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Hawthorn Bancshares Reports 2010 Financial Results

Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported financial results for the Company, and its main operating subsidiary, Hawthorn Bank, for the year ended December 31, 2010.

The Company reported a net loss per diluted common share of $1.24 for the year ended December 31, 2010 compared to positive earnings per common share of $0.66 for 2009. Income available to common shareholders was a net loss of $5.5 million for 2010 compared to a net profit of $3.0 million for 2009. Operating results for 2010 were largely impacted by the $8.6 million and $6.9 million increases in other real estate expenses and loan loss provisions, respectively.

Commenting on the Company’s performance, Chairman & CEO David T. Turner said, “The core performance of Hawthorn – what we earn accumulating deposits and using those raw materials to make loans and other investments, along with fee income, minus our expenses – remains strong and has even improved over the last two years. However, the loan loss provision needed to maintain a strong reserve for loan losses and significant other real estate owned mark to market valuation adjustments based on current appraised values have more than offset 2010 core earnings.”

Operating Results

Net Interest Income

Net interest income increased 5.9% to $43.0 million from $40.6 million. This was due largely to increasing the 2010 net interest margin to 3.78% from 2009’s margin of 3.50% despite a 2.2% decrease in average interest earning assets. The higher net interest margin is primarily the result of interest bearing liabilities repricing quicker than interest bearing assets.

Loan-Loss Reserve

Hawthorn's level of non-performing loans increased to 6.27% of total loans at year-end 2010, up from 4.27% at year-end 2009. As a result, the Company provided an additional $15.3 million to the allowance for loan losses in 2010, compared to $8.4 million in 2009. The total allowance at year-end 2010 was $14.6 million, or 1.62% of outstanding loans and 25.87% of nonperforming loans. This compares to an allowance of $14.8 million, or 1.49% of outstanding loans and 34.94% of nonperforming loans as of year-end 2009. Net charge-offs for 2010 were $15.5 million, compared with $6.2 million in 2009.

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