Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported consolidated financial results for the Company for the second quarter ended June 30, 2011.

Net income for the quarter was $1.4 million, compared to $0.8 million for the second quarter of 2010. Hawthorn earned $0.19 per diluted common share for the three months ended June 30, 2011, versus $0.06 for the second quarter of 2010 after deducting accrued dividends and accretion of $0.5 million on preferred stock issued to the U.S. Treasury under the Capital Purchase Program.

On a year to date basis, Hawthorn Bancshares generated net income of $2.4 million, up from $1.3 million for 2010. After deducting accrued dividends and accretion on preferred stock issued to the U.S. Treasury, income available to common shareholders was $1.4 million compared to $0.3 million for 2010. From a diluted earnings per common share basis, Hawthorn generated $0.29 for the six months ended June 30, 2011 compared to $0.06 per common share for the same period in 2010.

Operating Results

Net Interest Income

Net interest income for the quarter ended June 30, 2011 decreased 3.0% to $10.8 million from $11.1 million for the same period in 2010. The decrease is attributed to a lower volume of earning assets despite further strengthening of the Company’s net interest margin which increased from 3.88% for the second quarter of 2010 to 3.95% for the second quarter of 2011.

Non-Interest Income and Expense

Non-interest income for the three months ended June 30, 2011 was $2.2 million compared to $2.5 million for the same period in 2010. The decline is primarily due to a $0.2 million non-recurring non-interest income adjustment made in 2010 and a slight decrease in residential real estate refinancing activity impacting both the volume of loans sold and gains recognized. Non-interest expense for the three months ended June 30, 2011 was $9.0 million compared to $10.3 million for second quarter 2010. The decrease is largely attributed to a $1.0 million decline in other real estate expense including losses on foreclosed properties.

Loan Loss Reserve

Hawthorn’s level of non-performing loans was 6.47% of total loans at June 30, 2011, up from 6.27% at year-end 2010. During the quarter, the Company recognized net charge-offs of $0.4 million compared to $4.6 million for the second quarter of 2010. The Company provided an additional $1.9 million to the allowance for loan losses for the second quarter of 2011, compared to $2.2 million for the second quarter of 2010. The total allowance for loan losses at June 30, 2011 was $13.9 million, or 1.60% of outstanding loans and 24.7% of non-performing loans as of June 30, 2011. At December 31, 2010, the total allowance for loan losses was $14.6 million, or 1.62% of outstanding loans and 25.9% of non-performing loans. Management believes based on detailed analysis of each nonperforming credit and the value of any associated collateral that the allowance for loan losses at June 30, 2011 is adequate to cover probable losses in nonperforming loans.

Financial Condition

Comparing June 30, 2011 balances with December 31, 2010, total assets remained relatively unchanged at $1.2 billion. Continued soft loan demand resulted in loans, net of allowance for loan losses, decreasing 3.3% to $854.9 million. With low loan demand, the Company’s next highest yielding asset category is investment securities which increased 22.8% to $219.7 million. Cash & due from banks decreased 31.0% to $35.1 million. Total deposits increased 1.6% to $962.1 million. During the same period, stockholders’ equity increased 2.8% to $104.3 million or 8.7% of total assets. At 17.54% and 11.31% of total assets, total risk based and leverage capital ratios far exceed minimum regulatory requirements of 8.00% and 3.00% respectively.

For the quarter, the annualized return on average common equity was 4.93% and the annualized return on average assets was 0.47% compared with 1.41% and 0.25%, respectively, for the same period in 2010.

FINANCIAL SUMMARY (unaudited)

               
Balance sheet information: June 30, 2011 December 31, 2010
Loans, net of allowance for loan losses $854,935,767 $883,907,596
Debt securities 219,697,283 178,977,550
Total assets 1,194,707,174 1,200,172,204
Deposits 962,072,597 946,662,656
Total stockholders' equity 104,344,261 101,488,311
 
Three Months Three Months
Statement of income information: Ended June 30, 2011 Ended June 30, 2010
Total interest income $13,640,632 $15,102,936
Total interest expense 2,858,101 3,988,809
Net interest income 10,782,531 11,114,127
Provision for loan losses 1,883,334 2,150,000
Noninterest income 2,178,624 2,450,020
Noninterest expense 9,008,125 10,319,638
Pre-tax income 2,069,696 1,094,509
Income taxes 661,202 312,043
Net income 1,408,494 782,466
Dividends & accretion on preferred stock issued to U.S. Treasury 501,508 501,508
Net income available to common shareholders 906,986 280,958
Earnings Per Common Share:
Basic: $0.19 $0.06
Diluted: $0.19 $0.06
 
Six Months Six Months
Statement of income information: Ended June 30, 2011 Ended June 30, 2010
Total interest income $27,223,308 $29,975,957
Total interest expense 5,960,241 8,550,796
Net interest income 21,263,067 21,425,161
Provision for loan losses 3,633,336 4,655,000
Noninterest income 4,230,704 4,455,476
Noninterest expense 18,385,849 19,450,384
Pre-tax income 3,474,586 1,775,253
Income taxes 1,112,475 499,019
Net income 2,362,111 1,276,234
Dividends & accretion on preferred stock issued to U.S. Treasury 990,410 990,410
Net income available to common shareholders 1,371,701 285,824
Earnings Per Common Share:
Basic: $0.29 $0.06
Diluted: $0.29 $0.06
 

FINANCIAL SUMMARY (Continued) (unaudited)
         
Key financial ratios: June 30, 2011 December 31, 2010
  Return on average assets (YTD) 0.40 % (0.29 )%
Return on average common equity (YTD) 3.75 % (6.86 )%
Allowance for loan losses to total loans 1.60 % 1.62 %
Nonperforming loans to total loans 6.47 % 6.27 %
Nonperforming assets to loans and foreclosed assets 8.13 % 7.71 %
Allowance for loan losses to nonperforming loans 24.67 % 25.87 %
 

About Hawthorn Bancshares

Hawthorn Bancshares, Inc., a financial-bank holding company headquartered in Lee's Summit, Missouri, is the parent company of Hawthorn Bank of Jefferson City with locations in Lee's Summit, Springfield, Branson, Independence, Raymore, 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.

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