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Section 1: 10-Q (10-Q)

hwbk_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2019

OR

   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________ to ______________

Commission file number: 0‑23636

HAWTHORN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Missouri

43‑1626350

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

132 East High Street, Box 688, Jefferson City, Missouri 65102

(Address of principal executive offices) (Zip Code)

(573) 761‑6100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer ◻

Accelerated filer ☒

Non-accelerated filer ◻

 

 

 

Smaller reporting company ☒

Emerging growth company ◻

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). ◻ Yes ☒ No

Securities registered pursuant to Section 12(g) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

HWBK

The Nasdaq Stock Market LLC

 

As of May 8, 2019, the registrant had 6,034,843 shares of common stock, par value $1.00 per share, outstanding.

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

(In thousands, except per share data)

 

March 31, 

 

December 31, 

 

    

2019

    

2018

 

    

(Unaudited)

    

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

15,679

 

$

23,687

Federal funds sold and other interest-bearing deposits

 

 

75,035

 

 

18,396

Cash and cash equivalents

 

 

90,714

 

 

42,083

Certificates of deposit in other banks

 

 

12,741

 

 

12,247

Available-for-sale debt securities, at fair value

 

 

218,539

 

 

218,205

Other investments

 

 

5,735

 

 

5,675

Total investment securities

 

 

224,274

 

 

223,880

Loans

 

 

1,154,652

 

 

1,146,627

Allowances for loan losses

 

 

(11,845)

 

 

(11,652)

Net loans

 

 

1,142,807

 

 

1,134,975

Premises and equipment - net

 

 

35,953

 

 

34,894

Mortgage servicing rights

 

 

2,875

 

 

2,931

Other real estate owned - net

 

 

13,537

 

 

13,691

Accrued interest receivable

 

 

6,160

 

 

6,162

Cash surrender value - life insurance

 

 

2,562

 

 

2,542

Other assets

 

 

6,688

 

 

8,277

Total assets

 

$

1,538,311

 

$

1,481,682

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Non-interest bearing demand

 

$

264,218

 

$

262,857

Savings, interest checking and money market

 

 

625,522

 

 

614,040

Time deposits $250,000 and over

 

 

140,886

 

 

104,900

Other time deposits

 

 

219,946

 

 

216,671

Total deposits

 

 

1,250,572

 

 

1,198,468

Federal funds purchased and securities sold under agreements to repurchase

 

 

22,097

 

 

24,647

Federal Home Loan Bank advances and other borrowings

 

 

95,096

 

 

95,153

Subordinated notes

 

 

49,486

 

 

49,486

Operating lease liabilities

 

 

2,347

 

 

 —

Accrued interest payable

 

 

1,093

 

 

1,035

Other liabilities

 

 

12,750

 

 

13,479

Total liabilities

 

 

1,433,441

 

 

1,382,268

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $1 par value, authorized 15,000,000 shares; issued 6,278,481 shares, respectively

 

 

6,279

 

 

6,279

Surplus

 

 

50,173

 

 

50,173

Retained earnings

 

 

58,168

 

 

54,105

Accumulated other comprehensive loss, net of tax

 

 

(4,706)

 

 

(6,099)

Treasury stock; 243,638 shares, at cost, respectively

 

 

(5,044)

 

 

(5,044)

Total stockholders’ equity

 

 

104,870

 

 

99,414

Total liabilities and stockholders’ equity

 

$

1,538,311

 

$

1,481,682

 

See accompanying notes to the consolidated financial statements (unaudited).

2


 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

(In thousands, except per share amounts)

    

2019

    

2018

 

INTEREST INCOME

 

 

  

 

 

  

 

Interest and fees on loans

 

$

14,106

 

$

12,223

 

Interest on investment securities:

 

 

  

 

 

  

 

Taxable

 

 

1,000

 

 

947

 

Nontaxable

 

 

141

 

 

158

 

Federal funds sold, other interest-bearing deposits, and certificates of deposit in other banks

 

 

602

 

 

106

 

Dividends on other investments

 

 

66

 

 

110

 

Total interest income

 

 

15,915

 

 

13,544

 

INTEREST EXPENSE

 

 

  

 

 

  

 

Interest on deposits:

 

 

  

 

 

  

 

