What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-10 compared with 2023-05-15 · 253 added, 162 removed, 990 unchanged (30% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands, except per share data) March 31, 2023 December 31, 2022

(In thousands, except per share data) June 30, 2023 December 31, 2022

Cash and due from banks $ 23,167 $ 18,661

42 unchanged sentences

Total liabilities and stockholders’ equity $ 1,900,709 $ 1,923,540

(1) March 31, 2023 amounts include the impacts of the January 1, 2023 adoption of ASU 2013-13.

(1) June 30, 2023 amounts include the impacts of the January 1, 2023 adoption of ASU 2016-13.

See Note 2 for details.

3 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) 2023 2022 2023 2022

29 unchanged sentences

Gain on sale of mortgage loans, net 667 806 1,162 1,695

(Provision for) release of other real estate owned ( 1,831 ) 28 ( 1,831 ) 28

Other 603 372 1,182 885

21 unchanged sentences

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three Months Ended March 31,

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

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

(In thousands) 2023 2022 2023 2022

Net income $ 2,549 $ 4,489 $ 5,820 $ 11,098

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Investment securities available-for-sale:

Change in unrealized gains (losses) on investment securities available-for-sale, net of tax 4,513 ( 19,582 )

Change in unrealized (losses) gains on investment securities available-for-sale, net of tax ( 3,136 ) ( 11,426 ) 1,377 ( 31,008 )

Defined benefit pension plans:

Amortization of net gains included in net periodic pension cost, net of tax ( 141 ) — ( 253 ) —

Total other comprehensive income (loss) 4,401 ( 19,582 )

Total comprehensive income (loss) $ 7,672 $ ( 12,973 )

Total other comprehensive (loss) income ( 3,277 ) ( 11,426 ) 1,124 ( 31,008 )

Total comprehensive (loss) income $ ( 728 ) $ ( 6,937 ) $ 6,944 $ ( 19,910 )

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

2 unchanged sentences

Consolidated Statements of Stockholders’ Equity (unaudited)

Three Months Ended March 31, 2023 and 2022

Three Months Ended June 30, 2023 and 2022

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

Balance, March 31, 2023 $ 7,284 $ 71,042 $ 88,329 $ ( 27,313 ) $ ( 10,990 ) $ 128,352

Net income — — 2,549 — — 2,549

Other comprehensive loss — — — ( 3,277 ) — ( 3,277 )

Stock dividend — 6,005 ( 6,005 ) — — —

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

— — ( 1,151 ) — — ( 1,151 )

Balance, June 30, 2023

$ 7,284 $ 77,047 $ 83,722 $ ( 30,590 ) $ ( 10,990 ) $ 126,473

Balance, March 31, 2022 $ 7,024 $ 64,437 $ 87,919 $ ( 16,289 ) $ ( 8,704 ) $ 134,387

Net income — — 4,489 — — 4,489

Other comprehensive loss — — — ( 11,426 ) — ( 11,426 )

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

Six Months Ended June 30, 2023 and 2022

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

Balance, December 31, 2022

4 unchanged sentences

Other comprehensive income — — — 1,124 — 1,124

Stock dividend — 6,005 ( 6,005 ) — — —

Cash dividends declared, common stock ($ 0.34 per share)

— — ( 2,301 ) — — ( 2,301 )

Balance, March 31, 2023

Balance, June 30, 2023

$ 7,284 $ 77,047 $ 83,722 $ ( 30,590 ) $ ( 10,990 ) $ 126,473

4 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, 2022

Balance, June 30, 2022

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

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2023 2022

9 unchanged sentences

Gain on sales and dispositions of other real estate ( 48 ) ( 2 )

Provision for (release of) other real estate owned 1,831 ( 28 )

Decrease in accrued interest receivable 283 175

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

Decrease in other assets 102 329

Decrease (increase) in other assets 282 ( 1,111 )

Decrease in operating lease liabilities ( 159 ) ( 150 )

21 unchanged sentences

Net increase in time deposits 38,202 17,596

Net decrease in federal funds purchased and securities sold under agreements to repurchase ( 72 ) ( 18,315 )

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 316 ( 16,894 )

Repayment of FHLB advances and other borrowings ( 163,800 ) ( 95,477 )

10 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) continued

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) 2023 2022

19 unchanged sentences

GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading.

19 unchanged sentences

In addition, this standard made changes to the accounting for available-for-sale debt securities, including the requirement for credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities.

