
        
        
          83,789
        
        
        
        
        
        
        
        
          87,286
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Book value per share
        
        
        
        
          $
        
        
          16.24
        
        
        
        
        
        
          $
        
        
          15.90
        
        
        
        
        
        
          $
        
        
          14.80
        
        
        
        
        
        
          $
        
        
          15.42
        
        
        
      
      
        
          Market price per share
        
        
        
        
          $
        
        
          13.79
        
        
        
        
        
        
          $
        
        
          14.18
        
        
        
        
        
        
          $
        
        
          13.77
        
        
        
        
        
        
          $
        
        
          15.14
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

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, Springfield, Branson, Independence, Columbia, Clinton, Windsor, Collins, Osceola, Warsaw, Belton, Drexel, Harrisonville, California and St. Robert.

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160816006047/en/

Hawthorn BancsharesBruce Phelps, 573-761-6100Chief Financial OfficerFAX: 573-761-6272www.HawthornBancshares.com