Hawthorn Bancshares(US:HWBK)2026-03-05 21:07Economic Conditions and Profitability - The company's profitability is significantly influenced by the economic conditions in Central and West Central Missouri and the Kansas City MSA, with potential declines in profitability due to local economic downturns [71]. - An increase in unemployment, decreased profitability of regional businesses, or rising interest rates could weaken the local economy, adversely affecting the bank's loan origination and profitability [72]. - The bank's primary source of earnings is net interest income, which may decrease if prevailing interest rates decline, impacting the company's overall profitability [73]. - The bank's interest rate management strategy aims to stabilize net interest income, but significant fluctuations in interest rates could negatively affect profitability [74]. - The provision for probable credit losses may need to be increased due to potential borrower defaults and declining real estate values, which could adversely impact financial results [81]. - Adverse market conditions, including rising inflation and increasing unemployment, may negatively affect credit performance and lead to additional write-downs [82]. - Deterioration in the housing market could lead to increased delinquencies and non-performing assets, negatively affecting the company's income and growth [94]. - Changes in FDIC deposit insurance premiums could increase non-interest expenses and reduce profitability [95]. - The company may face a material adverse impact on its business due to potential deterioration in risk-based capital ratios or adjustments to deposit insurance premium assessment rates [97]. - The company is required to maintain adequate capital levels and may need to raise additional capital for growth or acquisitions, which could dilute ownership interests [98][99]. Competition and Market Risks - The company faces competitive pressures from emerging financial technologies, which could reduce demand for traditional banking services and impact long-term growth prospects [86]. - Competition for loans and deposits is substantial, with many competitors having greater financial resources and advanced technology [101][102]. - The company's wealth management fees are at risk of decreasing due to poor investment performance, which could negatively impact revenues and net earnings [106][107]. - The Company is exposed to various market risks, including competitive pressures and changes in the interest rate environment [182]. Regulatory and Compliance Risks - Regulatory changes could materially affect the company's operations and financial condition, including minimum capital requirements and restrictions on dividend payments [120][122]. - The Federal Reserve may require the company to commit capital resources to support its subsidiary bank, potentially impacting financial condition and results [123]. - Non-compliance with laws such as the USA PATRIOT Act could result in fines, sanctions, and limitations on expansion opportunities [127]. - Increased costs and operational impacts may arise from compliance with privacy and data protection laws, potentially affecting business opportunities [128]. - The Company and the Bank are subject to various regulatory capital requirements, including new minimum risk-based capital and leverage ratios effective since January 2015 [124]. - Stricter capital requirements could lead to lower returns on invested capital and may necessitate raising additional capital [125]. - The Company is committed to maintaining compliance with the Securities Exchange Act of 1934 [218]. Cybersecurity and Technology Risks - The company faces risks related to cybersecurity, including potential costs from successful cyber-attacks that could damage reputation and financial condition [139]. - The financial services industry is undergoing rapid technological change, and failure to keep pace could adversely impact the Company's operations and financial results [140]. - The development and use of artificial intelligence present risks, including compliance challenges and potential liability for erroneous outputs [141]. - The reliance on third-party vendors for key business infrastructure poses risks, as their operational difficulties could disrupt the Company's services [143]. - The company maintains a cybersecurity and IT risk management program integrated into its overall enterprise risk management, overseen by the board of directors [150]. - The cybersecurity program is based on frameworks established by NIST and FFIEC, led by a Director with over 15 years of experience in cybersecurity [151]. - The Audit Committee meets quarterly to assess cyber threats and risks, receiving reports on the company's cybersecurity status and metrics [152]. - The company engages outside experts for cybersecurity assessments and audits, ensuring sound risk management strategies [154]. - The Incident Response Program categorizes incidents by severity and includes timely notifications to law enforcement and regulatory agencies [158]. - The company experiences ongoing malicious cyber activity, including unauthorized access attempts and phishing, but has not faced material adverse impacts to date [159]. Corporate Governance and Financial Reporting - The Company has adopted a Code of Business Conduct and Ethics for its directors, officers, and employees [202]. - The Company has an Insider Trading Policy to promote compliance with insider trading laws and regulations [203]. - The consolidated financial statements for the years ended December 31, 2025, 2024, and 2023 will be included in the Company's 2025 Annual Report to Shareholders [210]. - The independent registered public accounting firm for the Company is Forvis Mazars, LLP, located in Kansas City, MO [211]. - The financial statements include consolidated balance sheets, statements of income, comprehensive income, and stockholders' equity for the specified years [211]. - The Company has omitted certain financial statement schedules as they are not required or applicable [212]. - The Proxy Statement will contain information on related party transactions and corporate governance matters [209]. - The Company has filed various exhibits, including the Amended and Restated Bylaws and the Equity Incentive Plan, which are incorporated by reference [214][215]. - The report includes certifications from the Chief Executive Officer and Chief Financial Officer as required by the Securities Exchange Act [220][223]. - The Company has a policy for the recovery of erroneously awarded compensation, which is referenced in the Annual Report [216]. - The report has been signed by key executives, including the CEO and CFO, on March 5, 2026 [223]. Stock Performance and Share Repurchase - The stock price of the Company could experience significant volatility, affecting the ability of shareholders to resell shares at attractive prices [144]. - A significant decline in stock price could lead to substantial losses for shareholders and potential securities litigation [145]. - The trading volume of the company's common stock has been low, leading to potential price depression and difficulty in selling shares [146]. - The company does not insure its common stock through any governmental entity, and it is not a deposit account or obligation of any bank [148]. - The Company repurchased a total of 9,892 shares in November 2025 at an average price of $30.58 per share [173]. - As of December 31, 2025, the Company has $8.4 million remaining available for share repurchases under its stock repurchase program [173]. - The Company announced a new common stock repurchase program on June 5, 2025, allowing for repurchases up to $10.0 million [173]. Internal Control and Financial Management - The Company maintains effective internal control over financial reporting as of December 31, 2025, as confirmed by an independent audit [192]. - There were no changes in the Company's internal control over financial reporting that materially affected its effectiveness during the quarter ended December 31, 2025 [188]. - The Company's interest rate risk models indicate that annual net interest income could change by as much as (0.43)% or (1.58)% with a 200 basis point increase or decrease in interest rates, respectively [179].