The Company adopted this standard using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under the new standard while prior period amounts continue to be reported in accordance with previously applicable U.S.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

The Company adopted this standard using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under the new standard while prior period amounts continue to be reported in accordance with previously applicable U.S.

The Company recorded an after-tax decrease to retained earnings of $ 5.6 million as of January 1, 2023 for the cumulative effect of adopting this standard.

7 unchanged sentences

(2) Loans and Allowance for Credit Losses

Major classifications within the Company’s held for investment loan portfolio at March 31, 2023 and December 31, 2022 were as follows:

(in thousands) March 31, 2023 December 31, 2022

Major classifications within the Company’s held for investment loan portfolio at June 30, 2023 and December 31, 2022 were as follows:

(in thousands) June 30, 2023 December 31, 2022

Commercial, financial, and agricultural $ 233,029 $ 244,549

10 unchanged sentences

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

Accrued interest on loans totaled $ 5.9 million and $ 6.4 million at March 31, 2023 and December 31, 2022, respectively, and is included in the accrued interest receivable on the Company's Consolidated Balance Sheets.

Accrued interest on loans totaled $ 6.0 million and $ 6.4 million at June 30, 2023 and December 31, 2022, respectively, and is included in the accrued interest receivable on the Company's consolidated balance sheets.

The total amount of accrued interest is excluded from the amortized cost basis of loans presented above.

Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable.

At March 31, 2023, loans of $ 598.1 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

At June 30, 2023, loans of $ 651.6 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

Allowance for Credit Losses

3 unchanged sentences

Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.

The allowance for credit losses is a valuation account that is deducted from loans amortized cost basis to present the net amount expected to be collected on the instrument.

Expected recoveries are included in the allowance and do not exceed the

The allowance for credit losses is a valuation account that is deducted from loans amortized cost basis to present the net amount

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

aggregate of amounts previously charged-off and expected to be charged-off.

expected to be collected on the instrument.

Expected recoveries are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Loans are charged off against the allowance for credit losses when management believes the balance has become uncollectible.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using relevant peer historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and the Company's outstanding loan balances during a lookback period.

The Company chose to use relevant peer loan loss data due to statistical relevance concerns, low observation counts, historical data limitations, and the inability to secure loans through the cycle loan-level data.

The Company chose to use relevant peer loan loss data due to statistical relevance concerns, low observation counts, historical data limitations, and the inability to secure through the cycle loan-level data.

Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life.

18 unchanged sentences

Notes to the Consolidated Financial Statements

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

Three Months Ended March 31, 2023

The following tables illustrate the changes in the allowance for credit losses by portfolio segment:

Three Months Ended June 30, 2023

(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 $ 1,921 $ 631 $ 4,464 $ 5,262 $ 9,487 $ 222 $ ( 8 ) $ 21,979

Provision for (release of ) credit losses (1) ( 227 ) 117 ( 1,042 ) 201 828 35 253 165

Loans charged off 14 — — — 20 69 — 103

Less recoveries on loans ( 164 ) — — ( 2 ) — ( 29 ) — ( 195 )

Net loan charge-offs (recoveries) ( 150 ) — — ( 2 ) 20 40 — ( 92 )

Balance at end of period $ 1,844 $ 748 $ 3,422 $ 5,465 $ 10,295 $ 217 $ 245 $ 22,236

Liability for Unfunded Commitments

Balance at beginning of period $ 124 $ 389 $ 562 $ 110 $ 142 $ 1 $ ( 26 ) $ 1,302

Provision for credit losses on unfunded commitments ( 12 ) ( 34 ) ( 148 ) ( 2 ) ( 16 ) — 47 ( 165 )

Balance at end of period $ 112 $ 355 $ 414 $ 108 $ 126 $ 1 $ 21 $ 1,137

Allowance for credit losses on loans and liability for unfunded commitments $ 1,956 $ 1,103 $ 3,836 $ 5,573 $ 10,421 $ 218 $ 266 $ 23,373

Three Months Ended June 30, 2022

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

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

Loans charged off 25 — — — 104 59 188

Less recoveries on loans ( 16 ) — — ( 20 ) ( 1 ) ( 25 ) ( 62 )

Net loan charge-offs (recoveries) 9 — — ( 20 ) 103 34 — 126

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Six Months Ended June 30, 2023

Balance at beginning of period $ 2,735 $ 157 $ 875 $ 3,329 $ 8,000 $ 326 $ 166 $ 15,588

Adoption of ASU 2016-13 ( 649 ) 291 2,894 1,890 1,613 ( 80 ) ( 166 ) 5,793

12 unchanged sentences

Allowance for credit losses on loans and liability for unfunded commitments $ 1,956 $ 1,103 $ 3,836 $ 5,573 $ 10,421 $ 218 $ 266 $ 23,373

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

8 unchanged sentences

On January 1, 2023, the Company's adoption of the CECL methodology resulted in an increase to the allowance for credit losses of $ 5.8 million and a liability for unfunded commitments totaling $ 1.3 million.

