HAWTHORN BANCSHARES, INC.HWBK
HAWTHORN BANCSHARES, INC. Income Taxes Disclosure
Income Tax
The composition of income tax expense (benefit) for the years ended December 31, 2025, 2024, and 2023 was as follows:
| For the year ended December 31, | |||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 4,039 | $ | 3,070 | $ | 793 | |||||||||||
| State | 23 | — | 67 | ||||||||||||||
| Total current | 4,062 | 3,070 | 860 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 1,236 | 1,032 | (1,384) | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Total deferred | 1,236 | 1,032 | (1,384) | ||||||||||||||
| Total income tax expense (benefit) | $ | 5,298 | $ | 4,102 | $ | (524) | |||||||||||
A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income tax rate of 21% to income before income taxes is presented in the table below for the year ended December 31, 2025. State and
local income taxes are primarily related to the State of Kansas, while amounts related to other jurisdictions were not significant, in the aggregate, during the reported periods.
| For the year ended December 31, | |||||||||||
| 2025 | |||||||||||
| (dollars in thousands) | Amount | % | |||||||||
| $ | 6,111 | 21.00 | % | ||||||||
| State and local income taxes, net of federal benefit | (5) | (0.02) | |||||||||
| Foreign tax effects | — | — | |||||||||
| Effect of changes in tax laws or rates enacted in current period | — | — | |||||||||
| Effect of cross-border tax laws | — | — | |||||||||
| Tax credits | (53) | (0.18) | |||||||||
| Changes in federal valuation allowances | — | — | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Tax exempt income, net | (688) | (2.36) | |||||||||
| Section 265/291 interest disallowance | 375 | 1.29 | |||||||||
| Income on BOLI | (431) | (1.48) | |||||||||
| Other nondeductible items | 46 | 0.16 | |||||||||
| Changes in unrecognized tax benefits | — | — | |||||||||
| Other, net | (57) | (0.20) | |||||||||
| Provision for income tax expense | $ | 5,298 | 18.21 | % | |||||||
The effective tax rate differs from the U.S. federal statutory rate primarily due to tax-free revenues for the year ended December 31, 2025.
The following table presents the required disclosures prior to the Company's adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the effective tax rate for the years ended December 31, 2024 and 2023:
| For the year ended December 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (dollars in thousands) | Amount | % | Amount | % | |||||||||||||||||||
| Income before provision for income tax (benefit) | $ | 22,358 | $ | 432 | |||||||||||||||||||
| 4,695 | 21.00 | 91 | 21.00 | ||||||||||||||||||||
| Tax-exempt income, net | (567) | (2.54) | (509) | (117.88) | |||||||||||||||||||
| State income tax expense, net of federal tax expense | — | — | 53 | 12.25 | |||||||||||||||||||
| Other, net | (26) | (0.11) | (159) | (36.86) | |||||||||||||||||||
| Provision for income tax expense (benefit) | $ | 4,102 | 18.35 | % | $ | (524) | (121.49) | % | |||||||||||||||
Income taxes (benefit) as a percentage of earnings before income taxes (benefit) as reported in the consolidated financial statements were 18.35% and (121.49)% for the years ended December 31, 2024 and 2023, respectively, which was lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.
The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025, and has included the following table as a result of the adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025:
| For the year ended December 31, | |||||
| (dollars in thousands) | 2025 | ||||
| Federal | $ | 3,192 | |||
| State and local taxes | 14 | ||||
| Total | $ | 3,206 | |||
The following table summarizes the income taxes paid for the years ended December 31, 2024 and 2023:
| For the year ended December 31, | |||||||||||
(dollars in thousands) | 2024 | 2023 | |||||||||
| Cash paid during the year for: | |||||||||||
| Income taxes | $ | 2,596 | $ | 1,925 | |||||||
The components of deferred tax assets and deferred tax liabilities at December 31, 2025 and 2024 were as follows:
| December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Allowance for loan losses | $ | 4,123 | $ | 4,589 | |||||||
| Securities | 4,344 | 6,428 | |||||||||
| Other real estate owned | — | 421 | |||||||||
| Deferred loan fees | 524 | 450 | |||||||||
| Lease liability | 816 | 352 | |||||||||
| Accrued / deferred compensation | 560 | 763 | |||||||||
| Other | 508 | 497 | |||||||||
| Total deferred tax assets | 10,875 | 13,500 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Premises and equipment | 413 | 515 | |||||||||
| Deferred loan costs | 374 | 395 | |||||||||
| Pension | 2,949 | 2,424 | |||||||||
| Right-of-use asset | 773 | 343 | |||||||||
| Prepaid expenses | 341 | 233 | |||||||||
| Other | 79 | 61 | |||||||||
| Total deferred tax liabilities | 4,929 | 3,971 | |||||||||
| Net deferred tax assets | $ | 5,946 | $ | 9,529 | |||||||
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning initiatives in making this assessment. In management's opinion, the Company will more likely than not realize the benefits of its deferred tax assets and, therefore, has not established a valuation allowance against its deferred tax assets as of December 31, 2025 and 2024. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income of the appropriate character over the periods in which the deferred tax assets are deductible.
The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. For each of the years ended December 31, 2025 and 2024, the Company did not have any uncertain tax provisions and did not record any related tax liabilities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 5, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 18, 2024 | |
| 2022 | Mar 29, 2023 | |
| 2021 | Mar 17, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 14, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 30, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.