Hawthorn Bancshares Delivers Strong Q1 2025 Results with EPS Growth and Revenue Stability

Hawthorn Bancshares (NASDAQ: HWBK) has reported robust first-quarter 2025 financial results, marking a continuation of its recovery trajectory amid a challenging banking environment. The bank posted a diluted GAAP earnings per share (EPS) of $0.77, a 22% increase from $0.63 in the year-ago quarter, while total revenue reached $18.75 million, reflecting stabilization after a turbulent 2023. These figures highlight improved profitability, disciplined cost management, and a strengthening balance sheet.

Revenue Analysis: A Fragile Consistency

Hawthorn’s revenue in Q1 2025 is derived from two primary streams:
- Net interest income: $15.3 million, up 3.3% year-over-year but down slightly from Q4 2024.
- Non-interest income: $3.5 million, a 14.7% year-over-year increase driven by gains from bank-owned life insurance and reduced mortgage loan sales.

While revenue remains below pre-2023 peaks (e.g., $24 million in Q2 2023), the consistency in Q1 2025’s $18.75 million aligns with a gradual recovery. Notably, the net interest margin expanded to 3.67%, up from 3.39% in Q1 2024, reflecting improved pricing on loans and lower deposit costs. This margin expansion, combined with a 66.64% efficiency ratio (down from 70.78% in Q1 2024), underscores cost discipline.

EPS Performance: A Turnaround Story

The 22% EPS growth to $0.77 in Q1 2025 follows a tumultuous 2023, when EPS plummeted to just $0.14 annually due to significant net charge-offs in Q4. In contrast, 2024 saw a rebound, with annual EPS rising to $2.61, driven by strong Q2–Q3 performance.

The Q1 2025 result marks a 17.1% sequential increase from Q4 2024’s $0.66 EPS, signaling sustained momentum. This improvement is attributable to:
1. Lower credit costs: Non-performing assets fell to 0.21% of total loans, down from 0.69% in Q1 2024.
2. Strong loan growth: Loans increased by $4.2 million (1.2% annualized) to $1.5 billion.
3. Deposit growth: Deposits rose by $10.7 million (2.8% annualized), bolstering liquidity.

Balance Sheet and Capital Strength: A Solid Foundation

Hawthorn’s balance sheet remains a key differentiator:
- Total assets: Grew to $1.88 billion as of March 31, 2025, up $58.2 million from year-end 2024.
- Capital ratios: Maintained a 14.94% total risk-based capital ratio, far exceeding the 10.5% threshold for “well-capitalized” status.
- Allowance for credit losses: Covers 885% of non-performing loans, providing ample buffers against potential defaults.

These metrics reflect prudent risk management and regulatory compliance, reducing investor concerns about solvency in a volatile banking sector.

Dividend and Share Repurchases: Confidence in the Business

The board’s decision to raise the quarterly dividend by 5.3% to $0.20 per share signals confidence in Hawthorn’s earnings trajectory. Additionally, the company repurchased 15,856 shares in Q1 2025, leaving $3.5 million remaining under its buyback program. These actions demonstrate a focus on returning value to shareholders while maintaining capital adequacy.

Risks and Challenges

Despite the positive trends, risks persist:
1. Historical volatility: The 2023 Q4 charge-offs (which dragged annual EPS to $0.14) remind investors of the bank’s exposure to macroeconomic shocks.
2. Loan growth constraints: While deposits grew robustly, loan growth remains modest, potentially limiting top-line expansion.
3. Interest rate environment: The Federal Reserve’s pause in rate hikes may reduce net interest income growth opportunities.

Conclusion: A Steady Hand in Uncertain Waters

Hawthorn Bancshares’ Q1 2025 results reinforce its position as a resilient regional bank navigating a challenging landscape. Key takeaways include:
- EPS recovery: The 22% year-over-year growth to $0.77 aligns with a 5-year average EPS of $2.00, suggesting stabilization after 2023’s downturn.
- Revenue consistency: The $18.75 million figure, while below 2022–2023 highs, reflects a sustainable path forward.
- Balance sheet strength: A 14.94% capital ratio and 0.21% non-performing loans indicate minimal credit risk.

For investors, the 5.3% dividend increase and buybacks provide near-term income, while the bank’s focus on margin expansion and cost control supports long-term growth. While loan growth and macroeconomic headwinds remain risks, Hawthorn’s Q1 results justify cautious optimism.

In summary, Hawthorn Bancshares offers a compelling risk-reward profile for investors seeking stability in the regional banking sector. With a P/E ratio of ~15x (based on trailing 12-month EPS of $2.61), the stock appears reasonably priced, especially if loan growth accelerates and credit metrics hold firm.