Hawthorn Bancshares(HWBK) - 2023 Q2 - Quarterly Report

Financial Performance - Consolidated net income for Q2 2023 was $2.5 million, a decrease of $0.7 million (22.1%) from Q1 2023 and a decrease of $1.9 million (43.2%) from Q2 2022[190] - Earnings per diluted share for Q2 2023 were $0.36, compared to $0.47 in Q1 2023 and $0.64 in Q2 2022[190] - For the six months ended June 30, 2023, consolidated net income was $5.8 million, a decrease of $5.3 million (47.6%) from $11.1 million for the same period in 2022[191] - Non-interest income for Q2 2023 was $1.6 million, a decrease from $3.2 million in Q1 2023 and $3.6 million in Q2 2022[188] - Non-interest income for the second quarter 2023 was $1.6 million, a decrease of $1.6 million, or 49.8%, from the linked quarter, and a decrease of $2.1 million, or 56.3%, from the prior year quarter[194] Interest Income and Expenses - Net interest income for Q2 2023 was $14.2 million, an increase of $0.3 million from Q1 2023 but a decrease of $0.4 million from Q2 2022[192] - The net interest margin for Q2 2023 was 3.19%, compared to 3.16% in Q1 2023 and 3.64% in Q2 2022[192] - Net interest income for the six months ended June 30, 2023, was $28.2 million, a decrease of $0.6 million, or 2.1%, compared to $28.7 million for the same period in 2022[193] - Total interest income was $22.2 million for the three months ended June 30, 2023, compared to $16.7 million for the same period in 2022, reflecting an increase of 32.9%[216] - Interest income on loans held for investment rose to $20.2 million for the quarter ended June 30, 2023, up from $14.7 million for the same quarter in 2022, marking a 37.7% increase[217] - Total interest expense increased to $7.7 million for the three months ended June 30, 2023, compared to $1.6 million for the same period in 2022[223] Asset Quality - Non-performing loans as of June 30, 2023, were $3.8 million, representing 0.25% of total loans[189] - Total non-performing assets decreased to $10.3 million, or 0.66% of total loans, at June 30, 2023, compared to $27.5 million, or 1.81% of total loans, at December 31, 2022[256] - The allowance for credit losses to total loans was 1.42% at June 30, 2023, compared to 1.02% at December 31, 2022[199] - The allowance for credit and loan losses to loans was 1.42% as of June 30, 2023, compared to 1.02% as of December 31, 2022[255] - The company recognized a provision for credit losses of $0.7 million for the six months ended June 30, 2023, compared to a $1.3 million release of provision for loan losses for the same period in 2022[262] Deposits and Borrowings - Total deposits decreased $64.7 million, or 4.0%, to $1.5 billion as of June 30, 2023, compared to the end of the linked quarter[200] - Federal Home Loan Bank advances and other borrowings increased $71.3 million, or 76.6%, to $164.3 million as of June 30, 2023, compared to the end of the linked quarter[201] - The Company had $164.3 million in outstanding borrowings with the Federal Home Loan Bank (FHLB) as of June 30, 2023, compared to $98.0 million at the end of 2022, representing a 67.3% increase[276] Capital and Liquidity - Total stockholders' equity was $126.5 million, with a common equity to assets ratio of 6.65% at June 30, 2023[202] - As of June 30, 2023, the Company met all capital adequacy requirements with a total capital ratio of 13.99%, exceeding the minimum requirement of 10.50%[292] - The Company had a Tier 1 leverage ratio of 10.46% as of June 30, 2023, well above the minimum requirement of 4.00%[292] - Cash and cash equivalents decreased to $24.6 million at June 30, 2023, down from $83.7 million at December 31, 2022, a decline of 70.7%[280] Operational Efficiency - The efficiency ratio for Q2 2023 was 80.5%, compared to 72.84% in Q1 2023 and 63.38% in Q2 2022[188] - Non-interest expense for the second quarter 2023 was $12.7 million, an increase of $0.2 million, or 2.0%, from the linked quarter, and an increase of $1.2 million, or 10.3%, from the prior year quarter[196] - Total non-interest expense increased by $1.2 million, or 10.3%, to $12.7 million for the quarter ended June 30, 2023, compared to $11.5 million for the same quarter in 2022[237] Interest Rate Risk Management - The Company’s asset and liability management function aims to evaluate interest rate risk while maximizing earnings and maintaining liquidity and capital[294] - A hypothetical 200 basis point increase in interest rates would result in a projected net interest income increase of 0.63% as of June 30, 2023, compared to 3.01% as of December 31, 2022[298] - A 100 basis point increase in interest rates would lead to a projected net interest income increase of 2.01% as of June 30, 2023, down from 3.78% as of December 31, 2022[298] - The Company’s balance sheet is liability sensitive, meaning interest rate decreases lead to higher net interest income[298] - Management believes the change in projected net interest income from interest rate shifts of up to 200 basis points is an acceptable level of interest rate risk[298]