Savings, interest checking and money market

 

 

1,716

 

 

1,084

 

Time deposit accounts $250,000 and over

 

 

665

 

 

138

 

Time deposits

 

 

706

 

 

511

 

Total interest expense on deposits

 

 

3,087

 

 

1,733

 

Interest on federal funds purchased and securities sold under agreements to repurchase

 

 

33

 

 

171

 

Interest on Federal Home Loan Bank advances

 

 

542

 

 

395

 

Interest on subordinated notes

 

 

624

 

 

491

 

Total interest expense on borrowings

 

 

1,199

 

 

1,057

 

Total interest expense

 

 

4,286

 

 

2,790

 

Net interest income

 

 

11,629

 

 

10,754

 

Provision for loan losses

 

 

150

 

 

300

 

Net interest income after provision for loan losses

 

 

11,479

 

 

10,454

 

NON-INTEREST INCOME

 

 

  

 

 

  

 

Service charges and other fees

 

 

862

 

 

876

 

Bank card income and fees

 

 

695

 

 

656

 

Trust department income

 

 

293

 

 

280

 

Real estate servicing fees, net

 

 

84

 

 

221

 

Gain on sale of mortgage loans, net

 

 

105

 

 

146

 

Other

 

 

52

 

 

36

 

Total non-interest income

 

 

2,091

 

 

2,215

 

Investment securities gain, net

 

 

 1

 

 

98

 

Gain on branch sale, net

 

 

2,074

 

 

 —

 

NON-INTEREST EXPENSE

 

 

  

 

 

  

 

Salaries and employee benefits

 

 

5,438

 

 

6,057

 

Occupancy expense, net

 

 

698

 

 

689

 

Furniture and equipment expense

 

 

809

 

 

635

 

Processing, network, and bank card expense

 

 

1,001

 

 

859

 

Legal, examination, and professional fees

 

 

329

 

 

422

 

Advertising and promotion

 

 

258

 

 

252

 

Postage, printing, and supplies

 

 

210

 

 

268

 

Other

 

 

1,145

 

 

1,084

 

Total non-interest expense

 

 

9,888

 

 

10,266

 

Income before income taxes

 

 

5,757

 

 

2,501

 

Income tax expense

 

 

1,091

 

 

411

 

Net income

 

$

4,666

 

$

2,090

 

Basic earnings per share

 

$

0.77

 

$

0.35

 

Diluted earnings per share

 

$

0.77

 

$

0.35

 

 

See accompanying notes to the consolidated financial statements (unaudited).

3


 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

(In thousands)

    

2019

    

2018

 

Net income

 

$

4,666

 

$

2,090

 

Other comprehensive income, net of tax

 

 

  

 

 

  

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

Unrealized gain (loss) on investment securities available-for-sale, net of tax

 

 

1,378

 

 

(1,715)

 

Adjustment for gain on sale of investment securities, net of tax

 

 

 —

 

 

 —

 

Defined benefit pension plans:

 

 

  

 

 

  

 

Amortization of prior service cost included in net periodic pension cost, net of tax

 

 

15

 

 

42

 

Total other comprehensive income (loss)

 

 

1,393

 

 

(1,673)

 

Total comprehensive income

 

$

6,059

 

$

417

 

 

See accompanying notes to the consolidated financial statements (unaudited).

4


 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Accumulated

    

 

 

    

Total

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Stock -

 

 

Common

 

 

 

 

Retained

 

Comprehensive

 

Treasury

 

holders'

(In thousands)

 

Stock

 

Surplus

 

Earnings

 

Loss

 

Stock

 

Equity

Balance, December 31, 2017

 

$

6,047

 

$

45,442

 

$

50,595

 

$

(5,662)

 

$

(5,051)

 

$

91,371

Net income

 

 

 —

 

 

 —

 

 

2,090

 

 

 —

 

 

 —

 

 

2,090

Other comprehensive loss

 

 

 —

 

 

 —

 

 

 —

 

 

(1,673)

 

 

 —

 

 

(1,673)

Purchase of treasury stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(112)

 

 

(112)

Cash dividends declared, common stock

 

 

 —

 

 

 —

 

 

(405)

 

 

 —

 

 

 —

 

 

(405)

Balance, March 31, 2018

 

