Hawthorn Bancshares Reports 2011 Financial Results

Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported financial results for the Company for the year ended December 31, 2011.

The Company reported diluted earnings per common share of $0.19 for the year ended December 31, 2011 compared to a $1.19 per common share loss for 2010. Improvement in operating results for 2011 was largely impacted by a $7.1 million reduction in other real estate expenses (which included a 2010 $5.7 million valuation write-down on a single commercial real estate development parcel) and a $3.7 million reduction in loan loss provision expenses. Net income available to common shareholders for 2011 was $0.9 million after deducting dividends and the related discount accretion of $2.0 million on preferred stock issued to the U.S. Treasury under the Capital Purchase Program.

Commenting on the Company’s performance, Chairman & CEO David T. Turner said, “The core performance of Hawthorn remains strong. Our pre-tax, pre-provision core earnings continue to provide solid support for the credit-related expenses needed to address our problem assets. We still have additional work ahead in reducing our problem assets to an acceptable level and returning to our accustomed earnings standards; but we feel that much has been accomplished. Management continues to closely monitor our non-performing assets and focus on problem asset resolution.”

Operating Results

Net Interest Income

Net interest income remained strong for 2011 due to increasing the net interest margin to 3.92% from 2010’s margin of 3.78% despite a 4.7% decrease in average earning assets. The higher net interest margin is primarily the result of interest bearing liabilities repricing lower than interest bearing assets.

Loan-Loss Reserve

Hawthorn's level of non-performing loans decreased $2.6 million during 2011. However, due to a decrease in loan volume, non-performing loans proportionally increased to 6.37% of total loans compared to 6.27% at year-end 2010. The Company provided $11.5 million to the allowance for loan losses in 2011, compared to $15.3 million in 2010. This decrease of $3.8 million was primarily due to a reduction in net charge-offs of $3.2 million to $12.3 million for 2011 compared to $15.5 million for 2010. The total allowance at year-end 2011 was $13.8 million, or 1.64% of outstanding loans and 25.73% of nonperforming loans. This compares to an allowance of $14.6 million, or 1.62% of outstanding loans and 25.87% of nonperforming loans as of year-end 2010.

Regarding asset quality, Chairman & CEO Turner said, “As we evaluate our loan portfolio today, we are not seeing the same level of deterioration as we have in the past. We have made progress in lowering our loan loss provision expense, yet persistent challenges remain as evidenced by our elevated level of non-performing loans.” Mr. Turner added, "Although I'm disappointed by the continued high level of non-performing loans, we are working through difficult issues in a methodical process. We are working diligently to limit future losses while continuing to identify and resolve credit issues in a timely manner. These efforts are evidenced in the volume of foreclosures and gross loan charge-offs realized during 2011. Loans taken into foreclosure during 2011 totaled $11.8 million and gross charge-offs were $13.2 million during the same period. Comparatively, transfers to other real estate during 2010 totaled $23.7 million and gross charge-offs were $16.2 million.”

Non-Interest Income and Expense

Non-interest income was $9.2 million in 2011, compared to $10.5 million in 2010. Driving the decrease is a slow down in residential refinancing activity and the resulting gain on sale of loans. Non-interest expense was $36.8 million in 2011, compared to $44.9 million in 2010. The decrease is largely attributed to a $7.1 million decrease in foreclosure expenses and valuation adjustments related to recording other real estate owned properties at fair value based on current appraisals.

Financial Condition

Total assets of $1.2 billion decreased 2.4% as of December 31, 2011, compared to 2010. Loans, net of allowance for loan losses, decreased 6.2% to $829.1 million. A significant portion of the decline in the loan portfolio resulted from transfers to foreclosed assets and gross loan charge-offs which accounted for $11.8 million and $13.2 million, respectively. Investment securities increased 19.5% to $213.8 million. Total deposits increased 1.2% to $958.2 million. Common equity capital increased 0.8% to $73.3 million. At 18.03% of total risk weighted assets, total risk based capital far exceeded regulatory requirements.


Balance sheet information:         December 31, 2011         December 31, 2010
Loans, net of allowance for loan losses $829,121,324         $883,907,596
Investment securities 213,806,001 178,977,550
Total assets 1,171,161,423 1,200,172,204
Deposits 958,224,153 946,662,656
Common stockholders' equity 73,258,057 72,647,069
Total stockholders' equity 102,575,773 101,488,311
Year Ended Year Ended
Statement of operations: December 31, 2011         December 31, 2010
Total interest income $53,468,347 $58,738,680
Total interest expense 10,852,845 15,752,502
Net interest income 42,615,502 42,986,178
Provision for loan losses 11,523,338 15,255,000
Noninterest income 9,200,459 10,480,718
Investment securities gains, net ---- ----
Noninterest expense 36,844,209 44,850,449
Pre-tax income (loss) 3,448,414 (6,638,553)
Income taxes 591,144 (3,086,813)
Net income (loss) 2,857,270 (3,551,740)
Preferred stock dividends 1,989,224 1,989,224

Net income (loss) available to commonshareholders
868,046 (5,540,964)
Key financial ratios: December 31, 2011         December 31, 2010
Return (loss) on average assets 0.24% (0.29%)
Return (loss) on average common equity 1.15% (6.86%)
Allowance for loan losses to total loans 1.64% 1.62%
Nonperforming loans to total loans 6.37% 6.27%

Nonperforming assets to loans andforeclosed assets
8.11% 7.71%

Allowance for loan losses tononperforming loans
25.73% 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.

Copyright Business Wire 2010

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