10-K: Hawthorn Bancshares Reports Strong 2025 Earnings Growth

Hawthorn Bancshares, Inc. announced a significant increase in net income and earnings per share for the fiscal year ended December 31, 2025, driven by improved net interest income and efficiency.

Summary

• Consolidated net income for 2025 was $23.8 million, up 30.4% from $18.3 million in 2024.
• Diluted earnings per share increased 31.4% to $3.43 in 2025 from $2.61 in 2024.
• Return on average assets (ROA) improved to 1.30% in 2025 from 1.00% in 2024, and return on average common equity (ROE) rose to 14.95% from 13.04%.
• The efficiency ratio improved to 63.41% in 2025 from 67.92% in 2024, indicating better cost management.
• Net interest margin on a fully taxable equivalent (FTE) basis increased to 3.89% in 2025 from 3.41% in 2024.
• Provision for credit losses decreased to $0.4 million in 2025 from $1.0 million in 2024, and net charge-offs declined to $1.2 million (0.08% of average loans) from $2.7 million (0.18%).
• Total loans held for investment increased 1.4% to $1.49 billion at December 31, 2025.
• Non-performing assets increased to $7.0 million (0.47% of total loans) at December 31, 2025, from $4.2 million (0.29%) at December 31, 2024, primarily due to one $3.5 million commercial relationship moving to non-accrual.
• Total deposits increased 1.4% to $1.55 billion at December 31, 2025.
• The Company opened a new banking center in Overland Park, Kansas, in February 2025, expanding its footprint in the Kansas City metro area.
• The Wealth Management business was identified as a separate reportable segment in 2025, with its revenue increasing 27.4% to $2.2 million.
• The Company maintains a 'well-capitalized' regulatory capital position, with all capital ratios exceeding minimum requirements.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, with significant improvements in key profitability metrics and strategic growth initiatives, despite a slight uptick in non-performing assets.

Positives

• Net income increased significantly by 30.4% to $23.8 million in 2025.
• Diluted earnings per share grew by 31.4% to $3.43 in 2025.
• Profitability metrics improved, with ROA at 1.30% and ROE at 14.95% for 2025.
• The efficiency ratio improved to 63.41%, indicating enhanced operational efficiency.
• Net interest margin expanded to 3.89% on a fully taxable equivalent basis.
• Provision for credit losses decreased to $0.4 million, and net charge-offs declined to $1.2 million.
• Total loans held for investment grew by 1.4% to $1.49 billion.
• Total deposits increased by 1.4% to $1.55 billion.
• Successful expansion into the Kansas City metro area with a new banking center in Overland Park, Kansas.
• Wealth Management segment revenue increased by 27.4% to $2.2 million, reflecting strategic growth.
• The Company maintained its 'well-capitalized' regulatory status, demonstrating strong capital adequacy.
• Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2025.

Negatives

• Non-performing assets increased to $7.0 million (0.47% of total loans) at December 31, 2025, from $4.2 million (0.29%) at December 31, 2024, primarily due to one $3.5 million commercial relationship moving to non-accrual.
• The allowance for credit losses to total loans decreased to 1.42% at December 31, 2025, from 1.50% at December 31, 2024.
• Bank card income and fees decreased by $0.2 million, or 4.9%, in 2025.
• Gain on sales of mortgage loans decreased significantly to $0.4 million in 2025 from $0.9 million in 2024 and $2.6 million in 2023.
• Net losses on other real estate owned and other assets totaled $0.2 million in 2025, compared to net gains of $0.9 million in 2024.
• The Company held an unrealized net loss of $21.0 million on available-for-sale investment securities at December 31, 2025, primarily due to interest rate fluctuations.

Risks

• A decline in local economic conditions in Central and West Central Missouri, as well as the Kansas City MSA, could lower the Company's profitability.
• Interest rate changes may reduce the profitability of the Company and the Bank by affecting loan origination, portfolio value, and deposit acquisition.
• Inability to successfully manage credit risk could result in loan defaults, foreclosures, and necessitate significant increases in the allowance for credit losses.
• The Company's profitability depends on the Bank's asset quality and lending risks, which are susceptible to local economic conditions.
• The provision for probable credit losses may need to be increased due to changes in economic, operating, or other conditions beyond the Company's control.
• Adverse market conditions in the U.S. economy, such as rising inflation and increasing unemployment, could negatively impact credit performance.
• Emerging financial technologies like digital assets, stablecoins, and distributed ledger systems may reduce demand for traditional banking services and create new competitive pressures.
• Smaller commercial borrowers, which the Company lends to, may have fewer financial resources and be more vulnerable to economic downturns, impairing their ability to repay loans.
• The soundness of other financial institutions could adversely affect the Company's ability to engage in routine funding transactions and lead to losses.
• Liquidity risk could impair the Company's ability to fund operations and meet its obligations, potentially affecting growth, profitability, and financial condition.
• Deterioration in the housing market could cause further increases in delinquencies and non-performing assets, depressing income and growth.
• Changes in the calculation of FDIC deposit insurance premiums and the ability to levy special assessments could increase non-interest expense and reduce profitability.
• The Company may elect or be compelled to seek additional capital in the future, but that capital may not be available when needed or on acceptable terms, potentially diluting ownership.
• Inability to successfully compete for customers in the Company's market area could adversely affect financial condition and results of operations.
• Strong competition from financial service companies and other companies offering banking and wealth management services could adversely affect the business.
• Wealth management fees may decrease as a result of poor investment performance, in either relative or absolute terms.
• Difficulties in managing growth and effectively integrating newly acquired companies could pose risks.
• Failure to maintain the Bank's reputation, critical to business success, could materially adversely affect performance.
• Fraudulent activity could damage the Company's reputation, disrupt business, increase costs, and cause losses.
• The Company's success largely depends on the efforts of its executive officers, and the loss of any of these individuals could have a materially adverse effect.
• Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial reporting or fraud.
• Severe weather, natural disasters, pandemics, and other external events could significantly impact the Company's business.
• Climate change and responses to climate change may adversely impact the Company's business, financial condition, and results of operations.
• Changes in laws and regulations affecting the financial services industry may adversely affect the Company.
• The Federal Reserve may require the Company to commit capital resources to support the Bank, even if detrimental to the Company or its stockholders.
• The short-term and long-term impact of changing regulatory capital requirements and new capital rules is uncertain.
• Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Community Reinvestment Act, Fair Lending Laws, or other regulations could result in fines or sanctions.
• Regulations relating to privacy, information security, and data protection could increase costs and affect how personal information is collected and used.
• The Company may be subject to liability for potential violations of predatory lending laws.
• Security and operational risks relating to the Company's use of technology could damage its reputation and business.
• The Company continually encounters technological change and cannot predict how changes will affect its business, potentially impacting its ability to compete.
• The development and use of artificial intelligence presents risks and challenges that may adversely impact the Company's business.
• Reliance on third-party vendors for key components of the business infrastructure could lead to operational disruptions.
• The price of the Company's common stock could fluctuate significantly, making it difficult for stockholders to resell shares.
• Low trading volume in the common stock could depress its price and impair the Company's ability to raise capital.
• The Company's common stock is not insured by any governmental entity.

Future Outlook

The Company expects to continue its growth momentum in 2026, focusing on strengthening relationships, expanding business deposits and lending, and growing wealth management services. Management anticipates $1.2 million of income from the pension plan in 2026, up from $0.8 million in 2025. The Company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA) tax provisions but does not currently expect a material impact on its results of operations. The GENIUS Act may accelerate competition from non-traditional financial institutions but also create opportunities for banks in stablecoin reserve assets, custody, or issuance.

Management Comments

• "The past year marked several important milestones for Hawthorn Bank, and we made meaningful progress on our top priority—growth."
• "By strengthening relationships, expanding business deposits and lending, and expanding our wealth management services, we continued to connect individuals, families, and businesses to their goals."
• "The changes implemented in 2023 and 2024, and further refined over the past year, are delivering results."
• "In February, we opened a new banking center in Overland Park—our first location in Kansas. This prominent location in Johnson County enhances our footprint in the Kansas City metro area and contributes to increased brand awareness."
• "That visibility was further strengthened through high-profile sponsorships, including the Titanic exhibit at Union Station in Kansas City, helping introduce Hawthorn Bank to new audiences across the region."
• "We also completed major initiatives, including the account consolidation project, which improved efficiency."
• "As we continue to invest in technology to enhance the customer experience, we remain focused on what truly differentiates us—our people."
• "The hybrid banking experience—seamless technology paired with personal, trusted relationships—continues to set Hawthorn Bank apart."
• "In September, we were proud to celebrate our 160th anniversary, reflecting on what it takes to remain relevant through generations of change. That longevity is a testament to our ability to evolve while staying true to our values."
• "Growth has no finish line, and sustaining it requires discipline. In 2026, my priority is momentum. With a strong foundation and continued alignment with our strategic initiatives, we are positioned to drive wins and move forward with confidence."
• "I’m incredibly proud of what we accomplished in 2025, and we continue our shared mission of connecting our customers, our communities, and each other to what’s possible."

Industry Context

StockSavvy.ai notes that Hawthorn Bancshares' strategic focus on wealth management and expansion into new markets like Kansas aligns with broader trends in regional banking to diversify revenue streams and capture growth in affluent areas. The discussion of emerging financial technologies (digital assets, stablecoins, DLT) and new legislation like the GENIUS Act highlights the increasing pressure on traditional banks to adapt to a rapidly evolving financial landscape, a challenge faced by many community banks. The emphasis on "hybrid banking experience" also reflects a common industry response to evolving customer expectations for both digital convenience and personalized service.

Comparison to Industry Standards

• Hawthorn Bancshares' ROA of 1.30% and ROE of 14.95% for 2025 are strong for a community bank, often exceeding the average for institutions of similar size (e.g., banks under $5 billion in assets typically target ROA above 1.0% and ROE above 10-12%).
• The efficiency ratio of 63.41% is competitive, indicating effective cost management, though top-tier banks often aim for below 60%.
• The net interest margin of 3.89% is robust, especially in a fluctuating interest rate environment, comparing favorably to many regional banks that might see NIMs in the 3.0-3.5% range.
• The "well-capitalized" status with strong capital ratios (CET1 of 11.23%, Total Capital of 15.49%) demonstrates a solid financial foundation, exceeding regulatory minimums and providing a buffer against economic downturns, similar to well-managed peers.
• The increase in non-performing assets to 0.47% of total loans, while still low, warrants monitoring compared to some peers who might maintain NPA ratios below 0.30%.

Management Changes

Corporate Governance

Legal Proceedings

• The Company and its subsidiaries are defendants in various legal actions incidental to the Company's past and current business activities. Management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company's consolidated financial condition or results of operations in the near term.

Related Party Transactions

• Loans to directors and executive officers or entities in which they had a beneficial interest totaled $20.88 million at December 31, 2025, up from $12.575 million at December 31, 2024.
• These loans were made in the normal course of business on substantially the same terms as comparable transactions with other persons and did not involve more than the normal risk of collectability or present unfavorable features.

Stakeholder Impact

• Shareholders: Increased net income, EPS, ROA, and ROE indicate improved profitability and potential for continued shareholder returns. The new share repurchase program and consistent dividend payments are positive. However, increased non-performing assets and unrealized losses on securities could be a concern.
• Employees: Focused recruiting efforts for experienced candidates and overall merit increases suggest positive employee investment. The comprehensive benefits package and profit-sharing plan contribute to employee retention.
• Customers: Expansion of banking offices (Overland Park, KS) and wealth management services aims to enhance customer experience and offerings. The hybrid banking model caters to diverse customer needs.
• Communities: Continued role as a trusted community partner, with employees encouraged to participate in community-supporting activities. The Community Reinvestment Act compliance is monitored.
• Regulators: Maintained 'well-capitalized' status and effective internal controls, demonstrating compliance with regulatory requirements.

Next Steps

• Continue to drive momentum and align with strategic initiatives in 2026.
• Evaluate the effects of any final rules on the Community Reinvestment Act program.
• Potentially elect to use the Community Bank Leverage Ratio (CBLR) framework in the future.
• Continue to evaluate the effect of the One Big Beautiful Bill Act (OBBBA) on financial condition.
• Adopt ASU 2024-03 (Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures) for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.
• The GENIUS Act will take effect the earlier of 18 months after its enactment or 120 days after agencies issue final implementing regulations.
• The Company expects to recognize $1.2 million of income from the pension plan in 2026.

Key Dates

Recommendation

The company demonstrated strong financial performance in 2025 with significant increases in net income, EPS, and key profitability ratios like ROA, ROE, and net interest margin. The improved efficiency ratio and reduced credit loss provision are also positive indicators. Strategic initiatives, including expansion into new markets and growth in wealth management, are yielding results. While there was an increase in non-performing assets, the overall asset quality remains manageable, and the company maintains a strong capital position. The new share repurchase program and consistent dividends further enhance shareholder value. These factors suggest a positive outlook for the stock.

Keywords

Community Banking, Financial Services, Bank Holding Company, Wealth Management, Missouri Banking, Kansas City MSA, SEC Filing, 10-K, Financial Performance, Credit Risk, Interest Rate Risk, Regulatory Compliance, Cybersecurity, Capital Adequacy, Loan Portfolio, Deposits, Earnings Growth, Share Repurchase, Digital Assets, Stablecoins, AI Risk