Under the CECL methodology, the Company recorded a $ 0.7 million provision for credit losses in the first quarter of 2023 compared to a $ 2.5 million release of provision for loan losses in the first quarter of 2022 under the incurred-loss method.

Collateral-Dependent loans

9 unchanged sentences

There have been no significant changes to the types of collateral securing the Company's collateral dependent loans since December 31, 2022.

The amortized cost of collateral-dependent loans by class as of March 31, 2023 was as follows:

The amortized cost of collateral-dependent loans by class as of June 30, 2023 was as follows:

Collateral Type

(in thousands) Real Estate Other Allowance Allocated

March 31, 2023

June 30, 2023

Commercial, financial, and agricultural $ — $ 50 $ —

28 unchanged sentences

Notes to the Consolidated Financial Statements

The following tables presents loans individually evaluated for impairment at December 31, 2022, segregated between loans for which an allowance was provided and loans for which no allowance was provided.

The following table presents loans individually evaluated for impairment at December 31, 2022, segregated between loans for which an allowance was provided and loans for which no allowance was provided.

(in thousands) Recorded Investment Unpaid Principal Balance Specific Reserves Average Recorded Investment

19 unchanged sentences

Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected.

• Non-accrual - loans that are delinquent for 90 days or more and the ultimate collectability of interest or principal is no longer probable.

(The majority of the Company's non-accrual loans have a substandard risk grade)

• Doubtful - loans which have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.

4 unchanged sentences

Notes to the Consolidated Financial Statements

The following table presents the recorded investment by risk categories at March 31, 2023:

The following table presents the recorded investment by risk categories at June 30, 2023:

Amortized Cost Basis by Origination Year and Risk Grades

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total

March 31, 2023

June 30, 2023

Commercial, Financial, & Agricultural

2 unchanged sentences

Substandard 389 3,925 58 20 — — 1,819 — 6,211

Non-accrual (1) — 50 — — 21 95 — — 166

Non-accrual loans — 1 — — 16 95 50 — 162

Total $ 31,944 $ 55,376 $ 36,668 $ 33,969 $ 5,519 $ 7,133 $ 61,789 $ 631 $ 233,029

3 unchanged sentences

Substandard — — — — — — — — —

Non-accrual (1) — — — — — — — — —

Non-accrual loans 94 — — — — — — — 94

Total $ 26,310 $ 24,753 $ 642 $ 179 $ — $ — $ — $ — $ 51,884

3 unchanged sentences

Substandard 693 — — — — — — — 693

Non-accrual (1) — — — — — 83 — — 83

Non-accrual loans — — — — — 78 — — 78

Total $ 36,083 $ 56,146 $ 31,217 $ 1,214 $ 67 $ 961 $ 2,073 $ — $ 127,761

3 unchanged sentences

Substandard 17 — — 136 — 452 — — 605

Non-accrual (1) — 56 — 241 — 357 260 — 914

Non-accrual loans — 53 — 236 — 283 152 — 724

Total $ 45,762 $ 136,462 $ 67,010 $ 51,959 $ 7,580 $ 30,696 $ 43,713 $ 257 $ 383,439

3 unchanged sentences

Substandard 2,348 223 15,571 — 132 298 100 124 18,796

Non-accrual (1) 1,789 2,775 13,522 233 — 36 — — 18,355

Non-accrual loans 1,774 120 627 223 — 36 — — 2,780

Total $ 87,915 $ 235,373 $ 230,007 $ 98,279 $ 29,043 $ 48,100 $ 15,432 $ 622 $ 744,771

3 unchanged sentences

Substandard — — — — — — — — —

Non-accrual (1) — 76 4 — — — — — 80

Non-accrual loans — — 2 — — — — — 2

Total $ 5,176 $ 8,056 $ 3,884 $ 1,847 $ 1,414 $ 49 $ 1,896 $ — $ 22,322

3 unchanged sentences

Substandard 3,447 4,148 15,629 156 132 750 1,919 124 26,305

Non-accrual (1) 1,789 2,957 13,526 474 21 571 260 — 19,598

Non-accrual loans 1,868 174 629 459 16 492 202 — 3,840

Total $ 233,190 $ 516,166 $ 369,428 $ 187,447 $ 43,623 $ 86,939 $ 124,903 $ 1,510 $ 1,563,206

