Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported
consolidated financial results for the Company for the three months
ended March 31, 2020.
Net income for the current quarter was $0.9
million, or $0.14 per diluted common share, compared to $4.1
million, or $0.65 per diluted common share, for the quarter ended
December 31, 2019 (“linked quarter”) and $4.7 million, or $0.74 per
diluted common share for the quarter ended March 31, 2019. Included
in the prior year quarter net income is a pretax gain on the sale
of our Branson branch of $2.1 million ($1.6 million after tax), or
$0.26 per diluted common share.
Chairman David T. Turner
commented, “The COVID-19 pandemic has presented
us with many unforeseen challenges. In order to meet these
challenges, we have dramatically changed the way we provide banking
services to our clients, with many of our staff working remotely or
in different locations to maintain appropriate physical
separation. For the safety of our staff and clients, we
closed our branch lobbies, while keeping our drive-through lanes
open and encouraging our customers to utilize our online and mobile
banking applications. I am very proud of the way our Hawthorn
team has risen to the challenge. On April 3rd, Hawthorn was
ready to meet the needs of our customers with the SBA’s Paycheck
Protection Program (“PPP”) loan facility. We have processed
770 applications totaling almost $80 million in PPP loans and, as
of April 24th, all of these loans have been funded. In
addition to assisting our clients with these PPP loans, we have
also provided modified loan payment relief to certain borrowers,
including temporary interest-only payment arrangements and payment
forbearance accommodations.” (See the table below for more
details.)
Turner continued, “Despite the challenges of the
COVID-19 pandemic and the substantial decrease in short-term
interest rates, we had strong operating results for the first
quarter. Non-GAAP net income excluding the additional loan
loss provision attributed to COVID-19 for the current quarter was
$210,000, or 6.9% ahead of the prior year quarter excluding the
Branson branch sale gain. Net interest income remained stable with
the prior linked quarter and prior year quarter. Loans, net of
allowance for loan losses, increased $8.5 million from December 31,
2019 and $23.0 million from March 31, 2019. This loan growth
has not impacted our loan quality as nonperforming loans to total
loans ratios remain very low and our increase in loan loss reserves
is based primarily on economic model inputs. Our net interest
margin continues to improve reaching 3.55% for the first quarter of
2020 versus 3.27% for the prior year quarter. Non-interest
income and non-interest expense levels have remained stable.
Our strong liquidity position and capital levels will serve us well
in these uncertain times as we continue to support and assist our
customers and communities.”
The year-to-date return on average common equity
for the current quarter was 2.96% compared to 14.77% for the prior
linked quarter and 18.41% for the prior year quarter (11.95%
excluding the Branson branch sale gain). The return on
average assets was 0.23% for the current quarter compared to 1.09%
for the prior linked quarter and 1.23% for the prior year quarter
(0.80% excluding the Branson branch sale gain).
For the first quarter of 2020, the Company
recorded a provision for loan losses of $3.3 million primarily to
account for the current economic conditions resulting from the
COVID-19 pandemic. Although the Company has monitored the impact of
this unprecedented event, including the disruption to our business
and the clients we serve, the significance of the impacts
associated with this event will depend on how long and widespread
the COVID-19 pandemic proves to be. There are likely many economic
factors associated with this unprecedented event that will impact
future periods and that could have a material adverse effect on our
business, financial condition and results of operations.
Net Interest
Income
Net interest income for the quarter ended March
31, 2020 was $12.5 million compared to $12.6 million for the
quarter ended December 31, 2019, and $11.6 million for the quarter
ended March 31, 2019. The net interest margin for the current
quarter improved slightly from the prior linked quarter to 3.55%
and net loans increased $8.5 million from December 31, 2019.
Compared to the prior year quarter, the net interest margin showed
better improvement of 28 bps from 3.27% and net loans increased
$23.0 million, or 2.0%.
Non-Interest Income and
Expense
Non-interest income for the quarter ended March
31, 2020 was $2.3 million compared to $2.3 million for the quarter
ended December 31, 2019, and $2.1 million for the quarter ended
March 31, 2019. The $0.2 million increase from the prior year
quarter was primarily due to a $0.1 million net increase in real
estate servicing fees and gain on sale of mortgage loans, net and a
$0.1 million increase in trust department income.
