Hawthorn's Net Interest Margin Widens After FSC Close

The Tip Desk · October 30, 2026 · 3 min read

Net interest income rose to $19.3 million as the FSC Bancshares deal lifted loans 19.3% and deposits 20.3%.

Hawthorn Bancshares (HWBK), the Jefferson City, Missouri holding company for Hawthorn Bank, reported third-quarter 2026 net income of $7.1 million, or $1.01 a share, up 15.2% from a year earlier. Adjusted net income, which excludes $2.0 million of acquisition-related costs, was $8.6 million, or $1.23 a share.

The quarter was defined by the September 3 close of the FSC Bancshares merger, which added nine northern-Missouri branches and reversed two quarters of loan and deposit runoff. Loans held for investment rose $273.8 million, or 19.3%, to $1.69 billion from June 30, after declines of $37.8 million in the second quarter and $32.6 million in the first. Deposits increased $302.8 million, or 20.3%, to $1.79 billion. Investments rose $41.7 million, or 17.7%, to $277.9 million. The company paid $17.0 million in cash and issued 413,042 shares. Farmers State Bank will operate as a separate division until a planned merger into Hawthorn Bank expected in March 2027.

Net interest income was $19.3 million, up $2.0 million from the prior quarter, after a $0.2 million increase in the second quarter. Fully taxable-equivalent net interest margin expanded 25 basis points to 4.41% from 4.16% in the second quarter, following a 9 basis-point expansion to 4.16% from 4.07% in the first quarter. Average loan yield on an FTE basis increased to 6.42% from 6.18%. Average deposit cost held at 2.13%. Non-interest-bearing demand deposits were 26.6% of total deposits at September 30, down from 28.0% at June 30.

Non-interest income fell $1.7 million, or 31.1%, to $3.7 million, primarily because a gain on the sale of a bank administrative office recognized in the second quarter did not recur. Non-interest expense increased $1.2 million, or 8.7%, to $14.9 million, including $2.0 million of acquisition-related expenses. The efficiency ratio widened to 65.00% from 60.73%; the adjusted efficiency ratio was 55.64%.

Credit quality deteriorated modestly. Non-performing assets to total loans rose to 0.59% from 0.53% at June 30, after 0.47% at March 31. Non-performing assets totaled $9.9 million. The company said the year-over-year increase was due to non-accrual loans in the commercial segment. Net loan charge-offs were $0.07 million, or 0.02% annualized of average loans. The provision for credit losses was $0.3 million. The allowance for credit losses rose to $24.4 million, or 1.45% of loans, largely from a Day 1 allowance on the FSC deal; coverage of non-performing loans fell to 248.71% from 311.50%.

Total risk-based capital declined to 14.29% from 16.40% at June 30, after 15.84% at March 31; common equity tier 1 was 10.15%. The company remained “well capitalized.” Book value per share was $27.29. Tangible book value per common share was $23.58.

The board amended the repurchase plan on July 29 to raise the authorized limit to $10 million. Hawthorn repurchased 12,000 shares in the first nine months of 2026 for $0.4 million, leaving $10.0 million available at September 30. On October 30 the board approved a quarterly cash dividend of $0.21 a share, payable January 1, 2027.