What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-11 compared with 2022-05-10 · 205 added, 156 removed, 886 unchanged (29% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands, except per share data) March 31, 2022 December 31, 2021

(In thousands, except per share data) June 30, 2022 December 31, 2021

Cash and due from banks $ 20,018 $ 17,287

45 unchanged sentences

Consolidated Statements of Income (unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In thousands, except per share data) 2022 2021 2022 2021

21 unchanged sentences

Net interest income 14,561 13,671 28,706 28,062

(Release of) provision for loan losses ( 2,500 ) —

Net interest income after (release of) provision for loan losses 16,645 14,390

Provision for (release of) loan losses 1,200 400 ( 1,300 ) 400

Net interest income after provision for (release of) loan losses 13,361 13,271 30,006 27,662

NON-INTEREST INCOME

27 unchanged sentences

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2022 2021 2022 2021

2 unchanged sentences

Investment securities available-for-sale:

Change in unrealized losses on investment securities available-for-sale, net of tax ( 19,582 ) ( 2,778 )

Change in unrealized (losses) gains on investment securities available-for-sale, net of tax ( 11,426 ) 1,748 ( 31,008 ) ( 1,030 )

Adjustment for gains on sale of investment securities, net of tax — — — ( 2 )

1 unchanged sentence

Amortization of prior service cost included in net periodic pension cost, net of tax — 110 — 145

Total other comprehensive loss ( 19,582 ) ( 2,745 )

Total other comprehensive (loss) income ( 11,426 ) 1,858 ( 31,008 ) ( 887 )

Total comprehensive (loss) income $ ( 6,937 ) $ 6,750 $ ( 19,910 ) $ 9,844

3 unchanged sentences

Consolidated Statements of Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2022 and 2021

Three Months Ended June 30, 2022 and 2021

(In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

Balance, December 31, 2021

Balance, March 31, 2022

$ 7,024 $ 64,437 $ 87,919 $ ( 16,289 ) $ ( 8,704 ) $ 134,387

2 unchanged sentences

Purchase of treasury stock — — — — ( 2,286 ) ( 2,286 )

Stock dividend — 6,865 ( 6,865 ) — — —

Cash dividends declared, common stock ($ 0.17 per share)

— — ( 1,106 ) — — ( 1,106 )

Balance, June 30, 2022

$ 7,024 $ 71,302 $ 84,437 $ ( 27,715 ) $ ( 10,990 ) $ 124,058

Balance, March 31, 2021

$ 6,769 $ 59,307 $ 73,947 $ ( 1,217 ) $ ( 8,098 ) $ 130,708

Net income — — 4,892 — — 4,892

Other comprehensive loss — — — 1,858 — 1,858

Stock dividend — 5,385 ( 5,385 ) — — —

Cash dividends declared, common stock ($ 0.15 per share)

— — ( 955 ) — — ( 955 )

Balance, June 30, 2021

$ 6,769 $ 64,692 $ 72,499 $ 641 $ ( 8,098 ) $ 136,503

Six Months Ended June 30, 2022 and 2021

(In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

Balance, December 31, 2021

3 unchanged sentences

Purchase of treasury stock — — — — ( 2,892 ) ( 2,892 )

Stock dividend — 6,865 ( 6,865 ) — — —

Cash dividends declared, common stock ($ 0.32 per share)

— — ( 2,096 ) — — ( 2,096 )

Balance, March 31, 2021

Balance, June 30, 2022

$ 7,024 $ 71,302 $ 84,437 $ ( 27,715 ) $ ( 10,990 ) $ 124,058

Balance, December 31, 2020

$ 6,769 $ 59,307 $ 68,935 $ 1,528 $ ( 5,950 ) $ 130,589

Net income — — 10,731 — — 10,731

Other comprehensive loss — — — ( 887 ) — ( 887 )

Purchase of treasury stock — — — — ( 2,148 ) ( 2,148 )

Stock dividend — 5,385 ( 5,385 ) — — —

Cash dividends declared, common stock ($ 0.28 per share)

— — ( 1,782 ) — — ( 1,782 )

Balance, June 30, 2021

$ 6,769 $ 64,692 $ 72,499 $ 641 $ ( 8,098 ) $ 136,503

See accompanying notes to the consolidated financial statements (unaudited) .

