Hawthorn Bancshares, Inc. :HWBK-US: Earnings Analysis: Q4, 2016 By the Numbers : April 4, 2017

Hawthorn Bancshares, Inc. reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 12.73 million, Net Earnings of USD 1.99 million.
  • Net interest income margins widened from 81.24% to 81.53% compared to the same period last year.
  • Net loan assets changed 12.57% compared to same period last year and 2.75% from previous period, total deposits changed 6.70% compared to same period last year and -0.72% from previous period.
  • Change in operating cash flow of 107.94% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 12.73 12.29 12.24 12.47 12.6
Revenue Growth (%YOY) 1.05 -7.97 -1.99 2.68 6.27
Earnings (mil) 1.99 1.88 1.41 2 1.99
Earnings Growth (%YOY) -0.3 -25.8 -26.73 -6.55 -0.35
Net Margin (%) 15.61 15.33 11.53 16.02 15.82
EPS 0.35 0.33 0.25 0.36 0.36
Return on Equity (%) 8.65 8.17 6.22 9.02 9.15
Return on Assets (%) 0.62 0.59 0.45 0.66 0.66

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, HWBK-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if HWBK-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 3.58% and earnings by 5.52% compared to the previous period.

Earnings Growth Analysis

{arg3)’s earnings declined year-on-year because of the increases in loan loss provisions. Its net interest income after provisions margins went from 81.24% to 77.99%. The fall in earnings would have been worse were it not for the fact that the company’s net interest income margins improved, from 81.24% to 81.53%. For comparison, net interest income margins were 82.54% and net interest income after provisions margins 80.10% in the immediate last period.

Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s improvement in net interest income margins was influenced by both the relative increase in the levels of net loan assets and the level of total deposits as a percentage of equity. On an absolute basis, net loan assets changed 12.57% compared to the same period last year and 2.75% from the previous period. Total deposits changed 6.70% compared to the same period last year and -0.72% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

HWBK-US‘s year-on-year change in operating cash flow of 107.94% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 24.36% to 23.88% and (2) One-time items that contributed to a decrease in pretax margins from 24.42% to 23.88%

EBIT Margin History
PreTax Margin History

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Company Profile

Hawthorn Bancshares, Inc. is a bank holding company, which through provides banking services to individual and corporate customers through its Hawthorn bank subsidiary. It offers checking and savings accounts, internet banking, debit cards, certificates of deposit, brokerage services, personal loans, installment loans, trust services, credit related insurance, and safe deposit boxes. The company was founded on October 23, 1992 and is headquartered in Jefferson, MO.

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