$

6,047

 

$

45,442

 

$

52,280

 

$

(7,335)

 

$

(5,163)

 

$

91,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

6,279

 

$

50,173

 

$

54,105

 

$

(6,099)

 

$

(5,044)

 

$

99,414

Net income

 

 

 —

 

 

 —

 

 

4,666

 

 

 —

 

 

 —

 

 

4,666

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

1,393

 

 

 —

 

 

1,393

Cash dividends declared, common stock

 

 

 —

 

 

 —

 

 

(603)

 

 

 —

 

 

 —

 

 

(603)

Balance, March 31, 2019

 

$

6,279

 

$

50,173

 

$

58,168

 

$

(4,706)

 

$

(5,044)

 

$

104,870

 

See accompanying notes to the consolidated financial statements (unaudited).

5


 

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

(In thousands)

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

4,666

 

$

2,090

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

150

 

 

300

Depreciation expense

 

 

441

 

 

435

Net amortization of investment securities, premiums, and discounts

 

 

312

 

 

356

Change in fair value of mortgage servicing rights

 

 

94

 

 

(18)

Investment securities gain, net

 

 

(1)

 

 

(98)

Loss (gain) on sales and dispositions of premises and equipment

 

 

19

 

 

(13)

Gain on sales and dispositions of other real estate

 

 

(6)

 

 

(2)

Gain on branch sale, net

 

 

(2,074)

 

 

 —

Provision for other real estate owned

 

 

28

 

 

 1

Operating lease payment

 

 

 1

 

 

 —

Decrease in accrued interest receivable

 

 

 2

 

 

297

Increase in cash surrender value - life insurance

 

 

(20)

 

 

(15)

Decrease in other assets

 

 

1,180

 

 

156

Increase in accrued interest payable

 

 

58

 

 

34

Decrease in other liabilities

 

 

(729)

 

 

(989)

Origination of mortgage loans for sale

 

 

(5,420)

 

 

(7,587)

Proceeds from the sale of mortgage loans

 

 

5,096

 

 

7,587

Gain on sale of mortgage loans, net

 

 

(105)

 

 

(146)

Other, net

 

 

(38)

 

 

(50)

Net cash provided by operating activities

 

 

3,654

 

 

2,338

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of certificates of deposit in other banks

 

 

(494)

 

 

(1,352)

Net increase in loans

 

 

(7,669)

 

 

(16,231)

Purchase of available-for-sale debt securities

 

 

(12,751)

 

 

(28,134)

Proceeds from maturities of available-for-sale debt securities

 

 

10,030

 

 

9,119

Proceeds from calls of available-for-sale debt securities

 

 

3,820

 

 

1,685

Proceeds from sales of available-for-sale debt securities

 

 

 —

 

 

25,723

Purchases of FHLB stock

 

 

(62)

 

 

(1,370)

Proceeds from sales of FHLB stock

 

 

 3

 

 

2,682

Purchases of premises and equipment

 

 

(971)

 

 

(401)

Proceeds from sales of premises and equipment

 

 

 —

 

 

13

Payment for branch sale, net

 

 

(6,700)

 

 

 —

Proceeds from sales of other real estate and repossessed assets

 

 

248

 

 

224

Net cash used in investing activities

 

 

(14,546)

 

 

(8,042)

Cash flows from financing activities:

 

 

 

 

 

 

Net increase (decrease) in demand deposits

 

 

9,723

 

 

(546)

Net increase in interest-bearing transaction accounts

 

 

12,066

 

 

32,426

Net increase in time deposits

 

 

40,944

 

 

22,688

Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase

 

 

(2,550)

 

 

7,235

Repayment of FHLB advances and other borrowings

 

 

(57)

 

 

(131,055)

FHLB advances

 

 

 —

 

 

94,000

Purchase of treasury stock

 

 

 —

 

 

(112)

Cash dividends paid - common stock

 

 

(603)

 

 

(406)

Net cash provided by financing activities

 

 

59,523

 

 

24,230

Net increase in cash and cash equivalents

 

 

48,631

 

 

18,526

Cash and cash equivalents, beginning of year

 

 

42,083

 

 

62,878

Cash and cash equivalents, end of year

 

$

90,714

 

$

81,404

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

Interest

 

$

15,913

 

$

2,755

Income taxes

 

$

 —

 

$

 —

Noncash investing and financing activities:

 

 

 

 

 

 

Other real estate and repossessed assets acquired in settlement of loans

 

$

116

 

$

278

Net deposits and fixed assets transferred to other assets held for sale

 

$

(8,885)

 

$

 —

Right of use assets obtained in exchange for new operating lease liabilities

 

$

2,369

 

$

 —

 

See accompanying notes to the consolidated financial statements (unaudited).

