Hawthorn Bancshares Reports 2012 Financial Results

  Hawthorn Bancshares Reports 2012 Financial Results

Business Wire

JEFFERSON CITY, Mo. -- April 1, 2013

Hawthorn Bancshares, Inc. (NASDAQ: HWBK), today reported financial results for
the Company for the year ended December 31, 2012.

The Company reported net income available to common shareholders of $2.8
million for 2012 compared to $2.9 million for 2011. Despite a slightly lower
net profit, income available to shareholders improved for 2012 to $1.0 million
from $0.9 million for 2011 due to lower preferred dividends related to a $12
million reduction in the U.S. Treasury’s Capital Purchase Program (commonly
called TARP). Preferred dividends and discount accretion totaled $1.8 million
for 2012 compared to $2.0 million for 2011. On a per share basis, Hawthorn
earned a net profit of $0.21 per common share for 2012 compared to $0.18 for

Commenting on the Company’s performance, Chairman & CEO David T. Turner said,
“Hawthorn is recovering, albeit slowly as income levels, while profitable,
have not returned to pre-recessionary levels. Hawthorn’s core earnings are
strong and our net interest margin, although declining, continues to fare well
compared to the banking sector in general. However, the elevated volume of
non-performing assets continues to offset Hawthorn’s solid core earnings.”

Operating Results

Net Interest Income

Net interest income declined $1.4 million for 2012 due to a drop in Hawthorn’s
net interest margin from 3.92% for 2011 to 3.83% for 2012. The change was
attributed to a lower earning asset yield while the volume of earning assets
remained relatively stable.

Non-Interest Income and Expense

Non-interest income totaled $9.7 million for 2012, compared to $9.2 million
for 2011. The increase was primarily the result of a $1.0 million increase in
gains on sales of mortgage loans due to higher real estate refinancing
activity experienced during 2012 which was partially offset by a $0.5 million
decrease in real estate servicing income related to changes in the fair value
of mortgage servicing rights. Non-interest expense for 2012 was $38.7 million
compared to $36.8 million for 2011. The largest contributors to the increase
were salary and benefit expenses related to opening a lending center in
Liberty, Missouri and acquiring additional support staff. Included in 2012’s
non-interest expense were costs incurred to maintain foreclosed properties of
$2.3 million and a $0.7 million net expense provision for other real estate
owned. Related expenses for 2011 were $1.3 million to carry foreclosed assets
and a net expense provision of $1.3 million. During 2012, Hawthorn experienced
a rebound in real estate values as evidenced by a $3.9 million reversal of a
valuation allowance included in the aforementioned $0.7 million net expense

Loan-Loss Reserve

Hawthorn’s level of non-performing loans was 4.65% of total loans at December
31, 2012, down from 6.37% at December 31, 2011. During the year, net
charge-offs were $7.9 million compared to $12.3 million for 2011 while the
expense provision for loan losses was $8.9 million for 2012 and $11.5 million
for 2011. The allowance for loan losses at December 31, 2012 was $14.8
million, or 1.75% of outstanding loans and 37.7% of non-performing loans. At
December 31, 2011, the allowance for loan losses was $13.8 million, or 1.64%
of outstanding loans and 25.7% of non-performing loans. Management believes
based on detailed analysis of the loan portfolio and the value of any
associated collateral that the allowance for loan losses at December 31, 2012
is adequate to cover probable losses in nonperforming loans.

Regarding asset quality, Chairman & CEO Turner said, “Hawthorn has experienced
a $14.3 million reduction in non-performing loans since December 31, 2011;
however, the reduction has been partially offset by a $7.4 million net
increase in real estate acquired via foreclosure. Management continues to work
diligently to resolve credit issues in a timely manner as evidenced by the
volume of foreclosures and gross loan charge-offs realized during 2012. Loans
taken into foreclosure during 2012 totaled $16.9 million and gross charge-offs
were $8.8 million during the same period. Comparatively, transfers to other
real estate during 2011 totaled $10.9 million and gross charge-offs were $13.2

Financial Condition

Total assets of $1.2 billion remained relatively unchanged as of December 31,
2012, compared to 2011. Loans, net of allowance for loan losses, were also
relatively unchanged at $832.1million. Investment securities decreased 6.3%
to $200.2 million due to payout of normal maturities within the portfolio.
Total deposits increased 3.5% to $991.3 million. Common equity capital
remained relatively unchanged at $74.2 million. At 16.83% and 13.58% of total
risk weighted assets, total risk based and tier 1 capital ratios far exceed
regulatory requirements of 8% and 4%, respectively.

Balance sheet information:            December 31, 2012   December 31, 2011
Loans, net of allowance for loan       $832,142            $829,121
Investment securities                  200,246               213,806
Total assets                           1,181,606             1,171,161
Deposits                               991,275               958,224
Common stockholders' equity            74,243                73,258
Total stockholders' equity             92,220                102,576
                                       Year Ended            Year Ended
Income statements:                     December 31, 2012   December 31, 2011
Total interest income                  $49,114               $53,468
Total interest expense                 7,905                 10,853
Net interest income                    41,209                42,615
Provision for loan losses              8,900                 11,523
Noninterest income                     9,700                 9,200
Investment securities gains, net       26                    0
Noninterest expense                    38,667                36,844
Pre-tax income                         3,368                 3,448
Income taxes                           546                   591
Net income                             2,822                 2,857
Preferred stock dividends              1,784                 1,989
Net income available to common         1,038                 868
Key financial ratios:                  December 31, 2012   December 31, 2011
Return on average assets               0.24%                 0.24%
Return on average common equity        1.40%                 1.15%
Allowance for loan losses to total     1.75%                 1.64%
Nonperforming loans to total loans     4.65%                 6.37%
Nonperforming assets to loans and      7.23%                 8.11%
foreclosed assets
Allowance for loan losses to           37.70%                25.73%
nonperforming loans

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 Lee's Summit, Springfield, Branson, Independence,
Raymore, Columbia, Clinton, Windsor, Collins, Osceola, Warsaw, Belton, Drexel,
Harrisonville, California and St. Robert, Missouri.

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


Hawthorn Bancshares
Kathleen Bruegenhemke, 573-761-6100
Senior Vice President, Investor Relations
Fax: 573-761-6272
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