HAWTHORN BANCSHARES, INC. 10-Q

Item 1. Financial Statements HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (dollars in thousands, except per share data) September 30, 2025 December 31, 2024 (Unaudited) ASSETS Cash and due from banks $ 17,613 $ 23,668 Other interest bearing deposits 82,262 27,326 Cash and cash equivalents 99,875 50,994 Certificates of deposit in other banks 1,000 1,000 Available-for-sale debt securities, at fair value 216,705 218,652 Other investments 9,312 5,149 Loans held for investment 1,514,002 1,466,160 Allowance for credit losses ( 21,904 ) ( 22,044 ) Net loans 1,492,098 1,444,116 Loans held for sale 1,432 — Premises and equipment - net 30,031 31,166 Other real estate owned - net 2,425 1,446 Cash surrender value of bank-owned life insurance 40,058 38,912 Accrued interest receivable and other assets 39,169 33,750 Total assets $ 1,932,105 $ 1,825,185 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand $ 424,437 $ 385,022 Savings, interest checking and money market 788,059 846,339 Time deposits 313,421 301,821 Total deposits 1,525,917 1,533,182 Federal Home Loan Bank advances and other borrowings 177,086 81,525 Subordinated notes 49,486 49,486 Operating lease liabilities 2,787 1,678 Accrued interest payable and other liabilities 11,891 9,767 Total liabilities 1,767,167 1,675,638 Stockholders’ equity: Common stock, $ 1.00 par value, authorized 15,000,000 shares; issued 7,554,893 shares 7,555 7,555 Surplus 76,916 76,857 Retained earnings 103,057 89,542 Accumulated other comprehensive loss, net of tax ( 8,318 ) ( 12,443 ) Treasury stock; 648,925 and 566,268 shares, at cost, respectively ( 14,272 ) ( 11,964 ) Total stockholders’ equity 164,938 149,547 Total liabilities and stockholders’ equity $ 1,932,105 $ 1,825,185 See accompanying notes to the consolidated financial statements (unaudited) . 2 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands, except per share data) 2025 2024 2025 2024 INTEREST INCOME Interest and fees on loans $ 22,635 $ 21,715 $ 65,380 $ 64,979 Interest and fees on loans held for sale 10 13 15 80 Interest on investment securities: Taxable 1,403 887 4,105 2,426 Nontaxable 585 594 1,758 1,782 Federal funds sold and Other interest-bearing deposits 256 469 795 1,732 Dividends on other investments 114 141 319 428 Total interest income 25,003 23,819 72,372 71,427 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 4,036 4,910 12,471 14,034 Time deposits 2,523 2,834 7,409 8,744 Total interest expense on deposits 6,559 7,744 19,880 22,778 Interest on federal funds purchased and securities sold under agreements to repurchase 1 — 2 1 Interest on Federal Home Loan Bank advances 718 759 1,621 2,438 Interest on subordinated notes 860 989 2,568 2,964 Total interest expense on borrowings 1,579 1,748 4,191 5,403 Total interest expense 8,138 9,492 24,071 28,181 Net interest income 16,865 14,327 48,301 43,246 Provision for (release of) credit losses on loans 375 593 ( 66 ) 875 Provision for (release of) credit losses on unfunded commitments — ( 93 ) 50 ( 149 ) Total provision for (release of) credit losses on loans and unfunded commitments 375 500 ( 16 ) 726 Net interest income after provision for (release of) credit losses on loans and unfunded commitments 16,490 13,827 48,317 42,520 NON-INTEREST INCOME Service charges and other fees 928 870 2,781 2,464 Bank card income and fees 1,000 1,037 2,929 3,084 Earnings on bank-owned life insurance 513 520 1,532 1,162 Wealth management revenue 651 422 1,667 1,251 Gain on sale of mortgage loans, net 78 111 320 786 Gains (losses) on other real estate owned, net — 262 ( 156 ) 751 Other 546 561 1,651 1,300 Total non-interest income 3,716 3,783 10,724 10,798 Investment securities gains (losses), net 105 8 102 ( 7 ) NON-INTEREST EXPENSE Salaries and employee benefits 7,207 6,539 20,822 19,993 Occupancy expense, net 931 843 2,814 2,364 Furniture and equipment expense 683 787 2,149 2,266 Processing, network, and bank card expense 1,372 1,480 4,216 4,212 Legal, examination, and professional fees 470 378 1,391 1,713 Advertising and promotion 252 198 624 711 Postage, printing, and supplies 354 215 990 571 Other 1,552 1,554 4,583 4,773 Total non-interest expense 12,821 11,994 37,589 36,603 Income before income taxes 7,490 5,624 21,554 16,708 Income tax expense 1,358 1,050 3,938 3,049 Net income $ 6,132 $ 4,574 $ 17,616 $ 13,659 Basic earnings per share $ 0.89 $ 0.66 $ 2.54 $ 1.95 Diluted earnings per share $ 0.88 $ 0.66 $ 2.53 $ 1.95 See accompanying notes to the consolidated financial statements (unaudited) . 3 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2025 2024 2025 2024 Net income $ 6,132 $ 4,574 $ 17,616 $ 13,659 Other comprehensive income, net of tax Investment securities available-for-sale: Change in unrealized gains on investment securities available-for-sale, net of tax 3,823 5,174 4,881 1,976 Defined benefit pension plans: Amortization of net gains included in net periodic pension income, net of tax ( 252 ) ( 136 ) ( 756 ) ( 409 ) Total other comprehensive income 3,571 5,038 4,125 1,567 Total comprehensive income $ 9,703 $ 9,612 $ 21,741 $ 15,226 See accompanying notes to the consolidated financial statements (unaudited) . 4 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (unaudited) Three Months Ended September 30, 2025 and 2024 (In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity Balance, June 30, 2025 $ 7,555 $ 76,812 $ 98,309 $ ( 11,889 ) $ ( 13,964 ) $ 156,823 Net income — — 6,132 — — 6,132 Other comprehensive income — — — 3,571 — 3,571 Share-based compensation expense — 104 — — — 104 Purchase of treasury stock — — — — ( 308 ) ( 308 ) Cash dividends declared, common stock ($ 0.20 per share) — — ( 1,384 ) — — ( 1,384 ) Balance, September 30, 2025 $ 7,555 $ 76,916 $ 103,057 $ ( 8,318 ) $ ( 14,272 ) $ 164,938 Balance, June 30, 2024 $ 7,555 $ 76,808 $ 83,026 $ ( 17,233 ) $ ( 11,915 ) $ 138,241 Net income — — 4,574 — — 4,574 Other comprehensive income — — — 5,038 — 5,038 Share-based compensation expense — 48 — — — 48 Purchase of treasury stock — — — — ( 100 ) ( 100 ) Cash dividends declared, common stock ($ 0.19 per share) — — ( 1,327 ) — — ( 1,327 ) Balance, September 30, 2024 $ 7,555 $ 76,856 $ 86,273 $ ( 12,195 ) $ ( 12,015 ) $ 146,474 Nine Months Ended September 30, 2025 and 2024 (In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity Balance, December 31, 2024 $ 7,555 $ 76,857 $ 89,542 $ ( 12,443 ) $ ( 11,964 ) $ 149,547 Net income — — 17,616 — — 17,616 Other comprehensive income — — — 4,125 — 4,125 Share-based compensation expense — 281 — — — 281 Purchase of treasury stock — — — — ( 2,530 ) ( 2,530 ) Restricted share unit vesting and taxes paid related to net share settlement — ( 222 ) — — 222 — Cash dividends declared, common stock ($ 0.59 per share) — — ( 4,101 ) — — ( 4,101 ) Balance, September 30, 2025 $ 7,555 $ 76,916 $ 103,057 $ ( 8,318 ) $ ( 14,272 ) $ 164,938 Balance, December 31, 2023 $ 7,555 $ 76,818 $ 76,464 $ ( 13,762 ) $ ( 10,990 ) $ 136,085 Net income — — 13,659 — — 13,659 Other comprehensive income — — — 1,567 — 1,567 Share-based compensation expense — 119 — — — 119 Purchase of treasury stock — — — — ( 1,106 ) ( 1,106 ) Restricted share unit vesting and taxes paid related to net share settlement — ( 81 ) — — 81 — Cash dividends declared, common stock ($ 0.55 per share) — — ( 3,850 ) — — ( 3,850 ) Balance, September 30, 2024 $ 7,555 $ 76,856 $ 86,273 $ ( 12,195 ) $ ( 12,015 ) $ 146,474 See accompanying notes to the consolidated financial statements (unaudited) . 5 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, (In thousands) 2025 2024 Cash flows from operating activities: Net income $ 17,616 $ 13,659 Adjustments to reconcile net income to net cash provided by operating activities: (Release of) provision for credit losses on loans and unfunded commitments ( 16 ) 726 Depreciation expense 1,681 1,413 Net amortization of investment securities, premiums, and discounts 301 618 Investment securities (gains) losses, net ( 102 ) 7 Gain on sales and dispositions of premises and equipment ( 61 ) ( 69 ) Gain on sales and dispositions of other real estate ( 28 ) ( 356 ) Provision for (release of) valuation allowance for other real estate owned 184 ( 386 ) Share-based compensation expense 281 119 Increase in cash surrender value - life insurance ( 1,146 ) ( 887 ) (Increase) decrease in accrued interest receivable and other assets ( 6,556 ) 4,053 Decrease in operating lease liabilities ( 242 ) ( 178 ) Increase in accrued interest payable and other liabilities 1,299 1,369 Origination of mortgage loans held for sale ( 6,223 ) ( 40,640 ) Proceeds from the sale of mortgage loans held for sale 5,111 44,995 Gain on sale of mortgage loans, net ( 320 ) ( 786 ) Net cash provided by operating activities 11,779 23,657 Cash flows from investing activities: Purchase of certificates of deposit in other banks — ( 1,000 ) Purchase of bank-owned life insurance — ( 35,000 ) Net (increase) decrease in loans ( 47,916 ) 66,224 Purchase of available-for-sale debt securities ( 18,777 ) ( 32,919 ) Proceeds from maturities of available-for-sale debt securities 16,715 7,996 Proceeds from calls of available-for-sale debt securities 10,000 12,256 Purchases of FHLB stock ( 48,830 ) ( 792 ) Proceeds from sales of FHLB stock 44,655 1,358 Purchases of premises and equipment ( 1,946 ) ( 2,072 ) Proceeds from sales of premises and equipment 61 425 Proceeds from sales of other real estate and repossessed assets 1,418 3,282 Net cash (used in) provided by investing activities ( 44,620 ) 19,758 Cash flows from financing activities: Net increase (decrease) in demand deposits 39,415 ( 11,602 ) Net decrease in interest bearing transaction accounts ( 58,280 ) ( 34,498 ) Net increase (decrease) in time deposits 11,600 ( 21,240 ) Repayment of FHLB advances and other borrowings ( 35,014 ) ( 21,000 ) Proceeds from FHLB advances and other borrowings 575 10,525 Net increase (decrease) in short term FHLB borrowings 130,000 — Purchase of treasury stock ( 2,530 ) ( 1,106 ) Cash dividends paid - common stock ( 4,044 ) ( 3,720 ) Net cash provided by (used in) financing activities 81,722 ( 82,641 ) Net increase (decrease) in cash and cash equivalents 48,881 ( 39,226 ) Cash and cash equivalents, beginning of period 50,994 93,450 Cash and cash equivalents, end of period $ 99,875 $ 54,224 See accompanying notes to the consolidated financial statements (unaudited). 6 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) continued Nine Months Ended September 30, (In thousands) 2025 2024 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 24,152 $ 28,197 Income taxes 1,518 — Non-cash investing and financing activities: Other real estate and repossessed assets acquired in settlement of loans $ — $ 3,490 Right of use assets obtained in exchange for new operating lease liabilities 1,351 723 Dividends declared not paid - common stock 1,385 1,327 See accompanying notes to the consolidated financial statements (unaudited). 7 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies Hawthorn Bancshares, Inc. (the “Company”) through its subsidiary, Hawthorn Bank (the “Bank”), provides a broad range of banking services to individual and corporate customers located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions that provide financial products and services. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies. The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. 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, 2024. 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. Management is required to make estimates and assumptions, including the determination of the allowance for credit losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Developments One Big Beautiful Bill Act . On July 4, 2025, the One Big Beautiful Bill Act, which includes a broad range of tax reform provisions, was signed into law in the United States. The Company is continuing to evaluate the impact of the new legislation, but does not currently expect it will have a material impact on its results of operations. Shelf Registration. On June 24, 2025, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became effective on July 2, 2025. The shelf registration statement is intended to provide the Company with financial flexibility to raise capital from the offering of up to $ 150 million of any combination of common stock, preferred stock, debt securities, depositary shares, warrants, purchase contracts, purchase units, subscription rights and units in one or multiple offerings while the shelf registration statement is effective. Recent Accounting Pronouncements Impact of Recently Issued Accounting Standards But Not Yet Adopted Income Taxes. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The ASU requires that all entities disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal or greater than 5 percent of total income taxes paid. The ASU also requires that all entities disclose (1) income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign. The ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for public business entities for annual periods beginning after December 15, 2024. The Company does not expect adoption of the ASU to have a material effect on the Company's consolidated financial statements. 8 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Income Statement. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . The amendments in this ASU require public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Additionally, in January 2025, the FASB issued ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date . The ASU addresses investors requests for more disaggregated expense information to better understand an entity's performance, better assess the entity's prospects for future cash flows, and compare an entity's performance over time and with that of other entities. This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements. (2) Loans and Allowance for Credit Losses Loans Major classifications within the Company’s loans held for investment portfolio at September 30, 2025 and December 31, 2024 were as follows: (dollars in thousands) September 30, 2025 December 31, 2024 Commercial, financial, and agricultural $ 227,309 $ 202,329 Real estate construction − residential 35,869 32,046 Real estate construction − commercial 77,466 80,435 Real estate mortgage − residential 376,508 361,735 Real estate mortgage − commercial 786,498 775,594 Installment and other consumer 10,352 14,021 Total loans held for investment $ 1,514,002 $ 1,466,160 The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Accrued interest on loans totaled $ 6.8 million and $ 6.5 million at September 30, 2025 and December 31, 2024, 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 September 30, 2025, loans of $ 742.0 million were pledged to the Federal Home Loan Bank (“FHLB”) as collateral for borrowings and letters of credit. Allowance for Credit Losses The allowance for credit losses is measured using a lifetime expected loss model that incorporates relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. 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 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. 9 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures The Company maintains a separate allowance for credit losses for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. The allowance for credit losses on unfunded commitments totaled $ 1.0 million and $ 0.9 million at September 30, 2025 and December 31, 2024, respectively. Sensitivity in the Allowance for Credit Loss Model The allowance for credit losses is an estimate that requires significant judgment including projections of the macroeconomic environment. The forecasted macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses. The following tables illustrate the changes in the allowance for credit losses on loans by portfolio segment: Three Months Ended September 30, 2025 (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 Balance at beginning of period $ 2,144 $ 328 $ 1,484 $ 4,917 $ 12,392 $ 112 $ 193 $ 21,570 Charge-offs 5 — — 1 4 104 — 114 Recoveries 30 — — 14 — 29 — 73 Provision for (release of) credit losses 252 93 18 186 ( 261 ) 51 36 375 Balance at end of period $ 2,421 $ 421 $ 1,502 $ 5,116 $ 12,127 $ 88 $ 229 $ 21,904 Nine Months Ended September 30, 2025 (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 Balance at beginning of period $ 1,560 $ 578 $ 2,221 $ 5,310 $ 12,305 $ 138 $ ( 68 ) $ 22,044 Charge-offs 39 — — 15 40 303 397 Recoveries 132 — — 33 58 100 323 Provision for (release of) credit losses 768 ( 157 ) ( 719 ) ( 212 ) ( 196 ) 153 297 ( 66 ) Balance at end of period $ 2,421 $ 421 $ 1,502 $ 5,116 $ 12,127 $ 88 $ 229 $ 21,904 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 Balance at beginning of period $ 1,621 $ 598 $ 1,477 $ 5,213 $ 12,908 $ 163 $ — $ 21,980 Charge-offs 270 — — — 343 66 — 679 Recoveries 16 — — 7 — 20 — 43 Provision for (release of) credit losses 263 ( 12 ) 347 62 69 29 ( 165 ) 593 Balance at end of period $ 1,630 $ 586 $ 1,824 $ 5,282 $ 12,634 $ 146 $ ( 165 ) $ 21,937 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 Balance at beginning of period $ 3,208 $ 1,043 $ 3,273 $ 5,264 $ 10,537 $ 232 $ 187 $ 23,744 Charge-offs 2,158 — — 23 433 196 — 2,810 Recoveries 36 — — 12 — 80 — 128 Provision for (release of) credit losses 544 ( 457 ) ( 1,449 ) 29 2,530 30 ( 352 ) 875 Balance at end of period $ 1,630 $ 586 $ 1,824 $ 5,282 $ 12,634 $ 146 $ ( 165 ) $ 21,937 10 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Collateral-Dependent loans Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Under the CECL methodology, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance on the fair value of collateral. The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and the loan’s amortized cost. If the fair value of the collateral exceeds the loan’s amortized cost, no allowance is necessary. The Company’s policy is to obtain current appraisals on any significant pieces of collateral. Higher discounts are applied in determining fair value for real estate collateral in industries that are undergoing significant stress, or for properties that are specialized use or have limited marketability. There have been no significant changes to the types of collateral securing the Company's collateral dependent loans since December 31, 2024. The amortized cost of collateral-dependent loans by class as of September 30, 2025 and December 31, 2024 was as follows: Collateral Type (dollars in thousands) Real Estate Other Allowance Allocated September 30, 2025 Commercial, financial, and agricultural $ — $ 1,812 $ 587 Real estate mortgage − residential 453 — 52 Real estate mortgage − commercial 65 — — Total $ 518 $ 1,812 $ 639 December 31, 2024 Commercial, financial, and agricultural $ — $ 766 $ 125 Real estate construction − residential 454 — 194 Real estate mortgage − commercial 65 — — Total $ 519 $ 766 $ 319 Credit Quality The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. • Pass - loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral. • Watch - loans that have one or more weaknesses identified that may result in the borrower being unable to meet repayment terms or when the Company’s credit position could deteriorate at some future date. • Special Mention - loans that have negative financial trends, or other weaknesses that if left uncorrected, could threaten the borrower’s capacity to meet its debt obligations. This is a transitional grade that is closely monitored by management for improvement or deterioration. • Substandard - loans that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. The substandard category includes non-accrual loans. • Doubtful - loans that 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. 11 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following table presents the recorded investment by risk categories at September 30, 2025: Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Term Loans Amortized Cost Basis by Origination Year and Risk Grades (dollars in thousands) 2025 2024 2023 2022 2021 Prior Total Commercial, Financial, & Agricultural Pass $ 57,395 $ 12,359 $ 10,401 $ 18,982 $ 20,744 $ 26,051 $ 66,795 $ 1,585 $ 214,312 Watch 763 190 103 8 — 147 1,174 — 2,385 Special Mention 524 — 3,119 327 — 274 — — 4,244 Substandard — 775 87 3,388 541 37 1,137 403 6,368 Total $ 58,682 $ 13,324 $ 13,710 $ 22,705 $ 21,285 $ 26,509 $ 69,106 $ 1,988 $ 227,309 Gross YTD charge-offs $ — $ 9 $ — $ — $ — $ 30 $ — $ — $ 39 Real Estate Construction - Residential Pass $ 24,385 $ 6,498 $ 4,898 $ — $ — $ — $ — $ — $ 35,781 Watch — — 88 — — — — — 88 Total $ 24,385 $ 6,498 $ 4,986 $ — $ — $ — $ — $ — $ 35,869 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Construction - Commercial Pass $ 32,668 $ 18,748 $ 7,598 $ 3,303 $ 2,809 $ 670 $ 4,347 $ 1,085 $ 71,228 Watch 1,345 29 — 4,795 — 40 — — 6,209 Substandard — — 29 — — — — — 29 Total $ 34,013 $ 18,777 $ 7,627 $ 8,098 $ 2,809 $ 710 $ 4,347 $ 1,085 $ 77,466 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Mortgage - Residential Pass $ 49,788 $ 21,891 $ 41,120 $ 102,765 $ 43,781 $ 51,276 $ 46,092 $ 1,434 $ 358,147 Watch 10,292 1,422 — 491 375 557 31 158 13,326 Substandard 3,463 — 200 960 — 190 222 — 5,035 Total $ 63,543 $ 23,313 $ 41,320 $ 104,216 $ 44,156 $ 52,023 $ 46,345 $ 1,592 $ 376,508 Gross YTD charge-offs $ — $ — $ — $ — $ — $ 15 $ — $ — $ 15 Real Estate Mortgage - Commercial Pass $ 159,146 $ 46,446 $ 103,151 $ 173,318 $ 159,646 $ 85,911 $ 16,975 $ 415 $ 745,008 Watch 3,209 637 452 4,023 337 629 — — 9,287 Special Mention — 20,283 — 4,997 — — — — 25,280 Substandard 1,316 465 65 4,166 — 767 144 — 6,923 Total $ 163,671 $ 67,831 $ 103,668 $ 186,504 $ 159,983 $ 87,307 $ 17,119 $ 415 $ 786,498 Gross YTD charge-offs $ — $ — $ 12 $ — $ — $ 28 $ — $ — $ 40 Installment and other Consumer Pass $ 2,176 $ 1,355 $ 2,117 $ 2,038 $ 544 $ 2,035 $ 68 $ — $ 10,333 Substandard — 5 9 — — 5 — — 19 Total $ 2,176 $ 1,360 $ 2,126 $ 2,038 $ 544 $ 2,040 $ 68 $ — $ 10,352 Gross YTD charge-offs $ — $ — $ 33 $ 2 $ — $ 268 $ — $ — $ 303 Total Portfolio Pass $ 325,558 $ 107,297 $ 169,285 $ 300,406 $ 227,524 $ 165,943 $ 134,277 $ 4,519 $ 1,434,809 Watch 15,609 2,278 643 9,317 712 1,373 1,205 158 31,295 Special Mention 524 20,283 3,119 5,324 — 274 — — 29,524 Substandard 4,779 1,245 390 8,514 541 999 1,503 403 18,374 Total $ 346,470 $ 131,103 $ 173,437 $ 323,561 $ 228,777 $ 168,589 $ 136,985 $ 5,080 $ 1,514,002 Total Gross YTD charge-offs $ — $ 9 $ 45 $ 2 $ — $ 341 $ — $ — $ 397 12 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following table presents the recorded investment by risk categories at December 31, 2024: Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Term Loans Amortized Cost Basis by Origination Year and Risk Grades (dollars in thousands) 2024 2023 2022 2021 2020 Prior Total Commercial, Financial, & Agricultural Pass $ 22,726 $ 21,302 $ 30,025 $ 25,338 $ 26,557 $ 3,932 $ 62,205 $ 1,531 $ 193,616 Watch — 120 1,473 — — 262 504 — 2,359 Special Mention — — — — 309 — 741 — 1,050 Substandard 286 87 3,428 628 37 — 356 403 5,225 Doubtful — — — — — — 79 — 79 Total $ 23,012 $ 21,509 $ 34,926 $ 25,966 $ 26,903 $ 4,194 $ 63,885 $ 1,934 $ 202,329 Gross YTD charge-offs $ — $ 230 $ — $ 104 $ 2 $ 106 $ 1,796 $ — $ 2,238 Real Estate Construction - Residential Pass $ 16,368 $ 13,808 $ 601 $ 617 $ 165 $ — $ — $ 33 $ 31,592 Substandard 454 — — — — — — — 454 Total $ 16,822 $ 13,808 $ 601 $ 617 $ 165 $ — $ — $ 33 $ 32,046 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Construction - Commercial Pass $ 49,742 $ 7,057 $ 10,424 $ 3,828 $ 622 $ 564 $ 7,072 $ — $ 79,309 Watch 911 124 13 — — — — — 1,048 Substandard — 29 — — — 49 — — 78 Total $ 50,653 $ 7,210 $ 10,437 $ 3,828 $ 622 $ 613 $ 7,072 $ — $ 80,435 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Mortgage - Residential Pass $ 30,005 $ 46,795 $ 115,928 $ 49,519 $ 42,036 $ 23,440 $ 44,148 $ 1,543 $ 353,414 Watch 5,702 — 40 391 423 675 30 — 7,261 Substandard — — 426 89 — 376 169 — 1,060 Total $ 35,707 $ 46,795 $ 116,394 $ 49,999 $ 42,459 $ 24,491 $ 44,347 $ 1,543 $ 361,735 Gross YTD charge-offs $ — $ — $ — $ — $ — $ 14 $ 37 $ — $ 51 Real Estate Mortgage - Commercial Pass $ 56,648 $ 117,853 $ 212,698 $ 203,591 $ 69,342 $ 57,352 $ 14,815 $ 137 $ 732,436 Watch 2,298 51 4,763 1,961 — 184 — 581 9,838 Special Mention 27,271 — 5,679 — — — — — 32,950 Substandard 64 75 231 — — — — — 370 Total $ 86,281 $ 117,979 $ 223,371 $ 205,552 $ 69,342 $ 57,536 $ 14,815 $ 718 $ 775,594 Gross YTD charge-offs $ — $ 340 $ — $ 65 $ — $ 32 $ — $ — $ 437 Installment and other Consumer Pass $ 2,188 $ 3,636 $ 3,591 $ 1,165 $ 554 $ 2,805 $ 72 $ — $ 14,011 Substandard — — — — — 10 — — 10 Total $ 2,188 $ 3,636 $ 3,591 $ 1,165 $ 554 $ 2,815 $ 72 $ — $ 14,021 Gross YTD charge-offs $ 10 $ 11 $ 9 $ 3 $ 1 $ 230 $ 1 $ — $ 265 Total Portfolio Pass $ 177,677 $ 210,451 $ 373,267 $ 284,058 $ 139,276 $ 88,093 $ 128,312 $ 3,244 $ 1,404,378 Watch 8,911 295 6,289 2,352 423 1,121 534 581 20,506 Special Mention 27,271 — 5,679 — 309 — 741 — 34,000 Substandard 804 191 4,085 717 37 435 525 403 7,197 Doubtful — — — — — — 79 — 79 Total $ 214,663 $ 210,937 $ 389,320 $ 287,127 $ 140,045 $ 89,649 $ 130,191 $ 4,228 $ 1,466,160 Total Gross YTD charge-offs $ 10 $ 581 $ 9 $ 172 $ 3 $ 382 $ 1,834 $ — $ 2,991 13 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Delinquent and Non-Accrual Loans The delinquency status of loans is determined based on the contractual terms of the notes. Loans are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectability of interest or principal is no longer probable. In general, loans are placed on non-accrual status when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual status, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Subsequent interest payments received on non-accrual loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. 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 September 30, 2025 and December 31, 2024: (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, 2025 Commercial, Financial, and Agricultural $ — $ 2,004 $ 2,004 $ 500 $ 2,504 Real estate mortgage − residential — 1,508 1,508 352 1,860 Real estate mortgage − commercial — 525 525 — 525 Installment and Other Consumer — 19 19 3 22 Total $ — $ 4,056 $ 4,056 $ 855 $ 4,911 December 31, 2024 Commercial, Financial, and Agricultural $ — $ 923 $ 923 $ — $ 923 Real estate construction − residential — 454 454 — 454 Real estate construction − commercial — 49 49 — 49 Real estate mortgage − residential — 963 963 207 1,170 Real estate mortgage − commercial — 138 138 — 138 Installment and Other Consumer — 10 10 3 13 Total $ — $ 2,537 $ 2,537 $ 210 $ 2,747 No material amount of interest income was recognized on non-accrual loans during the three and nine months ended September 30, 2025 and 2024. 14 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following table provides aging information for the Company’s past due and non-accrual loans at September 30, 2025 and December 31, 2024. (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, 2025 Commercial, Financial, and Agricultural $ 224,567 $ 238 $ 500 $ 2,004 $ 227,309 Real estate construction − residential 35,869 — — — 35,869 Real estate construction − commercial 77,466 — — — 77,466 Real estate mortgage − residential 370,442 4,206 352 1,508 376,508 Real estate mortgage − commercial 785,781 192 — 525 786,498 Installment and Other Consumer 10,229 101 3 19 10,352 Total $ 1,504,354 $ 4,737 $ 855 $ 4,056 $ 1,514,002 December 31, 2024 Commercial, Financial, and Agricultural $ 201,201 $ 205 $ — $ 923 $ 202,329 Real estate construction − residential 31,592 — — 454 32,046 Real estate construction − commercial 80,386 — — 49 80,435 Real estate mortgage − residential 358,393 2,172 207 963 361,735 Real estate mortgage − commercial 773,918 1,538 — 138 775,594 Installment and Other Consumer 13,900 108 3 10 14,021 Total $ 1,459,390 $ 4,023 $ 210 $ 2,537 $ 1,466,160 Loan Modifications for Borrowers Experiencing Financial Difficulty In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long-term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. 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 each of the three and nine months ended September 30, 2025 and 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. 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. Loans Held for Sale The Company designates certain long-term fixed rate personal real estate loans as held for sale. 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. Loans held for sale totaled $ 1.4 million at September 30, 2025. There were no loans held for sale at December 31, 2024. 15 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (3) Other Real Estate and Other Assets Acquired in Settlement of Loans The following table provides details of the Company’s other real estate and other assets acquired in the settlement of loans as of September 30, 2025 and December 31, 2024. (dollars in thousands) September 30, 2025 December 31, 2024 Commercial $ 2,552 $ — Real estate construction - commercial — 2,549 Real estate mortgage - residential — 42 Real estate mortgage - commercial 98 858 Total $ 2,650 $ 3,449 Less valuation allowance for other real estate owned ( 225 ) ( 2,003 ) Total other real estate owned and repossessed assets $ 2,425 $ 1,446 At September 30, 2025, there were $ 0.6 million consumer mortgage loans secured by residential real estate properties in the process of foreclosure compared to $ 0.3 million at December 31, 2024. Activity in the valuation allowance for other real estate owned was as follows for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2025 2024 2025 2024 Balance at beginning of period $ 225 $ 1,744 $ 2,003 $ 5,950 Provision for (release of) provision for valuation allowance for other real estate owned — — 184 ( 386 ) Charge-offs — — ( 1,962 ) ( 3,820 ) Balance at end of period $ 225 $ 1,744 $ 225 $ 1,744 16 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (4) Investment Securities The amortized cost and fair value of debt securities classified as available-for-sale at September 30, 2025 and December 31, 2024 were as follows: Gross Unrealized (dollars in thousands) Total Amortized Cost Gains Losses Fair Value September 30, 2025 U.S. Treasury $ 4,946 $ 111 $ — $ 5,057 U.S. government-sponsored enterprises 11,174 39 ( 130 ) 11,083 Obligations of states and political subdivisions 121,744 5 ( 20,465 ) 101,284 Mortgage-backed securities Residential 63,184 652 ( 2,514 ) 61,322 Commercial 15,454 13 ( 2,069 ) 13,398 Other debt securities (1) 23,444 257 ( 419 ) 23,282 Bank issued trust preferred securities (1) 1,486 — ( 207 ) 1,279 Total available-for-sale securities $ 241,432 $ 1,077 $ ( 25,804 ) $ 216,705 December 31, 2024 U.S. Treasury $ 4,937 $ — $ ( 22 ) $ 4,915 U.S. government and federal agency obligations 408 — ( 7 ) 401 U.S. government-sponsored enterprises 13,020 11 ( 227 ) 12,804 Obligations of states and political subdivisions 125,559 7 ( 23,080 ) 102,486 Mortgage-backed securities Residential 68,346 59 ( 4,034 ) 64,371 Commercial 16,383 — ( 2,644 ) 13,739 Other debt securities (1) 19,419 49 ( 781 ) 18,687 Bank issued trust preferred securities (1) 1,486 — ( 237 ) 1,249 Total available-for-sale securities $ 249,558 $ 126 $ ( 31,032 ) $ 218,652 (1) Certain hybrid instruments possessing characteristics typically associated with debt obligations. The Company’s investment securities are classified as available for sale. Agency bonds and notes, loan certificates guaranteed by the Small Business Administration, residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations include securities issued by the Government National Mortgage Association, a U.S. government agency, and the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the FHLB, which are U.S. government-sponsored enterprises. Debt securities with carrying values aggregating approximately $ 92.7 million and $ 82.4 million at September 30, 2025 and December 31, 2024, 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 each of the three and nine months ended September 30, 2025 and 2024. All gains and losses recognized on equity securities during each of the three and nine months ended September 30, 2025 and 2024 were unrealized. During the three and nine months ended September 30, 2025, the Company recorded net investment securities gains of approximately $ 114,000 from called securities. The amortized cost and fair value of debt securities classified as available-for-sale at September 30, 2025, by contractual maturity are shown below. Accrued interest on investments totaled $ 1.4 million and $ 1.6 million at September 30, 2025 17 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) and December 31, 2024, 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 investments presented below. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties. September 30, 2025 (dollars in thousands) Amortized Cost Fair Value Due in one year or less $ 1,090 $ 1,093 Due after one year through five years 24,598 24,441 Due after five years through ten years 37,999 35,892 Due after ten years 99,107 80,559 Total 162,794 141,985 Mortgage-backed securities 78,638 74,720 Total available-for-sale securities $ 241,432 $ 216,705 Other Investment Securities Other investment securities include equity securities with readily determinable fair values and other investment securities that do not have readily determinable fair values and are shown in the table below. 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. (dollars in thousands) September 30, 2025 December 31, 2024 FHLB stock $ 9,099 $ 4,924 MIB stock 151 151 Equity securities with readily determinable fair values 62 74 Total other investment securities $ 9,312 $ 5,149 18 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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, 2025 and December 31, 2024 were as follows: Less than 12 months 12 months or more (dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Total Fair Value Total Unrealized Losses September 30, 2025 U.S. government-sponsored enterprises $ — $ — $ 1,870 $ ( 130 ) $ 1,870 $ ( 130 ) Obligations of states and political subdivisions 1,792 ( 18 ) 98,111 ( 20,447 ) 99,903 ( 20,465 ) Mortgage-backed securities Residential — — 21,319 ( 2,514 ) 21,319 ( 2,514 ) Commercial 2,177 ( 10 ) 9,885 ( 2,059 ) 12,062 ( 2,069 ) Other debt securities 3,663 ( 72 ) 4,478 ( 347 ) 8,141 ( 419 ) Bank issued trust preferred securities — — 1,279 ( 207 ) 1,279 ( 207 ) Total $ 7,632 $ ( 100 ) $ 136,942 $ ( 25,704 ) $ 144,574 $ ( 25,804 ) December 31, 2024 U.S. Treasury $ 4,915 $ ( 22 ) $ — $ — $ 4,915 $ ( 22 ) U.S. government and federal agency obligations — — 401 ( 7 ) 401 ( 7 ) U.S. government-sponsored enterprises 996 ( 5 ) 1,778 ( 222 ) 2,774 ( 227 ) Obligations of states and political subdivisions 2,791 ( 163 ) 98,442 ( 22,917 ) 101,233 ( 23,080 ) Mortgage-backed securities Residential 34,179 ( 435 ) 23,453 ( 3,599 ) 57,632 ( 4,034 ) Commercial 3,580 ( 128 ) 10,159 ( 2,516 ) 13,739 ( 2,644 ) Other debt securities 4,900 ( 58 ) 9,101 ( 723 ) 14,001 ( 781 ) Bank issued trust preferred securities — — 1,249 ( 237 ) 1,249 ( 237 ) Total $ 51,361 $ ( 811 ) $ 144,583 $ ( 30,221 ) $ 195,944 $ ( 31,032 ) The total available-for-sale portfolio consisted of approximately 387 securities at September 30, 2025. The portfolio included 343 securities having an aggregate fair value of $ 144.6 million that were in a loss position at September 30, 2025. The $ 25.8 million aggregate unrealized loss included in accumulated other comprehensive loss at September 30, 2025 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. (5) Derivative Instruments As part of the Company’s overall interest rate risk management, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Interest Rate Swap Contracts Not Designated as Hedges The Company enters into interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral 19 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. These derivative contracts do not qualify for hedge accounting. The following table reflects the estimated fair value of derivative instruments not designated as hedging instruments included in other assets and other liabilities on the consolidated balance sheets along with their respective notional amounts on a gross basis. As of September 30, 2025 As of December 31, 2024 Fair Value Fair Value (dollars in thousands) Notional Amount Derivative Assets Derivative Liabilities Notional Amount Derivative Assets Derivative Liabilities Interest Rate Products $ 16,542 $ 354 $ 390 $ 16,542 $ 66 $ 89 Total derivatives not designated as hedging instruments $ 354 $ 390 $ 66 $ 89 The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for each of the three and nine months ended September 30, 2025 and 2024. The Company did not recognize other income related to client swaps in any of the three and nine months ended September 30, 2025 and 2024. Gain or (Loss) Recognized in Income on Derivative Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) Location of Gain or (Loss) Recognized in Income on Derivative 2025 2024 2025 2024 Interest Rate Products (1) Other non-interest income $ 6 $ — $ ( 13 ) $ — Total $ 6 $ — $ ( 13 ) $ — (1) Gain (loss) represents net fair value adjustments (including credit related adjustments) for client swaps. Credit-risk-related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision to the effect that, if the Company (either) defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. Collateral Requirements The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized or adequately capitalized institution, then the Company could be required to post additional collateral. Certain derivative transactions have collateral requirements, both at the inception of the trade, and as the value of each derivative position changes. As of September 30, 2025, the Company had recorded the obligation to collect cash collateral of $ 0.04 million. As of September 30, 2025, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 0.04 million. As of September 30, 2025, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2025, it could have been required to settle its obligations under the agreements at their termination value of $ 0 . 20 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (6) Deposits 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. (dollars in thousands) September 30, 2025 December 31, 2024 Time deposits with balances > $250,000 $ 89,907 $ 100,383 Brokered deposits 10 13 (7) Leases The Company's leases primarily consist of office space and bank branches with remaining lease terms of generally 1 to 10 years. As of September 30, 2025, operating right of use (“ROU”) assets and liabilities were $ 2.6 million and $ 2.8 million, respectively. As of September 30, 2025, 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 4.4 %. Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities. Currently, the Company does not have any finance leases. The ROU assets are included in premises and equipment, net on the consolidated balance sheets. 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 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 $ 0.2 million and $ 0.5 million for the three and nine months ended September 30, 2025, respectively, compared to $ 0.1 million and $ 0.2 million for the three and nine months ended September 30, 2024, respectively. The table below summarizes the maturity of remaining operating lease liabilities at September 30, 2025: Lease payments due in: Operating Lease (dollars in thousands) 2025 remaining $ 134 2026 550 2027 621 2028 630 2029 420 Thereafter 803 Total lease payments 3,158 Less imputed interest ( 371 ) Total lease liabilities, as reported $ 2,787 (8) Stockholders’ Equity and 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, 2025 and 2024: 21 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Nine Months Ended September 30, 2025 (dollars in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement (Income) Costs (2) Accumulated Other Comprehensive Income (Loss) Balance at beginning of period $ ( 24,416 ) $ 11,973 $ ( 12,443 ) Other comprehensive income (loss), before reclassifications 6,179 ( 957 ) 5,222 Amounts reclassified from accumulated other comprehensive income (loss) — — — Current period other comprehensive income (loss), before tax 6,179 ( 957 ) 5,222 Income tax (expense) benefit ( 1,298 ) 201 ( 1,097 ) Current period other comprehensive income (loss), net of tax 4,881 ( 756 ) 4,125 Balance at end of period $ ( 19,535 ) $ 11,217 $ ( 8,318 ) Nine Months Ended September 30, 2024 (dollars in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement (Income) Costs (2) Accumulated Other Comprehensive Income (Loss) Balance at beginning of period $ ( 21,461 ) $ 7,699 $ ( 13,762 ) Other comprehensive income (loss), before reclassifications 2,501 ( 518 ) 1,983 Amounts reclassified from accumulated other comprehensive income (loss) — — — Current period other comprehensive income (loss), before tax 2,501 ( 518 ) 1,983 Income tax 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 ) (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 income. Repurchase Program On June 5, 2025, the Company announced that its Board of Directors approved a new common stock repurchase program under which the Company may repurchase up to $ 10.0 million of its common stock, which replaced the Company’s prior common stock repurchase program. Pursuant to the repurchase program, 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 timing and total amount of stock repurchases will depend on market and other conditions and may be made from time to time in open market purchases or privately negotiated transactions. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company repurchased 90,466 common shares under its repurchase programs during the first nine months of 2025 at an average cost of $ 27.72 per share totaling $ 2.5 million. As of September 30, 2025, $ 8.7 million remained available for share repurchases pursuant to the Company's current repurchase program. (9) Share-Based Compensation Equity-Based Compensation Plan At the 2023 Annual Meeting of Shareholders, the Company's shareholders approved the Hawthorn Bancshares, Inc. Equity Incentive Plan (the “Equity Plan”), which was previously approved by the Company's Board of Directors. The purpose of the Equity Plan is to allow eligible participants of the Company and its subsidiaries to acquire or increase a proprietary and vested interest in the growth and performance of the Company. The Equity Plan is designed to assist the Company with attracting and retaining selected service providers by providing them with the opportunity to participate in the success and profitability of the Company. The terms of the Equity Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, other equity-based awards and cash awards. 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 include all employees, non-employee 22 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) directors and consultants of the Company or its subsidiaries. The Equity Plan is currently administered by the Compensation Committee of the Board of Directors The Compensation Committee adopted a form of restricted stock unit award agreement (service-based vesting). The Company issues restricted share units (“RSUs”) to provide additional incentives to key officers, employees, and non-employee directors. Awards are granted as determined by the Compensation Committee. 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 nine months ended September 30, 2025 and 2024: Nine Months Ended September 30, 2025 2024 Quantity Weighted-Average Grant Date Fair Value Per share Quantity Weighted-Average Grant Date Fair Value Per share Non-vested at beginning of period 35,336 $ 22.84 18,277 $ 20.63 Granted 11,174 29.18 11,151 20.18 Vested 7,809 19.21 4,092 19.80 Forfeited — — — — Non-vested at end of period 38,701 $ 25.40 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 these RSUs was $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2025, respectively, compared to $ 0.05 million and $ 0.1 million for the three and nine months ended September 30, 2024, respectively. Forfeitures will be recognized as they occur. At September 30, 2025, there was $ 0.7 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.0 years. (10) Retirement Plans Profit-sharing Plan The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3 % of eligible employee contributions. The Company made annual contributions for the discretionary portion in an amount up to 6 % of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions. Total expense recorded for the Company match was $ 0.1 million and $ 0.4 million in each of the three and nine months ended September 30, 2025 and September 30, 2024, respectively. The employer discretionary profit-sharing contribution made to the 401(k) plan was $ 0.8 million and $ 0.6 million for plan years 2024 and 2023, respectively. Other Plans 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 $ 1.7 million as of September 30, 2025, and the expense for the three and nine months ended September 30, 2025 was $ 0.02 million and $ 0.06 million, respectively, compared to $ 0.02 million and $ 0.07 million for the three and nine months ended September 30, 2024, respectively, and is recognized over the required service period. 23 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Pension The Company maintains a noncontributory defined benefit pension plan for all full-time and eligible employees hired before September 30, 2017. Beginning January 1, 2018, and for all retrospective periods presented, the Company adopted the guidance under ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . Under the guidance, only the service cost component of the net periodic benefit cost is reported in the same income statement line item as salaries and benefits, and the remaining components are reported as other non-interest expense. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. 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 (Income) and Other Amounts Recognized in Accumulated Other Comprehensive Income (Loss) The following items are components of net pension (income) for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2025 2024 2025 2024 Service cost - benefits earned during the year $ 174 $ 236 $ 521 $ 710 Interest costs on projected benefit obligations (1) 388 370 1,164 1,108 Expected return on plan assets (1) ( 585 ) ( 590 ) ( 1,755 ) ( 1,769 ) Expected administrative expenses 36 28 109 82 Amortization of unrecognized net gain (1) ( 319 ) ( 173 ) ( 957 ) ( 518 ) Net periodic pension income $ ( 306 ) $ ( 129 ) $ ( 919 ) $ ( 387 ) (1) The components of net periodic pension (income) other than the service cost and expected administrative expenses are included in other non-interest income. Net periodic pension benefit (income) include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial (gains) losses. 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 (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. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits. Currently, there is no prior service cost or net transition (asset)/obligation to be amortized. 24 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (11) Earnings per Share Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the period. Presented below is a summary of the components used to calculate basic and diluted earnings per common share: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2025 2024 2025 2024 Net income available to shareholders $ 6,132 $ 4,574 $ 17,616 $ 13,659 Basic weighted-average shares outstanding 6,908 6,987 6,942 7,005 Effect of dilutive equity-based awards 14 — 13 — Diluted weighted-average shares outstanding 6,922 6,987 6,955 7,005 Basic earnings per share $ 0.89 $ 0.66 $ 2.54 $ 1.95 Diluted earnings per share $ 0.88 $ 0.66 $ 2.53 $ 1.95 The dilutive effect of RSUs is reflected in diluted earnings per share unless the impact is anti-dilutive, by application of the treasury stock method. (12) Fair Value Measurements Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value. Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider. 