HWBK

We rate HAWTHORN BANCSHARES, INC. (HWBK) as Avoid with a composite score of 39.7/100 at a current price of $34.19. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in stability (48th percentile) and momentum (47th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (27th percentile) and investment (32th percentile) tempers our overall conviction. We assign a No Moat rating (33/100), High uncertainty, and Standard capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

HAWTHORN BANCSHARES, INC. holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 39.7/100 places it at rank #3570 in our full 7,333-stock universe. At $214M in market capitalization, HAWTHORN BANCSHARES, INC. is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 6%, though momentum at the 47th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 0% (-76.5pp vs sector) narrow to operating margins of 42% (+24.9pp vs sector) and net margins of 23.1%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $34.19, HAWTHORN BANCSHARES, INC. is trading at a premium to fundamental value. Our value factor score of 37/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 10.9x (roughly in line with the sector median of 11.9x), EV/EBITDA of 6.0x (discounted to peers), P/B of 1.5x, P/S of 2.5x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a High uncertainty rating to HAWTHORN BANCSHARES, INC.. Key risk factors include significant leverage (1071% debt-to-equity), weak quality scores (27th percentile), low beta of 0.42 — while defensive, this may indicate limited upside participation in bull markets. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (1071% debt-to-equity); weak quality scores (27th percentile); low beta of 0.42 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 48th percentile and quality factor at the 27th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: a 2.51% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate HAWTHORN BANCSHARES, INC.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 13.5%, and the balance sheet is managed within acceptable parameters (D/E: 1071%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; HAWTHORN BANCSHARES, INC. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 2.51% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, HAWTHORN BANCSHARES, INC. receives a Avoid rating with a composite score of 39.7/100 (rank #3570 of 7,333). Our quantitative framework assigns a No Moat (33/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 38/100.

Our analysis does not support a constructive view on HAWTHORN BANCSHARES, INC. at this time. The combination of limited competitive advantages, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.