Hawthorn Bancshares, Inc. (HWBK): 5 FORCES Analysis [Nov-2025 Updated]

You're digging into Hawthorn Bancshares, Inc.'s (HWBK) true competitive standing heading into late 2025, and honestly, the picture is mixed. We've run the numbers through Porter's Five Forces, and while the local Missouri banking turf is crowded-meaning competitive rivalry is high-the bank's solid 14.90% total risk-based capital ratio gives it real breathing room against new entrants. Still, customers have the upper hand on loan pricing, and Fintechs are definitely a growing threat to substitutes. To see exactly where the pressure points are-like the 3.97% Net Interest Margin (NIM) facing local deposit competition where the average cost is already 2.36%-you need to look at the force-by-force breakdown right below.

Hawthorn Bancshares, Inc. (HWBK) - Porter's Five Forces: Bargaining power of suppliers

For Hawthorn Bancshares, Inc., the primary suppliers are its depositors, as their funds represent the raw material for the bank's lending and investment activities. You need to look closely at the cost and stickiness of these funds to gauge supplier power.

Suppliers (depositors) have moderate power in competitive Missouri markets. This is evident in the cost of funds Hawthorn Bancshares pays to secure those deposits. The average cost of deposits was 2.36% in Q3 2025, reflecting competition for funding in the regions where Hawthorn Bank operates across Missouri and Kansas. This cost is down from 2.74% in the prior year quarter, suggesting some success in managing funding costs, but the absolute level shows ongoing competition for customer balances.

The bank relies on stable core deposits, mitigating capital market volatility risk. A key indicator of this stability is the composition of the deposit base. As of September 30, 2025, non-interest bearing demand deposits-the stickiest and lowest-cost funding-represented 27.8% of total deposits. This focus on core funding helps insulate Hawthorn Bancshares from sudden spikes in wholesale funding costs.

Here's a quick look at the key funding and capital metrics as of the end of Q3 2025:

Furthermore, Hawthorn Bancshares' strong capital position reduces its need to compete aggressively for external, potentially more expensive, debt financing. The high regulatory capital ratio of 14.90% reduces dependence on external debt. This buffer gives management flexibility in deposit pricing decisions, as they are not forced to pay premium rates just to meet capital adequacy requirements.

The strategic direction also points toward lower-cost funding. Wealth management growth offers lower-cost, stickier funding sources. The Chief Executive Officer specifically highlighted growth in the wealth management group as a positive factor in the Q3 2025 results, which typically brings in deposits that are less rate-sensitive than transactional or time deposits.

To summarize the supplier dynamics for you, consider these points:

• Depositor power is moderated by the competitive Missouri market landscape.
• The average cost to fund operations via deposits settled at 2.36% for the quarter.
• Core deposits are being built, evidenced by the 27.8% non-interest bearing ratio.
• Capital strength at 14.90% total risk-based capital provides a cushion.
• Wealth management expansion is a deliberate move to secure stickier, cheaper funds.

If deposit costs were to spike unexpectedly in Q4 2025, you'd want to see if the non-interest bearing percentage continues to climb above 27.8% to offset that pressure. Finance: draft sensitivity analysis on a 50 basis point deposit cost increase by Friday.

Hawthorn Bancshares, Inc. (HWBK) - Porter's Five Forces: Bargaining power of customers

You're analyzing the competitive landscape for Hawthorn Bancshares, Inc. (HWBK) and need to quantify the pressure customers exert. For a regional bank like Hawthorn Bank, which focuses on Missouri, customer power is a constant factor, especially when it comes to core lending and deposit products.

Customers, meaning both borrowers and account holders, definitely have leverage because, honestly, switching banks for basic retail services often involves relatively low friction. While commercial relationships are stickier, the ease of moving deposits or seeking a better loan rate elsewhere keeps the pressure on Hawthorn Bancshares, Inc. The fact that the CEO noted growing the loan portfolio by 'attracting new customers' suggests that competitive offers are successfully pulling business away from rivals in the Missouri market. This dynamic is what keeps the focus on relationship banking.

Commercial and agricultural clients, who often require larger, more complex credit facilities, are inherently more sensitive to the pricing of those loans. We see evidence of this pricing environment reflected in the yield Hawthorn Bancshares, Inc. is earning. For instance, the yield earned on average loans held for investment reached 6.12% on a fully taxable equivalent (FTE) basis for the third quarter of 2025. This is up from 5.83% in the prior year quarter, indicating that Hawthorn Bancshares, Inc. has been able to command higher rates, perhaps signaling a strong lending environment or successful differentiation, but the underlying need to compete on price remains for these clients.

Hawthorn Bancshares, Inc. actively mitigates this customer power through its deep local focus. The bank operates multiple locations across Missouri, including in the greater Kansas City metropolitan area, Jefferson City, Columbia, Springfield, and Clinton. This local expertise and relationship banking approach are the primary defenses against customers simply choosing the lowest-rate provider available nationally.

The company also counters power by offering a diversified set of services. Growth in the wealth management group is a key indicator of this diversification strategy, as noted by the CEO following the third quarter 2025 results. This cross-selling capability helps lock in customers across multiple service lines.

The success in acquiring new relationships is visible in the balance sheet momentum reported for the third quarter of 2025. The loan portfolio growth is a direct measure of customer acquisition success against competitive forces.

Here is a look at the key financial metrics from the third quarter of 2025 that frame the customer/lending dynamic:

The ability to grow loans by 3.5% QoQ, while simultaneously expanding the Net Interest Margin (FTE) to 3.97%, suggests that Hawthorn Bancshares, Inc. is effectively managing the trade-off between competitive pricing and asset yield. The lower average cost of deposits at 2.36% in Q3 2025 versus 2.74% in the prior year quarter also indicates success in managing the funding side of the customer relationship, which is critical when customers have power over deposit rates.

The diversification efforts are supported by the growth in wealth management, which contributed to total non-interest income of $3.7 million in the third quarter of 2025.

The key levers Hawthorn Bancshares, Inc. uses to manage customer power include:

• Relationship banking presence across Missouri.
• Growth in wealth management services.
• Loan portfolio growth of 3.5% QoQ in Q3 2025.
• Maintaining strong credit quality with Non-Performing Assets to Total Loans at 0.48% as of September 30, 2025.

The fact that one commercial relationship moving to non-accrual status caused Non-Performing Assets (NPAs) to tick up QoQ shows the concentrated risk within some of those high-value commercial customer relationships.

Hawthorn Bancshares, Inc. (HWBK) - Porter's Five Forces: Competitive rivalry

Rivalry is high in the fragmented Missouri banking market, you see this clearly when you look at the sheer number of players. As of the second quarter of 2025, the FDIC reported 206 institutions operating in Missouri, managing total assets of $289,344 million. That level of fragmentation means Hawthorn Bancshares, Inc. is constantly jockeying for position against a wide array of competitors.

Hawthorn Bancshares, Inc. competes with larger regional banks, which have massive scale, and smaller community banks, which often have deeper local ties. Still, Hawthorn Bancshares, Inc. is actively growing its loan portfolio, which increased by $51.1 million, or 3.5%, quarter-over-quarter as of September 30, 2025. This growth, coupled with a focus on margin expansion, definitely intensifies price competition across the board.

Focus on core growth and margin expansion is key to keeping pace. Hawthorn Bancshares, Inc.'s Net Interest Margin (NIM), fully taxable equivalent (FTE), improved to 3.97% in the third quarter of 2025, up from 3.36% in the prior year quarter. This margin strength is what allows the bank to compete on price while maintaining profitability, a delicate balance in this environment.

The bank's efficiency ratio improved to 62.30% in the third quarter of 2025, a key competitive metric showing how well operating expenses are managed relative to revenue. This is an improvement from 66.23% in the prior year quarter. Lowering that ratio helps Hawthorn Bancshares, Inc. absorb competitive pressures better than less efficient rivals.

The local branch network of 20 branches acts as a defensive moat against national banks that might lack that physical, local presence. You can see the tangible results of the bank's operational focus in its key third quarter 2025 figures:

This physical footprint supports the relationship-based banking model. You can compare some of the bank's capital strength against its operational performance:

• Total Risk-Based Capital: 14.90% as of September 30, 2025.
• Return on Average Assets: 1.33% for Q3 2025.
• Total Deposits Growth (QoQ): 0.5% increase.
• Allowance Coverage of NPLs: 446%.

Hawthorn Bancshares, Inc. (HWBK) - Porter's Five Forces: Threat of substitutes

You're looking at the competitive landscape for Hawthorn Bancshares, Inc. (HWBK) as of late 2025, and the substitutes are definitely pressing in from all sides. The threat here isn't just from other community banks; it's from specialized, often digital-first, competitors chipping away at every line of business Hawthorn Bank runs.

The overall digital disruption is massive. The U.S. fintech market size is projected to be valued at $95.2 Bn in 2025. This sheer market size shows the scale of the alternative financial ecosystem you are up against. While banks still hold a dominant end-user share, expected to be over 40% in 2025, their incumbents are being forced to integrate digital solutions just to keep pace with customer expectations set by these substitutes.

For core deposit-gathering, the non-profit sector presents a clear, cost-based alternative. Credit unions, structured to return profits to members, consistently undercut traditional bank pricing on basic services. Here's a quick comparison of what customers might save by choosing a credit union over a big bank:

This cost differential is a direct threat to Hawthorn Bancshares' ability to attract and retain low-cost core deposits, even as your own average cost of deposits was kept relatively contained at 2.36% in Q3 2025. Still, the fact that non-interest bearing demand deposits were 27.8% of your total deposits of $1.53 billion as of September 30, 2025, shows that a segment of your funding base is highly sensitive to fee structures.

On the lending side, especially in commercial and real estate finance, non-bank entities are capturing significant share. Regulatory shifts in 2025, like updates to Basel III, are expected to increase the market share of non-bank lending in commercial finance to 25%. This means a quarter of the market is actively being served by competitors less constrained by the same capital rules. Furthermore, in the residential mortgage space, non-agency jumbo originations are flourishing, with an estimated $127.0 billion originated in the first half of 2025, up nearly 40% year-over-year. Four of the top ten non-agency jumbo lenders in the first half of 2025 were nonbanks. This directly competes with the consumer and commercial loan products Hawthorn Bank offers.

Your wealth management division, which saw growth in Q3 2025, is not immune. National brokerage houses and specialized Registered Investment Advisors (RIAs) offer substitute services for investment advisory, fiduciary, and estate planning needs. These firms often boast broader investment platforms and national brand recognition that can pull high-net-worth clients away from a community bank's trust division.

Finally, the ease of substituting traditional bank functions with digital platforms is accelerating. Customers can easily substitute traditional bank services for digital payment platforms because the technology is ubiquitous and convenient. Consider these adoption statistics:

• Seven in ten U.S. consumers used mobile payments in 2024.
• Mobile transactions rose to 32% of all costs in 2024.
• Digital payments captured 47.43% of the U.S. fintech market share in 2024.
• Mobile apps represented 70.79% of the U.S. fintech market share in 2024.

When customers can execute payments instantly via mobile, the need for branch visits or even online banking for simple transfers diminishes. This erosion of transactional relevance forces Hawthorn Bancshares to compete on relationship and yield, not just convenience. If onboarding takes 14+ days, churn risk rises.

Finance: draft 13-week cash view by Friday.

Hawthorn Bancshares, Inc. (HWBK) - Porter's Five Forces: Threat of new entrants

You're looking at what it takes for a new bank to set up shop and compete with Hawthorn Bancshares, Inc. right now, late in 2025. Honestly, the threat of new entrants isn't a five-alarm fire; it's more of a persistent, low-level hum, mainly because the barriers to entry are steep, particularly for a full-service commercial and retail bank.

The regulatory gauntlet is the first major hurdle. Starting a bank holding company requires navigating layers of approval from agencies like the Federal Reserve, FDIC, and state regulators. This isn't a weekend project; it involves massive compliance overhead before you even book your first loan. Plus, you need to demonstrate you have the financial muscle to withstand economic shocks.

Hawthorn Bancshares, Inc. itself sets a high bar just by being so well-capitalized. They aren't just meeting minimums; they are sitting on a significant cushion. This strong capital position acts as a silent deterrent because any new entrant needs to match or exceed that level of safety to be taken seriously by regulators and customers alike. Here's a quick look at Hawthorn Bancshares, Inc.'s capital strength as of September 30, 2025:

To be fair, the regulatory environment is seeing some shifts in late 2025, with new rules for large banks taking effect in 2026, but the fundamental need for substantial initial capital remains. For smaller institutions, there's even talk of lowering the community bank leverage ratio from 9% to 8% for those under $10 billion in assets, but that still requires significant upfront funding.

Beyond the capital, building a competitive franchise takes time. You can't just buy a customer base. Hawthorn Bancshares, Inc. supports its operations with a deposit base of about $1.53 billion as of the end of the third quarter of 2025. Establishing that level of trusted, sticky funding-along with a competitive branch network across Missouri-is a multi-year effort that new players struggle to replicate quickly.

The nature of the competition also shifts the threat level. When we look at non-bank financial technology (Fintech) entrants, they generally don't come in trying to be a full-suite community bank. They target specific, often less regulated, niches. The barriers to entry for a new entity aiming to replicate Hawthorn Bancshares, Inc.'s full commercial and retail offering are significantly higher than for a specialized lender or payments processor.

The primary barriers to entry for new banks include:

• Securing substantial regulatory approval.
• Meeting high initial capital thresholds.
• Establishing a trusted deposit funding base.
• Building a competitive physical footprint.
• Developing a full commercial/retail product suite.

The capital required to operate safely, evidenced by Hawthorn Bancshares, Inc.'s 14.90% total risk-based capital ratio, is a massive initial outlay. Finance: draft a memo by next Tuesday detailing the capital requirements for a de novo bank charter in Missouri as of Q4 2025.