 

6


 

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(1)   Summary of Significant Accounting Policies

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10‑Q, and Rule 10‑01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements other than mentioned below.

Stock Dividend On July 1, 2018, the Company paid a special stock dividend of four percent to shareholders of record at the close of business on June 15, 2018. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

Summary of Recent Transactions and Events On February 8, 2019, Hawthorn Bank, a wholly-owned subsidiary of the Company, completed the sale of its branch located in Branson, Missouri with total deposits of approximately $10.6 million to Branson Bank in Branson, Missouri. The transaction excludes loans assigned to the branch. The sale resulted in a pre-tax gain of approximately $2.1 million, or $1.6 million after tax.

The following represents significant new accounting principles adopted in 2019:

Leases On January 1, 2019, the Company adopted ASU No. 2016-02,  Leases (Topic 842) which requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The ASU primarily affects lessee accounting, which requires the lessee to recognize a right-of-use asset (ROU) and a liability to make lease payments for those leases classified as operating leases. For leases with a term of 12 months or less, an election by class of underlying asset not to recognize lease assets and lease liabilities is permitted. The ASU also provides additional guidance as to the definition of a lease, identification of lease components, and sale and leaseback transactions. The Company's operating leases primarily relate to office space and bank branches.

 

7


 

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

In January 2018, the FASB issued ASU 2018-01, which allows entities the option to apply the provisions of the new lease guidance at the effective date without adjusting the comparative periods presented. In July 2018, the FASB issued ASU 2018-10, which provides narrow-scope improvements to the lease standard and ASU 2018-11, which allows entities to choose an additional transition method, under which an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this transitional method, the entity shall recognize and measure the leases that exist at the adoption date and the prior comparative periods are not adjusted. The Company adopted this ASU as of January 1, 2019 using the transitional method. In addition, the Company utilized the practical expedients that allowed it to retain the classifications of existing leases, not re-assess if existing leases have initial direct costs, and hindsight when determining the lease term and assessment of impairment. The adoption of ASU 2016-02 and related transition guidance resulted in the recording of right-of-use assets and lease liabilities on the consolidated balance sheets  of $2.3 million and $2.3 million, respectively; however, it did not have a material impact on the Company's other consolidated financial statements. See Note 7 - Leases for additional information.

Derivatives and Hedging The FASB issued guidance within ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815) in August 2017. The amendments in ASU 2017-12 to Topic 815, Derivatives and Hedging, are intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The guidance also amends the presentation and disclosure requirements and changes how companies assess effectiveness. Under the new guidance, public companies will have until the end of the first quarter in which a hedge is designated to perform an initial assessment of a hedge's effectiveness. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. Additional disclosures include cumulative basis adjustments for fair value hedges and the effect of hedging on individual income statement line items. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The ASU did not have a significant effect on the Company's Consolidated Financial Statements.

(2)   Loans and Allowance for Loan Losses

Loans

A summary of loans, by major class within the Company’s loan portfolio, at March 31, 2019 and December 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

(in thousands)

    

2019

    

2018

Commercial, financial, and agricultural

 

$

204,759

 

$

207,720

Real estate construction - residential

 

 

26,082

 

 

28,610

Real estate construction - commercial

 

 

109,766

 

 

106,784

Real estate mortgage - residential

 

 

248,059

 

 

241,517

Real estate mortgage - commercial

 

 

534,121

 

 

529,536

Installment and other consumer

 

 

31,865

 

 

32,460

Total loans

 

$

1,154,652

 

$

1,146,627

 

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The

8


 

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of automotive vehicles. At March 31, 2019, loans of $519.3 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

Allowance for Loan Losses

The following table illustrates the changes in the allowance for loan losses by portfolio segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

Commercial,

 

Real Estate

 

Real Estate

 

Real Estate

 

Real Estate

 

Installment

 

 

 

 

 

 

 

 

Financial, &

 

Construction -

 

Construction -

 

Mortgage -

 

Mortgage -

 

and Other

 

Un-

 

 

 

(in thousands)

   

Agricultural

   

Residential

   

Commercial

   

Residential

   

Commercial

   

Consumer

   

allocated

   

Total

Balance at beginning of period

 

$

3,237

 

$

140

 

$

757

 

$

2,071

 

$

4,914

 

$

334

 

$

199

 

$

11,652

Additions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Provision for loan losses

 

 

(60)

 

 

(66)

 

 

(119)

 

 

(196)

 

 

617

 

 

18

 

 

(44)

 

 

150

Deductions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Loans charged off

 

 

53

 

 

 —

 

 

 —

 

 

84

 

 

 8

 

 

52

 

 

 —

 

 

197

Less recoveries on loans

 

 

(108)

 

 

 —

 

 

 —

 

 

(99)

 

 

 —

 

 

(33)

 

 

 —

 

 

(240)

Net loan charge-offs (recoveries)

 

 

(55)

 

 

 —

 

 

 —

 

 

(15)

 

 

 8

 

 

19

 

 

 —

 

 

(43)

Balance at end of period

 

$

3,232

 

$

74

 

$

638

 

$

1,890

 

$

5,523

 

$

333

 

$

155

 

$

11,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

Commercial,

 

Real Estate

 

Real Estate

 

Real Estate

 

Real Estate

 

Installment

 

 

 

 

 

 

 

 

Financial, &

 

Construction -

 

Construction -

 

Mortgage -

 

Mortgage -

 

and Other

 

Un-

 

 

 

(in thousands)

   

Agricultural

   

Residential

   

Commercial

   

Residential

   

Commercial

   

Consumer

   

allocated

   

Total

Balance at beginning of period

 

$

3,325

 

$

170

 

$

807

 

$

1,689

 

$

4,437

 

 

345

 

$

79

 

$

10,852

Additions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Provision for loan losses

 

 

33

 

 

106

 

 

118

 

 

369

 

 

(421)

 

 

40

 

 

55

 

 

300

Deductions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Loans charged off

 

 

110

 

 

48

 

 

30

 

 

20

 

 

14

 

 

57

 

 

 —

 

 

279

Less recoveries on loans

 

 

(13)

 

 

(12)

 

 

 —

 

 

(19)

 

 

(6)

 

 

(24)

 

 

 —

 

 

(74)

Net loan charge-offs (recoveries)

 

 

97

 

 

36

 

 

30

 

 

 1

 

 

 8

 

 

33

 

 

 —

 

 

205

Balance at end of period

 

$

3,261

 

$

240

 

$

895

 

$

2,057

 

$

4,008

 

$

352

 

$

134

 

$

10,947

 

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

Beginning with the first quarter 2019, management adjusted the look-back period to begin with loss history in the first quarter 2012 and continue to include this starting point going forward. Management determined that with the current economic recovery continuing to set records for its length, the look-back period needed to be expanded to account for this extended economic cycle. This ever increasing look-back period will then be adjusted once a loss producing downturn is recognized by allowing the look-back period to shift forward by eliminating the earliest loss period and replenishing it with losses from the most recent period. Prior to 2019, the Company utilized a five-year look-back period, which was considered a representative historical loss period. The look-back period is consistently evaluated for relevance given the current facts and circumstances.

9


 

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The following table illustrates the allowance for loan losses and recorded investment by portfolio segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial,

 

Real Estate

 

Real Estate

 

Real Estate

 

Real Estate

 

Installment

 

 

 

 

 

 

 

 

Financial, and

 

Construction -

 

Construction -

 

Mortgage -

 

Mortgage -

 

and Other

 

Un-

 

 

 

(in thousands)

    

Agricultural

    

Residential

    

Commercial

    

Residential

    

Commercial

    

Consumer

    

allocated

    

Total

March 31, 2019

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Allowance for loan losses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Individually evaluated for impairment

 

$

512

 

$

 —

 

$

 —

 

$

475

 

$

25

 

$

27

 

$

 —

 

$

1,039