2 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2022 2021

7 unchanged sentences

Investment securities losses (gains), net 13 ( 15 )

Gain on sales and dispositions of premises and equipment — 4

(Gain) losses on sales and dispositions of premises and equipment ( 141 ) 4

Gain on sales and dispositions of other real estate ( 2 ) ( 25 )

Provision for other real estate owned — 88

Decrease in accrued interest receivable 380 152

(Release of) provision for other real estate owned ( 28 ) 84

Decrease (increase) in accrued interest receivable 175 ( 209 )

Increase in cash surrender value - life insurance ( 29 ) ( 29 )

Decrease (increase) in other assets 329 ( 1,926 )

(Increase) decrease in other assets ( 1,111 ) 387

Decrease in operating lease liabilities ( 150 ) ( 154 )

Increase (decrease) in accrued interest payable 77 ( 461 )

(Decrease) increase in other liabilities ( 2,567 ) 12

Decrease in other liabilities ( 4,358 ) ( 2,034 )

Origination of mortgage loans held for sale ( 52,610 ) ( 121,386 )

5 unchanged sentences

Proceeds from maturities of certificates of deposit in other banks 988 2,467

Net (increase) decrease in loans ( 31,812 ) 11,000

Net increase in loans ( 125,843 ) ( 6,735 )

Purchase of available-for-sale debt securities ( 17,174 ) ( 114,520 )

8 unchanged sentences

Cash flows from financing activities:

Net (decrease) increase in demand deposits ( 2,841 ) 48,543

Net increase in demand deposits 18,696 50,796

Net decrease in interest-bearing transaction accounts ( 22,304 ) ( 19,573 )

2 unchanged sentences

Repayment of FHLB advances and other borrowings ( 95,477 ) ( 13,120 )

FHLB advances 86,059 —

Purchase of treasury stock ( 2,892 ) ( 2,148 )

8 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) continued

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2022 2021

28 unchanged sentences

(2) Loans and Allowance for Loan Losses

Major classifications within the Company’s held for investment loan portfolio at March 31, 2022 and December 31, 2021 is as follows:

(in thousands) March 31, 2022 December 31, 2021

Major classifications within the Company’s held for investment loan portfolio at June 30, 2022 and December 31, 2021 is as follows:

(in thousands) June 30, 2022 December 31, 2021

Commercial, financial, and agricultural (a)

6 unchanged sentences

Total loans held for investment $ 1,427,828 $ 1,302,133

(a) Includes $ 2.3 million and $ 8.4 million of Small Business Administration Paycheck Protection (SBA PPP) loans, net as of March 31, 2022 and December 31, 2021, respectively.

(a) Includes $ 1.1 million and $ 8.4 million of Small Business Administration Paycheck Protection (SBA PPP) loans, net as of June 30, 2022 and December 31, 2021, respectively.

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, St.

1 unchanged sentence

As such, the Bank is susceptible to changes in the economic environment in these communities.

The Bank does not have a concentration of credit in any one economic sector.

Installment and other consumer loans consist

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

Bank does not have a concentration of credit in any one economic sector.

Installment and other consumer loans consist primarily of the financing of automotive vehicles.

At March 31, 2022, loans of $ 567.4 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

primarily of the financing of automotive vehicles.

At June 30, 2022, loans of $ 585.5 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

Allowance for Loan Losses

The following table illustrates the changes in the allowance for loan losses by portfolio segment:

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(in thousands) Commercial, Financial, & Agricultural Real Estate Construction - Residential Real Estate Construction - Commercial Real Estate Mortgage - Residential Real Estate Mortgage - Commercial Installment and Other Consumer Un- allocated Total

Balance at beginning of period $ 2,830 $ 60 $ 664 $ 2,578 $ 7,692 $ 273 $ 182 $ 14,279

(Release of ) provision for loan losses 128 ( 77 ) 76 93 ( 2,897 ) 56 121 ( 2,500 )

Provision for (release of ) loan losses 184 6 98 149 821 73 ( 131 ) 1,200

Loans charged off 25 — — — 104 59 — 188

2 unchanged sentences

Balance at end of period $ 3,005 $ 66 $ 762 $ 2,747 $ 8,410 $ 312 $ 51 $ 15,353

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance at beginning of period $ 4,676 $ 309 $ 532 $ 2,594 $ 9,904 $ 245 $ 101 $ 18,361

Provision for loan losses ( 567 ) 83 57 ( 253 ) 573 13 94 —

Provision for (release of ) loan losses 655 ( 58 ) ( 37 ) ( 130 ) 14 38 ( 82 ) 400

Loans charged off 28 — — 4 3 46 — 81

2 unchanged sentences

Balance at end of period $ 5,336 $ 251 $ 495 $ 2,467 $ 9,915 $ 252 $ 19 $ 18,735

Six Months Ended June 30, 2022

Balance at beginning of period $ 2,717 $ 137 $ 588 $ 2,482 $ 10,662 $ 256 $ 61 $ 16,903

Provision for (release of ) loan losses 312 ( 71 ) 174 242 ( 2,077 ) 130 ( 10 ) ( 1,300 )

Loans charged off 60 — — — 178 116 — 354

Less recoveries on loans ( 36 ) — — ( 23 ) ( 3 ) ( 42 ) — ( 104 )

