What changed in this filing

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Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 213 added, 230 removed, 943 unchanged (32% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands, except per share data) June 30, 2024 December 31, 2023

(dollars in thousands, except per share data)

September 30, 2024 December 31, 2023

Cash and due from banks $ 19,411 $ 15,675

7 unchanged sentences

Net loans 1,444,814 1,515,403

Loans held for sale, at lower of cost or fair value 1,368 3,884

Loans held for sale

Premises and equipment - net 31,324 32,047

Other real estate owned - net 4,385 1,744

Accrued interest receivable 7,981 8,661

Cash surrender value of bank-owned life insurance 38,511 2,624

Other assets 20,280 22,495

Accrued interest receivable and other assets 26,177 31,156

Total assets $ 1,809,769 $ 1,875,350

2 unchanged sentences

Savings, interest checking and money market 811,954 846,452

Time deposits $250,000 and over 101,025 108,147

Other time deposits 243,424 214,004

Time deposits 300,911 322,151

Total deposits 1,503,504 1,570,844

2 unchanged sentences

Operating lease liabilities 1,758 1,213

Accrued interest payable 2,113 1,772

Other liabilities 7,510 8,950

Accrued interest payable and other liabilities 12,022 10,722

Total liabilities 1,663,295 1,739,265

14 unchanged sentences

Consolidated Statements of Income (unaudited)

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

(In thousands, except per share data) 2024 2023 2024 2023

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

(dollars in thousands, except per share data)

2024 2023 2024 2023

INTEREST INCOME

4 unchanged sentences

Nontaxable 594 618 1,782 1,876

Federal funds sold — 1 — 1

Other interest-bearing deposits 452 102 1,263 640

Federal funds sold and Other interest-bearing deposits 469 85 1,732 726

Dividends on other investments 141 121 428 321

3 unchanged sentences

Savings, interest checking and money market 4,910 4,466 14,034 11,961

Time deposit accounts $250,000 and over 765 1,525 1,534 2,676

Time deposits 2,834 2,173 8,744 6,208

13 unchanged sentences

Trust department income 341 283 960 820

Real estate servicing (costs) fees, net ( 51 ) 99 ( 48 ) 292

Real estate servicing fees, net 81 125 33 417

Gain on sale of mortgage loans, net 111 851 786 2,014

2 unchanged sentences

Total non-interest income 3,783 606 10,798 5,384

Investment securities (losses) gains, net ( 15 ) 7 ( 15 ) 15

Investment securities gains (losses), net 8 3 ( 7 ) 18

NON-INTEREST EXPENSE

18 unchanged sentences

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

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

(In thousands) 2024 2023 2024 2023

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

(dollars in thousands)

2024 2023 2024 2023

Net income $ 4,574 $ 2,579 $ 13,659 $ 8,399

1 unchanged sentence

Investment securities available-for-sale:

Change in unrealized (losses) gains on investment securities available-for-sale, net of tax ( 983 ) ( 3,136 ) ( 3,198 ) 1,377

Change in unrealized gains (losses) on investment securities available-for-sale, net of tax 5,174 ( 9,325 ) 1,976 ( 7,948 )

Defined benefit pension plans:

Amortization of net gains included in net periodic pension cost, net of tax ( 136 ) ( 126 ) ( 409 ) ( 379 )

Total other comprehensive (loss) income ( 1,130 ) ( 3,277 ) ( 3,471 ) 1,124

Total other comprehensive income (loss) 5,038 ( 9,451 ) 1,567 ( 8,327 )

Total comprehensive income (loss) $ 9,612 $ ( 6,872 ) $ 15,226 $ 72

3 unchanged sentences

Consolidated Statements of Stockholders’ Equity (unaudited)

Three Months Ended June 30, 2024 and 2023

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

Balance, March 31, 2024 $ 7,555 $ 76,847 $ 79,725 $ ( 16,103 ) $ ( 11,404 ) $ 136,620

Three Months Ended September 30, 2024 and 2023

(dollars in thousands, except per share data)

Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity

Balance, June 30, 2024 $ 7,555 $ 76,808 $ 83,026 $ ( 17,233 ) $ ( 11,915 ) $ 138,241

Net income — — 4,574 — — 4,574

Other comprehensive loss — — — ( 1,130 ) — ( 1,130 )

