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

You need to know if Hawthorn Bancshares' impressive 15.21% Return on Average Equity and 3.97% Net Interest Margin in Q3 2025 are enough to offset rising operational costs and a concerning sequential jump in non-performing assets to $7.3 million. This regional bank is operationally strong with a 14.90% capital buffer, but the path to sustained growth is complicated by its Missouri-centric focus and the need to aggressively translate that capital into high-quality loans without tripping up on credit risk. Honestly, the bank is at an inflection point: efficiency is up, but expense creep is defintely real.

Hawthorn Bancshares, Inc. (HWBK) - SWOT Analysis: Strengths

You're looking for a clear picture of Hawthorn Bancshares, Inc.'s core financial health, and the Q3 2025 results give us a defintely strong signal. The bank is executing well, showing simultaneous expansion in its core margin and a significant boost in profitability, all while maintaining a rock-solid capital base. This isn't just growth; it's efficient growth.

Strong profitability: Q3 2025 Return on Average Equity (ROAE) hit 15.21%

A bank's Return on Average Equity (ROAE) is the clearest measure of how well management is using your capital to generate profit. For Hawthorn Bancshares, this metric is a major strength. Their Q3 2025 ROAE came in at a powerful 15.21%. To put that in perspective, this is a significant jump from the prior year's quarter (Q3 2024), which was 12.87%. That kind of year-over-year improvement-over 230 basis points-shows management is doing a great job of translating rising interest rates and better expense control into shareholder value.

Their net income for the quarter was $6.1 million, which is a 34.1% increase compared to the third quarter of 2024. This isn't a one-off event; it's a trend of sustained, profitable growth.

Net Interest Margin (NIM) expansion to 3.97% in Q3 2025

The Net Interest Margin (NIM) is the lifeblood of any bank, showing the difference between what they earn on loans and what they pay on deposits. Hawthorn Bancshares has done an excellent job of managing this in a tough rate environment. Their fully taxable equivalent NIM expanded to 3.97% in Q3 2025.

This expansion is critical, and it's driven by two smart actions: higher yields on earning assets and lower costs on deposits. Here's the quick math on the drivers:

• Yield on Average Loans (FTE): Increased to 6.12% in Q3 2025.
• Average Cost of Deposits: Remained low at 2.36% in Q3 2025, which is actually lower than the 2.74% they were paying a year prior (Q3 2024).

They are getting more for their loans and paying less for their funding. That's a winning combination.

High capital buffer: Total Risk-Based Capital at 14.90%, exceeding regulatory minimums

In banking, capital is your safety net, and Hawthorn Bancshares has a substantial one. They remain classified as 'well capitalized,' which is the highest regulatory designation. Their Total Risk-Based Capital ratio stood at 14.90% as of September 30, 2025. This is far above the typical regulatory minimums and gives the bank significant flexibility to absorb unexpected losses or pursue strategic growth, like their loan portfolio which grew by $51.1 million in the quarter.

The capital structure is solid across the board, which reduces risk for shareholders and depositors alike. Look at the key regulatory ratios:

The gap between their actual ratios and the minimums is a clear strength, signaling financial stability.

Improving efficiency: Q3 2025 efficiency ratio dropped to 62.30%

The efficiency ratio (non-interest expense as a percentage of revenue) tells you how much it costs the bank to generate a dollar of revenue. A lower number is better. Hawthorn Bancshares' efficiency ratio improved to 62.30% in Q3 2025, down from 66.23% in the same quarter last year.

This improvement is a direct result of higher net interest income, meaning their revenue is growing faster than their operating expenses. Total non-interest expense for the quarter was $12.8 million. This demonstrates strong operating leverage-they are squeezing more profit out of their existing operations. It's a good sign that the management team is disciplined on costs while still growing the top line.

Hawthorn Bancshares, Inc. (HWBK) - SWOT Analysis: Weaknesses

Rising Operational Costs

You need to watch closely when your non-interest expense (overhead costs) starts outpacing revenue growth, and that's the near-term risk here. Hawthorn Bancshares, Inc. saw non-interest expense hit $37.6 million for the first nine months of 2025.

That figure is an increase of $1.0 million compared to the $36.6 million spent in the same period a year earlier. The primary driver? Salary and employee benefits, which is a common but persistent headwind in a tight labor market. This rising cost base puts pressure on the efficiency ratio, meaning the bank has to work harder just to maintain its operating margin.

Here's the quick math on the expense creep:

Sequential Credit Quality Dip

While the overall credit quality remains manageable, a sequential dip in non-performing assets (NPAs) is a clear weakness that requires attention. Non-performing assets jumped to $7.3 million in the third quarter of 2025 (Q3 2025), a sharp rise from $5.2 million at the end of Q2 2025.

This $2.1 million increase was specifically tied to one commercial relationship moving to non-accrual status. That single-point failure highlights a concentration risk within the loan book. To be fair, the NPA to total loans ratio of 0.48% at September 30, 2025, is still an improvement from 0.58% a year prior, but the quarter-over-quarter trend is defintely negative.