Net loan charge-offs (recoveries) 24 — — ( 23 ) 175 74 — 250

Balance at end of period $ 3,005 $ 66 $ 762 $ 2,747 $ 8,410 $ 312 $ 51 $ 15,353

Six Months Ended June 30, 2021

Balance at beginning of period $ 5,121 $ 213 $ 475 $ 2,679 $ 9,354 $ 264 $ 7 $ 18,113

Provision for (release of ) loan losses 87 25 20 ( 384 ) 587 53 12 400

Loans charged off 55 — — 3 26 104 — 188

Less recoveries on loans ( 183 ) ( 13 ) — ( 175 ) — ( 39 ) — ( 410 )

Net loan charge-offs (recoveries) ( 128 ) ( 13 ) — ( 172 ) 26 65 — ( 222 )

Balance at end of period $ 5,336 $ 251 $ 495 $ 2,467 $ 9,915 $ 252 $ 19 $ 18,735

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed.

7 unchanged sentences

The look-back period will continue to be evaluated and will be adjusted once a sustained loss-producing downturn is recognized and found to be representative of historical losses expected for the current portfolio.

The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.

The funding of $ 88.4 million and $ 47.5 million in SBA PPP loans during 2020 and 2021, respectively, required management to assess the methodology that would be adopted in regard to the allowance for loan losses applicable to these loans.

As the SBA PPP loans are expected to be mostly paid off within a year and carry a 100 % credit guarantee from the SBA, management determined that no allowance for loan losses was deemed necessary for these loans.

At March 31, 2022, the net balance of the PPP loans totaled $ 2.3 million.

All SBA PPP loans have a 1 % interest rate and the Company earns a fee that is based upon a tiered schedule corresponding with the amount of the loan to the borrower, which is deferred and recognized over the life of the loan.

Because the SBA PPP loans are expected to be mostly paid off within a year and carry a 100 % credit guarantee from the SBA, management determined that no allowance for loan losses was deemed necessary for these loans.

At June 30, 2022, the net balance of the PPP loans totaled $ 1.1 million.

All SBA PPP loans have a 1 % interest rate and the Company earns a fee based upon a tiered schedule corresponding with the amount of the loan to the borrower, which is deferred and recognized over the life of the loan.

The PPP loan may be forgiven by the SBA if the borrower meets certain criteria as defined by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

2 unchanged sentences

When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs are immediately recognized into income.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The following table illustrates the allowance for loan losses and recorded investment by portfolio segment:

(in thousands) Commercial, Financial, and Agricultural Real Estate Construction - Residential Real Estate Construction - Commercial Real Estate Mortgage - Residential Real Estate Mortgage - Commercial Installment and Other Consumer Un- allocated Total

March 31, 2022

June 30, 2022

Allowance for loan losses:

15 unchanged sentences

Total $ 217,214 $ 27,920 $ 91,369 $ 279,346 $ 663,256 $ 23,028 $ — $ 1,302,133

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Impaired Loans

1 unchanged sentence

All other loans are collectively evaluated for impairment under ASC 450-20.

Impaired loans individually evaluated for impairment totaled $ 18.8 million and $ 27.3 million at March 31, 2022 and December 31, 2021, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

Impaired loans individually evaluated for impairment totaled $ 19.3 million and $ 27.3 million at June 30, 2022 and December 31, 2021, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows.

At March 31, 2022, $ 15.4 million of impaired loans were evaluated based on the fair value less estimated selling costs of the loans' collateral compared to $ 24.2 million at December 31, 2021.

At June 30, 2022, $ 16.0 million of impaired loans were evaluated based on the fair value less estimated selling costs of the loans' collateral compared to $ 24.2 million at December 31, 2021.

Once the impairment amount is calculated, a specific reserve allocation is recorded.

At March 31, 2022, $ 0.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $ 18.8 million compared to $ 3.0 million of the Company’s allowance for loan losses allocated to impaired loans totaling $ 27.3 million at December 31, 2021.

Management determined that $ 16.1 , or 86 %, of total impaired loans required no reserve allocation at March 31, 2022 compared to $ 16.6 million, or 61 %, at December 31, 2021, primarily due to adequate collateral values , acceptable payment history and adequate cash flow ability.

The categories of impaired loans at March 31, 2022 and December 31, 2021 are as follows:

(in thousands) March 31, 2022 December 31, 2021

At June 30, 2022, $ 0.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $ 19.3 million compared to $ 3.0 million of the Company’s allowance for loan losses allocated to impaired loans totaling $ 27.3 million at December 31, 2021.

Management determined that $ 16.0 million, or 83 %, of total impaired loans required no reserve allocation at June 30, 2022 compared to $ 16.6 million, or 61 %, at December 31, 2021, primarily due to adequate collateral values , acceptable payment history and adequate cash flow ability.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The categories of impaired loans at June 30, 2022 and December 31, 2021 are as follows:

(in thousands) June 30, 2022 December 31, 2021

Non-accrual loans $ 17,648 $ 25,459

1 unchanged sentence

Total impaired loans $ 19,314 $ 27,254

The following tables provide additional information about impaired loans at March 31, 2022 and December 31, 2021, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

The following tables provide additional information about impaired loans at June 30, 2022 and December 31, 2021, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

(in thousands) Recorded Investment Unpaid Principal Balance Specific Reserves

March 31, 2022

June 30, 2022

With no related allowance recorded:

Real estate mortgage − residential $ 754 $ 754 $ —

Real estate mortgage − commercial $ 15,992 $ 16,847 $ —

Installment and other consumer — 4 —

Total $ 15,992 $ 16,847 $ —

7 unchanged sentences

Total impaired loans $ 19,314 $ 20,819 $ 307

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(in thousands) Recorded Investment Unpaid Principal Balance Specific Reserves

12 unchanged sentences

Total impaired loans $ 27,254 $ 28,654 $ 3,044

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans during the periods indicated.

Three Months Ended March 31,

(in thousands) Average Recorded Investment Interest Recognized For the Period Ended Average Recorded Investment Interest Recognized For the Period Ended

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(in thousands) Average Recorded Investment Interest Recognized For the Period Ended Average Recorded Investment Interest Recognized For the Period Ended Average Recorded Investment Interest Recognized For the Period Ended Average Recorded Investment Interest Recognized For the Period Ended

With no related allowance recorded:

2 unchanged sentences

Real estate mortgage − commercial 15,712 — 9,459 — 15,679 — 9,458 —

Installment and other consumer 2 — — —

Total $ 15,712 $ — $ 12,551 $ 17 $ 15,679 $ — $ 12,683 $ 34

8 unchanged sentences

Total impaired loans $ 19,052 $ 28 $ 36,467 $ 36 $ 19,028 $ 52 $ 36,610 $ 76

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received.

The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to TDRs, was $ 26 ,000 for the three months ended March 31, 2022 compared to $ 40 ,000 for the three months ended March 31, 2021.

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken as a result of current appraisals received.

The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to TDRs, was $ 28 ,000 and $ 52 ,000 for the three and six months ended June 30, 2022, respectively, compared to $ 36 ,000 and $ 76 ,000 for the three and six months ended June 30, 2021, respectively.

The average recorded investment in impaired loans is calculated on a monthly basis during the periods reported.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Delinquent and Non-Accrual Loans

3 unchanged sentences

In general, loans are placed on non-accrual when they become 90 days or more past due.

However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral.

However, management considers many factors before placing a loan on non-accrual status, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral.

Subsequent interest payments received on non-accrual loans are applied to principal if any doubt exists as to the collectability of such principal;

1 unchanged sentence

Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectability of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

The following table provides aging information for the Company’s past due and non-accrual loans at March 31, 2022 and December 31, 2021.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The following table provides aging information for the Company’s past due and non-accrual loans at June 30, 2022 and December 31, 2021.

(in thousands) Current or Less Than 30 Days Past Due 30 - 89 Days Past Due 90 Days Past Due And Still Accruing Non-Accrual Total

March 31, 2022

June 30, 2022

Commercial, Financial, and Agricultural $ 242,424 $ 146 $ — $ 131 $ 242,701

15 unchanged sentences

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment.

Loans are placed on watch status when one or more weaknesses are identified that may result in the borrower being unable to meet repayment terms or the Company’s credit position could deteriorate at some future date.

Loans are placed on watch status when one or more weaknesses are identified that may result in the borrower being unable to meet repayment terms or when the Company’s credit position could deteriorate at some future date.

Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any.

8 unchanged sentences

Notes to the Consolidated Financial Statements

The following table presents the risk categories by class at March 31, 2022 and December 31, 2021.

The following table presents the risk categories by class at June 30, 2022 and December 31, 2021.

At March 31, 2022

At June 30, 2022

Watch $ 8,604 $ — $ 2,837 $ 8,326 $ 48,612 $ — $ 68,379

10 unchanged sentences

Troubled Debt Restructurings

At March 31, 2022, loans classified as TDRs totaled $ 2.2 million, of which $ 0.6 million were classified as non-performing TDRs and $ 1.7 million were classified as performing TDRs.

At June 30, 2022, loans classified as TDRs totaled $ 2.1 million, of which $ 0.5 million were classified as non-performing TDRs and $ 1.6 million were classified as performing TDRs.

At December 31, 2021, loans classified as TDRs totaled $ 2.4 million, of which $ 0.6 million were classified as non-performing TDRs and $ 1.8 million were classified as performing TDRs.

1 unchanged sentence

When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs.

Accordingly, specific reserves of $ 179 ,000 and $ 159 ,000 related to TDRs were allocated to the allowance for loan losses at March 31, 2022 and December 31, 2021, respectively.

