Hawthorn Bancshares(HWBK) - 2023 Q1 - Quarterly Report

Financial Performance - Consolidated net income for Q1 2023 was $3.3 million, a decrease of$ 1.5 million (30.8%) from Q4 2022 and a decrease of $3.3 million (50.5%) from Q1 2022[186]. - Basic and diluted earnings per share for Q1 2023 were both$ 0.48, down from $0.70 in Q4 2022 and$ 0.97 in Q1 2022[186]. - The efficiency ratio for Q1 2023 was 72.84%, compared to 69.46% in Q4 2022 and 68.42% in Q1 2022[183]. - Return on average assets for Q1 2023 was 0.70%, down from 1.01% in Q4 2022 and 1.51% in Q1 2022[186]. Income and Expenses - Net interest income for Q1 2023 was $13.9 million, down$ 1.0 million from Q4 2022 and down $0.2 million from Q1 2022; net interest margin decreased to 3.16% from 3.43% in Q4 2022 and 3.50% in Q1 2022[187]. - Non-interest income for Q1 2023 was$ 3.2 million, an increase of $0.1 million (2.0%) from Q4 2022 but a decrease of$ 0.5 million (14.6%) from Q1 2022[188]. - Total non-interest expense increased by $0.3 million, or 2.1%, to$ 12.5 million for the three months ended March 31, 2023, compared to $12.2 million for the same period in 2022[221]. - Salaries increased by$ 0.3 million, or 6.4%, to $5.5 million for the three months ended March 31, 2023, compared to$ 5.2 million for the same period in 2022[221]. Loans and Deposits - Total deposits decreased by $24.1 million (1.5%) to$ 1.6 billion at the end of Q1 2023 compared to Q4 2022, but increased by $151.9 million (10.4%) year-over-year[194]. - Loans held for investment increased by$ 20.8 million (1.4%) to $1.5 billion at the end of Q1 2023 compared to Q4 2022, and increased by$ 208.2 million (15.6%) year-over-year[192]. - Average loans outstanding increased by $207.1 million, or 15.7%, to$ 1.52 billion for the three months ended March 31, 2023[207]. - Core deposits totaled $1.4 billion at March 31, 2023, representing 86.6% of the Company's total deposits[253]. Asset Quality - Non-performing loans totaled$ 19.6 million at the end of Q1 2023, an increase of $0.9 million from Q4 2022 and an increase of$ 2.5 million from Q1 2022[193]. - The allowance for credit losses to total loans was 1.43% at March 31, 2023, compared to 1.02% at December 31, 2022, and 1.07% at March 31, 2022[193]. - Total non-performing assets were $27.8 million, or 1.81% of total loans, as of March 31, 2023, compared to$ 27.5 million, or 1.81% at December 31, 2022[237]. - The provision for credit losses was $0.7 million for the three months ended March 31, 2023, compared to a release of provision for loan losses of$ 2.5 million for the same period in 2022[243]. Capital and Liquidity - Total stockholders' equity was $128.4 million, with a common equity to assets ratio of 6.77% at the end of the current quarter, compared to 6.62% in the linked quarter and 7.74% in the prior-year quarter[195]. - Regulatory capital ratios remain "well-capitalized," with a tier 1 leverage ratio of 10.43% and a total risk-based capital ratio of 13.81% at the end of the current quarter[195]. - As of March 31, 2023, the Company met all capital adequacy requirements with a total capital ratio of 13.81%, exceeding the minimum required ratio of 10.50%[272]. - Cash and cash equivalents decreased by$ 49.9 million, from $83.7 million at December 31, 2022, to$ 33.8 million at March 31, 2023[261]. Interest Rate Risk Management - The Company employs risk management policies to monitor and limit interest rate risk exposure, utilizing net interest income simulations and market value analyses[273]. - The Asset and Liability Management Committee (ALCO) meets monthly to review the sensitivity of the Company's assets and liabilities to interest rate changes and market conditions[274]. - A hypothetical 200 basis point increase in interest rates would result in a projected net interest income increase of 0.58% as of March 31, 2023, compared to 3.01% as of December 31, 2022[278]. - The Company’s interest rate risk exposure changed primarily due to a shift in the profile of funding sources from customer deposits to fixed-rate funding[278]. Economic Environment - Inflation has a limited impact on the Company's operations, with management stating it did not significantly affect operations for the three months ended March 31, 2023[282]. - Management acknowledges that actual results may differ from projections due to various factors, including market conditions and timing of rate changes[279].