• Non-performing assets rose $2.1 million quarter-over-quarter.
• NPA to total loans ratio increased from 0.35% (Q2 2025) to 0.48% (Q3 2025).
• One commercial relationship caused the entire sequential credit quality decline.

Geographic Concentration

Hawthorn Bancshares, Inc. is a Missouri-based bank holding company, and its operations are heavily concentrated in the Missouri regional market. The bank serves communities in and around Jefferson City, Columbia, Springfield, and the greater Kansas City metropolitan area.

This geographic concentration creates a systemic risk; a localized economic downturn, a specific regulatory change in Missouri, or a major natural disaster could disproportionately impact the bank's entire loan portfolio and deposit base. You are essentially betting on the sustained health of a single state's economy. This limits the bank's ability to offset regional weakness with growth in other, more robust markets.

Non-Interest Income Stagnation

A strong bank diversifies its revenue away from just interest income, but non-interest income has essentially stalled for Hawthorn Bancshares, Inc. For the nine months ended September 30, 2025, total non-interest income was $10.7 million, which is a marginal decrease of $0.1 million from the $10.8 million generated in the same nine-month period of 2024.

This flat performance means the bank remains highly reliant on its net interest margin, which, while expanding (3.97% in Q3 2025), exposes the bank to interest rate volatility. Non-interest income, such as fees from wealth management or mortgage origination, needs to grow faster to provide a more stable, diversified revenue stream. The stagnation here signals a lack of traction in cross-selling or expanding fee-based services.

The bank needs to accelerate its wealth management growth-which was a bright spot-to make a material difference in the overall non-interest income line.

Hawthorn Bancshares, Inc. (HWBK) - SWOT Analysis: Opportunities

Strategic M&A: Use the strong 14.90% capital ratio for accretive mergers or acquisitions in adjacent markets.

Hawthorn Bancshares is in a strong position to pursue strategic mergers and acquisitions (M&A) right now, largely due to its robust capital base. As of September 30, 2025, the Total Risk-Based Capital to Risk-Weighted Assets ratio stood at a very healthy 14.90%. This figure is well above the regulatory threshold for a 'well capitalized' institution, giving you significant financial firepower for deals. The CEO, Brent Giles, has a proven history of growing a bank through acquisitions, which aligns perfectly with this opportunity. You can use this excess capital to buy smaller, high-performing community banks in adjacent Missouri or Kansas markets, or even specialty finance groups, to immediately boost earnings per share (EPS). The goal here is to find targets that are accretive-meaning they instantly add to your earnings-without taking on undue credit risk. One clean one-liner: Capital strength makes M&A a real option, not just a boardroom talking point.

Here's the quick math on the capital flexibility:

This cushion allows you to execute on growth without needing to raise dilutive equity capital right away.

Wealth management growth: Scale the wealth management group, identified by the CEO as a key growth area.

The wealth management group is a clear, high-margin opportunity that the CEO, Brent Giles, explicitly highlighted in the Q3 2025 results as a source of growth. This business line generates fee income, which is less sensitive to interest rate fluctuations than traditional lending and helps diversify your revenue stream. The company has already made key investments, including hiring a new Chief Investment Officer in January 2025 and a President of Wealth Management in 2024, signaling a serious commitment to scaling. To be fair, scaling this business requires a different kind of investment than a bank branch-it's about top-tier talent and technology. You should focus on cross-selling wealth services to your existing commercial and high-net-worth deposit clients to maximize the value of those relationships.

• Hire more relationship managers in the Kansas City metro area.
• Integrate wealth advisors with commercial loan officers for seamless client handoffs.
• Target a 15% year-over-year increase in assets under management (AUM) for 2026.

Core deposit capture: Increase the share of non-interest bearing demand deposits, currently at 27.8% of total deposits.

A major opportunity is to increase the share of non-interest bearing demand deposits (NIBD), which are essentially free funding for the bank. As of September 30, 2025, NIBD stood at 27.8% of total deposits. While this is a respectable figure, moving it closer to the 30% range seen by some regional peers would significantly reduce your overall cost of funds. The average cost of deposits for Q3 2025 was 2.36%, and every basis point reduction directly translates into higher net interest income.

The strategy here is simple: focus on commercial and treasury management services. Businesses are the primary source of NIBD, and by offering better cash management, fraud protection, and payment solutions, you can attract and lock in these valuable, low-cost balances. This is defintely a battle for the commercial client's operating accounts.

Loan portfolio expansion: Capitalize on the Q3 2025 loan growth of $51.1 million by targeting higher-yield commercial segments.

Hawthorn Bancshares demonstrated strong momentum in Q3 2025, with loans increasing by $51.1 million, representing a 3.5% quarter-over-quarter growth. The opportunity is not just to maintain this pace, but to strategically shift the mix toward higher-yielding commercial segments. The yield on average loans held for investment for Q3 2025 was 6.12% on a fully taxable equivalent (FTE) basis. To further expand the net interest margin (NIM), which was 3.97% in Q3 2025, you need to prioritize commercial real estate (CRE) and commercial and industrial (C&I) loans, especially those with floating rates.