Accordingly, specific reserves of $ 167 ,000 and $ 159 ,000 related to TDRs were allocated to the allowance for loan losses at June 30, 2022 and December 31, 2021, respectively.

The Company’s portfolio of loans classified as TDRs include concessions for the borrower given their financial condition such as applying interest rates below the current market rate, deferring principal payments, and extending maturity dates.

There were no loans meeting the TDR criteria that were modified during the three months ended March 31, 2022, and 2021, respectively.

There was one loan meeting the TDR criteria that was modified during the three and six months ended June 30, 2022, respectively, compared to no loans during the three and six months ended June 30, 2021, respectively.

The Company considers a TDR to be in default when it is 90 days or more past due under the modified terms, a charge-off occurs, or it is in the process of foreclosure.

There were no loans modified as a TDR that defaulted during the three months ended March 31, 2022 and 2021, respectively, and within twelve months of their modification date.

See Lending and Credit Management section for further information.

There were no loans modified as a TDR that defaulted during the three and six months ended June 30, 2022 and 2021, respectively, and within twelve months of their modification date.

Loans Held For Sale

3 unchanged sentences

The loans are primarily sold to Freddie Mac, Fannie Mae, PennyMac, and various other secondary market investors.

At March 31, 2022, the carrying amount of these loans was $ 0.9 million compared to $ 2.2 million at December 31, 2021.

At June 30, 2022, the carrying amount of these loans was $ 1.7 million compared to $ 2.2 million at December 31, 2021.

HAWTHORN BANCSHARES, INC.

2 unchanged sentences

(3) Other Real Estate Acquired in Settlement of Loans

March 31, December 31,

June 30, December 31,

(in thousands) 2022 2021

7 unchanged sentences

Changes in the net carrying amount of other real estate owned were as follows for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

2 unchanged sentences

Proceeds from sales ( 625 ) ( 216 ) ( 1,348 ) ( 324 )

Charge-offs against the valuation allowance for other real estate owned, net ( 219 ) ( 84 ) ( 219 ) ( 84 )

Net gain on sales ( 6 ) 10 2 25

2 unchanged sentences

Balance at end of period $ 9,155 $ 11,938 $ 9,155 $ 11,938

At March 31, 2022, $ 0.2 million of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $ 0.2 million of consumer mortgage loans at December 31, 2021.

At June 30, 2022, $ 0.2 million of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $ 0.2 million of consumer mortgage loans at December 31, 2021.

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

Balance, beginning of period $ 2,911 $ 2,614

Balance at beginning of period $ 2,911 $ 2,702 $ 2,911 $ 2,614

Provision for other real estate owned ( 28 ) ( 4 ) ( 28 ) 84

Balance, end of period $ 2,911 $ 2,702

Charge-offs ( 219 ) ( 84 ) ( 219 ) ( 84 )

Balance at end of period $ 2,664 $ 2,614 $ 2,664 $ 2,614

HAWTHORN BANCSHARES, INC.

2 unchanged sentences

(4) Investment Securities

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2022 and December 31, 2021 were as follows:

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2022 and December 31, 2021 were as follows:

Gross Unrealized

(in thousands) Total Amortized Cost Gains Losses Fair Value

March 31, 2022

June 30, 2022

Treasury $ 3,807 $ — $ ( 32 ) $ 3,775

20 unchanged sentences

government-sponsored enterprises.

Debt securities with carrying values aggregating approximately $ 189.5 million and $ 275.4 million at March 31, 2022 and December 31, 2021, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

Debt securities with carrying values aggregating approximately $ 220.4 million and $ 275.4 million at June 30, 2022 and December 31, 2021, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2022, by contractual maturity are shown below.

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2022, by contractual maturity are shown below.

Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

10 unchanged sentences

Investments in FHLB stock, and Midwest Independent Bank (MIB) bankers bank stock, that do not have readily determinable fair values, are required for membership in those organizations.

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Other securities:

6 unchanged sentences

Notes to the Consolidated Financial Statements

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2022 and December 31, 2021 were as follows:

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2022 and December 31, 2021 were as follows:

Less than 12 months 12 months or more

(in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Total Fair Value Total Unrealized Losses

At March 31, 2022

June 30, 2022

Treasury $ 3,775 $ ( 32 ) $ — $ — $ 3,775 $ ( 32 )

7 unchanged sentences

(in thousands)

At December 31, 2021

December 31, 2021

Treasury $ 1,758 $ ( 3 ) $ — $ — $ 1,758 $ ( 3 )

5 unchanged sentences

Total $ 152,605 $ ( 2,275 ) $ 3,152 $ ( 230 ) $ 155,757 $ ( 2,505 )

The total available-for-sale portfolio consisted of approximately 440 securities at March 31, 2022.

The portfolio included 393 securities having an aggregate fair value of $ 268.0 million that were in a loss position at March 31, 2022.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 42.1 million at fair value at March 31, 2022.