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, 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 Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis: 25 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Available-for-Sale Securities The fair value measurements of the Company’s investment securities are determined by a third party pricing service that considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to management's independent verification to another pricing source for reasonableness each quarter. U.S. Treasury securities are classified as Level 1, and all other available for sale securities are classified as Level 2. Other Investment Securities Other investment securities include equity securities with readily determinable fair values and other investment securities that do not have readily determinable fair values. Investments in FHLB stock and MIB stock, which do not have readily determinable fair values, are required for membership in those organizations. Equity securities that are not actively traded are classified in Level 2. 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. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Derivative Assets and Liabilities Derivative assets and liabilities include interest rate swaps. The fair value is determined using a discounted cash flow analysis on the expected cash flows of each derivative, which also includes a credit value adjustment for client swaps. An independent third-party valuation is used to verify and confirm these values, which are classified as Level 2 within the fair value hierarchy. 26 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following table presents assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024 aggregated by the level in the fair value hierarchy within which those measurements fall: Fair Value Measurements (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, 2025 Assets: U.S. Treasury $ 5,057 $ 5,057 $ — $ — U.S. government and federal agency obligations — — — — U.S. government-sponsored enterprises 11,083 — 11,083 — Obligations of states and political subdivisions 101,284 — 101,284 — Mortgage-backed securities Residential 61,322 — 61,322 — Commercial 13,398 — 13,398 — Other debt securities 23,282 — 23,282 — Bank-issued trust preferred securities 1,279 — 1,279 — Equity securities 62 62 — — Derivative instruments, interest rate swaps 354 354 Total $ 218,553 $ 5,119 $ 213,434 $ — Liabilities: Derivative instruments, interest rate swaps $ 390 $ — $ 390 $ — Total $ 390 $ — $ 390 $ — December 31, 2024 Assets: U.S. Treasury $ 4,915 $ 4,915 $ — $ — U.S. government and federal agency obligations 401 — 401 — U.S. government-sponsored enterprises 12,804 — 12,804 — Obligations of states and political subdivisions 102,486 — 102,486 — Mortgage-backed securities Residential 64,371 — 64,371 — Commercial 13,739 — 13,739 Other debt securities 18,687 — 18,687 — Bank-issued trust preferred securities 1,249 — 1,249 — Equity securities 74 74 — — Derivative instruments, interest rate swaps 66 — 66 — Total $ 218,792 $ 4,989 $ 213,803 $ — Liabilities: Derivative instruments, interest rate swaps $ 89 $ — $ 89 $ — Total $ 89 $ — $ 89 $ — 27 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Mortgage Servicing Rights Interest Rate Lock Commitments Nine Months Ended September 30, (dollars in thousands) 2025 2024 2025 2024 Balance at beginning of period $ — $ 1,738 $ — $ 41 Total gains or (losses) (realized/unrealized): Included in earnings — ( 68 ) — ( 11 ) Sales (1) — ( 1,670 ) — ( 86 ) Issues — — — 56 Balance at end of period $ — $ — $ — $ — (1) The Company sold its servicing portfolio on January 31, 2024. Valuation Methods for Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a non-recurring basis: Collateral Dependent Loans While the overall loan portfolio is not carried at fair value, the Company periodically records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan less estimated selling costs. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral. Appraisals may be discounted based on the Company’s historical experience or other available information. The Company maintains staff trained to perform in-house evaluations and also to review third-party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by the executive loan committee. Because many of these inputs are not observable, the measurements are classified as Level 3. Other Real Estate and Foreclosed Assets Other real estate owned (“OREO”) and foreclosed assets consisted of loan collateral repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Subsequent to foreclosure, these assets are initially carried at fair value of the collateral less estimated selling costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state-certified appraisers. Like collateral dependent loans, appraisals on OREO may be discounted based on the Company’s historical knowledge, changes in market conditions from the time of appraisal or other information available. During the holding period, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3. 28 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Fair Value Measurements Using (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) Year to Date Total Gains (Losses) (1) September 30, 2025 Collateral dependent loans: Commercial, financial, & agricultural $ 1,225 $ — $ — $ 1,225 $ — Real estate mortgage - residential 401 — — 401 — Real estate mortgage - commercial 65 — — 65 — Total $ 1,691 $ — $ — $ 1,691 $ — Other real estate and repossessed assets $ 2,425 $ — $ — $ 2,425 $ ( 225 ) December 31, 2024 Collateral dependent loans: Commercial, financial, & agricultural $ 641 $ — $ — $ 641 $ ( 1,931 ) Real estate construction − residential 260 — — 260 — Real estate mortgage - residential — — — — — Real estate mortgage - commercial 65 — — 65 ( 436 ) Total $ 966 $ — $ — $ 966 $ ( 2,367 ) Other real estate and repossessed assets $ 546 $ — $ — $ 546 $ 875 (1) Total gains (losses) reported for other real estate and foreclosed assets include charge-offs and valuation write downs during the nine months ended September 30, 2025 and the year ended December 31, 2024, respectively. (13) Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value: Loans Fair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, and consumer. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans, or exit price, is estimated by using the future value of discounted cash flows using comparable market rates for similar types of loan products and adjusted for market factors. The discount rates used are estimated using comparable market rates for similar types of loan products adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments. Loans Held for Sale The fair value of the loans held for sale is the price at which they could be sold in the principal market at the measurement date, therefore the Company classifies these loans as Level 2. Federal funds Sold, Cash, and Due from Banks The carrying amounts of short-term federal funds sold, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold classified as short-term generally mature in 90 days or less. Certificates of Deposit in Other Banks Certificates of deposit are other investments made by the Company with other financial institutions that are carried at cost, which is equal to fair value. 29 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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. Deposits 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. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Federal funds Purchased and Securities Sold Under Agreements to Repurchase For Federal funds purchased and securities sold under agreements to repurchase, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period. Subordinated Notes and Other Borrowings The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash-flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities. A summary of the carrying amounts and fair values of the Company’s financial instruments at September 30, 2025 and December 31, 2024 is as follows: September 30, 2025 Fair Value Measurements September 30, 2025 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) Assets: Cash and due from banks $ 17,613 $ 17,613 $ 17,613 $ — $ — Federal funds sold and overnight interest bearing deposits 82,262 82,262 82,262 — — Certificates of deposit in other banks 1,000 1,000 1,000 — — Other investment securities 9,250 9,250 — 9,250 — Loans, net 1,492,098 1,465,025 — — 1,465,025 Loans held for sale 1,432 1,432 — 1,432 — Accrued interest receivable 8,365 8,365 8,365 — — Total assets $ 1,612,020 $ 1,584,947 $ 109,240 $ 10,682 $ 1,465,025 Liabilities: Deposits: Non-interest bearing demand $ 424,437 $ 424,437 $ 424,437 $ — $ — Savings, interest checking and money market 788,059 788,059 788,059 — — Time deposits 313,421 312,063 — — 312,063 FHLB advances and other borrowings 177,086 177,141 — 177,141 — Subordinated notes 49,486 43,581 — 43,581 — Accrued interest payable 1,673 1,673 1,673 — — Total liabilities $ 1,754,162 $ 1,746,954 $ 1,214,169 $ 220,722 $ 312,063 30 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) December 31, 2024 Fair Value Measurements December 31, 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) Assets: Cash and due from banks $ 23,668 $ 23,668 $ 23,668 $ — $ — Federal funds sold and overnight interest-bearing deposits 27,326 27,326 27,326 — — Certificates of deposit in other banks 1,000 1,000 1,000 — — Other investment securities 5,075 5,075 — 5,075 — Loans, net 1,444,116 1,380,252 — — 1,380,252 Accrued interest receivable 8,221 8,221 8,221 — — Total assets $ 1,509,406 $ 1,445,542 $ 60,215 $ 5,075 $ 1,380,252 Liabilities: Deposits: Non-interest bearing demand $ 385,022 $ 385,022 $ 385,022 $ — $ — Savings, interest checking and money market 846,339 846,339 846,339 — — Time deposits 301,821 300,386 — — 300,386 FHLB advances and other borrowings 81,525 81,585 — 81,585 — Subordinated notes 49,486 41,602 — 41,602 — Accrued interest payable 1,754 1,754 1,754 — — Total liabilities $ 1,665,947 $ 1,656,688 $ 1,233,115 $ 123,187 $ 300,386 Off-Balance Sheet Financial Instruments The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates. Limitations The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates. (14) Commitments and Contingencies 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 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 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. 31 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The allowance for credit losses associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets. At September 30, 2025 and December 31, 2024, the allowance for credit losses for unfunded commitments was $ 1.0 million and $ 0.9 million, respectively. The contractual amounts of off-balance sheet financial instruments were as follows as of the dates indicated: (dollars in thousands) September 30, 2025 December 31, 2024 Commitments to extend credit $ 329,189 $ 305,811 Standby letters of credit 55,692 141,807 Total $ 384,881 $ 447,618 Commitments Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate. The Company's forward loan sale commitments are related to mortgage loans held for sale. 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 two months to 3.4 years at September 30, 2025. Pending Litigation From time to time, the Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated. (15) Segment Information The Company determines its operating segments based on how the chief operating decision maker (“CODM”) views and analyzes each segment’s operations, performance and allocates resources. The Chief Executive Officer (“CEO”) is the CODM. The CODM reviews the actual net income compared to budgeted net income on a monthly basis to evaluate segment performance, make decisions, and determine where to deploy capital. This analysis is also used for benchmarking performance against the Company's peers. The Company previously reported under one segment. During 2025, the Company identified its Wealth Management business as a strategic opportunity and hired additional management resources to provide the structure for products and processes for this business. As a result, beginning in the first quarter of 2025, the Company identified its Wealth Management Business as its own separate reporting segment and now reports two aggregated reporting segments, consisting of the Bank and its Wealth Management business, and the CEO is the CODM for both segments. The Bank segment is composed of operations providing a broad range of banking products and services located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Wealth Management segment includes a broad range of financial and investment planning services for individuals and business owners as well as the Company's existing trust services. 32 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The tables below highlight the Company’s revenues, expenses and net income (loss) for each reportable segment and is reconciled to net income (loss) on a consolidated basis for the three and nine months ended September 30, 2025 and 2024, respectively: Three Months Ended September 30, 2025 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 24,976 $ — $ 27 $ 25,003 Interest expense 7,277 — 861 8,138 Net interest income 17,699 — ( 834 ) 16,865 Provision for (release of) credit losses 375 — — 375 Operating expenses Salaries and employee benefits 6,586 285 336 7,207 Occupancy, furniture and equipment expense 1,059 14 — 1,073 Processing, network, and bank card expense 1,332 40 — 1,372 Legal, examination, and professional fees 403 1 66 470 Depreciation 541 — — 541 Other 1,928 26 204 2,158 Total operating expenses 11,849 366 606 12,821 Other Non-interest income 2,645 651 420 3,716 Investment securities gains (losses), net 105 — — 105 Income taxes 1,572 — ( 214 ) 1,358 Net income (loss) $ 6,653 $ 285 $ ( 806 ) $ 6,132 Nine Months Ended September 30, 2025 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 72,293 $ — $ 79 $ 72,372 Interest expense 21,502 — 2,569 24,071 Net interest income 50,791 — ( 2,490 ) 48,301 Provision for (release of) credit losses ( 16 ) — — ( 16 ) Operating expenses Salaries and employee benefits 18,896 950 976 20,822 Occupancy, furniture and equipment expense 3,230 52 — 3,282 Processing, network, and bank card expense 4,140 76 — 4,216 Legal, examination, and professional fees 1,140 1 250 1,391 Depreciation 1,681 — — 1,681 Other 5,467 73 657 6,197 Total operating expenses 34,554 1,152 1,883 37,589 Other Non-interest income 7,758 1,667 1,299 10,724 Investment securities losses, net 102 — — 102 Income taxes 4,583 — ( 645 ) 3,938 Net income (loss) $ 19,530 $ 515 $ ( 2,429 ) $ 17,616 Segment assets $ 1,920,938 $ 16 $ 11,151 $ 1,932,105 33 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Three Months Ended September 30, 2024 (dollars in thousands) Hawthorn Bank Non-Bank Total Operating revenue Interest income $ 23,789 $ 30 $ 23,819 Interest expense 8,503 989 9,492 Net interest income 15,286 ( 959 ) 14,327 Provision for (release of) credit losses 500 — 500 Operating expenses Salaries and employee benefits 6,202 337 6,539 Occupancy, furniture and equipment expense 1,143 — 1,142 Processing, network, and bank card expense 1,480 — 1,480 Legal, examination, and professional fees 310 68 378 Depreciation 488 — 488 Other 1,768 199 1,967 Total operating expenses 11,391 604 11,994 Other Non-interest income 3,478 305 3,783 Investment securities gains (losses), net 8 — 8 Income taxes 1,919 ( 869 ) 1,050 Net income (loss) $ 4,962 $ ( 389 ) $ 4,574 Nine Months Ended September 30, 2024 (dollars in thousands) Hawthorn Bank Non-Bank Total Operating revenue Interest income $ 71,338 $ 89 $ 71,427 Interest expense 25,216 2,965 28,181 Net interest income 46,122 ( 2,876 ) 43,246 Provision for (release of) credit losses 726 — 726 Operating expenses Salaries and employee benefits 19,007 986 19,993 Occupancy, furniture and equipment expense 3,217 — 3,217 Processing, network, and bank card expense 4,212 — 4,212 Legal, examination, and professional fees 1,425 288 1,713 Depreciation 1,413 — 1,413 Other 5,448 607 6,055 Total operating expenses 34,722 1,881 36,603 Other Non-interest income 9,894 904 10,798 Investment securities gains (losses), net ( 7 ) — ( 7 ) Income taxes 4,463 ( 1,414 ) 3,049 Net income (loss) $ 16,098 $ ( 2,439 ) $ 13,659 Segment assets $ 1,802,345 $ 7,424 $ 1,809,769 (16) Subsequent Events The Company has evaluated subsequent events that may require recognition or disclosure through the filing date of this Quarterly Report on Form 10-Q. 34 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited)