What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-08-11 · 127 added, 125 removed, 966 unchanged (21% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

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

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

Cash and due from banks $ 15,081 $ 17,287

32 unchanged sentences

Common stock, $ 1.00 par value, authorized 15,000,000 shares;

issued 7,023,821 shares, respectively

issued 7,284,151 and 7,023,821 shares, respectively

Surplus 71,042 64,437

10 unchanged sentences

Consolidated Statements of Income (unaudited)

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

Three Months Ended September 30, Nine Months Ended September 30,

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

31 unchanged sentences

Total non-interest income 3,485 3,776 10,859 13,010

Investment securities (losses) gains, net ( 9 ) — ( 13 ) 15

Investment securities gains (losses), net 1 126 ( 12 ) 140

NON-INTEREST EXPENSE

18 unchanged sentences

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

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

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2022 2021 2022 2021

2 unchanged sentences

Investment securities available-for-sale:

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

Change in unrealized losses on investment securities available-for-sale, net of tax ( 12,430 ) ( 2,192 ) ( 43,438 ) ( 3,222 )

Adjustment for gains on sale of investment securities, net of tax — ( 93 ) — ( 95 )

1 unchanged sentence

Amortization of prior service cost included in net periodic pension cost, net of tax — 72 — 217

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

Total other comprehensive loss ( 12,430 ) ( 2,213 ) ( 43,438 ) ( 3,100 )

Total comprehensive (loss) income $ ( 7,503 ) $ 3,583 $ ( 27,413 ) $ 13,427

3 unchanged sentences

Consolidated Statements of Stockholders’ Equity (unaudited)

Three Months Ended June 30, 2022 and 2021

Three Months Ended September 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, March 31, 2022

Balance, June 30, 2022

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

5 unchanged sentences

— — ( 1,150 ) — — ( 1,150 )

Balance, June 30, 2022

Balance, September 30, 2022

$ 7,284 $ 71,042 $ 88,214 $ ( 40,145 ) $ ( 10,990 ) $ 115,405

Balance, March 31, 2021

Balance, June 30, 2021

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

4 unchanged sentences

( 992 ) ( 992 )

Balance, June 30, 2021

Balance, September 30, 2021

$ 7,024 $ 64,437 $ 77,303 $ ( 1,572 ) $ ( 8,098 ) $ 139,094

Six Months Ended June 30, 2022 and 2021

Nine Months Ended September 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

7 unchanged sentences

— — ( 3,246 ) — — ( 3,246 )

Balance, June 30, 2022

Balance, September 30, 2022

$ 7,284 $ 71,042 $ 88,214 $ ( 40,145 ) $ ( 10,990 ) $ 115,405

7 unchanged sentences

( 2,774 ) ( 2,774 )

Balance, June 30, 2021

Balance, September 30, 2021

$ 7,024 $ 64,437 $ 77,303 $ ( 1,572 ) $ ( 8,098 ) $ 139,094

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2022 2021

6 unchanged sentences

Change in fair value of mortgage servicing rights ( 186 ) 86

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

Investment securities (gains) losses, net 12 ( 140 )

(Gain) losses on sales and dispositions of premises and equipment ( 147 ) 8

1 unchanged sentence

(Release of) provision for other real estate owned ( 28 ) 97

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

Increase in accrued interest receivable ( 427 ) ( 928 )

Increase in cash surrender value - life insurance ( 44 ) ( 44 )

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

Decrease in other assets 155 694

Decrease in operating lease liabilities ( 227 ) ( 227 )

Increase (decrease) in accrued interest payable 283 ( 529 )

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

(Decrease) increase in other liabilities ( 4,185 ) 64

Origination of mortgage loans held for sale ( 72,563 ) ( 161,244 )

5 unchanged sentences

Proceeds from maturities of certificates of deposit in other banks 1,237 2,957

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

Net (increase) decrease in loans ( 190,215 ) 4,121

Purchase of available-for-sale debt securities ( 17,318 ) ( 136,686 )