The $ 24.6 million aggregate unrealized loss included in accumulated other comprehensive loss at March 31, 2022 was caused by interest rate fluctuations.

The total available-for-sale portfolio consisted of approximately 444 securities at June 30, 2022.

The portfolio included 424 securities having an aggregate fair value of $ 255.1 million that were in a loss position at June 30, 2022.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 41.5 million at fair value at June 30, 2022.

The $ 38.9 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2022 was caused by interest rate fluctuations.

The total available-for-sale portfolio consisted of approximately 435 securities at December 31, 2021.

2 unchanged sentences

The $ 2.5 million aggregate unrealized loss included in accumulated other comprehensive loss at December 31, 2021 was caused by interest rate fluctuations.

Because the decline in fair value is attributable to changes in interest rates and not credit quality, these investments were not considered other-than-temporarily impaired at March 31, 2022 and December 31, 2021, respectively.

In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date, or if market yields for such investments decline.

4 unchanged sentences

The following table presents the gross realized gains and losses from sales and calls of available-for-sale securities, as well as gains and losses on equity securities from fair value adjustments which have been recognized in earnings:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

9 unchanged sentences

Mortgage Servicing Rights

At March 31, 2022, the Company was servicing approximately $ 261.5 million of loans sold to the secondary market compared to $ 270.0 million at December 31, 2021, and $ 288.9 million at March 31, 2021.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.3 million for the three months ended March 31, 2022 compared to $ 0.2 million for the three months ended March 31, 2021.

At June 30, 2022, the Company was servicing approximately $ 252.3 million of loans sold to the secondary market compared to $ 270.0 million at December 31, 2021, and $ 286.6 million at June 30, 2021.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2022, respectively, compared to $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2021, respectively.

The table below presents changes in mortgage servicing rights (MSRs) for the periods indicated.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

8 unchanged sentences

(2) Other changes in fair value, reported in real estate servicing fees, net, reflect changes due to customer payments and passage of time.

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs as of June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

Weighted average constant prepayment rate 7.48 % 11.81 %

6 unchanged sentences

The table below represents the aggregate amount of time deposits with balances that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000 and brokered deposits for the periods indicated.

(aggregate amounts in thousands) March 31, 2022 December 31, 2021

(aggregate amounts in thousands) June 30, 2022 December 31, 2021

Time deposits with balances > $250,000 $ 99,884 $ 69,075

1 unchanged sentence

(7) Federal Funds Purchased and Securities Sold under Agreements to Repurchase

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Federal funds purchased $ — $ —

9 unchanged sentences

(in thousands) Overnight and continuous Less than 90 days Greater than 90 days Total

At March 31, 2022

June 30, 2022

government-sponsored enterprises $ 6,935 $ — $ — $ 6,935

Total $ 6,935 $ — $ — $ 6,935

At December 31, 2021

December 31, 2021

government-sponsored enterprises $ 9,113 $ — $ — $ 9,113

2 unchanged sentences

The Company's leases primarily consist of office space and bank branches with remaining lease terms of generally 1 to 10 years.

As of March 31, 2022, operating right of use (ROU) assets and liabilities were $ 1.7 million and $ 1.8 million, respectively.

As of March 31, 2022, the weighted-average remaining lease term on these operating leases is approximately 6.3 years and the weighted-average discount rate used to measure the lease liabilities is approximately 4 %.

As of June 30, 2022, operating right of use (ROU) assets and liabilities were $ 1.6 million and $ 1.7 million, respectively.

As of June 30, 2022, the weighted-average remaining lease term on these operating leases is approximately 6.1 years and the weighted-average discount rate used to measure the lease liabilities is approximately 4.0 %.

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities.

8 unchanged sentences

Operating lease cost, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the consolidated statements of income.

The operating lease cost was $ 94,000 for the three months ended March 31, 2022 compared to $ 100,000 for the three months ended March 31, 2021.

The operating lease cost was $ 93,000 and $ 187,000 for the three and six months ended June 30, 2022, respectively, compared to $ 95,000 and $ 196,000 for the three and six months ended June 30, 2021, respectively.

At adoption of Accounting Standards Update (ASU) 2016-02 on January 1, 2019, lease and non-lease components of new lease agreements are accounted for separately.

2 unchanged sentences

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Operating lease expense for these leases was $ 24,000 for the three months ended March 31, 2022 compared to $ 13,000 for the three months ended March 31, 2021.

Operating lease expense for these leases was $ 44,000 for the three and six months ended June 30, 2022 compared to $ 19,000 and $ 32,000 for the three and six months ended June 30, 2021, respectively.

The table below summarizes the maturity of remaining operating lease liabilities:

2 unchanged sentences

(in thousands)

2022 (excluding 3 months ended March 31, 2022)

2022 (excluding 6 months ended June 30, 2022)

Thereafter 571

3 unchanged sentences

(9) Income Taxes

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 18.8 % for the three months ended March 31, 2022 compared to 18.9 % for the three months ended March 31, 2021.

