Hawthorn Bancshares Announces TARP Repayment and First Quarter Results

  Hawthorn Bancshares Announces TARP Repayment and First Quarter Results

Business Wire

JEFFERSON CITY, Mo. -- May 15, 2013

Hawthorn Bancshares Inc. (NASDAQ: HWBK), today announced that it has repaid
Capital Purchase Program funds (commonly referred to as TARP) totaling $18.3
million, plus accrued dividends, to the U.S. Treasury. Hawthorn has now
redeemed all $30.3 million of the Series 2008 preferred stock that was
originally issued to the U.S. Treasury under the program.

“Repayment of our TARP funds is a significant milestone for Hawthorn. This
action reflects the strength of our balance sheet and with the economic
recovery gaining momentum, it was time to redeem the Treasury’s investment,”
said David Turner, Chairman and CEO of Hawthorn Bancshares, Inc. “With the
absence of any requirement to raise equity, this is clearly in the best
interests of our shareholders.”

Since receiving the TARP investment, Hawthorn has paid the U.S. Treasury
approximately $6 million in preferred stock dividends and has never missed a
quarterly dividend payment. “We believe the U.S. Treasury made a sound
investment in Hawthorn and obviously, it has earned a healthy return on that
investment,” said Turner.

In other news, Hawthorn also announced today the consolidated financial
results for the Company for the first quarter ended March 31, 2013.

Due largely to a $2.3 million other real estate impairment expense, Hawthorn
realized a net loss for the first quarter of $0.1 million. This compares to
the Company’s $1.5 million net income for the first quarter of 2012. On a per
share basis, Hawthorn reported a $0.09 per diluted common share loss for the
three months ended March 31, 2013, versus positive earnings per common share
of $0.20 for the first quarter of 2012. Financial results were reduced by
accrued dividends and accretion of $0.3 million on preferred stock issued to
the U.S. Treasury under the Capital Purchase Program for the first quarter of
2013 compared to $0.5 million for the same period in 2012. The preferred
dividend reduction for the quarter results from repaying $12.0 million of the
company’s TARP obligation on May 9, 2012.

Commenting on earnings performance, Chairman Turner said, “The core
performance of Hawthorn – what we earn accumulating deposits and using those
funds to make loans and other investments, along with fee income, minus our
expenses – remains strong. However, significant other real estate owned
negative valuation adjustments more than offset first quarter 2013 core
earnings. The main driver of the Company’s first quarter loss is exposure in
two commercial real estate properties in Branson, Missouri which continue to
deteriorate in value.”

Operating Results

Net Interest Income

Net interest income for the quarter ended March 31, 2013 was $9.7 million
compared to $10.8 million for the same period in 2012. The decrease is
attributed to the Company’s net interest margin declining from 3.98% at March
31, 2012 to 3.65% for the first quarter of 2013. In commenting on the margin,
Chairman Turner said, “With non-performing assets at $61.8 million,
significant downward pressure on the company’s margin exists. Our net interest
margin will improve as non-performing assets are restored to earning asset
status.”

Non-Interest Income and Expense

Non-interest income for the three months ended March 31, 2013 was $3.0 million
compared to $2.0 million for the same period in 2012. The increase is
attributed to higher real estate lending activity experienced during the first
quarter of 2013 compared to 2012 and related gain on sale of mortgage loans,
as well as, the positive impact of the change in fair value of mortgage
servicing rights in 2013 as compared to 2012. Non-interest expense for the
three months ended March 31, 2013 was $11.9 million compared to $9.5 million
for first quarter 2012. The increase is primarily attributed to the
aforementioned other real estate owned valuation adjustment.

Loan Loss Reserve

Hawthorn’s level of non-performing loans decreased to 4.63% of total loans at
March 31, 2013, from 5.92% at March 31, 2012 and 4.65% at December 31, 2012.
Net charge-offs for the quarter were $1.3 million compared to $0.9 million for
the first quarter of 2012. Improvement in asset quality reflected positively
on the Company’s loan loss provision requirement for the first quarter of
2013. The provision for loan losses for the quarter ended March 31, 2013 was
$1.0 million compared to $1.7 million for the quarter ended March 31, 2012.

The total allowance for loan losses at March 31, 2013 was $14.5 million, or
1.74% of outstanding loans and 37.66% of non-performing loans. At December 31,
2012, the total allowance for loan losses was $14.8 million, or 1.75% of
outstanding loans and 37.70% of non-performing loans. The allowance for loan
losses represents management’s best estimate of probable losses contained in
the loan portfolio as of March 31, 2013 and December 31, 2012, respectively.

Financial Condition

Comparing March 31, 2013 balances with December 31, 2012, total assets
remained stable at $1.2 billion. Continued soft loan demand resulted in loans,
net of the allowance for loan losses, decreasing 1.5% to $819.7 million. With
low loan demand, the Company’s next highest yielding asset category is
investment securities which increased 15.9% to $232.0 million. Cash & due from
banks decreased 25.5% to $43.9 million. Total deposits increased 0.9% to
$999.9 million. During the same period, stockholders’ equity decreased 1.4% to
$90.9 million or 7.7% of total assets. At 16.84% and 10.09% of total assets,
total risk based and leverage capital ratios far exceed “well-capitalized”
regulatory minimums of 10.00% and 5.00% respectively. If today’s TARP
redemption had been effective on March 31, 2013, Hawthorn Bancshares still
would have surpassed the regulatory guidelines for a well-capitalized
institution, with a total risk based capital ratio of 14.74%, and a leverage
ratio of 8.03%.


FINANCIAL SUMMARY
(unaudited)
                                                       
Balance sheet information:         March 31, 2013         December 31, 2012
Loans, net of allowance for loan   $   819,711            $     832,142
losses
Investment securities                  231,991                  200,246
Total assets                           1,186,319                1,181,606
Deposits                               999,880                  991,275
Common stockholders’ equity            72,861                   74,243
Total stockholders' equity             90,910                   92,220
                                                          
                                                          
                                   Three Months           Three Months
Statement of income information:   Ended March 31, 2013   Ended March 31, 2012
Total interest income                  11,545                   12,646
Total interest expense                1,816                  1,831       
Net interest income                    9,729                    10,815
Provision for loan losses              1,000                    1,700
Noninterest income                     3,007                    1,970
Noninterest expense                   11,934                 9,480       
Pre-tax (loss) income                  (198        )            1,605
Income taxes                          (62         )           154         
Net (loss) income                      (136        )            1,451
Dividends & accretion on
preferred stock issued to U.S.        295                    489         
Treasury
Net income available to common        (431        )           962         
shareholders
(Loss) Earnings Per Common
Share:
Basic:                             $   (0.09       )      $     0.20
Diluted:                           $   (0.09       )      $     0.20
                                                          
                                                          
Key financial ratios:              March 31, 2013         March 31, 2012
Return on average assets               (0.05       )%           0.49        %
Return on average common equity        (2.33       )%           5.21        %
                                   March 31, 2013         December 31, 2012
Allowance for loan losses to           1.74        %            1.75        %
total loans
Nonperforming loans to total           4.63        %            4.65        %
loans
Nonperforming assets to loans          7.20        %            7.23        %
and foreclosed assets
Allowance for loan losses to           37.66       %            37.70       %
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, Liberty, 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
Commission.

Contact:

Hawthorn Bancshares, Inc.
Kathleen Bruegenhemke, 573-761-6100
Senior Vice President, Investor Relations
FAX: 573-761-6272
www.HawthornBancshares.com
 
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