Other comprehensive income — — — 5,038 — 5,038

Share-based compensation expense — 48 — — — 48

Purchase of treasury stock — — — — ( 100 ) ( 100 )

Restricted share unit vesting and taxes paid related to net share settlement — ( 81 ) — — 81 —

Cash dividends declared, common stock ($ 0.19 per share)

— — ( 1,327 ) — — ( 1,327 )

Balance, June 30, 2024

Balance, September 30, 2024

$ 7,555 $ 76,856 $ 86,273 $ ( 12,195 ) $ ( 12,015 ) $ 146,474

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

Balance, June 30, 2023 $ 7,284 $ 77,047 $ 83,722 $ ( 30,590 ) $ ( 10,990 ) $ 126,473

Net income — — 2,579 — — 2,579

3 unchanged sentences

— — ( 1,197 ) — — ( 1,197 )

Balance, June 30, 2023

Balance, September 30, 2023

$ 7,555 $ 76,776 $ 85,104 $ ( 40,041 ) $ ( 10,990 ) $ 118,404

Six Months Ended June 30, 2024 and 2023

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

Nine Months Ended September 30, 2024 and 2023

(dollars 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, 2023

1 unchanged sentence

Net income — — 13,659 — — 13,659

Other comprehensive loss — — — ( 3,471 ) — ( 3,471 )

Other comprehensive income — — — 1,567 — 1,567

Share-based compensation expense — 119 — — — 119

3 unchanged sentences

— — ( 3,850 ) — — ( 3,850 )

Balance, June 30, 2024

Balance, September 30, 2024

$ 7,555 $ 76,856 $ 86,273 $ ( 12,195 ) $ ( 12,015 ) $ 146,474

4 unchanged sentences

Net income — — 8,399 — — 8,399

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

Other comprehensive loss — — — ( 8,327 ) — ( 8,327 )

Stock dividend 271 5,734 ( 6,005 ) — — —

1 unchanged sentence

— — ( 3,498 ) — — ( 3,498 )

Balance, June 30, 2023

Balance, September 30, 2023

$ 7,555 $ 76,776 $ 85,104 $ ( 40,041 ) $ ( 10,990 ) $ 118,404

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited)

Six Months Ended June 30,

(In thousands) 2024 2023

Nine Months Ended September 30,

(dollars in thousands)

Cash flows from operating activities:

10 unchanged sentences

Share-based compensation expense 119 —

Decrease in accrued interest receivable 680 283

Increase in cash surrender value - life insurance ( 887 ) ( 43 )

Decrease in other assets 2,817 282

Decrease (increase) in other assets 4,053 ( 1,134 )

Decrease in operating lease liabilities ( 178 ) ( 238 )

Increase in accrued interest payable 341 577

Decrease in other liabilities ( 1,484 ) ( 1,333 )

Increase in other liabilities 1,369 146

Origination of mortgage loans held for sale ( 40,640 ) ( 84,821 )

15 unchanged sentences

Proceeds from sales of other real estate and repossessed assets 3,282 681

Net cash used in investing activities ( 254 ) ( 42,344 )

Net cash provided by (used in) investing activities 19,758 ( 28,030 )

Cash flows from financing activities:

1 unchanged sentence

Net decrease in interest-bearing transaction accounts ( 34,498 ) ( 121,011 )

Net increase in time deposits 22,298 38,202

Net (decrease) increase in time deposits ( 21,240 ) 97,635

Net increase in federal funds purchased and securities sold under agreements to repurchase — 1,009

11 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) continued

Six Months Ended June 30,

(In thousands) 2024 2023

Nine Months Ended September 30,

(dollars in thousands)

Supplemental disclosures of cash flow information:

3 unchanged sentences

Non-cash investing and financing activities:

Other real estate and repossessed assets acquired in settlement of loans $ 2,730 $ 44

Stock dividends $ — $ 6,005

Transfer of loans to other real estate and repossessed assets

Right of use assets obtained in exchange for new operating lease liabilities $ 723 $ —

Dividends declared not paid - common stock $ 1,327 $ 1,197

Stock dividends $ — $ 6,005

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

17 unchanged sentences

(2) Loans and Allowance for Credit Losses

Major classifications within the Company’s held for investment loan portfolio at June 30, 2024 and December 31, 2023 were as follows:

(in thousands) June 30, 2024 December 31, 2023

Major classifications within the Company’s loans held for investment portfolio at September 30, 2024 and December 31, 2023 were as follows:

(dollars in thousands)

September 30, 2024 December 31, 2023

Commercial, financial, and agricultural $ 202,341 $ 226,275

8 unchanged sentences

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

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

Accrued interest on loans totaled $ 6.4 million and $ 7.2 million at June 30, 2024 and December 31, 2023, respectively, and is included in the accrued interest receivable on the Company's consolidated balance sheets.

Accrued interest on loans totaled $ 6.8 million and $ 7.2 million at September 30, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable and other assets 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 June 30, 2024, loans of $ 709.0 million were pledged to the Federal Home Loan Bank ("FHLB") as collateral for borrowings and letters of credit.

At September 30, 2024, loans of $ 720.7 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

HAWTHORN BANCSHARES, INC.

41 unchanged sentences

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

Three Months Ended June 30, 2024

(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

Three Months Ended September 30, 2024

(dollars 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

Allowance for Credit Losses on Loans

6 unchanged sentences

Balance at beginning of period $ 91 $ 126 $ 451 $ 110 $ 112 $ 1 $ — $ 891

Provision for credit losses on unfunded commitments ( 1 ) 12 149 7 12 — ( 4 ) 175

Provision for (release of) credit losses on unfunded commitments 13 ( 27 ) ( 103 ) ( 3 ) 27 — — ( 93 )

Balance at end of period $ 104 $ 99 $ 348 $ 107 $ 139 $ 1 $ — $ 798

Allowance for credit losses on loans and liability for unfunded commitments $ 1,734 $ 685 $ 2,172 $ 5,389 $ 12,773 $ 147 $ ( 165 ) $ 22,735

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(dollars 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

Allowance for Credit Losses on Loans

12 unchanged sentences

Notes to the Consolidated Financial Statements

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Allowance for Credit Losses on Loans

6 unchanged sentences

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

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

Provision for (release of) credit losses on unfunded commitments 9 ( 68 ) ( 110 ) ( 4 ) ( 1 ) — ( 16 ) ( 190 )

Balance at end of period $ 121 $ 287 $ 304 $ 104 $ 125 $ 1 $ 5 $ 947

Allowance for credit losses on loans and liability for unfunded commitments $ 2,057 $ 1,160 $ 3,569 $ 5,418 $ 10,858 $ 245 $ 102 $ 23,409

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(dollars in thousands)

Allowance for Credit Losses on Loans

24 unchanged sentences

There have been no significant changes to the types of collateral securing the Company's collateral dependent loans since December 31, 2023.

The amortized cost of collateral-dependent loans by class as of June 30, 2024 and December 31, 2023 was as follows:

The amortized cost of collateral-dependent loans by class as of September 30, 2024 and December 31, 2023 was as follows:

Collateral Type

(in thousands) Real Estate Other Allowance Allocated

June 30, 2024

(dollars in thousands)

Real Estate Other Allowance Allocated

September 30, 2024

Commercial, financial, and agricultural $ — $ 1,240 $ 124

21 unchanged sentences

Real estate loans secured by one-to-four family residential properties are exempt from these non-accrual guidelines.

These loans are placed on non-accrual status after they become 120 days past due.

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

These loans are placed on non-accrual status after they become 120 days past due (The majority of the Company's 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 recorded investment by risk categories at June 30, 2024:

The following table presents the recorded investment by risk categories at September 30, 2024:

Amortized Cost Basis by Origination Year and Risk Grades

(in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total

June 30, 2024

(dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total

September 30, 2024

Commercial, Financial, & Agricultural

14 unchanged sentences

Watch 316 125 14 — — — — — 455

Substandard — 75 — — — — — — 75

Non-accrual loans — — — — — 55 — — 55

35 unchanged sentences

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

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

December 31, 2023

55 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 table presents 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, 2024 and December 31, 2023:

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

June 30, 2024

The following table presents the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of September 30, 2024 and December 31, 2023:

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

September 30, 2024

Commercial, Financial, and Agricultural $ 474 $ 1,405 $ 1,879 $ — $ 1,879

13 unchanged sentences

Total $ 2,368 $ 3,926 $ 6,294 $ 119 $ 6,413

No material amount of interest income was recognized on non-accrual loans during the three and six months ended June 30, 2024.

No material amount of interest income was recognized on non-accrual loans during the three and nine months ended September 30, 2024.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

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, 2024 and December 31, 2023.

(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, 2024

The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 2024 and December 31, 2023.

(dollars 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

September 30, 2024

Commercial, Financial, and Agricultural $ 200,451 $ 11 $ — $ 1,879 $ 202,341

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 and six months ended June 30, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty.

For the three and nine months ended September 30, 2024, 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.

2 unchanged sentences

The Company designates certain long-term fixed rate personal real estate loans as held for sale.

These loans are initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income.

Prior to September 30, 2024, these loans were initially measured at fair value under the fair value option election with subsequent changes in fair value recognized in mortgage banking income.

As of September 30, 2024, loans held for sale are being carried at the lower of cost or estimated fair value.

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

At June 30, 2024, the carrying amount of these loans was $ 1.4 million compared to $ 3.9 million at December 31, 2023.

At September 30, 2024, the carrying amount of these loans was $ 0.3 million compared to $ 3.9 million at December 31, 2023.

HAWTHORN BANCSHARES, INC.

2 unchanged sentences

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

June 30, December 31,

(in thousands) 2024 2023

September 30, December 31,

(dollars in thousands)

Commercial $ 98 $ —

7 unchanged sentences

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) 2024 2023 2024 2023

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

(dollars in thousands)

2024 2023 2024 2023

Balance at beginning of period $ 5,369 $ 10,924 $ 7,694 $ 11,459

Additions net of (charge-offs) 2,730 44 2,949 44

760 — 5,181 44

Proceeds from sales — ( 54 ) ( 3,282 ) ( 681 )

4 unchanged sentences

Balance at end of period $ 4,385 $ 3,564 $ 4,385 $ 3,564

At June 30, 2024, there were $ 0.1 million of consumer mortgage loans secured by residential real estate properties in the process of foreclosure compared to $ 0.01 million at December 31, 2023.

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,

(in thousands) 2024 2023 2024 2023

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

(dollars in thousands)

2024 2023 2024 2023

Balance at beginning of period $ 1,744 $ 4,495 $ 5,950 $ 2,664

7 unchanged sentences

(4) Investment Securities

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2024 and December 31, 2023 were as follows:

The amortized cost and fair value of debt securities classified as available-for-sale at September 30, 2024 and December 31, 2023 were as follows:

Gross Unrealized

(in thousands) Total Amortized Cost Gains Losses Fair Value

June 30, 2024

(dollars in thousands)

Total Amortized Cost Gains Losses Fair Value

September 30, 2024

government and federal agency obligations $ 408 $ — $ ( 8 ) $ 400

19 unchanged sentences

government-sponsored enterprises.

Debt securities with carrying values aggregating approximately $ 91.6 million and $ 89.2 million at June 30, 2024 and December 31, 2023, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

There were no proceeds from sales of available-for-sale securities for the three and six months ended June 30, 2024 and 2023.

All gains and losses recognized on equity securities during the three and six months ended June 30, 2024 and 2023 were unrealized.

Debt securities with carrying values aggregating approximately $ 84.9 million and $ 89.2 million at September 30, 2024 and December 31, 2023, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

There were no proceeds from sales of available-for-sale securities for the three and nine months ended September 30, 2024 and 2023.

All gains and losses recognized on equity securities during the three and nine months ended September 30, 2024 and 2023 were unrealized.

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, 2024, by contractual maturity are shown below.

Accrued interest on investments totaled $ 1.5 million and $ 1.4 million at June 30, 2024 and December 31, 2023, 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 September 30, 2024, by contractual maturity are shown below.

Accrued interest on investments was consistent at $ 1.4 million at both September 30, 2024 and December 31, 2023, and is included in accounts receivable and other assets on the Company's consolidated balance sheets.

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

1 unchanged sentence

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

(in thousands) Amortized Cost Fair Value

(dollars in thousands)

Amortized Cost Fair Value

Due in one year or less $ 4,278 $ 4,267

8 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) June 30, 2024 December 31, 2023

(dollars in thousands)

September 30, 2024 December 31, 2023

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, 2024 and December 31, 2023 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, 2024 and December 31, 2023 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, 2024

(dollars in thousands)

Fair Value Unrealized Losses Fair Value Unrealized Losses Total Fair Value Total Unrealized Losses

September 30, 2024

government and federal agency obligations $ — $ — $ 400 $ ( 8 ) $ 400 $ ( 8 )

5 unchanged sentences

Total $ 6,162 $ ( 169 ) $ 152,024 $ ( 25,175 ) $ 158,186 $ ( 25,344 )

(in thousands)

(dollars in thousands)

December 31, 2023

7 unchanged sentences

Total $ 17,428 $ ( 206 ) $ 155,243 $ ( 27,081 ) $ 172,671 $ ( 27,287 )

The total available-for-sale portfolio consisted of approximately 389 securities at June 30, 2024.

The portfolio included 376 securities having an aggregate fair value of $ 175.4 million that were in a loss position at June 30, 2024.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 151.2 million at fair value at June 30, 2024.

The $ 31.3 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2024 was caused by interest rate fluctuations.

The total available-for-sale portfolio consisted of approximately 385 securities at December 31, 2023.

The portfolio included 370 securities having an aggregate fair value of $ 172.7 million that were in a loss position at December 31, 2023.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 155.2 million at fair value at December 31, 2023.

The $ 27.3 million aggregate unrealized loss included in accumulated other comprehensive loss at December 31, 2023 was caused by interest rate fluctuations.

The total available-for-sale portfolio consisted of approximately 394 securities at September 30, 2024.

The portfolio included 356 securities having an aggregate fair value of $ 158.2 million that were in a loss position at September 30, 2024.

Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $ 152.0 million at fair value at September 30, 2024.

The $ 25.3 million aggregate unrealized loss included in accumulated other comprehensive loss at September 30, 2024 was caused by interest rate fluctuations.

The decline in fair value is attributable to changes in interest rates and not credit quality.

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.

In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

The Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

(5) Intangible Assets

1 unchanged sentence

On January 31, 2024, the Company sold its mortgage servicing rights portfolio and all serviced loans transferred to the new servicer on April 30, 2024.

The balance of the servicing portfolio for loans sold to the secondary market was approximately $ 220.7 million at December 31, 2023 and $ 231.1 million at June 30, 2023.

Mortgage loan servicing fees, reported in real estate servicing fees, net, earned on loans sold were $ 0.04 million and $ 0.1 million for the three and six months ended

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

June 30, 2024, respectively, compared to $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2023, respectively.

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

Six Months Ended June 30,

(in thousands) 2024 2023

Nine Months Ended September 30,

(dollars in thousands)

Balance at beginning of period $ 1,738 $ 2,899

11 unchanged sentences

Prior to the fourth quarter of 2023, valuation assumptions were reviewed with a third party specialist.

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs for the periods indicated/as of June 30, 2023:

Six Months Ended June 30,

The following key data and assumptions were used in estimating the fair value of the Company’s MSRs for the periods indicated as of September 30, 2023:

Nine Months Ended September 30,

Weighted average constant prepayment rate NA 6.51 %

3 unchanged sentences

The table below presents 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, 2024 December 31, 2023

(dollars in thousands)

September 30, 2024 December 31, 2023

Time deposits with balances > $250,000 $ 97,776 $ 108,147

1 unchanged sentence

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, 2024, operating right of use (ROU) assets and liabilities were both $ 1.1 million.

As of June 30, 2024, the weighted-average remaining lease term on these operating leases was approximately 4.7 years and the weighted-average discount rate used to measure the lease liabilities was approximately 4.0 %.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

As of September 30, 2024, operating right of use (ROU) assets and liabilities were $ 1.7 million and $ 1.8 million, respectively.

As of September 30, 2024, the weighted-average remaining lease term on these operating leases was approximately 5.9 years and the weighted-average discount rate used to measure the lease liabilities was approximately 4.1 %.

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

1 unchanged sentence

The ROU assets are included in premises and equipment, net on the consolidated balance sheets.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

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.

1 unchanged sentence

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 $ 0.06 million and $ 0.1 million for the three and six months ended June 30, 2024, respectively, compared to $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2023, respectively.

Lease and non-lease components of new lease agreements are accounted for separately.

Lease components include fixed payments such as rent, real estate taxes and insurance costs and non-lease components include common-area maintenance costs.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

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

Operating lease expense for these leases was $ 0.02 million and $ 0.04 million for the three and six months ended June 30, 2024, respectively, compared to $ 0.03 million and $ 0.06 million for the three and six months ended June 30, 2023, respectively.

The operating lease cost was $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2024, respectively, compared to $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2023, respectively.

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

1 unchanged sentence

Operating Lease

(in thousands)

2024 (excluding 6 months ended June 30, 2024)

(dollars in thousands)

2024 remaining

Thereafter 438

2 unchanged sentences

Total lease liabilities, as reported $ 1,758

(8) Income Taxes

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 18.2 % and 18.0 % for the three and six months ended June 30, 2024, respectively, compared to 17.2 % and 17.6 % for the three and six months ended June 30, 2023, respectively.

The effective tax rate for each of the three and six months ended June 30, 2024 and 2023, respectively, is lower than the U.S.

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

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning initiatives in making this assessment.

In management's opinion, the Company will more likely than not realize the benefits of its deferred tax assets and, therefore, has not established a valuation allowance against its deferred tax assets as of June 30, 2024.

Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income of the appropriate character over the periods in which the deferred tax assets are deductible.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

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

For each of the three and six months ended June 30, 2024 and 2023, the Company did not have any uncertain tax provisions, and did not record any related tax liabilities.

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

Accumulated Other Comprehensive (Loss) Income

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, 2024 and 2023:

Six Months Ended June 30, 2024

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

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 nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30, 2024

(dollars in thousands)

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

Balance at beginning of period $ ( 21,461 ) $ 7,699 $ ( 13,762 )

Other comprehensive loss, before reclassifications ( 4,048 ) ( 345 ) ( 4,393 )

Other comprehensive income (loss), before reclassifications 2,501 ( 518 ) 1,983

Amounts reclassified from accumulated other comprehensive income (loss)

Current period other comprehensive loss, before tax ( 4,048 ) ( 345 ) ( 4,393 )

Income tax benefit 850 72 922

Current period other comprehensive loss, net of tax ( 3,198 ) ( 273 ) ( 3,471 )

Current period other comprehensive income (loss), before tax 2,501 ( 518 ) 1,983

Income tax (expense) benefit ( 525 ) 109 ( 416 )

Current period other comprehensive income (loss), net of tax 1,976 ( 409 ) 1,567

Balance at end of period $ ( 19,485 ) $ 7,290 $ ( 12,195 )

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)

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Nine Months Ended September 30, 2023

(dollars in thousands)

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

Balance at beginning of period $ ( 36,657 ) $ 4,943 $ ( 31,714 )

19 unchanged sentences

Subject to certain adjustments, the maximum number of shares of the Company's common stock that may be delivered pursuant to awards under the Equity Plan is 203,000 shares.

Eligible participants under the Equity Plan

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

include all employees, non-employee directors and consultants of the Company or its subsidiaries.

Eligible participants under the Equity Plan include all employees, non-employee directors and consultants of the Company or its subsidiaries.

The Equity Plan is currently administered by the Compensation Committee of the Board of Directors

3 unchanged sentences

The service-based RSUs vest, and shares of common stock are issued, in equal installments on the first, second, and third anniversaries of the date of grant.

The following table summarizes the status of the Company's RSUs for the six months ended June 30, 2024:

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

The following table summarizes the status of the Company's RSUs for the nine months ended September 30, 2024:

(dollars in thousands, except per share amounts)

Quantity Weighted-Average Grant Date Fair Value Per share

Non-vested at January 1, 2024 18,277 $ 20.63

2 unchanged sentences

Forfeited — —

Non-vested at June 30, 2024 25,336 $ 20.20

Non-vested at September 30, 2024 25,336 $ 20.20

The fair value of the RSUs units is determined using the Company’s stock price on the date of grant.

Total share-based compensation expense recognized for the three and six months ended June 30, 2024 for these RSUs was $ 0.04 million and $ 0.1 million, respectively.

No share-based compensation expense was recognized for the three and six months ended June 30, 2023.

Total share-based compensation expense recognized for the three and nine months ended September 30, 2024 for these RSUs was $ 0.05 million and $ 0.1 million, respectively.

No share-based compensation expense was recognized for the three and nine months ended September 30, 2023.

Forfeitures will be recognized as they occur.

At June 30, 2024, there was $ 0.5 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.5 years.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

At September 30, 2024, there was $ 0.4 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.2 years.

(10) 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 June 30, Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

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

(dollars in thousands)

2024 2023 2024 2023

Payroll taxes $ 361 $ 374 $ 1,188 $ 1,228

7 unchanged sentences

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

On November 7, 2018, the Board of Directors of the Company adopted a supplemental executive retirement plan (SERP), effective as of January 1, 2018.

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

The accrued liability relating to the SERP was $ 1.8 million as of June 30, 2024, and the expense for the three and six months ended June 30, 2024 was $ 0.02 million and $ 0.05 million, respectively, compared to $ 0.01 million and $ 0.02 million for the three and six months ended June 30, 2023, respectively, and is recognized over the required service period.

The accrued liability relating to the SERP was $ 1.7 million as of September 30, 2024, and the expense for the three and nine months ended September 30, 2024 was $ 0.02 million and $ 0.07 million, respectively, compared to $ 0.01 million and $ 0.02 million for the three and nine months ended September 30, 2023, 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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

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

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

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

(in thousands) 2024 2023 2024 2023

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

(dollars in thousands)

2024 2023 2024 2023

Service cost - benefits earned during the year $ 236 $ 237 $ 710 $ 710

11 unchanged sentences

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

(11) Earnings per Share

2 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 June 30, Six Months Ended June 30,

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

(dollars in thousands, except per share data) 2024 2023 2024 2023

9 unchanged sentences

Pursuant to the Company's 2019 Repurchase Plan, management is given discretion to determine the number and pricing of the shares to be repurchased, as well as the timing of any such repurchases.

The Company repurchased 51,692 common shares under the repurchase plan during the first six months of 2024 at an average cost of $ 19.46 per share totaling $ 1.0 million.

As of June 30, 2024, $ 4.0 million remained available for share repurchases pursuant to the plan.

The Company repurchased 56,692 common

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

shares under the repurchase plan during the first nine months of 2024 at an average cost of $ 19.51 per share totaling $ 1.1 million.

As of September 30, 2024, $ 3.9 million remained available for share repurchases pursuant to the plan.

(12) Fair Value Measurements

12 unchanged sentences

These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

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.

11 unchanged sentences

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

Equity securities that do not have readily determinable fair values are carried at cost and are periodically assessed for impairment.

Equity securities that do not have readily determinable fair values are carried at cost and are periodically

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

assessed for impairment.

The Company uses Level 1 inputs to value equity securities that are traded in active markets.

7 unchanged sentences

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

As of September 30, 2024, the Company elected not to record the derivatives associated with IRLC due to the reduced volume of loans sold to the secondary market and therefore immateriality of the derivative.

Mortgage Servicing Rights (MSRs)

2 unchanged sentences

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

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

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

The Company classifies its MSRs as Level 3.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

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

The Company classifies its MSRs as Level 3.

Fair Value Measurements

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

June 30, 2024

(dollars in thousands)

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

September 30, 2024

government and federal agency obligations $ 400 $ — $ 400 $ —

5 unchanged sentences

Equity securities 72 72 — —

Interest rate lock commitments 11 — — 11

Forward sale commitments 1 — 1 —

Loans held for sale 315 — 315 —

Total $ 203,679 $ 72 $ 203,607 $ —

Interest rate lock commitments $ 1 $ — $ — $ 1

Forward sale commitments 5 — 5 —

Total $ 6 $ — $ 5 $ 1

December 31, 2023

20 unchanged sentences

Mortgage Servicing Rights Interest Rate Lock Commitments

Six Months Ended June 30,

(in thousands) 2024 2023 2024 2023

Nine Months Ended September 30,

(dollars in thousands)

2024 2023 2024 2023

Balance at beginning of period $ 1,738 $ 2,899 $ 41 $ 2

17 unchanged sentences

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

As of June 30, 2024, the Company identified $ 1.6 million in collateral-dependent loans that required a $ 0.6 million specific allowance for credit losses.

Related to these loans, there were $ 1.9 million in charge-offs recorded in each of the three and six months ended June 30, 2024.

As of June 30, 2023, the Company identified $ 2.9 million in collateral-dependent loans that required a $ 0.03 million specific allowance for credit losses.

Related to these loans, there were $ 0.02 million and $ 0.03 million in charge-offs recorded during the three and six months ended June 30, 2023, respectively.

As of September 30, 2024, the Company identified $ 1.8 million in collateral-dependent loans that required a $ 0.3 million specific allowance for credit losses.

Related to these loans, there were $ 0.4 million and $ 2.3 million in charge-offs recorded during the three and nine months ended September 30, 2024, respectively.

As of September 30, 2023, the Company identified $ 2.6 million in collateral-dependent loans that required a $ 0.02 million specific allowance for credit losses.

Related to these loans, there were $ 3,000 and $ 0.03 million in charge-offs recorded during the three and nine months ended September 30, 2023, 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, 2024

(dollars 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, 2024

Collateral dependent impaired loans:

5 unchanged sentences

Other real estate and repossessed assets $ 4,385 $ — $ — $ 4,385 $ 262 $ 742

June 30, 2023

September 30, 2023

Collateral dependent impaired loans:

Commercial, financial, & agricultural $ 50 $ — $ — $ 50 $ — $ —

Real estate mortgage - residential $ 120 $ — $ — $ 120 $ — $ —

16 unchanged sentences

which is equal to fair value.

Cash Surrender Value - Life Insurance

The fair value of Bank-owned life insurance approximates the carrying amount.

Upon liquidation of these investments, the Company would receive the cash surrender value;

which equals the carrying amount.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

The fair value of deposits with no stated maturity, such as non-interest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand.

6 unchanged sentences

The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

A summary of the carrying amounts and fair values of the Company’s financial instruments at June 30, 2024 and December 31, 2023 is as follows:

June 30, 2024

A summary of the carrying amounts and fair values of the Company’s financial instruments at September 30, 2024 and December 31, 2023 is as follows:

September 30, 2024

Fair Value Measurements

June 30, 2024 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)

September 30, 2024 Quoted Prices in Active Markets for Identical Assets Other Observable Inputs Net Significant Unobservable Inputs

(dollars in thousands)

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

Cash and due from banks $ 19,411 $ 19,411 $ 19,411 $ — $ —

5 unchanged sentences

Loans held for sale 315 315 — 315 —

Cash surrender value - life insurance 38,109 38,109 — 38,109 —

Interest rate lock commitments 11 11 — — 11

Forward sale commitments 1 1 — 1 —

Accrued interest receivable 8,284 8,284 8,284 — —

5 unchanged sentences

Subordinated notes 49,486 40,365 — 40,365 —

Interest rate lock commitments 1 1 — — 1

Forward sale commitments 5 5 — 5 —

Accrued interest payable 1,755 1,755 1,755 — —

5 unchanged sentences

December 31, 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)

(dollars in thousands)

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

Cash and due from banks $ 15,675 $ 15,675 $ 15,675 $ — $ —

4 unchanged sentences

Loans held for sale 3,884 3,884 — 3,884 —

Cash surrender value - life insurance 2,624 2,624 — 2,624 —

Interest rate lock commitments 43 43 — — 43

18 unchanged sentences

The Company issues financial instruments with off-balance-sheet risk in the normal course of business of meeting the financing needs of its customers.

These financial instruments include commitments to extend credit and standby letters of

These financial instruments include commitments to extend credit and standby letters of credit.

These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The Company’s extent of involvement and maximum potential exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by

HAWTHORN BANCSHARES, INC.

1 unchanged sentence

Notes to the Consolidated Financial Statements

These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

the contractual amount of these instruments.

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.

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, 2024, the allowance for credit losses for unfunded commitments was $ 0.9 million.

At September 30, 2024, the allowance for credit losses for unfunded commitments was $ 0.8 million.

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

(in thousands) June 30, 2024 December 31, 2023

(dollars in thousands)

September 30, 2024 December 31, 2023

Commitments to extend credit $ 287,223 $ 286,939

12 unchanged sentences

Interest rate lock commitments are commitments to extend credit to a customer that has an interest rate lock and are considered derivative instruments.

As of September 30, 2024, the Company elected not to record the derivatives associated with IRLCs due to the reduced volume of loans sold to the secondary market.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party.

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 June 30, 2024.

The approximate remaining term of standby letters of credit ranged from one month to five years at September 30, 2024.

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