(1) The majority of non-accrual loans have a substandard risk grade

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

The following table presents the risk categories by class at December 31, 2022 ( superseded by ASU 2016-13)

(in thousands) Commercial,

Agricultural Real Estate

Construction -

Residential Real Estate

Construction -

Commercial Real Estate

Residential Real Estate

Commercial Installment

Consumer Total

At December 31, 2022

The following table presents the recorded investment by risk categories at December 31, 2022:

Amortized Cost Basis by Origination Year and Risk Grades

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total

December 31, 2022

Commercial, Financial, & Agricultural

Pass $ 73,654 $ 40,681 $ 37,994 $ 6,479 $ 4,050 $ 2,718 $ 63,869 $ 504 $ 229,949

1 unchanged sentence

Substandard 5,014 58 24 — 152 — 1,820 — 7,068

Performing TDRs (1) 174 — — 1,178 309 — 1,661

Non-accrual loans — — — 26 95 — — — 121

Total $ 79,896 $ 41,035 $ 38,774 $ 6,655 $ 4,345 $ 2,969 $ 68,844 $ 2,031 $ 244,549

(1) The majority of non-accrual and performing TDRs loans have a substandard risk grade

Real Estate Construction - Residential

Pass $ 29,289 $ 1,248 $ 769 $ 449 $ — $ — $ 340 $ — $ 32,095

Watch — — — — — — — — —

Substandard — — — — — — — — —

Non-accrual loans — — — — — — — — —

Total $ 29,289 $ 1,248 $ 769 $ 449 $ — $ — $ 340 $ — $ 32,095

Real Estate Construction - Commercial

Pass $ 60,318 $ 67,977 $ 2,249 $ 78 $ 676 $ 656 $ 1,831 $ — $ 133,785

Watch 2,239 321 — — — 14 103 — 2,677

Substandard 686 — — — — — — — 686

Non-accrual loans — — — — — 87 — — 87

Total $ 63,243 $ 68,298 $ 2,249 $ 78 $ 676 $ 757 $ 1,934 $ — $ 137,235

Real Estate Mortgage - Residential

Pass $ 147,130 $ 68,380 $ 53,322 $ 8,013 $ 4,981 $ 25,590 $ 45,182 $ 523 $ 353,121

Watch 1,226 429 1,511 145 215 2,015 — — 5,541

Substandard — 136 820 — 10 712 — — 1,678

Non-accrual loans 59 — 144 — — 386 96 — 685

Total $ 148,415 $ 68,945 $ 55,797 $ 8,158 $ 5,206 $ 28,703 $ 45,278 $ 523 $ 361,025

Real Estate Mortgage - Commercial

Pass $ 248,529 $ 203,033 $ 99,989 $ 31,341 $ 21,354 $ 38,317 $ 10,868 $ 121 $ 653,552

Watch 14,049 14,029 16,863 842 897 811 149 401 48,041

Substandard 260 2,673 — 48 — 306 — 48 3,335

Non-accrual loans 4,621 13,180 — — — — — — 17,801

Total $ 267,459 $ 232,915 $ 116,852 $ 32,231 $ 22,251 $ 39,434 $ 11,017 $ 570 $ 722,729

Installment and other Consumer

Pass $ 11,170 $ 5,183 $ 2,891 $ 2,016 $ 459 $ 88 $ 1,806 $ — $ 23,613

Watch — — — — — — — — —

Substandard — — — — — — — — —

Non-accrual loans 2 3 — 1 — — — — 6

Total $ 11,172 $ 5,186 $ 2,891 $ 2,017 $ 459 $ 88 $ 1,806 $ — $ 23,619

Total Portfolio

Pass $ 570,090 $ 386,502 $ 197,214 $ 48,376 $ 31,520 $ 67,369 $ 123,896 $ 1,148 $ 1,426,115

Watch 18,742 15,075 19,130 1,137 1,160 3,091 3,407 1,928 63,670

Substandard 5,960 2,867 844 48 162 1,018 1,820 48 12,767

Non-accrual loans 4,682 13,183 144 27 95 473 96 — 18,700

Total $ 599,474 $ 417,627 $ 217,332 $ 49,588 $ 32,937 $ 71,951 $ 129,219 $ 3,124 $ 1,521,252

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Delinquent and Non-Accrual Loans

7 unchanged sentences

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 tables present the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2023 and December 31, 2022:

The following tables present the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of June 30, 2023 and December 31, 2022:

(in thousands) Non-accrual with no Allowance Non-accrual with Allowance Total Non-accrual (1) 90 Days Past Due And Still Accruing Total Non-performing Loans

March 31, 2023

June 30, 2023

Commercial, Financial, and Agricultural $ 49 $ 113 $ 162 $ — $ 162

Real estate construction − residential — 94 94 — 94

Real estate construction − commercial — 78 78 — 78

10 unchanged sentences

Total $ 17,664 $ 1,036 $ 18,700 $ 1 $ 18,701

(1) Includes $ 0.3 million of restructured loans as of both March 31, 2023 and December 31, 2022.

(1) Includes $ 0.3 million of restructured loans as of both June 30, 2023 and December 31, 2022.

No material amount of interest income was recognized on non-accrual loans during the three and six months ended June 30, 2023.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

No material amount of interest income was recognized on non-accrual loans during the three months ended March 31, 2023.

The following table provides aging information for the Company’s past due and non-accrual loans at March 31, 2023 and December 31, 2022:

The following table provides aging information for the Company’s past due and non-accrual loans at June 30, 2023 and December 31, 2022.

(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, 2023

June 30, 2023

Commercial, Financial, and Agricultural $ 232,864 $ 3 $ — $ 162 $ 233,029

18 unchanged sentences

If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral-dependent and evaluated as part of the allowance for credit losses as described above in the Allowance for Credit Losses section of this note.

For the three months ended March 31, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.

For the three and six months ended June 30, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.

The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default.

Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term.

For the three-month period ended March 31, 2023, the Company did not modify any loans made to borrowers experiencing financial difficulty.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

The following table presents information regarding modifications to borrowers experiencing financial difficulty as of March 31, 2023:

March 31, 2023

The following table presents information regarding modifications to borrowers experiencing financial difficulty as of June 30, 2023:

June 30, 2023

(Dollars in thousands) Number of contracts Recorded Investment % to Total Loans

1 unchanged sentence

Real estate mortgage − residential 9 1,266 0.08 %

9 1,336 0.09 %

Real estate mortgage − commercial 3 325 0.02 %

3 unchanged sentences

See “Note 1 Summary of Significant Accounting Policies” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for more information on our TDR policy, and “Note 1, Summary of Significant Accounting Policies” in this report for more information on the adoption of ASU 2022-02.

At March 31, 2022, loans classified as TDRs totaled $ 2.2 million, of which $ 0.5 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.

Both performing and non-performing TDRs are considered impaired loans.

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 related to TDRs were allocated to the allowance for loan losses at March 31, 2022.

For the three months ended March 31, 2022, the Company had no new TDRs.

For the three months ended March 31, 2022, the Company had no TDRs for which there was a payment default within the 12 months following the restructure date.

Accordingly, specific reserves of $ 167,000 related to TDRs were allocated to the allowance for loan losses at June 30, 2022.

For the three and six months ended June 30, 2022, the Company had one new loan meeting the TDR criteria.

For the three and six months ended June 30, 2022, the Company had no TDRs for which there was a payment default within the 12 months following the restructure date.

Loans Held for Sale

2 unchanged sentences

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

At March 31, 2023, the carrying amount of these loans was $ 1.8 million compared to $ 0.6 million at December 31, 2022.

At June 30, 2023, the carrying amount of these loans was $ 2.1 million compared to $ 0.6 million at December 31, 2022.

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

March 31, December 31,

June 30, December 31,

(in thousands) 2023 2022

2 unchanged sentences

Real estate mortgage - commercial 707 1,186

Repossessed assets 44 —

Total $ 10,924 $ 11,459

1 unchanged sentence

Total other real estate owned and repossessed assets $ 6,429 $ 8,795

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

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

Three Months Ended March 31,

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

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

(in thousands) 2023 2022 2023 2022

2 unchanged sentences

Proceeds from sales ( 70 ) ( 625 ) ( 627 ) ( 1,348 )

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

Net gain on sales 39 ( 6 ) 48 2

Total other real estate owned $ 10,911 $ 12,669

Total other real estate owned and repossessed assets 10,924 11,819 $ 10,924 $ 11,819

Less valuation allowance for other real estate owned ( 4,495 ) ( 2,664 ) ( 4,495 ) ( 2,664 )

Balance at end of period $ 6,429 $ 9,155 $ 6,429 $ 9,155

At March 31, 2023, $ 0.1 million of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to no such consumer mortgage loans at December 31, 2022.

At June 30, 2023 and December 31, 2022, there were no consumer mortgage loans secured by residential real estate properties in the process of foreclosure.

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) 2023 2022 2023 2022

7 unchanged sentences

(4) Investment Securities

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2023 and December 31, 2022 were as follows:

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2023 and December 31, 2022 were as follows:

Gross Unrealized

(in thousands) Total Amortized Cost Gains Losses Fair Value

March 31, 2023

June 30, 2023

Treasury $ 5,160 $ — $ ( 48 ) $ 5,112

20 unchanged sentences

government-sponsored enterprises.

Debt securities with carrying values aggregating approximately $ 205.3 million and $ 111.6 million at March 31, 2023 and December 31, 2022, 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 $ 120.5 million and $ 111.6 million at June 30, 2023 and December 31, 2022, 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, 2023, by contractual maturity, are shown below.

Accrued interest on investments totaled $ 1.4 million and $ 1.5 million at March 31, 2023 and December 31, 2022, respectively, and is included in the accrued interest receivable on the Company's Consolidated Balance Sheets.

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2023, by contractual maturity are shown below.

Accrued interest on investments totaled $ 1.6 million and $ 1.5 million at June 30, 2023 and December 31, 2022, respectively, and is included in the accrued interest receivable on the Company's consolidated balance sheets.

The total amount of accrued interest is excluded from the amortized cost basis of investments presented below.

12 unchanged sentences

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

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, 2023 and December 31, 2022 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, 2023 and December 31, 2022 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

March 31, 2023

June 30, 2023

Treasury $ 2,725 $ ( 15 ) $ 1,394 $ ( 33 ) $ 4,119 $ ( 48 )

16 unchanged sentences

Total $ 129,820 $ ( 19,994 ) $ 119,799 $ ( 26,415 ) $ 249,619 $ ( 46,409 )

The total available-for-sale portfolio consisted of approximately 444 securities at March 31, 2023.

The portfolio included 426 securities having an aggregate fair value of $ 247.9 million that were in a loss position at March 31, 2023.

Securities identified as which had been in a loss position for 12 months or longer totaled $ 231.5 million at fair value at March 31, 2023.

The $ 40.8 million aggregate unrealized loss included in accumulated other comprehensive loss at March 31, 2023 was caused by interest rate fluctuations.

As of March 31, 2023, there was no allowance for credit loss related to the Company's available-for-sale securities as the decline in fair value did not result from credit issues.

The total available-for-sale portfolio consisted of approximately 442 securities at June 30, 2023.

The portfolio included 435 securities having an aggregate fair value of $ 247.5 million that were in a loss position at June 30, 2023.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 227.5 million at fair value at June 30, 2023.

The $ 44.7 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2023 was caused by interest rate fluctuations.

The total available-for-sale portfolio consisted of approximately 439 securities at December 31, 2022.

2 unchanged sentences

The $ 46.4 million aggregate unrealized loss included in accumulated other comprehensive loss at December 31, 2022 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 and December 31, 2022.

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, 2023 and December 31, 2022, 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) 2023 2022 2023 2022

Investment securities gains (losses), net

Available-for-sale securities:

Gross realized gains $ — $ — $ — $ —

6 unchanged sentences

Mortgage Servicing Rights

At March 31, 2023, the Company was servicing approximately $ 235.2 million of loans sold to the secondary market compared to $ 240.5 million at December 31, 2022, and $ 261.5 million at March 31, 2022.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.2 million for the three months ended March 31, 2023 compared to $ 0.3 million for the three months ended March 31, 2022.

At June 30, 2023, the Company was servicing approximately $ 231.1 million of loans sold to the secondary market compared to $ 240.5 million at December 31, 2022, and $ 252.3 million at June 30, 2022.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2023, respectively, compared to $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2022, 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) 2023 2022 2023 2022

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, 2023 and 2022, 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, 2023 and 2022, respectively:

Six Months Ended June 30,

Weighted average constant prepayment rate 6.74 % 7.48 %

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, 2023 December 31, 2022

(aggregate amounts in thousands) June 30, 2023 December 31, 2022

Time deposits with balances > $250,000 $ 112,915 $ 94,859

1 unchanged sentence

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Federal funds purchased $ — $ —

9 unchanged sentences

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

March 31, 2023

June 30, 2023

government-sponsored enterprises $ 5,503 $ — $ — $ 5,503

3 unchanged sentences

Total $ 5,187 $ — $ — $ 5,187

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

As of March 31, 2023, operating right of use (ROU) assets and liabilities were $ 1.4 million and $ 1.5 million, respectively.

As of March 31, 2023, the weighted-average remaining lease term on these operating leases was approximately 5.6 years and the weighted-average discount rate used to measure the lease liabilities was approximately 4.0 %.

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, 2023, operating right of use (ROU) assets and liabilities were $ 1.3 million and $ 1.4 million, respectively.

As of June 30, 2023, the weighted-average remaining lease term on these operating leases was approximately 5.4 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.

2 unchanged sentences

Operating lease ROU assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease.

ROU assets and

ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the lease commencement date.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the lease commencement date.

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 for the three months ended March 31, 2023 compared to $ 94,000 for the three months ended March 31, 2022.

The operating lease cost was $ 93,000 and $ 186,000 for the three and six months ended June 30, 2023, respectively, compared to $ 93,000 and $ 187,000 for the three and six months ended June 30, 2022, respectively.

At adoption of 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 $ 28,000 for the three months ended March 31, 2023 compared to $ 24,000 for the three months ended March 31, 2022.

Operating lease expense for these leases was $ 34,000 and $ 62,000 for the three and six months ended June 30, 2023, respectively, compared to $ 20,000 and $ 44,000 for the three and six months ended June 30, 2022, respectively.

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

2 unchanged sentences

(in thousands)

2023 (excluding 3 months ended March 31, 2023)

2023 (excluding 6 months ended June 30, 2023)

Thereafter 308

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 % for the three months ended March 31, 2023 compared to 18.8 % for the three months ended March 31, 2022.

The effective tax rate for each of the three months ended March 31, 2023 and 2022, 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 17.2 % and 17.6 % for the three and six months ended June 30, 2023, respectively, compared to 17.8 % and 18.4 % for the three and six months ended June 30, 2022, respectively.

The effective tax rate for each of the three and six months ended June 30, 2023 and 2022, 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 $ 13,000 benefit associated with a historic tax credit investment for the three months ended March 31, 2023.

Included in the effective tax rate is a $ 13,000 and $ 26,000 benefit associated with a historic tax credit investment for the three and six months ended June 30, 2023, respectively.

The investment is expected to generate a $ 0.3 million 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, 2023.

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, 2023 and 2022, respectively, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.

For each of the six months ended June 30, 2023 and 2022, 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

(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 three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

(10) Stockholders’ Equity and Accumulated Other Comprehensive (Loss) Income

Equity-Based Compensation Plan

The following table summarizes the status of the Company's restricted share units (RSUs) for the six months ended June 30, 2023:

(in thousands, except per share amounts) Quantity Weighted-Average Grant Date Fair Value Per share

Non-vested at January 1, 2023 — $ —

Granted 12,277 18.33

Forfeited — —

Non-vested at June 30, 2023 12,277 $ 18.33

Accumulated Other Comprehensive (Loss) Income

The following table summarizes the change in the components of the Company’s accumulated other comprehensive (loss) income for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30, 2023

(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 $ ( 35,280 ) $ 4,690 $ ( 30,590 )

Three Months Ended March 31, 2022

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 )

(1) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in investment securities gains (losses), net in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost.

(1) The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in investment securities gains (losses), net in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in the computation of net periodic pension cost.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(11) Employee Benefit Plans

1 unchanged sentence

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) 2023 2022 2023 2022

3 unchanged sentences

Periodic pension cost 247 367 531 804

Other 8 4 19 12

Total employee benefits $ 1,290 $ 1,608 $ 2,810 $ 3,339

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.

AND SUBSIDIARIES

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 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 $ 1.7 million as of March 31, 2023, and the expense was $ 93,000 for both the three months ended March 31, 2023 and 2022 and was recognized over the required service period.

The accrued liability relating to the SERP was $ 1.7 million as of June 30, 2023, and the expense for the three and six months ended June 30, 2023 was $ 9,600 and $ 19,300 , respectively, compared to $ 93,000 and $ 186,000 for the three and six months ended June 30, 2022, 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.

5 unchanged sentences

Effective July 1, 2017, the Company amended the pension plan to effectuate a “soft freeze” such that no individual hired (or rehired in the case of a former employee) by the Company after September 30, 2017, whether or not such individual is or was a vested member in the plan, will be eligible to be an active member and be entitled to accrue any benefits under the plan.

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income (Loss)

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive (Loss) Income

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) 2023 2022 2023 2022

3 unchanged sentences

Expected administrative expenses 29 29 57 59

Amortization of prior service cost (a) — —

Amortization of unrecognized net gain (a) ( 142 ) —

Amortization of unrecognized net loss (a) ( 178 ) — ( 320 ) —

Net periodic pension cost $ ( 126 ) $ 75 $ ( 165 ) $ 250

2 unchanged sentences

Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains.

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.

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 (loss) 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.

1 unchanged sentence

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(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) 2023 2022 2023 2022

Basic earnings per share:

Basic and Diluted Earnings Per Share:

Net income available to shareholders $ 2,549 $ 4,489 $ 5,820 $ 11,098

Average shares outstanding 6,768,581 6,864,823

Basic weighted-average shares outstanding 7,039,323 7,039,323 7,039,323 7,087,178

Effect of dilutive equity-based awards 520 — — —

Diluted weighted-average shares outstanding 7,039,843 7,039,323 7,039,323 7,087,178

Basic earnings per share $ 0.36 $ 0.64 $ 0.83 $ 1.57

Diluted earnings per share $ 0.36 $ 0.64 $ 0.83 $ 1.57

The dilutive effect of restricted share units is reflected in diluted earnings per share unless the impact is anti-dilutive, by application of the treasury stock method.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Repurchase Program

1 unchanged sentence

The Company did not repurchase any shares during the current quarter.

As of March 31, 2023, $ 2.1 million remained available for share repurchases pursuant to the plan.

As of June 30, 2023, $ 2.1 million remained available for share repurchases pursuant to the plan.

(13) Fair Value Measurements

13 unchanged sentences

In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the consolidated financial statements.

Nonfinancial assets measured at fair value on a non-recurring basis would include foreclosed real estate,

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred.

Nonfinancial assets measured at fair value on a non-recurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred.

Valuation Methods for Assets and Liabilities Measured at Fair Value on a Recurring Basis

8 unchanged sentences

Equity securities that are not actively traded are classified in Level 2.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Equity securities with readily determinable fair values are recorded at fair value, with changes in fair value reflected in earnings.

20 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)

March 31, 2023

June 30, 2023

Treasury $ 5,112 $ 5,112 $ — $ —

37 unchanged sentences

Mortgage Servicing Rights Interest Rate Lock Commitments

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2023 2022 2023 2022

19 unchanged sentences

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

As of March 31, 2023, the Company identified $ 18.4 million in collateral-dependent loans that required $ 0.1 million allowance for credit losses.

Related to these loans, there were $ 5,000 in charge-offs recorded during the three months ended March 31, 2023.

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

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

As of June 30, 2023, the Company identified $ 2.9 million in collateral-dependent loans that required $ 25,000 specific allowance for credit losses.

Related to these loans, there were $ 36,000 and $ 41,000 in charge-offs recorded during the three and six months ended June 30, 2023, respectively.

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

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.

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 March 31, Total Gains (Losses)*

March 31, 2023

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

June 30, 2023

Collateral dependent impaired loans:

2 unchanged sentences

Real estate mortgage - commercial 2,660 — — 2,660 ( 20 ) ( 25 )

Installment and other consumer — — — — ( 16 ) ( 16 )

Total $ 2,830 $ — $ — $ 2,830 $ ( 36 ) $ ( 41 )

Other real estate and repossessed assets $ 6,429 $ — $ — $ 6,429 $ ( 1,792 ) $ ( 1,783 )

March 31, 2022

June 30, 2022

Collateral dependent impaired loans:

34 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, 2023 and December 31, 2022 is as follows:

March 31, 2023

A summary of the carrying amounts and fair values of the Company’s financial instruments at June 30, 2023 and December 31, 2022 is as follows:

June 30, 2023

Fair Value Measurements

March 31, 2023 Quoted Prices in Active Markets for Identical Assets Other Observable Inputs Net Significant Unobservable Inputs

June 30, 2023 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)

66 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, 2023, no amounts have been accrued for any estimated losses for these financial instruments.

The allowance for credit losses associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets.

At June 30, 2023, the allowance for credit losses for unfunded commitments was $ 1.1 million.

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

(in thousands) March 31, 2023 December 31, 2022

(in thousands) June 30, 2023 December 31, 2022

Commitments to extend credit $ 356,097 $ 388,264

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 ranged from one month to five years at March 31, 2023.

The approximate remaining term of standby letters of credit ranged from one month to five years at June 30, 2023.

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