1 unchanged sentence

Proceeds from calls of available-for-sale debt securities 2,295 14,685

Proceeds from sales of available-for-sale debt securities — 5,420

Purchases of FHLB stock ( 8,103 ) ( 330 )

6 unchanged sentences

Net increase in demand deposits 45,587 79,134

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

Net increase (decrease) in interest-bearing transaction accounts 7,235 ( 30,743 )

Net increase (decrease) in time deposits 23,156 ( 20,938 )

4 unchanged sentences

Cash dividends paid - common stock ( 3,088 ) ( 2,624 )

Net cash used in financing activities ( 17,199 ) ( 32,679 )

Net cash provided by (used in) financing activities 47,641 ( 8,211 )

Net decrease in cash and cash equivalents ( 118,523 ) ( 67,097 )

5 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) continued

Six Months Ended June 30,

Nine Months Ended September 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 June 30, 2022 and December 31, 2021 is as follows:

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

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

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

Commercial, financial, and agricultural (a)

6 unchanged sentences

Total loans held for investment $ 1,491,997 $ 1,302,133

(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.

(a) Includes $ 0.6 million and $ 8.4 million of Small Business Administration Paycheck Protection (PPP) loans, net as of September 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.

7 unchanged sentences

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.

At September 30, 2022, loans of $ 636.5 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 June 30, 2022

Three Months Ended September 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

5 unchanged sentences

Balance at end of period $ 2,848 $ 71 $ 849 $ 3,232 $ 8,002 $ 316 $ 187 $ 15,505

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

5 unchanged sentences

Balance at end of period $ 4,701 $ 235 $ 425 $ 2,673 $ 10,681 $ 255 $ ( 41 ) $ 18,929

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

5 unchanged sentences

Balance at end of period $ 2,848 $ 71 $ 849 $ 3,232 $ 8,002 $ 316 $ 187 $ 15,505

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

21 unchanged sentences

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.

At September 30, 2022, the net balance of the PPP loans totaled $ 0.6 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.

8 unchanged sentences

(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

June 30, 2022

September 30, 2022

Allowance for loan losses:

18 unchanged sentences

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

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).

Impaired loans individually evaluated for impairment totaled $ 18.9 million and $ 27.3 million at September 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 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.

At September 30, 2022, $ 15.9 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 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.

At September 30, 2022, $ 0.3 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $ 18.9 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 $ 15.9 million, or 84 %, of total impaired loans required no reserve allocation at September 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.

1 unchanged sentence

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

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

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

Non-accrual loans $ 17,348 $ 25,459

1 unchanged sentence

Total impaired loans $ 18,936 $ 27,254

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.

The following tables provide additional information about impaired loans at September 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

June 30, 2022

September 30, 2022

With no related allowance recorded:

27 unchanged sentences

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

14 unchanged sentences

Total impaired loans $ 19,042 $ 24 $ 35,298 $ 46 $ 19,016 $ 77 $ 35,828 $ 121

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

The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to TDRs, was $ 24 ,000 and $ 77 ,000 for the three and nine months ended September 30, 2022, respectively, compared to $ 46 ,000 and $ 121 ,000 for the three and nine months ended September 30, 2021, respectively.

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

11 unchanged sentences

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.

The following table provides aging information for the Company’s past due and non-accrual loans at September 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

June 30, 2022

September 30, 2022

Commercial, Financial, and Agricultural $ 248,707 $ 33 $ — $ 173 $ 248,913

26 unchanged sentences

Notes to the Consolidated Financial Statements

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

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

At June 30, 2022

At September 30, 2022

Watch $ 8,035 $ — $ 2,269 $ 6,447 $ 47,953 $ — $ 64,704

10 unchanged sentences

Troubled Debt Restructurings

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 September 30, 2022, loans classified as TDRs totaled $ 1.9 million, of which $ 0.3 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 $ 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.