The decrease in the effective tax rate for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily attributable to the increase in earnings and an increase in state taxes attributed to elevated earnings partially offset by the benefit recorded pertaining to the historical tax credit.

The effective tax rate for each of the three months ended March 31, 2022 and 2021, respectively, is lower than the U.S.

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 17.8 % and 18.4 % for the three and six months ended June 30, 2022, respectively, compared to 19.7 % and 19.2 % for the three and six months ended June 30, 2021, respectively.

The decrease in the effective tax rate for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily attributable to the decrease in earnings and the benefit recorded pertaining to the historical tax credit.

The decrease in the effective tax rate for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily attributable to the increase in earnings and an increase in state taxes attributed to elevated earnings partially offset by the benefit recorded pertaining to the historical tax credit.

The effective tax rate for each of the three and six months ended June 30, 2022 and 2021, respectively, is lower than the U.S.

federal statutory rate of 21% primarily due to tax-free revenues.

Included in the effective tax rate for the quarter ended March 31, 2022 is a $ 13,000 benefit associated with a historic tax credit investment.

Included in the effective tax rate is a $ 14,000 and $ 27,000 benefit associated with a historic tax credit investment for the three and six months ended June 30, 2022, respectively.

The investment is expected to generate a $ 331,000 tax benefit over the life of the project and is being recognized under the deferral method of accounting.

1 unchanged sentence

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 March 31, 2022.

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 three months ended March 31, 2022 and 2021, respectively, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions .

For each of the six months ended June 30, 2022 and 2021, respectively, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.

(10) Stockholders’ Equity

Accumulated Other Comprehensive Income (Loss)

The following details the change in the components of the Company’s accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022

The following table summarizes the change in the components of the Company’s accumulated other comprehensive income (loss) for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30, 2022

(in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement Costs (2) Accumulated Other Comprehensive Income (Loss)

6 unchanged sentences

Balance at end of period $ ( 30,646 ) $ 2,931 $ ( 27,715 )

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

(in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement Costs (2) Accumulated Other Comprehensive Income (Loss)

11 unchanged sentences

Employee benefits charged to operating expenses are summarized in the table below for the periods indicated.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

3 unchanged sentences

Periodic pension cost 367 482 804 898

Other 4 3 12 7

Total employee benefits $ 1,608 $ 1,804 $ 3,339 $ 3,608

The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3 % of eligible employee contributions.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown.

The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3 % of eligible employee contributions.

The Company made annual contributions for the discretionary portion in an amount up to 6 % of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown.

In addition, employees were able to make additional tax-deferred contributions.

1 unchanged sentence

The SERP provides select employees who satisfy certain eligibility requirements with certain benefits upon retirement, termination of employment or death.

The accrued liability relating to the SERP was $ 1.8 million as of March 31, 2022, and the expense for the three months ended March 31, 2022 was $ 93,000 compared to $ 97,000 for the three months ended March 31, 2021 and is recognized over the required service period.

The accrued liability relating to the SERP was $ 1.5 million as of June 30, 2022, and the expense for the three and six months ended June 30, 2022 was $ 93,000 and $ 186,000 , respectively, compared to $ 97,000 and 193,000 , for the three and six months ended June 30, 2021, respectively, and is recognized over the required service period.

The Company provides a noncontributory defined benefit pension plan for all full-time and eligible employees.

8 unchanged sentences

The following items are components of net pension cost for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

6 unchanged sentences

Net periodic pension cost $ 75 $ 409 $ 250 $ 696

(a) The components of net periodic pension cost other than the service cost component are included in other non-interest expense.

(a) The components of net periodic pension cost other than the service cost and expected administrative expenses are included in other non-interest expense.

Net periodic pension benefit costs include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial losses.

1 unchanged sentence

Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive income.

The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the pension plan.

The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits.

Currently, there is no prior service cost or net transition (asset)/obligation to be amortized.

The net actuarial gain or loss in

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the pension plan.

The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits.

Currently, there is no prior service cost or net transition (asset)/obligation to be amortized.

(12) Earnings per Share

5 unchanged sentences

Presented below is a summary of the components used to calculate basic and diluted earnings per common share, which have been restated for all stock dividends:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands, except per share data) 2022 2021 2022 2021

10 unchanged sentences

Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.

During the first quarter 2022, the Company repurchased 23,536 common shares at an average cost of $ 25.75 per share totaling $ 0.6 million.

As of March 31, 2022, $ 4.4 million remained available for share repurchases pursuant to that authorization.

The Company repurchased 23,536 and 85,188 common shares under the plan during the first and second quarter of 2022, respectively, at an average cost of $ 26.60 per share totaling $ 2.9 million.

As of June 30, 2022, $ 2.1 million remained available for share repurchases pursuant to the plan.

(13) Fair Value Measurements

5 unchanged sentences

The fair value hierarchy is as follows:

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

3 unchanged sentences

These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value.

23 unchanged sentences

The Company classifies IRLCs as level 3 due to the unobservable input of pull-through rates.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Mortgage Servicing Rights

1 unchanged sentence

Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income.

The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings

The valuation models estimate the present value of estimated future net servicing income.

The Company classifies its servicing rights as Level 3.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

rates, and other ancillary income, including late fees.

The valuation models estimate the present value of estimated future net servicing income.

The Company classifies its servicing rights as Level 3.

Fair Value Measurements

(in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

March 31, 2022

June 30, 2022

Treasury $ 3,775 $ 3,775 $ — $ —

35 unchanged sentences

Mortgage Servicing Rights Interest Rate Lock Commitments

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

15 unchanged sentences

In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral.

The Company maintains staff that is trained to perform in-house evaluations and also review third-party appraisal reports for reasonableness.

The Company maintains staff trained to perform in-house evaluations and also to review third-party appraisal reports for reasonableness.

In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists.

1 unchanged sentence

Because many of these inputs are not observable, the measurements are classified as Level 3.

As of March 31, 2022, the Company identified $ 15.4 million in collateral dependent impaired loans that required no specific allowance for loan losses.

Related to these loans, there were $ 23,000 in charge-offs recorded during the three months ended March 31, 2022.

As of March 31, 2021, the Company identified $ 31.8 million in collateral dependent impaired loans that had specific allowances for losses aggregating $ 4.8 million.

Related to these loans, there were $ 23,000 in charge-offs recorded during the three months ended March 31, 2021.

As of June 30, 2022, the Company identified $ 16.0 million in collateral-dependent impaired loans that required no specific allowance for loan losses.

Related to these loans, there were $ 2,000 and $ 25,000 in charge-offs recorded during the three and six months ended June 30, 2022, respectively.

As of June 30, 2021, the Company identified $ 31.8 million in collateral-dependent impaired loans that had specific allowances for losses aggregating $ 5.0 million.

Related to these loans, there were $ 11,000 and $ 34,000 in charge-offs recorded during the three and six months ended June 30, 2021, respectively.

Other Real Estate and Foreclosed Assets

Other real estate owned (OREO) and foreclosed assets consisted of loan collateral that has been repossessed through foreclosure.

Other real estate owned (OREO) and foreclosed assets consisted of loan collateral repossessed through foreclosure.

This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment.

8 unchanged sentences

Fair Value Measurements Using

(in thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Three Months Ended March 31, Total Gains (Losses)*

March 31, 2022

(in thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Three Months Ended

June 30, Total Gains (Losses)*

Six Months Ended June 30, Total Gains (Losses)*

June 30, 2022

Collateral dependent impaired loans:

2 unchanged sentences

Other real estate and repossessed assets $ 9,155 $ — $ — $ 9,155 $ 23 $ ( 22 )

March 31, 2021

June 30, 2021

Collateral dependent impaired loans:

2 unchanged sentences

Real estate mortgage - commercial 22,420 — — 22,420 ( 2 ) ( 25 )

Installment and other consumer — — — — ( 6 ) ( 6 )

Total $ 26,755 $ — $ — $ 26,755 $ ( 11 ) $ ( 34 )

32 unchanged sentences

Notes to the Consolidated Financial Statements

A summary of the carrying amounts and fair values of the Company’s financial instruments at March 31, 2022 and December 31, 2021 is as follows:

March 31, 2022

A summary of the carrying amounts and fair values of the Company’s financial instruments at June 30, 2022 and December 31, 2021 is as follows:

June 30, 2022

Fair Value Measurements

March 31, 2022 Quoted Prices in Active Markets for Identical Assets Other Observable Inputs Net Significant Unobservable Inputs

June 30, 2022 Quoted Prices in Active Markets for Identical Assets Other Observable Inputs Net Significant Unobservable Inputs

(in thousands) Carrying amount Fair value (Level 1) (Level 2) (Level 3)

64 unchanged sentences

The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets.

At March 31, 2022, no amounts have been accrued for any estimated losses for these financial instruments.

At June 30, 2022, no amounts have been accrued for any estimated losses for these financial instruments.

The contractual amount of off-balance-sheet financial instruments were as follows as of the dates indicated:

(in thousands) March 31, 2022 December 31, 2021

(in thousands) June 30, 2022 December 31, 2021

Commitments to extend credit $ 394,214 $ 396,958

14 unchanged sentences

These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers.

The approximate remaining term of standby letters of credit range from one month to five years at March 31, 2022.

The approximate remaining term of standby letters of credit range from one month to five years at June 30, 2022.

Pending Litigation

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements