Hawthorn Bancshares, Inc. Repositions Balance Sheet

Rhea-AI Summary

Hawthorn Bancshares, Inc. (NASDAQ: HWBK) implemented a balance sheet repositioning strategy, selling $83.7 million in investment securities at a loss of $9.1 million. The proceeds will be reinvested for higher yields and to pay down borrowings, expected to improve earnings, net interest margin, and return on assets in the future. The repositioning is projected to have a neutral impact on consolidated shareholders' equity and tangible book value per share, while maintaining well-capitalized regulatory levels.

Positive

• Balance sheet repositioning strategy to reinvest proceeds for higher yields and pay down borrowings
• Expected improvement in earnings, net interest margin, and return on assets in the future
• Maintained well-capitalized regulatory capital levels after repositioning

Negative

• Realized loss of $9.1 million on the sale of investment securities

Financial Analyst

Examining the strategic repositioning by Hawthorn Bancshares, Inc. reveals a significant reshuffle in their investment portfolio. The sale of investment securities at a book value of $83.7 million, albeit at a loss of $9.1 million, is a calculated move to pivot towards assets with higher yields. This action directly targets an enhancement in the bank's earnings, net interest margin and return on assets, which are critical financial health indicators.

The decision to sell securities, including U.S. Treasury and mortgage-backed securities, reflects a response to the current low-yield environment. By reallocating capital to higher-yielding assets, the bank aims to improve its financial performance in the forthcoming periods. This could potentially increase shareholder value over time, despite the immediate loss incurred.

Furthermore, the assertion that this move will not affect the company's consolidated shareholders' equity and tangible book value per share provides a layer of reassurance to stakeholders. Maintaining strong regulatory capital levels post-repositioning underscores the bank's commitment to financial stability and regulatory compliance, which is essential for investor confidence.

Industry Analyst

The banking industry often employs balance sheet repositioning to adapt to changing economic conditions and interest rate environments. Hawthorn Bancshares, Inc.'s strategy is reflective of a broader industry trend where financial institutions are seeking to optimize their asset portfolios in anticipation of fluctuating market dynamics.

It is noteworthy that the bank has chosen to absorb a substantial upfront loss to potentially secure more favorable returns in the future. This strategic foresight could place the bank at a competitive advantage should the reinvestment yield the anticipated higher returns. However, this maneuver is not without risk, as the success of such a strategy is contingent on the performance of the new assets and the overall market conditions.

The bank's ability to execute this strategy without undermining its capital adequacy positions it favorably in terms of risk management. Stakeholders would be prudent to monitor the bank's subsequent financial statements to assess the tangible impact of this repositioning on its performance metrics.

JEFFERSON CITY, Mo., Dec. 19, 2023 (GLOBE NEWSWIRE) -- Hawthorn Bancshares, Inc. (NASDAQ: HWBK) (the "Company"), the parent company of Hawthorn Bank (the "Bank"), implemented a balance sheet repositioning strategy of its portfolio of available-for-sale investment securities.

The Bank sold $83.7 million in book value of investment securities, with an average yield of 1.57%, for an after-tax realized loss of $9.1 million. Investment securities sold included $1.0 million of U.S. Treasury securities, $57.1 million of mortgage-backed securities, $20.5 million U.S. Government-sponsored agencies, and $5.1 million of municipal securities. The proceeds will be reinvested in assets with higher yields and to pay down borrowings.

CEO Brent Giles stated, " We elected to proactively reposition our securities portfolio during the fourth quarter, which we expect to be accretive to earnings, net interest margin and return on assets in future periods."

The loss on the sale of securities is expected to have a neutral impact on the Company's consolidated shareholders' equity and tangible book value per share. After the repositioning, the Bank's regulatory capital levels remained well above those required to be categorized as well-capitalized.

About Hawthorn Bancshares, Inc.

Hawthorn Bancshares, Inc. (NASDAQ: HWBK), a financial-bank holding company headquartered in Jefferson City, Missouri, is the parent company of Hawthorn Bank. With $1.9 billion in assets, Hawthorn Bank is a full-service bank offering a wide range of financial services to commercial and retail clients. It operates 20 branches and approximately 40 ATMs located in Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield and the greater Kansas City metropolitan area.

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, and include those relating to the Company's balance sheet repositioning and the expected effects thereof. It is important to note that actual results could differ materially from those projected in such forward-looking statements. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors: competitive pressures in the banking industry; changes in the interest rate environment; general economic conditions; changes in the quality of the Company's loans and other assets; legislative, regulatory or tax law changes; credit and market risks relating to increasing inflation; changes in the securities markets and the value of the Company's investments; changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; and the Company's ability to maintain sufficient liquidity, primarily through deposits, in light of recent events in the banking industry. 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. These forward-looking statements are made as of the date of this communication, and the Company disclaims any obligation to update any forward-looking statement or to publicly announce the results of any revisions to any of the forward-looking statements included herein, except as required by law.

What is the ticker symbol for Hawthorn Bancshares, Inc.?

The ticker symbol for Hawthorn Bancshares, Inc. is NASDAQ: HWBK.

What was the average yield of the investment securities sold?

The average yield of the investment securities sold was 1.57%.

What types of investment securities were sold by Hawthorn Bancshares, Inc.?

Hawthorn Bancshares, Inc. sold U.S. Treasury securities, mortgage-backed securities, U.S. Government-sponsored agencies, and municipal securities.

What is the expected impact of the repositioning on the Company's consolidated shareholders' equity?

The repositioning is expected to have a neutral impact on the Company's consolidated shareholders' equity.

What are the projected benefits of the balance sheet repositioning strategy?

The repositioning is expected to improve earnings, net interest margin, and return on assets in future periods.