Accordingly, specific reserves of $ 171 ,000 and $ 159 ,000 related to TDRs were allocated to the allowance for loan losses at September 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 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.

There was one loan meeting the TDR criteria that was modified during the three and nine months ended September 30, 2022, respectively, compared to no loans during the three and nine months ended September 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 and six months ended June 30, 2022 and 2021, respectively, and within twelve months of their modification date.

There were no loans modified as a TDR that defaulted during the three and nine months ended September 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 June 30, 2022, the carrying amount of these loans was $ 1.7 million compared to $ 2.2 million at December 31, 2021.

At September 30, 2022, the carrying amount of these loans was $ 0.9 million compared to $ 2.2 million at December 31, 2021.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

(3) Other Real Estate Acquired in Settlement of Loans

June 30, December 31,

(3) Other Real Estate and Other Assets Acquired in Settlement of Loans

September 30, December 31,

(in thousands) 2022 2021

3 unchanged sentences

Real estate mortgage - commercial 1,639 2,510

Repossessed assets 55 —

Total $ 11,874 $ 13,436

Less valuation allowance for other real estate owned ( 2,664 ) ( 2,911 )

Total other real estate owned $ 9,155 $ 10,525

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

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

Total other real estate owned and repossessed assets $ 9,210 $ 10,525

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

7 unchanged sentences

Balance at end of period $ 9,210 $ 11,614 $ 9,210 $ 11,614

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.

At September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

7 unchanged sentences

(4) Investment Securities

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:

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

Gross Unrealized

(in thousands) Total Amortized Cost Gains Losses Fair Value

June 30, 2022

September 30, 2022

Treasury $ 3,555 $ — $ ( 49 ) $ 3,506

20 unchanged sentences

government-sponsored enterprises.

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.

Debt securities with carrying values aggregating approximately $ 169.0 million and $ 275.4 million at September 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 June 30, 2022, by contractual maturity are shown below.

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

(in thousands) September 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 June 30, 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 September 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

June 30, 2022

September 30, 2022

Treasury $ 2,758 $ ( 46 ) $ 748 $ ( 3 ) $ 3,506 $ ( 49 )

15 unchanged sentences

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

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 444 securities at September 30, 2022.

The portfolio included 438 securities having an aggregate fair value of $ 244.6 million that were in a loss position at September 30, 2022.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 74.6 million at fair value at September 30, 2022.

The $ 54.5 million aggregate unrealized loss included in accumulated other comprehensive loss at September 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 June 30, 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.

3 unchanged sentences

Notes to the Consolidated Financial Statements

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 June 30, Six Months Ended June 30,

Three Months Ended June 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

Investment securities (losses) gains, net

Investment securities gains (losses), net

Available-for-sale securities:

4 unchanged sentences

Fair value adjustments, net 1 7 ( 12 ) 19

Investment securities (losses) gains, net $ ( 9 ) $ — $ ( 13 ) $ 15

Investment securities gains (losses), net $ 1 $ 126 $ ( 12 ) $ 140

(5) Intangible Assets

Mortgage Servicing Rights

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.

At September 30, 2022, the Company was servicing approximately $ 247.6 million of loans sold to the secondary market compared to $ 270.0 million at December 31, 2021, and $ 277.1 million at September 30, 2021.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2022, respectively, compared to $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2021, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 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 June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

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

Nine Months Ended September 30,

Weighted average constant prepayment rate 7.30 % 11.41 %

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) June 30, 2022 December 31, 2021

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

Time deposits with balances > $250,000 $ 110,859 $ 69,075

1 unchanged sentence

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

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

(in thousands) September 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

June 30, 2022

September 30, 2022

government-sponsored enterprises $ 5,890 $ — $ — $ 5,890

5 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 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 %.

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

As of September 30, 2022, the weighted-average remaining lease term on these operating leases is approximately 5.9 years and the weighted-average discount rate used to measure the lease liabilities was 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 $ 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.