What this estimate hides is the need for careful underwriting, as non-performing assets (NPAs) did tick up slightly in Q3 2025 due to one commercial relationship moving to non-accrual. So, the action is to target growth in commercial lending but with a renewed focus on credit quality and diversification. You should be looking for C&I loans that offer a yield above the 6.12% Q3 average to maximize the return on your lending capacity.

Hawthorn Bancshares, Inc. (HWBK) - SWOT Analysis: Threats

Interest Rate Risk: Sustained High Rates Could Increase the Average Cost of Funds, Pressuring the 3.97% NIM.

The primary threat to Hawthorn Bancshares, Inc.'s profitability remains interest rate risk, even with the recent margin expansion. The company's Net Interest Margin (NIM), fully taxable equivalent (FTE), improved to 3.97% in the third quarter of 2025, up from 3.89% in the prior quarter. This expansion is vulnerable to sustained high interest rates, which force the bank to pay more for deposits-its cost of funds. If the Federal Reserve pauses rate cuts or, worse, has to hike rates again to combat persistent inflation, the average cost of deposits will rise faster than the yield on new loans, effectively compressing that 3.97% NIM. This is a tight spot: the bank must fight to keep deposit costs contained while maximizing loan yields.

Here's the quick math: a 20-basis point rise in the average cost of interest-bearing deposits, without a corresponding increase in loan yields, would erase a significant portion of the quarter-over-quarter NIM gain. The NIM is the core profit engine, so any pressure here directly impacts net income.

Analyst Sentiment: Recent Downgrade to a Hold Rating Signals Limited Near-Term Price Appreciation.

Wall Street's view on Hawthorn Bancshares, Inc. has shifted, which limits the stock's near-term upside and investor interest. The stock was recently downgraded by Wall Street Zen from a 'Buy' to a 'Hold' rating in November 2025, with Weiss Ratings also reissuing a 'Hold' rating. This consensus 'Hold' rating suggests that analysts see the company's current valuation-which opened at $32.75 on the day of the downgrade-as fair, with limited catalysts for significant price appreciation in the immediate future.

A 'Hold' rating means the market expects the stock to perform in line with the broader sector, not outperform it. This can reduce institutional buying pressure, which is a concern given that institutional ownership is already around 30.73%. The market is essentially saying, 'Wait and see.'

Economic Downturn: A Recession in the Midwest Could Quickly Elevate the 0.48% Non-Performing Asset Ratio.

While the national economic forecast for 2025 suggests continued growth (Real GDP growth projected at 1.8% to 2.5%), the risk of a slowdown or recession in 2026 remains a clear threat, especially for a regional bank concentrated in the Midwest. Hawthorn Bancshares, Inc.'s credit quality is currently strong, with the non-performing assets (NPA) to total loans ratio at 0.48% as of September 30, 2025. However, this ratio rose sequentially from 0.35% in the second quarter of 2025 due to a single commercial relationship moving to non-accrual status, which shows how quickly a regional portfolio can be affected.

A recessionary environment, particularly one impacting commercial real estate or local manufacturing in the Midwest, would quickly elevate this NPA ratio.

Your next step should be to model the impact of a 10% increase in non-performing assets on the allowance for credit losses, given the sequential rise we just saw.

Here's the quick math on the potential impact:

• Current Non-Performing Loans (NPL) Coverage (Q3 2025): The bank's Allowance for Credit Losses (ACL) covered 446% of its Non-Performing Loans (NPLs) as of Q3 2025.
• Current ACL (Inferred Q3 2025): Approximately $21.96 million (calculated from Q2 2025 ACL of $21.6M + Q3 Provision of $0.4M - Q3 Net Charge-offs of $0.04M).
• Current NPL (Inferred Q3 2025): Approximately $4.92 million ($21.96M / 4.46).
• A 10% increase in NPLs would raise the NPL balance to approximately $5.41 million.
• To maintain the existing 446% coverage ratio, the required ACL would need to rise to $24.12 million ($5.41M x 4.46).
• The immediate impact is a required increase in the ACL of approximately $2.16 million, which would flow directly through the income statement as a higher provision expense.

Digital Disruption: Competition from Large National Banks and Agile FinTechs Eroding Market Share in Core Services.

Hawthorn Bancshares, Inc., as a regional bank, faces a persistent, existential threat from the accelerating pace of digital disruption. Large national banks like JPMorgan Chase and Bank of America are pouring billions into digital platforms, making their mobile and online services superior and more convenient. At the same time, agile financial technology (FinTech) firms are chipping away at specific, high-margin services like payments, small business lending, and even core deposit accounts with zero-fee, digital-first models.

The stark reality is that regional banks are struggling to keep up with the tech spend, often focusing on cost reduction instead of innovation. New entrants have already captured an estimated 3.5% of total US banking and payments revenues, and this shift is accelerating as younger, more digitally-native consumers move away from branch-based services. If the bank doesn't aggressively modernize its core systems to offer a seamless digital experience, it risks being relegated to a provider for only non-digital, older customers, while losing the next generation of high-value, digitally-engaged clients.