Non-interest expense of $10.5 million for the
current quarter increased $0.9 million, or 9.0% from the quarter
ended December 31, 2019 and $0.6 million, or 5.7% from the quarter
ended March 31, 2019. The increase from the prior linked quarter
was primarily due to a $0.7 million, or 12.6% increase in salaries
and benefits resulting from hiring additional staff for our
residential mortgage loan group and annual merit increases paid in
the first quarter. The increase from the prior linked quarter was
also primarily due to the additional residential mortgage loan
staff.
Allowance for Loan
Losses
The Company’s level of non-performing loans was
0.68% of total loans at March 31, 2020 compared to 0.43% at
December 31, 2019 and 0.48% at March 31, 2019. The increase
over the prior linked quarter and prior year quarter was primarily
due to a $3 million loan relationship that was placed on nonaccrual
status at the current quarter-end. Management has assessed the
collateral pledged on this loan relationship and believes it is
adequate to repay the loan if necessary. For the quarter
ended March 31, 2020, the Company recorded net charge-offs of
$84,000, or 0.01% of average loans compared to net charge-offs of
$1,000, or 0.00% of average loans for the quarter ended December
31, 2019, and net recoveries of $43,000, or 0.00% of average loans
for the quarter ended March 31, 2019. The allowance for loan
losses at March 31, 2020 was $15.7 million, or 1.33% of outstanding
loans, and 194.68% of non-performing loans. At December 31, 2019,
the allowance for loan losses was $12.5 million, or 1.07% of
outstanding loans, and 246.09% of non-performing loans. At March
31, 2019, the allowance for loan losses was $11.9 million, or 1.03%
of outstanding loans, and 212.43% of non-performing loans. The
increase in the allowance for loan losses in the current quarter
compared to prior periods is primarily due to the additional loan
loss provision of $3 million related to the COVID-19 pandemic as
previously described above. The allowance for loan losses
represents management’s best estimate of probable losses inherent
in the loan portfolio and is commensurate with risks in the loan
portfolio as of March 31, 2020.
Financial
Condition
Comparing March 31, 2020 balances with December
31, 2019, total assets increased $33.5 million while they decreased
$11.8 million from March 31, 2019. The increase from December 31,
2019 was primarily due to a $23.0 million increase in investment
securities and an $8.5 million increase in loans, net of allowance
for loan losses. These increases were funded primarily by
additional Federal Home Loan Bank (“FHLB”) advances that increased
$36.9 million. The decrease from the prior year quarter was
primarily due to a $16.4 million decrease in federal funds sold and
other overnight interest-bearing deposits and an $18.9 million
decrease in investment securities that was partially offset by a
$23.0 million increase in loans, net of allowance for loan losses.
These changes resulted primarily from a $71.0 million decrease in
total deposits partially offset by a $38.8 million increase in FHLB
advances and an $11.8 million increase in total stockholders’
equity. At March 31, 2020, the total risk based capital ratio of
14.80% and the leverage ratio of 10.43%, respectively, far exceed
minimum regulatory requirements of 10.50% and 4.00%,
respectively.
[Tables follow]
|
|
FINANCIAL
SUMMARY(unaudited)$000, except per share data |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
December 31, |
|
March 31, |
Statement of
income information: |
|
2020 |
|
2019 |
|
2019 |
Total interest income |
|
$ |
15,808 |
|
|
$ |
15,946 |
|
$ |
15,915 |
Total interest expense |
|
|
3,282 |
|
|
|
3,355 |
|
|
4,286 |
Net interest income |
|
|
12,526 |
|
|
|
12,591 |
|
|
11,629 |
Provision for loan losses |
|
|
3,300 |
|
|
|
300 |
|
|
150 |
Noninterest income |
|
|
2,248 |
|
|
|
2,300 |
|
|
2,091 |
Investment securities (loss) gain, net |
|
|
(1 |
) |
|
|
— |
|
|
1 |
Gain on sale of branch, net |
|
|
— |
|
|
|
— |
|
|
2,074 |
Noninterest expense |
|
|
10,448 |
|
|
|
9,582 |
|
|
9,888 |
Pre-tax income |
|
|
1,025 |
|
|
|
5,009 |
|
|
5,757 |
Income taxes |
|
|
157 |
|
|
|
941 |
|
|
1,091 |
Net income |
|
$ |
868 |
|
|
$ |
4,068 |
|
$ |
4,666 |
Earnings per
share: |
|
|
|
|
|
|
|
|
|
Basic: |
|
$ |
0.14 |
|
|
$ |
0.65 |
|
$ |
0.74 |
Diluted: |
|
$ |
0.14 |
|
|
$ |
0.65 |
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
Key financial
ratios: |
2020 |
|
|
2019 |
|
|
2019 |
|
Return on average assets (YTD) |
|
0.23 |
% |
|
|
1.09 |
% |
|
|
1.23 |
% |
Return on average common equity (YTD) |
|
2.96 |
% |
|
|
14.77 |
% |
|
|
18.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
Allowance for loan losses to total loans |
|
1.33 |
% |
|
|
1.07 |
% |
|
|
1.03 |
% |
Non-performing loans to total loans (a) |
|
0.68 |
% |
|
|
0.43 |
% |
|
|
0.48 |
% |
Non-performing assets to loans (a) |
|
1.76 |
% |
|
|
1.53 |
% |
|
|
1.66 |
% |
Non-performing assets to assets (a) |
|
1.36 |
% |
|
|
1.20 |
% |
|
|
1.24 |
% |
Performing TDRs to loans (a) |
|
0.21 |
% |
|
|
0.22 |
% |
|
|
0.27 |
% |
Allowance for loan losses to non-performing loans (a) |
|
194.68 |
% |
|
|
246.09 |
% |
|
|
212.43 |
% |
(a) Non-performing loans include loans 90 days past due and
accruing and nonaccrual loans.
|
|
FINANCIAL SUMMARY
(continued)(unaudited)$000, except per share
data |
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
Balance sheet
information: |
|
2020 |
|
2019 |
|
2019 |
|
Total assets |
|
$ |
1,526,498 |
|
$ |
1,492,962 |
|
$ |
1,538,311 |
|
Loans, net of allowance for loan losses |
|
|
1,164,829 |
|
|
1,156,320 |
|
|
1,141,795 |
|
Loans held for sale |
|
|
4,286 |
|
|
428 |
|
|
1,012 |
|
Investment securities |
|
|
205,345 |
|
|
180,901 |
|
|
224,274 |
|
Deposits |
|
|
1,179,571 |
|
|
1,186,521 |
|
|
1,250,572 |
|
Total stockholders’ equity |
|
|
116,670 |
|
|
115,038 |
|
|
104,870 |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
|
$ |
18.64 |
|
$ |
18.33 |
|
$ |
16.75 |
|
Market price per share |
|
$ |
18.35 |
|
$ |
25.50 |
|
$ |
22.35 |
|
Net interest spread (YTD) |
|
|
3.28 |
% |
|
3.20 |
% |
|
2.96 |
% |
Net interest margin (YTD) |
|
|
3.55 |
% |
|
3.51 |
% |
|
3.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
Use of Non-GAAP
Measures
Several financial measures in this press release
are non-GAAP, meaning they are not presented in accordance with
generally accepted accounting principles (GAAP) in the U.S. The
non-GAAP items presented in this press release are non-GAAP net
income, non-GAAP basic earnings per share, non-GAAP diluted
earnings per share, non-GAAP return on average assets and non-GAAP
return on average common equity. These measures include the
adjustments to exclude the additional loan loss provision recorded
in the quarter ended March 31, 2020 caused by the impact on current
economic conditions due to the COVID-19 pandemic and the impact of
the gain on the sale of our Branson branch that closed during the
quarter ended March 31, 2019. These are non-recurring and not
considered indicative of underlying earnings performance. The
Company believes that the exclusion of these items provides a
useful basis for evaluating the Company's underlying performance,
but should not be considered in isolation and is not in accordance
with, or a substitute for, evaluating performance utilizing GAAP
financial information. The Company uses non-GAAP measures to
analyze its financial performance and to make financial comparisons
to prior periods presented on a similar basis. The Company believes
that providing such adjusted results allows investors to better
understand the Company's comparative operating performance for the
periods presented. Non-GAAP measures are not formally defined by
GAAP or codified in the federal banking regulations, and other
entities may use calculation methods that differ from those used by
the Company. The Company has reconciled each of these measures to a
comparable GAAP measure below:
|
|
NON-GAAP
FINANCIAL MEASURES (unaudited)$000, except per share
data |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
December 31, |
|
March 31, |
Statement of
income information: |
|
2020 |
|
2019 |
|
2019 |
Net income – GAAP |
|
$ |
868 |
|
$ |
4,068 |
|
$ |
4,666 |
|
Effect of ALL provision COVID-19 (a) |
|
|
2,370 |
|
|
— |
|
|
— |
|
Effect of net gain on branch sale (b) |
|
|
— |
|
|
— |
|
|
(1,638 |
) |
Net income - Non-GAAP |
|
$ |
3,238 |
|
$ |
4,068 |
|
$ |
3,028 |
|
Earnings per
share: |
|
|
|
|
|
|
|
|
|
Basic – GAAP |
|
$ |
0.14 |
|
$ |
0.65 |
|
$ |
0.74 |
|
Effect of ALL provision COVID-19 (a) |
|
|
0.38 |
|
|
— |
|
|
— |
|
Effect of net gain on branch sale (b) |
|
|
— |
|
|
— |
|
|
(0.26 |
) |
Basic - Non-GAAP |
|
$ |
0.52 |
|
$ |
0.65 |
|
$ |
0.48 |
|
Diluted – GAAP |
|
$ |
0.14 |
|
$ |
0.65 |
|
$ |
0.74 |
|
Effect of ALL provision COVID-19 (a) |
|
|
0.38 |
|
|
— |
|
|
— |
|
Effect of net gain on branch sale (b) |
|
|
— |
|
|
— |
|
|
(0.26 |
) |
Diluted - Non-GAAP |
|
$ |
0.52 |
|
$ |
0.65 |
|
$ |
0.48 |
|
(a) An additional $3.0 million ALL provision (pre-tax) was
recorded during the quarter due to current economic conditions
resulting from the COVID-19 pandemic.
(b) The pre-tax gain on the sale of the Branson Branch was $2.1
million and $1.6 million after tax for the three months ended March
31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
Key financial
ratios: |
|
2020 |
|
2019 |
|
2019 |
|
Return on average assets (YTD) – GAAP |
|
0.23 |
% |
1.09 |
% |
1.23 |
|
|
Effect of ALL provision
COVID-19 (a) |
|
0.63 |
|
— |
|
— |
|
|
Effect of net gain on branch
sale (b) |
|
— |
|
— |
|
(0.43 |
) |
|
Return on average assets (YTD)
- Non-GAAP |
|
0.86 |
% |
1.09 |
% |
0.80 |
|
% |
Return on average common
equity (YTD) – GAAP |
|
2.96 |
% |
14.77 |
% |
18.41 |
|
% |
Effect of ALL provision
COVID-19 (a) |
|
8.08 |
|
— |
|
— |
|
|
Effect of net gain on branch
sale (b) |
|
— |
|
— |
|
(6.46 |
) |
|
Return on average common
equity (YTD) - Non-GAAP |
|
11.04 |
% |
14.77 |
% |
11.95 |
|
% |
(a) An additional $3.0 million ALL provision (pre-tax) was
recorded during the quarter due to current economic conditions
resulting from the COVID-19 pandemic.
(b) The pre-tax gain on the sale of the Branson Branch was $2.1
million and $1.6 million after tax for the three months ended March
31, 2019.
|
|
LOAN
PORTFOLIO GRANULARITY (unaudited) |
|
|
|
|
|
$ Amount |
% of Loan |
% of |
(in
thousands) |
NAICS # |
Total # |
Outstanding |
Portfolio |
Capital |
March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio
Granularity: |
|
|
|
|
|
|
|
|
|
|
|
Hotels |
721110 |
43 |
|
$ |
66,019 |
|
|
5.6 |
% |
56.6 |
% |
COVID 19 payment modification |
|
|
|
$ |
60,084 |
|
|
|
|
|
|
Full service and limited service restaurants |
722511, 722513 |
93 |
|
$ |
17,417 |
|
|
1.5 |
% |
14.9 |
% |
COVID 19 payment modification |
|
|
|
$ |
3,100 |
|
|
|
|
|
|
Lessors of non-residential real estate |
531120 |
267 |
|
$ |
186,915 |
|
|
15.8 |
% |
160.2 |
% |
COVID 19 payment modification |
|
|
|
$ |
88,206 |
|
|
|
|
|
|
Lessors of residential buildings and Dwellings |
531110 |
1182 |
|
$ |
166,228 |
|
|
14.1 |
% |
142.5 |
% |
COVID 19 payment modification |
|
|
|
$ |
15,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
About Hawthorn
Bancshares
Hawthorn Bancshares, Inc., a financial-bank
holding company headquartered in Jefferson City, Missouri, is the
parent company of Hawthorn Bank of Jefferson City with locations in
the Missouri communities of Lee's Summit, Liberty, St. Louis,
Springfield, Independence, Columbia, Clinton, 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.
Contact:
Hawthorn Bancshares Inc.
Bruce Phelps,
Chief Financial Officer
TEL: 573.761.6100
Fax: 573.761.6272
www.HawthornBancshares.com
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