The operating lease cost was $ 93,000 and $ 280,000 for the three and nine months ended September 30, 2022, respectively, compared to $ 93,000 and $ 289,000 for the three and nine months ended September 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 $ 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.

Operating lease expense for these leases was $ 21,000 and $ 65,000 for the three and nine months ended September 30, 2022, respectively, compared to $ 24,000 and $ 56,000 for the three and nine months ended September 30, 2021, respectively.

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

2 unchanged sentences

(in thousands)

2022 (excluding 6 months ended June 30, 2022)

2022 (excluding 9 months ended September 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 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.

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 18.7 % and 18.5 % for the three and nine months ended September 30, 2022, respectively, compared to 19.6 % and 19.4 % for the three and nine months ended September 30, 2021, respectively.

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

The effective tax rate for each of the three and nine months ended September 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 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.

Included in the effective tax rate is a $ 13,000 and $ 40,000 benefit associated with a historic tax credit investment for the three and nine months ended September 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 June 30, 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.

3 unchanged sentences

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.

For each of the nine months ended September 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 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

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

Nine Months Ended September 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 $ ( 43,076 ) $ 2,931 $ ( 40,145 )

Six Months Ended June 30, 2021

Nine Months Ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

13 unchanged sentences

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 $ 1.5 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 accrued liability relating to the SERP was $ 1.6 million as of September 30, 2022, and the expense for the three and nine months ended September 30, 2022 was $ 93,000 and $ 279,000 , respectively, compared to $ 97,000 and 290,000 , for the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

23 unchanged sentences

Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the period.

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 June 30, Six Months Ended June 30,

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

Three Months Ended September 30, Nine Months Ended September 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.

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.

The Company repurchased 108,724 common shares under the plan during the nine months ended September 30, 2022, at an average cost of $ 26.60 per share totaling $ 2.9 million.

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

(13) Fair Value Measurements

52 unchanged sentences

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

June 30, 2022

September 30, 2022

Treasury $ 3,506 $ 3,506 $ — $ —

32 unchanged sentences

Notes to the Consolidated Financial Statements

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the periods indicated:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Mortgage Servicing Rights Interest Rate Lock Commitments

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

19 unchanged sentences

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

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.

As of September 30, 2022, the Company identified $ 15.9 million in collateral-dependent impaired loans that required no specific allowance for loan losses.

Related to these loans, there were $ 61,000 and $ 86,000 in charge-offs recorded during the three and nine months ended September 30, 2022, respectively.

As of September 30, 2021, the Company identified $ 31.2 million in collateral-dependent impaired loans that had specific allowances for losses aggregating $ 4.7 million.

Related to these loans, there were $ 33,000 and $ 69,000 in charge-offs recorded during the three and nine months ended September 30, 2021, respectively.

Other Real Estate and Foreclosed Assets

10 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

June 30, Total Gains (Losses)*

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

June 30, 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 September 30, Total Gains (Losses)*

Nine Months Ended September 30, Total Gains (Losses)*

September 30, 2022

Collateral dependent impaired loans:

Real estate mortgage - commercial $ 15,898 $ — $ — $ 15,898 $ ( 23 ) $ ( 48 )

Installment and other consumer — — — — ( 38 ) ( 38 )

Total $ 15,898 $ — $ — $ 15,898 $ ( 61 ) $ ( 86 )

Other real estate and repossessed assets $ 9,210 $ — $ — $ 9,210 $ — $ ( 22 )

June 30, 2021

September 30, 2021

Collateral dependent impaired loans:

37 unchanged sentences

Notes to the Consolidated Financial Statements

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

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

September 30, 2022

Fair Value Measurements

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

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

At September 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) June 30, 2022 December 31, 2021

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

Commitments to extend credit $ 362,569 $ 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 June 30, 2022.

The approximate remaining term of standby letters of credit range from one month to five years at September 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