Hawthorn Bancshares Inc. (NASDAQ: HWBK) today reported consolidated
financial results for the Company for the quarter ended December
31, 2018.
Net income for the current year was $10.7
million, or $1.78 per diluted common share, compared to $3.4
million, or $0.56 per diluted common share, for 2017.
Included in the 2017 net income is a $4.1 million charge, or $0.68
per diluted common share, that includes $3.1 million resulting from
application of the Tax Cut and Jobs Act (the “Tax Act”) enacted in
the fourth quarter of 2017, and $1.0 million resulting from tax
planning initiatives implemented at year-end 2017.
The return on average common equity was 11.45%
and the return on average assets was 0.74% for the current year
compared to 3.59% (7.90% excluding the charge from the Tax Act and
tax planning initiatives) and 0.25% (0.56% excluding the charge
from the Tax Act and tax planning initiatives) for the prior year,
respectively.
Commenting on earnings
performance, Chairman David T. Turner said,
“Hawthorn reported a 43.5% increase in non-GAAP earnings per
diluted common share to $1.78 for the current year excluding the
impact of the Tax Act and tax planning initiatives for the prior
year. Although a portion of this increase resulted from the
lower tax rate enacted by the Tax Act and tax planning initiatives,
our pre-tax income also increased by $1.1 million, or 9.4%. Loan
growth continued to contribute to these increased earnings as net
loans increased $77.4 million, or 7.3%, from last year-end leading
to a $1.7 million increase in net interest income over the prior
year. This growth was achieved without a deterioration in loan
quality as nonperforming loans to total loans decreased from 0.56%
at December 31, 2017 compared to 0.49% at December 31, 2018.
Our current year-to-date net interest margin of
3.30% continues to be squeezed by increased interest expense during
the recent rising interest rate environment although the two most
recent quarters have shown increases from the prior linked quarters
compared to the 11 basis points decline year over year.
Non-interest income of $9.3 million for the current year increased
$0.4 million, or 4.4%, from the prior year mostly due to increased
service charge and bankcard income. Non-interest expense of
$40.3 million for the current year was $1.5 million, or 3.9%,
higher than the prior year. This increase over the prior year was
mostly due to a $0.9 million increase in salaries and a $0.5
million increase in benefits. One-time bonuses of $1,000 for
full-time staff and $500 for part-time staff paid in the first
quarter 2018 as a result of the benefits accruing from the
enactment of the Tax Act contributed $0.4 million of the salary
increase as did annual cost of living increases averaging 3%.
The increase in benefits was due to higher medical and pension
benefit costs.
As of December 31, 2018, we have been able to
reduce our full-time equivalent head count by 45, or approximately
14%, since December 31, 2017, most of which occurred in the latter
half of 2018. As a result, the cost savings from this
reduction will be more fully realized in 2019. We continue to
pursue initiatives to improve our efficiency ratio including right
sizing our branch network. To this end, we recently announced
the closing of our Windsor branch during the fourth quarter 2018
and the sale of our Branson branch expected to close in the first
quarter of 2019. While these transactions are not expected to
significantly affect loan or deposit volumes, they will further
reduce head count and operating expenses.
Net Interest
Income
Net interest income for the year ended December
31, 2018 was $44.6 million compared to $42.9 million for the prior
year. The increase in average loans from 2017 of $73.2 million, or
7.1%, was the primary contributor to the growth in net interest
income. The net interest margin declined 11 basis points from 2017
to 3.30% for 2018 primarily due to the yield on average earning
assets increasing 22 basis points while the cost of interest
bearing liabilities increased 41 basis points.
Non-Interest Income and
Expense
Non-interest income for the year ended December
31, 2018 was $9.3 million compared to $9.0 million for the prior
year ended December 31, 2017. The net change from the prior
year was primarily due to increases in service charge income of
$0.3 million and bankcard income of $0.1 million.
Non-interest expense was $40.3 million for the
year ended December 31, 2018, an increase of $1.5 million, or 3.9%,
over the prior year level of $38.8 million. The majority of this
increase was caused by salaries and benefits increasing $1.4
million, or 6.4%, from the prior year-to-date to the current
year-to-date. These compensation costs increased due to the
aforementioned bonuses paid to all staff resulting from the Tax Act
lowering corporate income tax rates; annual cost of living
increases; and higher medical and pension benefit costs.
Allowance for Loan
Losses
The Company’s level of non-performing loans was
0.49% of total loans at December 31, 2018 compared to 0.56% at
December 31, 2017. During the year ended December 31, 2018,
the Company recorded net charge-offs of $675,000, or 0.06% of
average loans, compared to net charge-offs of $799,000, or 0.08% of
average loans for the year ended December 31, 2017. The
allowance for loan losses at December 31, 2018 was $11.7 million,
or 1.02% of outstanding loans, and 208.97% of non-performing loans.
At December 31, 2017, the allowance for loan losses was $10.9
million, or 1.02% of outstanding loans, and 180.87% of
non-performing loans. 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 December 31, 2018.
Financial
Condition
Comparing December 31, 2018 balances with
December 31, 2017, total assets increased $52.5 million to $1.5
billion. The largest driver in asset growth was the increase in
loans of $77.4 million, or 7.3%, while federal funds sold and other
overnight interest-bearing deposits decreased $21.2 million, or
53.5%. Total deposits increased $72.7 million, or 6.5%, to $1.2
billion and FHLB advances and other borrowings decreased $26.2
million to $95.2 million at December 31, 2018. During the same
period, stockholders’ equity increased 8.8% to $99.4 million, or
6.7% of total assets. The total risk based capital ratio of 13.55%
and the leverage ratio of 9.78% at December 31, 2018, respectively,
far exceed minimum regulatory requirements of 8.00% and 4.00%,
respectively.
[Tables follow]
FINANCIAL
SUMMARY(unaudited)$000
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
December 31, |
|
September 30, |
|
December 31, |
Statement of income
information: |
|
2018 |
|
|
2018 |
|
2017 |
|
Total
interest income |
|
$ |
15,196 |
|
|
$ |
14,751 |
|
$ |
13,219 |
|
Total
interest expense |
|
|
3,692 |
|
|
|
3,443 |
|
|
2,351 |
|
Net
interest income |
|
|
11,504 |
|
|
|
11,308 |
|
|
10,868 |
|
Provision
for loan losses |
|
|
475 |
|
|
|
250 |
|
|
530 |
|
Noninterest income |
|
|
2,436 |
|
|
|
2,324 |
|
|
2,263 |
|
Investment securities (loss) gain, net |
|
|
(1 |
) |
|
|
50 |
|
|
5 |
|
Noninterest expense |
|
|
10,259 |
|
|
|
9,888 |
|
|
9,999 |
|
Pre-tax
income |
|
|
3,205 |
|
|
|
3,544 |
|
|
2,607 |
|
Income
taxes |
|
|
586 |
|
|
|
446 |
|
|
4,979 |
|
Net
income |
|
$ |
2,619 |
|
|
$ |
3,098 |
|
$ |
(2,372 |
) |
Earnings per share: |
|
|
|
|
|
|
|
|
|
Basic: |
|
$ |
0.44 |
|
|
$ |
0.51 |
|
$ |
(0.39 |
) |
Diluted: |
|
$ |
0.44 |
|
|
$ |
0.51 |
|
$ |
(0.39 |
) |
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
December 31, |
|
December 31, |
Statement of income
information: |
|
2018 |
|
2017 |
Total
interest income |
|
$ |
57,779 |
|
$ |
50,935 |
Total
interest expense |
|
|
13,186 |
|
|
8,007 |
Net
interest income |
|
|
44,593 |
|
|
42,928 |
Provision
for loan losses |
|
|
1,475 |
|
|
1,765 |
Noninterest income |
|
|
9,341 |
|
|
8,950 |
Investment securities gain, net |
|
|
255 |
|
|
5 |
Noninterest expense |
|
|
40,332 |
|
|
38,802 |
Pre-tax
income |
|
|
12,382 |
|
|
11,316 |
Income
taxes |
|
|
1,668 |
|
|
7,902 |
Net
income |
|
$ |
10,714 |
|
$ |
3,414 |
Earnings per share: |
|
|
|
|
|
|
Basic: |
|
$ |
1.78 |
|
$ |
0.56 |
Diluted: |
|
$ |
1.78 |
|
$ |
0.56 |
FINANCIAL SUMMARY
(continued)(unaudited)$000
|
|
|
|
|
|
|
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
Key
financial ratios: |
|
2018 |
|
2018 |
|
2017 |
|
Return on
average assets (YTD) |
|
0.74 |
% |
0.75 |
% |
0.25 |
% |
Return on
average common equity (YTD) |
|
11.45 |
% |
11.69 |
% |
3.59 |
% |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
|
|
2018 |
|
2018 |
|
2017 |
|
Allowance
for loan losses to total loans |
|
1.02 |
% |
1.02 |
% |
1.02 |
% |
Non-performing loans to total loans (a) |
|
0.49 |
% |
0.56 |
% |
0.56 |
% |
Non-performing assets to loans (a) |
|
1.68 |
% |
1.76 |
% |
1.80 |
% |
Non-performing assets to assets (a) |
|
1.30 |
% |
1.35 |
% |
1.34 |
% |
Performing TDRs to loans (a) |
|
0.27 |
% |
0.29 |
% |
0.44 |
% |
Allowance
for loan losses to non-performing loans (a) |
|
208.97 |
% |
180.86 |
% |
180.87 |
% |
(a) Non-performing loans include loans 90 days past due and
accruing and nonaccrual loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
Balance
sheet information: |
|
2018 |
|
2018 |
|
2017 |
|
Total
assets |
|
$ |
1,481,682 |
|
$ |
1,451,664 |
|
$ |
1,429,216 |
|
Loans,
net of allowance for loan losses |
|
|
1,134,975 |
|
|
1,104,407 |
|
|
1,057,580 |
|
Investment securities |
|
|
223,880 |
|
|
229,580 |
|
|
237,579 |
|
Deposits |
|
|
1,198,468 |
|
|
1,182,734 |
|
|
1,125,812 |
|
Total
stockholders’ equity |
|
|
99,414 |
|
|
94,872 |
|
|
91,371 |
|
|
|
|
|
|
|
|
|
|
|
|
Book
value per share |
|
$ |
16.49 |
|
$ |
15.75 |
|
$ |
15.08 |
|
Market
price per share |
|
$ |
21.03 |
|
$ |
22.75 |
|
$ |
19.95 |
|
Net
interest Spread (YTD) |
|
|
3.05 |
% |
|
3.05 |
% |
|
3.24 |
% |
Net
interest Margin (YTD) |
|
|
3.30 |
% |
|
3.28 |
% |
|
3.41 |
% |
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 adjustments
to exclude the transitional impact of the Tax Act and the Company's
implementation of new tax planning initiatives, which are
non-recurring and not considered indicative of underlying earnings
performance. [The adjustments do not include the ongoing impacts of
the lower U.S. statutory rate under the Tax Act on current year
earnings.] 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 that 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
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
December 31, |
|
September 30, |
|
December 31, |
Statement of income
information: |
|
2018 |
|
2018 |
|
2017 |
|
Net
income – GAAP |
|
$ |
2,619 |
|
$ |
3,098 |
|
$ |
(2,372 |
) |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
— |
|
|
4,105 |
|
Net
income - Non-GAAP |
|
$ |
2,619 |
|
$ |
3,098 |
|
$ |
1,733 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
Basic –
GAAP |
|
$ |
0.44 |
|
$ |
0.51 |
|
$ |
(0.39 |
) |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
— |
|
|
0.68 |
|
Basic -
Non-GAAP |
|
$ |
0.44 |
|
$ |
0.51 |
|
$ |
0.29 |
|
Diluted –
GAAP |
|
$ |
0.44 |
|
$ |
0.51 |
|
$ |
(0.39 |
) |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
— |
|
|
0.68 |
|
Diluted -
Non-GAAP |
|
$ |
0.44 |
|
$ |
0.51 |
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
Statement of income
information: |
|
2018 |
|
2017 |
Net
income - GAAP |
|
$ |
10,714 |
|
$ |
3,414 |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
4,105 |
Net
income - Non-GAAP |
|
$ |
10,714 |
|
$ |
7,519 |
Earnings per share: |
|
|
|
|
|
|
Basic –
GAAP |
|
$ |
1.78 |
|
$ |
0.56 |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
0.68 |
Basic -
Non-GAAP |
|
$ |
1.78 |
|
$ |
1.24 |
Diluted –
GAAP |
|
$ |
1.78 |
|
$ |
0.56 |
Effect of
net deferred tax asset adjustments (a) |
|
|
— |
|
|
0.68 |
Diluted -
Non-GAAP |
|
$ |
1.78 |
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
Key
financial ratios: |
|
2018 |
|
2018 |
|
2017 |
|
Return on
average assets (YTD) – GAAP |
|
0.74 |
% |
0.75 |
% |
0.25 |
% |
Effect of
net deferred tax asset adjustments (a) |
|
— |
% |
— |
|
0.31 |
|
Return on
average assets (YTD) - Non-GAAP |
|
0.74 |
% |
0.75 |
% |
0.56 |
% |
Return on
average common equity (YTD) – GAAP |
|
11.45 |
% |
11.69 |
% |
3.59 |
% |
Effect of
net deferred tax asset adjustments (a) |
|
— |
% |
— |
% |
4.31 |
% |
Return on
average common equity (YTD) - Non-GAAP |
|
11.45 |
% |
11.69 |
% |
7.90 |
% |
(a) Calculated using the difference in combined statutory rates
of 38% for 2017 and 21% for subsequent years.
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, Springfield,
Branson, 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. Such
forward-looking statements include, but are not limited to,
statements regarding the estimated effects of the Tax Act. It is
important to note that actual results could differ materially from
those projected in such forward-looking statements. Factors that
could cause the Company's estimated effects of the Tax Act to
differ materially include, but are not limited to, changes in
interpretations and assumptions the Company has made with respect
to the anticipated effects of the Tax Act, federal tax regulations
and guidance that may be issued by the U.S. Department of Treasury
and future actions by the Company resulting from the Tax Act.
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: Bruce Phelps
Chief Financial Officer
TEL: 573.761.6100 FAX: 573.761.6272
www.HawthornBancshares.com
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