HAWTHORN BANCSHARES, INC. 10-Q

Item 1. Financial Statements HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (dollars in thousands, except per share data) June 30, 2026 December 31, 2025 (Unaudited) ASSETS Cash and due from banks $ 22,900 $ 16,632 Other interest bearing deposits 9,835 87,680 Cash and cash equivalents 32,735 104,312 Certificates of deposit in other banks 1,000 1,000 Available-for-sale debt securities, at fair value 233,476 209,939 Other investments 2,695 5,976 Loans held for investment 1,416,360 1,486,792 Allowance for credit losses ( 20,730 ) ( 21,111 ) Net loans 1,395,630 1,465,681 Loans held for sale 152 616 Premises and equipment - net 30,472 29,963 Premises and equipment held for sale, net 1,350 3,956 Other real estate owned - net 845 98 Cash surrender value of bank-owned life insurance 41,040 40,444 Accrued interest receivable and other assets 33,645 32,865 Total assets $ 1,773,040 $ 1,894,850 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand $ 416,389 $ 423,568 Savings, interest checking and money market 775,792 827,069 Time deposits 296,008 303,512 Total deposits 1,488,189 1,554,149 Federal Home Loan Bank advances and other borrowings 29,362 102,086 Subordinated notes 49,486 49,486 Operating lease liabilities 3,564 2,682 Finance lease liabilities 1,130 1,205 Accrued interest payable and other liabilities 18,515 11,013 Total liabilities 1,590,246 1,720,621 Stockholders’ equity: Common stock, $ 1.00 par value, authorized 15,000,000 shares; issued 7,554,893 shares 7,555 7,555 Surplus 76,691 76,828 Retained earnings 118,034 107,863 Accumulated other comprehensive loss, net of tax ( 5,097 ) ( 3,613 ) Treasury stock; 654,215 and 653,633 shares, at cost, respectively ( 14,389 ) ( 14,404 ) Total stockholders’ equity 182,794 174,229 Total liabilities and stockholders’ equity $ 1,773,040 $ 1,894,850 See accompanying notes to the consolidated financial statements (unaudited) . 2 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands, except per share data) 2026 2025 2026 2025 INTEREST INCOME Interest and fees on loans $ 21,852 $ 21,549 $ 43,944 $ 42,745 Interest and fees on loans held for sale 3 3 7 5 Interest on investment securities: Taxable 1,364 1,398 2,528 2,702 Nontaxable 585 586 1,169 1,173 Federal funds sold and Other interest-bearing deposits 449 290 886 539 Dividends on other investments 99 85 212 205 Total interest income 24,352 23,911 48,746 47,369 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 3,508 4,086 7,170 8,435 Time deposits 2,177 2,422 4,386 4,886 Total interest expense on deposits 5,685 6,508 11,556 13,321 Interest on federal funds purchased and securities sold under agreements to repurchase and other 13 1 26 1 Interest on Federal Home Loan Bank advances 617 404 1,252 903 Interest on subordinated notes 779 856 1,552 1,708 Total interest expense on borrowings 1,409 1,261 2,830 2,612 Total interest expense 7,094 7,769 14,386 15,933 Net interest income 17,258 16,142 34,360 31,436 Release of credit losses on loans ( 65 ) ( 159 ) ( 185 ) ( 441 ) Provision for credit losses on unfunded commitments 303 108 496 50 Total provision for (release of) credit losses on loans and unfunded commitments 238 ( 51 ) 311 ( 391 ) Net interest income after provision for (release of) credit losses on loans and unfunded commitments 17,020 16,193 34,049 31,827 NON-INTEREST INCOME Service charges and other fees 815 940 1,635 1,853 Bank card income and fees 1,018 1,003 1,925 1,929 Earnings on bank-owned life insurance 498 509 991 1,019 Wealth management revenue 654 542 1,270 1,016 Gain on sale of mortgage loans, net 69 117 146 242 Gains (losses) on other real estate owned and other assets, net 335 ( 177 ) 302 ( 156 ) Other 1,988 611 2,208 1,105 Total non-interest income 5,377 3,545 8,477 7,008 Investment securities gains (losses), net 280 ( 1 ) 285 ( 3 ) NON-INTEREST EXPENSE Salaries and employee benefits 7,593 6,703 14,407 13,615 Occupancy expense, net 859 947 1,850 1,883 Furniture and equipment expense 791 673 1,561 1,466 Processing, network, and bank card expense 1,419 1,443 2,837 2,844 Legal, examination, and professional fees 944 428 1,746 921 Advertising and promotion 236 212 439 372 Postage, printing, and supplies 202 342 501 636 Other 1,703 1,521 3,408 3,031 Total non-interest expense 13,747 12,269 26,749 24,768 Income before income taxes 8,930 7,468 16,062 14,064 Income tax expense 1,604 1,367 2,993 2,580 Net income $ 7,326 $ 6,101 $ 13,069 $ 11,484 Basic earnings per share $ 1.06 $ 0.88 $ 1.89 $ 1.65 Diluted earnings per share $ 1.06 $ 0.88 $ 1.89 $ 1.65 See accompanying notes to the consolidated financial statements (unaudited) . 3 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2026 2025 2026 2025 Net income $ 7,326 $ 6,101 $ 13,069 $ 11,484 Other comprehensive income (loss), net of tax Investment securities available-for-sale: Change in unrealized gains (losses) on investment securities available-for-sale, net of tax 1,872 674 ( 741 ) 1,058 Adjustment for gains on sale of investment securities, net of tax ( 211 ) — ( 220 ) Defined benefit pension plans: Amortization of net gains included in net periodic pension income, net of tax ( 287 ) ( 288 ) ( 523 ) ( 504 ) Total other comprehensive income (loss) 1,374 386 ( 1,484 ) 554 Total comprehensive income $ 8,700 $ 6,487 $ 11,585 $ 12,038 See accompanying notes to the consolidated financial statements (unaudited) . 4 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (unaudited) Three Months Ended June 30, 2026 and 2025 (In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity Balance, March 31, 2026 $ 7,555 $ 76,927 $ 112,156 $ ( 6,471 ) $ ( 14,781 ) $ 175,386 Net income — — 7,326 — — 7,326 Other comprehensive income — — — 1,374 — 1,374 Share-based compensation expense — 152 — — — 152 Restricted share unit vesting and taxes paid related to net share settlement — ( 388 ) — — 392 4 Cash dividends declared, common stock ($ 0.21 per share) — — ( 1,448 ) — — ( 1,448 ) Balance, June 30, 2026 $ 7,555 $ 76,691 $ 118,034 $ ( 5,097 ) $ ( 14,389 ) $ 182,794 Balance, March 31, 2025 $ 7,555 $ 76,938 $ 93,597 $ ( 12,275 ) $ ( 12,404 ) $ 153,411 Net income — — 6,101 — — 6,101 Other comprehensive income — — — 386 — 386 Share-based compensation expense — 96 — — — 96 Purchase of treasury stock — — — — ( 1,782 ) ( 1,782 ) Restricted share unit vesting and taxes paid related to net share settlement — ( 222 ) — — 222 — Cash dividends declared, common stock ($ 0.19 per share) — — ( 1,389 ) — — ( 1,389 ) Balance, June 30, 2025 $ 7,555 $ 76,812 $ 98,309 $ ( 11,889 ) $ ( 13,964 ) $ 156,823 Six Months Ended June 30, 2026 and 2025 (In thousands, except per share data) Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity Balance, December 31, 2025 $ 7,555 $ 76,828 $ 107,863 $ ( 3,613 ) $ ( 14,404 ) $ 174,229 Net income — — 13,069 — — 13,069 Other comprehensive loss — — — ( 1,484 ) — ( 1,484 ) Share-based compensation expense — 274 — — — 274 Purchase of treasury stock — — — — ( 396 ) ( 396 ) Restricted share unit vesting and taxes paid related to net share settlement — ( 411 ) — — 411 — Cash dividends declared, common stock ($ 0.21 per share) — — ( 2,898 ) — — ( 2,898 ) Balance, June 30, 2026 $ 7,555 $ 76,691 $ 118,034 $ ( 5,097 ) $ ( 14,389 ) $ 182,794 Balance, December 31, 2024 $ 7,555 $ 76,857 $ 89,542 $ ( 12,443 ) $ ( 11,964 ) $ 149,547 Net income — — 11,484 — — 11,484 Other comprehensive income — — — 554 — 554 Share-based compensation expense — 177 — — — 177 Purchase of treasury stock — — — — ( 2,222 ) ( 2,222 ) Restricted share unit vesting and taxes paid related to net share settlement — ( 222 ) — — 222 — Cash dividends declared, common stock ($ 0.19 per share) — — ( 2,717 ) — — ( 2,717 ) Balance, June 30, 2025 $ 7,555 $ 76,812 $ 98,309 $ ( 11,889 ) $ ( 13,964 ) $ 156,823 See accompanying notes to the consolidated financial statements (unaudited) . 5 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, (In thousands) 2026 2025 Cash flows from operating activities: Net income $ 13,069 $ 11,484 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (release of) credit losses on loans and unfunded commitments 311 ( 391 ) Depreciation expense 1,257 1,140 Net amortization of investment securities, premiums, and discounts 125 208 Provision for valuation allowance for premises and equipment held for sale 278 — Investment securities (gains) losses, net ( 285 ) 3 Gain on sales and dispositions of premises and equipment ( 1,390 ) ( 48 ) Gain on sales and dispositions of other real estate ( 302 ) ( 28 ) Provision for valuation allowance for other real estate owned — 184 Share-based compensation expense 274 177 Increase in cash surrender value - life insurance ( 596 ) ( 765 ) Decrease (increase) in accrued interest receivable and other assets 732 ( 384 ) Decrease in operating lease liabilities ( 240 ) ( 138 ) Increase in accrued interest payable and other liabilities 5,068 49 Origination of mortgage loans held for sale ( 18,066 ) ( 2,661 ) Proceeds from the sale of mortgage loans held for sale 18,060 2,903 Gain on sale of mortgage loans, net ( 146 ) ( 242 ) Net cash provided by operating activities 18,149 11,491 Cash flows from investing activities: Net decrease in loans 72,217 3,229 Purchase of available-for-sale debt securities ( 36,470 ) ( 13,332 ) Proceeds from maturities, calls, and paydowns of available-for-sale debt securities 11,870 11,378 Purchases of FHLB stock ( 48,852 ) ( 9,657 ) Proceeds from sales of FHLB stock 52,139 7,147 Purchases of premises and equipment ( 2,508 ) ( 924 ) Proceeds from sales of premises and equipment 1,895 49 Proceeds from sales of other real estate and repossessed assets 65 1,418 Net cash provided by (used in) investing activities 50,356 ( 692 ) Cash flows from financing activities: Net increase (decrease) in demand deposits ( 7,179 ) 34,892 Net decrease in interest bearing transaction accounts ( 51,277 ) ( 58,123 ) Net increase (decrease) in time deposits ( 7,504 ) 8,035 Repayment of FHLB advances and other borrowings ( 1,154,764 ) ( 170,100 ) Proceeds from FHLB advances and other borrowings 1,082,040 228,675 Decrease in finance lease liabilities ( 75 ) — Proceeds from financing obligation 1,908 — Repayment of financing obligation ( 3 ) — Purchase of treasury stock ( 396 ) ( 2,222 ) Cash dividends paid - common stock ( 2,832 ) ( 2,656 ) Net cash provided by (used in) financing activities ( 140,082 ) 38,501 Net (decrease) increase in cash and cash equivalents ( 71,577 ) 49,300 Cash and cash equivalents, beginning of period 104,312 50,994 Cash and cash equivalents, end of period $ 32,735 $ 100,294 See accompanying notes to the consolidated financial statements (unaudited). 6 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) continued Six Months Ended June 30, (In thousands) 2026 2025 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 14,471 $ 16,041 Income taxes 3,206 597 Non-cash investing and financing activities: Other real estate and repossessed assets acquired in settlement of loans $ 2,609 $ — Loans held for investment originated through other real estate and repossessed assets sold 2,099 — Loans held for investment originated through premises and equipment sold $ 1,875 $ — Right of use assets obtained in exchange for new operating lease liabilities 1,122 1,351 Dividends declared not paid - common stock 1,448 1,389 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, 2025. 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 (the “OBBBA”), which includes a broad range of tax reform provisions, was signed into law in the United States. The OBBBA tax provisions have multiple effective dates, with certain provisions effective in 2025 and others being phased in through 2027. The Company is continuing to evaluate the effect that the OBBBA will have on the Company’s financial condition, 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. Failed Sale-Leaseback/Financing Obligation. In March 2026, the Company transferred legal title to certain real estate and entered into a related lease and development arrangement with the buyer. The transaction did not qualify as a sale under Accounting Standards Codification (“ASC”) Topic 842 because control did not transfer under ASC Topic 606 due to continuing involvement, including contractual provisions that affect the transfer of control. Accordingly, the Company continues to recognize the real estate within premises and equipment and recorded the $ 1.9 million of proceeds received as a financing obligation. The financing obligation is subsequently accounted for under the effective interest method and periodic payments are allocated between interest expense and reduction of the financing obligation. Proceeds received are presented as financing cash inflows and principal repayments as financing cash outflows in the statement of cash flows. Pending Acquisition. On April 29, 2026, the Company entered into an agreement to acquire FSC Bancshares, Inc. in a cash-and-stock merger valued at approximately $ 28.3 million, with the transaction expected to close in the third quarter of 8 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 2026, subject to approval by shareholders of FSC Bancshares, Inc. and other customary closing conditions. Refer to Note 17, “Pending Acquisition”, for further details regarding this transaction. Recent Accounting Pronouncements Income Statement. In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 and disclosures. (2) Loans and Allowance for Credit Losses Loans Major classifications within the Company’s loans held for investment portfolio at June 30, 2026 and December 31, 2025 were as follows: (dollars in thousands) June 30, 2026 December 31, 2025 Commercial, financial, and agricultural $ 196,084 $ 227,584 Real estate construction − residential 42,307 39,609 Real estate construction − commercial 85,914 83,846 Real estate mortgage − residential 370,185 369,636 Real estate mortgage − commercial 712,619 755,892 Installment and other consumer 9,251 10,225 Total loans held for investment $ 1,416,360 $ 1,486,792 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 geographic sector. Accrued interest on loans totaled $ 5.9 million and $ 6.8 million at June 30, 2026 and December 31, 2025, respectively, and is included in accrued interest receivable and other assets on the Company's consolidated balance sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. At June 30, 2026, loans of $ 707.7 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 9 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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. 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 $ 1.5 million and $ 1.0 million at June 30, 2026 and December 31, 2025, 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. 10 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following tables illustrate the changes in the allowance for credit losses on loans by portfolio segment: Three Months Ended June 30, 2026 (dollars in thousands) Commercial, Financial, & Agricultural Real Estate Construction - Residential Real Estate Construction - Commercial Real Estate Mortgage - Residential Real Estate Mortgage - Commercial Installment and Other Consumer Un- allocated Total Allowance for Credit Losses on Loans Balance at beginning of period $ 4,329 $ 1,047 $ 1,900 $ 4,389 $ 9,172 $ 96 $ — $ 20,933 Charge-offs ( 185 ) — — — ( 2 ) ( 56 ) — ( 243 ) Recoveries 48 — 22 5 1 29 — 105 Provision for (release of) credit losses ( 564 ) ( 6 ) 299 163 ( 143 ) 24 162 ( 65 ) Balance at end of period $ 3,628 $ 1,041 $ 2,221 $ 4,557 $ 9,028 $ 93 $ 162 $ 20,730 Six Months Ended June 30, 2026 (dollars in thousands) Commercial, Financial, & Agricultural Real Estate Construction - Residential Real Estate Construction - Commercial Real Estate Mortgage - Residential Real Estate Mortgage - Commercial Installment and Other Consumer Un- allocated Total Allowance for Credit Losses on Loans Balance at beginning of period $ 3,655 $ 975 $ 1,719 $ 4,823 $ 9,839 $ 100 $ — $ 21,111 Charge-offs ( 195 ) — — — ( 25 ) ( 116 ) — ( 336 ) Recoveries 52 — 22 10 1 55 — 140 Provision for (release of) credit losses 116 66 480 ( 276 ) ( 787 ) 54 162 ( 185 ) Balance at end of period $ 3,628 $ 1,041 $ 2,221 $ 4,557 $ 9,028 $ 93 $ 162 $ 20,730 Three Months Ended June 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 Allowance for Credit Losses on Loans Balance at beginning of period $ 1,447 $ 583 $ 1,667 $ 5,134 $ 12,608 $ 117 $ 224 $ 21,780 Charge-offs ( 21 ) — — ( 8 ) ( 3 ) ( 109 ) — ( 141 ) Recoveries 34 — — 12 — 44 — 90 Provision for (release of) credit losses 684 ( 255 ) ( 183 ) ( 221 ) ( 213 ) 60 ( 31 ) ( 159 ) Balance at end of period $ 2,144 $ 328 $ 1,484 $ 4,917 $ 12,392 $ 112 $ 193 $ 21,570 Six Months Ended June 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 Allowance for Credit Losses on Loans Balance at beginning of period $ 1,560 $ 578 $ 2,221 $ 5,310 $ 12,305 $ 138 $ ( 68 ) $ 22,044 Charge-offs ( 34 ) — — ( 14 ) ( 36 ) ( 199 ) — ( 283 ) Recoveries 102 — — 19 58 71 — 250 Provision for (release of) credit losses 516 ( 250 ) ( 737 ) ( 398 ) 65 102 261 ( 441 ) Balance at end of period $ 2,144 $ 328 $ 1,484 $ 4,917 $ 12,392 $ 112 $ 193 $ 21,570 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 11 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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, 2025. The amortized cost of collateral-dependent loans by class as of June 30, 2026 and December 31, 2025 was as follows: Collateral Type (dollars in thousands) Real Estate Other Allowance Allocated June 30, 2026 Commercial, financial, and agricultural $ — $ 3,690 $ 2,066 Real estate mortgage − residential 1,289 — 35 Real estate mortgage − commercial 1,332 — 278 Total $ 2,621 $ 3,690 $ 2,379 December 31, 2025 Commercial, financial, and agricultural $ — $ 3,558 $ 1,477 Real estate mortgage − residential 3,914 — 432 Total $ 3,914 $ 3,558 $ 1,909 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. The following table presents the recorded investment by risk categories at June 30, 2026: 12 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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) 2026 2025 2024 2023 2022 Prior Total Commercial, Financial, & Agricultural Pass $ 14,622 $ 33,239 $ 9,813 $ 5,775 $ 13,728 $ 33,893 $ 75,412 $ 666 $ 187,148 Watch — 47 — 53 6 145 479 — 730 Special Mention — 479 — 2,814 — 235 — — 3,528 Substandard 8 291 678 15 2,719 555 412 — 4,678 Total $ 14,630 $ 34,056 $ 10,491 $ 8,657 $ 16,453 $ 34,828 $ 76,303 $ 666 $ 196,084 Gross YTD charge-offs $ — $ 171 $ — $ — $ — $ 24 $ — $ — $ 195 Real Estate Construction - Residential Pass $ 11,622 $ 25,020 $ 549 $ 4,849 $ — $ — $ 179 $ — $ 42,219 Watch — — — 88 — — — — 88 Total $ 11,622 $ 25,020 $ 549 $ 4,937 $ — $ — $ 179 $ — $ 42,307 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Construction - Commercial Pass $ 7,797 $ 28,050 $ 24,515 $ 1,387 $ 2,808 $ 3,163 $ 16,988 $ 1,085 $ 85,793 Watch 58 — 27 — 6 1 — — 92 Substandard — 29 — — — — — — 29 Total $ 7,855 $ 28,079 $ 24,542 $ 1,387 $ 2,814 $ 3,164 $ 16,988 $ 1,085 $ 85,914 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Mortgage - Residential Pass $ 27,471 $ 58,757 $ 16,778 $ 32,593 $ 89,701 $ 85,409 $ 54,183 $ 518 $ 365,410 Watch 229 431 — — 326 563 31 98 1,678 Substandard — 853 95 475 1,263 207 204 — 3,097 Total $ 27,700 $ 60,041 $ 16,873 $ 33,068 $ 91,290 $ 86,179 $ 54,418 $ 616 $ 370,185 Gross YTD charge-offs $ — Real Estate Mortgage - Commercial Pass $ 88,726 $ 147,311 $ 37,927 $ 60,848 $ 141,126 $ 155,880 $ 20,376 $ 2,405 $ 654,599 Watch 9,045 2,869 132 156 14,282 250 — — 26,734 Special Mention — — 20,164 — 4,799 — — — 24,963 Substandard — 1,310 146 46 3,909 912 — — 6,323 Total $ 97,771 $ 151,490 $ 58,369 $ 61,050 $ 164,116 $ 157,042 $ 20,376 $ 2,405 $ 712,619 Gross YTD charge-offs $ — $ — $ — $ — $ — $ 25 $ — $ — $ 25 Installment and other Consumer Pass $ 1,624 $ 2,028 $ 759 $ 1,042 $ 1,009 $ 2,724 $ 60 $ — $ 9,246 Substandard — — — 5 — — — — 5 Total $ 1,624 $ 2,028 $ 759 $ 1,047 $ 1,009 $ 2,724 $ 60 $ — $ 9,251 Gross YTD charge-offs $ — $ — $ — $ 8 $ — $ 108 $ — $ — $ 116 Total Portfolio Pass $ 151,862 $ 294,405 $ 90,341 $ 106,494 $ 248,372 $ 281,069 $ 167,198 $ 4,674 $ 1,344,415 Watch 9,332 3,347 159 297 14,620 959 510 98 29,322 Special Mention — 479 20,164 2,814 4,799 235 — — 28,491 Substandard 8 2,483 919 541 7,891 1,674 616 — 14,132 Total $ 161,202 $ 300,714 $ 111,583 $ 110,146 $ 275,682 $ 283,937 $ 168,324 $ 4,772 $ 1,416,360 Total Gross YTD charge-offs $ — $ 171 $ — $ 8 $ — $ 157 $ — $ — $ 336 The following table presents the recorded investment by risk categories at December 31, 2025: 13 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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 December 31, 2025 Commercial, Financial, & Agricultural Pass $ 65,367 $ 11,383 $ 9,223 $ 17,270 $ 19,867 $ 24,386 $ 66,741 $ 1,279 $ 215,516 Watch 581 164 93 8 — 148 1,473 — 2,467 Special Mention 729 — 3,058 317 — 261 — — 4,365 Substandard 203 679 15 3,184 536 25 594 — 5,236 Total $ 66,880 $ 12,226 $ 12,389 $ 20,779 $ 20,403 $ 24,820 $ 68,808 $ 1,279 $ 227,584 Gross YTD charge-offs $ — $ 307 $ 73 $ 78 $ — $ 59 $ 521 $ — $ 1,038 Real Estate Construction - Residential Pass $ 30,523 $ 4,066 $ 4,881 $ — $ — $ — $ 51 $ — $ 39,521 Watch — — 88 — — — — — 88 Total $ 30,523 $ 4,066 $ 4,969 $ — $ — $ — $ 51 $ — $ 39,609 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Construction - Commercial Pass $ 44,693 $ 17,876 $ 8,737 $ 3,226 $ 2,757 $ 687 $ 4,660 $ 1,085 $ 83,721 Watch 59 29 — 8 — — — — 96 Substandard 29 — — — — — — — 29 Total $ 44,781 $ 17,905 $ 8,737 $ 3,234 $ 2,757 $ 687 $ 4,660 $ 1,085 $ 83,846 Gross YTD charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real Estate Mortgage - Residential Pass $ 63,792 $ 21,182 $ 36,980 $ 98,512 $ 42,745 $ 48,795 $ 48,900 $ 1,039 $ 361,945 Watch 442 — — 487 370 442 31 157 1,929 Substandard 3,463 98 495 1,301 — 189 216 — 5,762 Total $ 67,697 $ 21,280 $ 37,475 $ 100,300 $ 43,115 $ 49,426 $ 49,147 $ 1,196 $ 369,636 Gross YTD charge-offs $ — $ — $ — $ — $ — $ 14 $ — $ — $ 14 Real Estate Mortgage - Commercial Pass $ 186,984 $ 43,797 $ 82,928 $ 161,945 $ 151,011 $ 70,426 $ 16,381 $ 1,642 $ 715,114 Watch 3,185 445 214 3,978 325 631 — — 8,778 Special Mention — 20,561 — 4,932 — — — — 25,493 Substandard 1,311 147 — 4,145 — 760 144 — 6,507 Total $ 191,480 $ 64,950 $ 83,142 $ 175,000 $ 151,336 $ 71,817 $ 16,525 $ 1,642 $ 755,892 Gross YTD charge-offs $ — $ 49 $ 76 $ — $ — $ 32 $ — $ — $ 157 Installment and other Consumer Pass $ 2,696 $ 1,063 $ 1,764 $ 1,628 $ 367 $ 2,605 $ 68 $ — $ 10,191 Substandard — — 7 13 14 — — — 34 Total $ 2,696 $ 1,063 $ 1,771 $ 1,641 $ 381 $ 2,605 $ 68 $ — $ 10,225 Gross YTD charge-offs $ — $ 3 $ 33 $ 13 $ — $ 330 $ — $ — $ 379 Total Portfolio Pass $ 394,055 $ 99,367 $ 144,513 $ 282,581 $ 216,747 $ 146,899 $ 136,801 $ 5,045 $ 1,426,008 Watch 4,267 638 395 4,481 695 1,221 1,504 157 13,358 Special Mention 729 20,561 3,058 5,249 — 261 — — 29,858 Substandard 5,006 924 517 8,643 550 974 954 — 17,568 Total $ 404,057 $ 121,490 $ 148,483 $ 300,954 $ 217,992 $ 149,355 $ 139,259 $ 5,202 $ 1,486,792 Total Gross YTD charge-offs $ — $ 359 $ 182 $ 91 $ — $ 435 $ 521 $ — $ 1,588 14 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 June 30, 2026 and December 31, 2025: (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 June 30, 2026 Commercial, Financial, and Agricultural $ 1,538 $ 413 $ 1,951 $ — $ 1,951 Real estate mortgage − residential 854 2,182 3,036 156 3,192 Real estate mortgage − commercial — 1,502 1,502 — 1,502 Installment and Other Consumer — 5 5 5 10 Total $ 2,392 $ 4,102 $ 6,494 $ 161 $ 6,655 December 31, 2025 Commercial, Financial, and Agricultural $ 603 $ 400 $ 1,003 $ — $ 1,003 Real estate mortgage − residential — 5,656 5,656 29 5,685 Real estate mortgage − commercial — 143 143 — 143 Installment and Other Consumer — 34 34 — 34 Total $ 603 $ 6,233 $ 6,836 $ 29 $ 6,865 No material amount of interest income was recognized on non-accrual loans during the three and six months ended June 30, 2026. 15 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 June 30, 2026 and December 31, 2025: (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 June 30, 2026 Commercial, Financial, and Agricultural $ 193,156 $ 977 $ — $ 1,951 $ 196,084 Real estate construction − residential 42,307 — — — 42,307 Real estate construction − commercial 85,459 455 — — 85,914 Real estate mortgage − residential 366,421 572 156 3,036 370,185 Real estate mortgage − commercial 711,039 78 — 1,502 712,619 Installment and Other Consumer 9,143 98 5 5 9,251 Total $ 1,407,525 $ 2,180 $ 161 $ 6,494 $ 1,416,360 December 31, 2025 Commercial, Financial, and Agricultural $ 226,129 $ 452 $ — $ 1,003 $ 227,584 Real estate construction − residential 39,521 88 — — 39,609 Real estate construction − commercial 83,846 — — — 83,846 Real estate mortgage − residential 362,289 1,662 29 5,656 369,636 Real estate mortgage − commercial 755,512 237 — 143 755,892 Installment and Other Consumer 10,105 86 — 34 10,225 Total $ 1,477,402 $ 2,525 $ 29 $ 6,836 $ 1,486,792 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 six months ended June 30, 2026 and 2025, 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 $ 0.2 million at June 30, 2026 and $ 0.6 million at December 31, 2025. 16 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 June 30, 2026 and December 31, 2025: (dollars in thousands) June 30, 2026 December 31, 2025 Real estate mortgage - residential $ 845 $ — Real estate mortgage - commercial — 98 Total $ 845 $ 98 Less valuation allowance for other real estate owned — — Total other real estate owned and repossessed assets $ 845 $ 98 At June 30, 2026, there were $ 0.6 million of consumer mortgage loans secured by residential real estate properties in the process of foreclosure. There were no such loans outstanding at December 31, 2025. Activity in the valuation allowance for other real estate owned was as follows for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2026 2025 2026 2025 Balance at beginning of period $ 34 $ 2,003 $ — $ 2,003 Provision for (release of) provision for valuation allowance for other real estate owned ( 34 ) 184 — 184 Charge-offs — ( 1,962 ) — ( 1,962 ) Balance at end of period $ — $ 225 $ — $ 225 17 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 June 30, 2026 and December 31, 2025 were as follows: Gross Unrealized (dollars in thousands) Total Amortized Cost Gains Losses Fair Value June 30, 2026 U.S. Treasury $ 6,911 $ 22 $ — $ 6,933 U.S. government-sponsored enterprises 4,001 3 ( 136 ) 3,868 Obligations of states and political subdivisions 119,998 25 ( 17,535 ) 102,488 Mortgage-backed securities Residential 69,722 275 ( 2,403 ) 67,594 Commercial 14,399 3 ( 1,834 ) 12,568 Other debt securities (1) 39,174 370 ( 843 ) 38,701 Bank issued trust preferred securities (1) 1,486 — ( 162 ) 1,324 Total available-for-sale securities $ 255,691 $ 698 $ ( 22,913 ) $ 233,476 December 31, 2025 U.S. Treasury $ 4,949 $ 119 $ — $ 5,068 U.S. government-sponsored enterprises 5,001 31 ( 116 ) 4,916 Obligations of states and political subdivisions 121,569 28 ( 17,406 ) 104,191 Mortgage-backed securities Residential 59,865 750 ( 2,232 ) 58,383 Commercial 15,090 19 ( 1,995 ) 13,114 Other debt securities (1) 22,979 297 ( 325 ) 22,951 Bank issued trust preferred securities (1) 1,486 — ( 170 ) 1,316 Total available-for-sale securities $ 230,939 $ 1,244 $ ( 22,244 ) $ 209,939 (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 $ 110.8 million and $ 101.5 million at June 30, 2026 and December 31, 2025, 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 six months ended June 30, 2026 and 2025. All gains and losses recognized on equity securities during each of the three and six months ended June 30, 2026 and 2025 were unrealized. During the six months ended June 30, 2026, the Company recorded net investment securities gains of approximately $ 0.3 million from called securities. The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2026, by contractual maturity are shown below. Accrued interest on investments totaled $ 1.7 million and $ 1.5 million at June 30, 2026 and December 31, 2025, 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. 18 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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. June 30, 2026 (dollars in thousands) Amortized Cost Fair Value Due in one year or less $ 1,448 $ 1,448 Due after one year through five years 20,003 19,585 Due after five years through ten years 56,876 53,319 Due after ten years 93,243 78,962 Total 171,570 153,314 Mortgage-backed securities 84,121 80,162 Total available-for-sale securities $ 255,691 $ 233,476 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) June 30, 2026 December 31, 2025 FHLB stock $ 2,473 $ 5,759 MIB stock 151 151 Equity securities with readily determinable fair values 71 66 Total other investment securities $ 2,695 $ 5,976 19 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 June 30, 2026 and December 31, 2025 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 June 30, 2026 U.S. government-sponsored enterprises $ — $ — $ 1,864 $ ( 136 ) $ 1,864 $ ( 136 ) Obligations of states and political subdivisions 1,117 ( 4 ) 97,703 ( 17,531 ) 98,820 ( 17,535 ) Mortgage-backed securities Residential 17,134 ( 84 ) 18,561 ( 2,319 ) 35,695 ( 2,403 ) Commercial 2,542 ( 37 ) 8,755 ( 1,797 ) 11,297 ( 1,834 ) Other debt securities 14,067 ( 587 ) 4,569 ( 256 ) 18,636 ( 843 ) Bank issued trust preferred securities — — 1,324 ( 162 ) 1,324 ( 162 ) Total $ 34,860 $ ( 712 ) $ 132,776 $ ( 22,201 ) $ 167,636 $ ( 22,913 ) December 31, 2025 U.S. government-sponsored enterprises — — 1,884 ( 116 ) 1,884 ( 116 ) Obligations of states and political subdivisions 604 ( 1 ) 100,994 ( 17,405 ) 101,598 ( 17,406 ) Mortgage-backed securities Residential — — 20,533 ( 2,232 ) 20,533 ( 2,232 ) Commercial 848 ( 7 ) 9,639 ( 1,988 ) 10,487 ( 1,995 ) Other debt securities 2,703 ( 72 ) 4,572 ( 253 ) 7,275 ( 325 ) Bank issued trust preferred securities — — 1,316 ( 170 ) 1,316 ( 170 ) Total $ 4,155 $ ( 80 ) $ 138,938 $ ( 22,164 ) $ 143,093 $ ( 22,244 ) The total available-for-sale portfolio consisted of approximately 396 securities at June 30, 2026. The portfolio included 347 securities having an aggregate fair value of $ 167.6 million that were in a loss position at June 30, 2026. The $ 22.9 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2026 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, 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 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. 20 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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 June 30, 2026 As of December 31, 2025 Fair Value Fair Value (dollars in thousands) Notional Amount Derivative Assets Derivative Liabilities Notional Amount Derivative Assets Derivative Liabilities Interest Rate Products $ 16,542 $ 3 $ 27 $ 16,542 $ 180 $ 191 Total derivatives not designated as hedging instruments $ 3 $ 27 $ 180 $ 191 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 six months ended June 30, 2026 and 2025. The Company did not recognize other income related to client swaps in any of the three or six months ended June 30, 2026 and 2025. Gain or (Loss) Recognized in Income on Derivative Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) Location of Gain or (Loss) Recognized in Income on Derivative 2026 2025 2026 2025 Interest Rate Products (1) Other non-interest income $ ( 5 ) $ 4 $ 13 $ ( 19 ) Total $ ( 5 ) $ 4 $ 13 $ ( 19 ) (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 June 30, 2026, the Company had recorded the obligation to collect cash collateral of $ 0.04 million. As of June 30, 2026, 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 $ 0.02 million. As of June 30, 2026, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2026, it could have been required to settle its obligations under the agreements at their termination value of $ 0 . (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) June 30, 2026 December 31, 2025 Time deposits with balances > $250,000 $ 92,144 $ 90,504 Brokered deposits 4,025 502 Total $ 96,169 $ 91,006 21 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (7) Leases Leases are classified as operating or finance leases at the lease commencement date. The Company's leases primarily consist of office space, bank branches and bank equipment with original lease terms of generally 1 to 10 years. Lease right-of-use ("ROU") assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and 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 expense, 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 components of lease expense for the three and six months ended June 30, 2026, and 2025 are shown in the table below. Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2026 2025 2026 2025 Operating lease expense $ 228 $ 161 $ 455 $ 302 Financing lease expense 13 — 26 — ROU assets and lease liabilities by lease type, and the associated balance sheet classifications are shown in table below as of June 30, 2026 and December 31, 2025. (dollars in thousands) Balance Sheet Classification June 30, 2026 December 31, 2025 ROU assets ROU assets-operating leases Premises and equipment, net $ 3,298 $ 2,476 ROU assets-finance leases Premises and equipment, net 1,130 1,205 Total ROU assets $ 4,428 $ 3,681 Lease liabilities Operating lease liabilities Operating lease liabilities $ 3,564 $ 2,682 Finance lease liabilities Finance lease liabilities 1,130 1,205 Total lease liabilities $ 4,694 $ 3,887 Contractual lease payment obligations for each of the next five years and thereafter, in addition to a reconciliation to the Company's lease liabilities were as follows: Lease payments due in: Operating Lease Finance Leases Total (dollars in thousands) 2026 remaining $ 380 $ 100 $ 480 2027 789 201 990 2028 789 201 990 2029 596 201 797 2030 567 200 767 Thereafter 909 401 1,310 Total lease payments 4,030 1,304 5,334 Less imputed interest ( 466 ) ( 174 ) ( 640 ) Total lease liabilities, as reported $ 3,564 $ 1,130 $ 4,694 22 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) The following table presents the weighted average remaining lease term, in years, and the weighted average discount rate by lease type as of June 30, 2026 and 2025. June 30, 2026 December 31, 2025 Operating lease weighted average remaining lease term (in years) 5.5 5.4 Operating lease weighted average discount rate 4.40 % 4.38 % Finance lease weighted average remaining lease term (in years) 6.5 7 Finance lease weighted average discount rate 4.55 % 4.55 % (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 six months ended June 30, 2026 and 2025: Six Months Ended June 30, 2026 (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 $ ( 16,590 ) $ 12,977 $ ( 3,613 ) Other comprehensive loss, before reclassifications ( 931 ) ( 662 ) ( 1,593 ) Amounts reclassified from accumulated other comprehensive loss ( 285 ) — ( 285 ) Current period other comprehensive loss, before tax ( 1,216 ) ( 662 ) ( 1,878 ) Income tax benefit 255 139 394 Current period other comprehensive loss, net of tax ( 961 ) ( 523 ) ( 1,484 ) Balance at end of period $ ( 17,551 ) $ 12,454 $ ( 5,097 ) Six Months Ended June 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 1,339 ( 638 ) 701 Current period other comprehensive income (loss), before tax 1,339 ( 638 ) 701 Income tax (benefit) expense ( 281 ) 134 ( 147 ) Current period other comprehensive income (loss), net of tax 1,058 ( 504 ) 554 Balance at end of period $ ( 23,358 ) $ 11,469 $ ( 11,889 ) (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 23 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) repurchased 12,000 common shares under its repurchase program during the first six months of 2026 at an average cost of $ 32.68 per share totaling $ 0.4 million. As of June 30, 2026, $ 8.0 million remained available for share repurchases pursuant to the Company's current repurchase program. On July 29, 2026, the Company’s Board of Directors amended the repurchase program to increase the authorized repurchase limit to $ 10.0 million. (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 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 six months ended June 30, 2026 and 2025: Six Months Ended June 30, 2026 2025 Quantity Weighted-Average Grant Date Fair Value Per share Quantity Weighted-Average Grant Date Fair Value Per share Non-vested at beginning of period 39,037 $ 26.64 35,336 $ 22.84 Granted 14,849 34.99 11,174 29.18 Vested 11,534 22.43 7,809 28.48 Forfeited 667 32.01 — — Non-vested at end of period 41,685 $ 30.69 38,701 $ 21.91 The fair value of the RSUs is determined using the Company’s stock price on the date of grant. Total share-based compensation expense recognized for these RSUs was $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2026, respectively, compared to $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2025, respectively. Forfeitures will be recognized as they occur. At June 30, 2026, there was $ 1.1 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 1.9 years. 24 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (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 $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2026, respectively, compared to $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2025, respectively. The employer discretionary profit-sharing expense for the 401(k) plan was $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2026, respectively, compared to $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2025, 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 $ 1.6 million as of June 30, 2026, and the expense for the three and six months ended June 30, 2026 was $ 0.02 million and $ 0.04 million, respectively, compared to $ 0.02 million and $ 0.04 million for the three and six months ended June 30, 2025, respectively, and is recognized over the required service period. 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 June 30, Six Months Ended June 30, (dollars in thousands) 2026 2025 2026 2025 Service cost - benefits earned during the year $ 61 $ 127 $ 247 $ 347 Interest costs on projected benefit obligations (1) 377 376 774 775 Expected return on plan assets (1) ( 616 ) ( 585 ) ( 1,232 ) ( 1,170 ) Expected administrative expenses 37 36 75 73 Amortization of unrecognized net gain (1) ( 364 ) ( 365 ) ( 663 ) ( 638 ) Net periodic pension income $ ( 505 ) $ ( 411 ) $ ( 799 ) $ ( 613 ) 25 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) (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) includes 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. (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 June 30, Six Months Ended June 30, (in thousands, except per share data) 2026 2025 2026 2025 Net income available to shareholders $ 7,326 $ 6,101 $ 13,069 $ 11,484 Basic weighted-average shares outstanding 6,895,811 6,935,541 6,896,644 6,959,221 Effect of dilutive equity-based awards 10,686 9,523 9,210 8,292 Diluted weighted-average shares outstanding 6,906,497 6,945,064 6,905,854 6,967,513 Basic earnings per share $ 1.06 $ 0.88 $ 1.89 $ 1.65 Diluted earnings per share $ 1.06 $ 0.88 $ 1.89 $ 1.65 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. No RSUs were determined to be anti-dilutive during the three and six months ended June 30, 2026 and June 30, 2025. (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. 26 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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: 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. 27 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 June 30, 2026 and December 31, 2025 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) June 30, 2026 Assets: U.S. Treasury $ 6,933 $ 6,933 $ — $ — U.S. government-sponsored enterprises 3,868 — 3,868 — Obligations of states and political subdivisions 102,488 — 102,488 — Mortgage-backed securities Residential 67,594 — 67,594 — Commercial 12,568 — 12,568 — Other debt securities 38,701 — 38,701 — Bank-issued trust preferred securities 1,324 — 1,324 — Equity securities 71 71 — — Derivative instruments, interest rate swaps 3 — 3 — Total $ 233,550 $ 7,004 $ 226,546 $ — Liabilities: Derivative instruments, interest rate swaps $ 27 $ — $ 27 $ — Total $ 27 $ — $ 27 $ — December 31, 2025 Assets: U.S. Treasury $ 5,068 $ 5,068 $ — $ — U.S. government-sponsored enterprises 4,916 — 4,916 — Obligations of states and political subdivisions 104,191 — 104,191 — Mortgage-backed securities Residential 58,383 — 58,383 — Commercial 13,114 — 13,114 — Other debt securities 22,951 — 22,951 — Bank-issued trust preferred securities 1,316 — 1,316 — Equity securities 66 66 — — Derivative instruments, interest rate swaps 180 — 180 — Total $ 210,185 $ 5,134 $ 205,051 $ — Liabilities: Derivative instruments, interest rate swaps $ 191 $ — $ 191 $ — Total $ 191 $ — $ 191 $ — 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 28 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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 Repossessed Assets Other real estate owned (“OREO”) and repossessed 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. Premises and Equipment Held for Sale, net Premises and equipment held for sale, net, are carried at the lower of cost or estimated fair value less disposal costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. 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. Subsequent write-downs and gains or losses on sales are recorded to (losses) gains on other real estate owned and other assets, net. 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) June 30, 2026 Collateral-dependent loans: Commercial, financial, & agricultural $ 1,624 $ — $ — $ 1,624 Real estate mortgage - residential 1,254 — — 1,254 Real estate mortgage - commercial 1,054 — — 1,054 Total $ 3,932 $ — $ — $ 3,932 Other real estate and repossessed assets $ 845 $ — $ — $ 845 Premises and equipment held for sale, net 1,350 — — 1,350 December 31, 2025 Collateral-dependent loans: Commercial, financial, & agricultural $ 2,081 $ — $ — $ 2,081 Real estate mortgage - residential 3,482 — — 3,482 Total $ 5,563 $ — $ — $ 5,563 Other real estate and repossessed assets $ 98 $ — $ — $ 98 Premises and equipment held for sale, net 3,956 — — 3,956 29 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Quantitative Information about Level 3 Fair Value Instruments Weighted Average Discount Valuation Technique Unobservable Input June 30, 2026 December 31, 2025 Nonrecurring measurements: Collateral-dependent loans Discounted appraisals Collateral discounts 39 % 48 % Other real estate and repossessed assets and Premises and equipment held for sale, net Discounted appraisals Collateral discounts and estimated costs to sell 15 % 5 % (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. 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 30 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 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 June 30, 2026 and December 31, 2025 is as follows: June 30, 2026 Fair Value Measurements June 30, 2026 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 $ 22,900 $ 22,900 $ 22,900 $ — $ — Federal funds sold and overnight interest bearing deposits 9,835 9,835 9,835 — — Certificates of deposit in other banks 1,000 1,000 1,000 — — Other investment securities 2,624 2,624 — 2,624 — Loans, net 1,395,630 1,380,655 — — 1,380,655 Loans held for sale 152 152 — 152 — Accrued interest receivable 7,738 7,738 7,738 — — Total assets $ 1,439,879 $ 1,424,904 $ 41,473 $ 2,776 $ 1,380,655 Liabilities: Deposits: Non-interest bearing demand $ 416,389 $ 416,389 $ 416,389 $ — $ — Savings, interest checking and money market 775,792 775,792 775,792 — — Time deposits 296,008 294,112 — — 294,112 FHLB advances and other borrowings 29,362 28,161 — 28,161 — Subordinated notes 49,486 44,076 — 44,076 — Accrued interest payable 1,539 1,539 1,539 — — Total liabilities $ 1,568,576 $ 1,560,069 $ 1,193,720 $ 72,237 $ 294,112 31 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) December 31, 2025 Fair Value Measurements December 31, 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 $ 16,632 $ 16,632 $ 16,632 $ — $ — Federal funds sold and overnight interest-bearing deposits 87,680 87,680 87,680 — — Certificates of deposit in other banks 1,000 1,000 1,000 — — Other investment securities 5,910 5,910 — 5,910 — Loans, net 1,465,681 1,445,226 — — 1,445,226 Loans held for sale 616 616 — 616 — Accrued interest receivable 8,447 8,447 8,447 — — Total assets $ 1,585,966 $ 1,565,511 $ 113,759 $ 6,526 $ 1,445,226 Liabilities: Deposits: Non-interest bearing demand $ 423,568 $ 423,568 $ 423,568 $ — $ — Savings, interest checking and money market 827,069 827,069 827,069 — — Time deposits 303,512 302,189 — — 302,189 FHLB advances and other borrowings 102,086 102,114 86 102,028 — Subordinated notes 49,486 43,829 — 43,829 — Accrued interest payable 1,625 1,625 1,625 — — Total liabilities $ 1,707,346 $ 1,700,394 $ 1,252,348 $ 145,857 $ 302,189 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. 32 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 June 30, 2026 and December 31, 2025, the allowance for credit losses for unfunded commitments was $ 1.5 million and $ 1.0 million, respectively. The contractual amounts of off-balance sheet financial instruments were as follows as of the dates indicated: (dollars in thousands) June 30, 2026 December 31, 2025 Commitments to extend credit $ 375,495 $ 335,244 Standby letters of credit 29,361 88,457 Total $ 404,856 $ 423,701 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 one month to 2.7 years at June 30, 2026. 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. 33 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 six months ended June 30, 2026 and 2025, respectively: Three Months Ended June 30, 2026 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 24,329 $ — $ 23 $ 24,352 Interest expense 6,317 — 777 7,094 Net interest income 18,012 — ( 754 ) 17,258 Provision for credit losses 238 — — 238 Operating expenses Salaries and employee benefits 6,917 557 119 7,593 Occupancy, furniture and equipment expense 777 15 40 832 Processing, network, and bank card expense 1,379 40 — 1,419 Legal, examination, and professional fees 643 — 301 944 Depreciation 818 — — 818 Other 1,788 47 306 2,141 Total operating expenses 12,322 659 766 13,747 Other Non-interest income 2,899 654 1,824 5,377 Investment securities gains, net 280 — — 280 Income taxes 1,565 — 39 1,604 Net income (loss) $ 7,066 $ ( 5 ) $ 265 $ 7,326 Six Months Ended June 30, 2026 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 48,697 $ — $ 49 $ 48,746 Interest expense 12,834 — 1,552 14,386 Net interest income 35,863 — ( 1,503 ) 34,360 Provision for credit losses 311 — — 311 Operating expenses Salaries and employee benefits 13,304 741 362 14,407 Occupancy, furniture and equipment expense 2,120 35 ( 1 ) 2,154 Processing, network, and bank card expense 2,745 92 — 2,837 Legal, examination, and professional fees 1,291 — 455 1,746 Depreciation 1,256 1 — 1,257 Other 3,760 77 511 4,348 Total operating expenses 24,476 946 1,327 26,749 Other Non-interest income 6,285 1,270 922 8,477 Investment securities gains, net 285 — — 285 Income taxes 3,394 — ( 401 ) 2,993 Net income (loss) $ 14,252 $ 324 $ ( 1,507 ) $ 13,069 Segment assets $ 1,759,823 $ 18 $ 13,199 $ 1,773,040 34 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) Three Months Ended June 30, 2025 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 23,886 $ — $ 25 $ 23,911 Interest expense 6,914 — 855 7,769 Net interest income 16,972 — ( 830 ) 16,142 Release of credit losses ( 51 ) — — ( 51 ) Operating expenses Salaries and employee benefits 6,089 333 281 6,703 Occupancy, furniture and equipment expense 1,382 23 1 1,405 Processing, network, and bank card expense 1,796 18 ( 371 ) 1,443 Legal, examination, and professional fees 578 — ( 150 ) 428 Depreciation 215 — — 215 Other 1,196 31 848 2,075 Total operating expenses 11,256 405 609 12,269 Other Non-interest income 2,484 542 519 3,545 Investment securities gains (losses), net — — ( 1 ) ( 1 ) Income taxes 1,559 — ( 192 ) 1,367 Net income (loss) $ 6,692 $ 137 $ ( 729 ) $ 6,101 Six Months Ended June 30, 2025 (dollars in thousands) Hawthorn Bank Wealth Management Non-Bank Total Operating revenue Interest income $ 47,313 $ — $ 56 $ 47,369 Interest expense 14,224 — 1,709 15,933 Net interest income 33,089 — ( 1,653 ) 31,436 Release of credit losses ( 391 ) — — ( 391 ) Operating expenses Salaries and employee benefits 12,310 665 640 13,615 Occupancy, furniture and equipment expense 2,170 38 1 2,209 Processing, network, and bank card expense 2,808 36 — 2,844 Legal, examination, and professional fees 738 — 183 921 Depreciation 1,140 — — 1,140 Other 3,540 46 453 4,039 Total operating expenses 22,706 785 1,277 24,768 Other Non-interest income 5,072 1,054 882 7,008 Investment securities gains (losses), net ( 2 ) — ( 1 ) ( 3 ) Income taxes 3,011 — ( 431 ) 2,580 Net income (loss) $ 12,833 $ 269 $ ( 1,618 ) $ 11,484 Segment assets $ 1,871,265 $ 20 $ 6,132 $ 1,877,417 (16) Qualified Affordable Housing Tax Credit and Other Investments The Company invested in a qualified affordable housing project utilizing the Low-Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. This investment is intended to achieve a satisfactory return on capital, facilitate the sale of affordable housing product offerings, and assist in achieving goals associated with the Community Reinvestment Act. At June 30, 2026 and December 31, 2025, the balance of the investment for qualified housing projects was $ 0.8 million and $ 0 , respectively. This balance is reflected in accrued interest receivable and other assets on the 35 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) consolidated balance sheets. Total unfunded commitments related to the affordable housing project investment was $ 3.9 million and $ 0 at June 30, 2026 and December 31, 2025, respectively. The Company expects to fulfill the majority of the commitment over the next two years . The Company elected to use the proportional amortization method (“PAM”) to amortize the investment. As of June 30, 2026, the project had not begun generating tax credits so no amortization expense was taken during the period. The Company expects the project to begin generating tax credits in 2027. The Company also invested in a Small Business Investment Company (“SBIC”). At June 30, 2026 and December 31, 2025, the balance of the investment was $ 0.2 million and $ 0 , respectively. This balance is reflected in accrued interest receivable and other assets on the consolidated balance sheets. Total unfunded commitments related to the SBIC investment totaled $ 1.8 million and $ 0 at June 30, 2026 and December 31, 2025, respectively. The Company expects to fulfill a majority of the commitment over the next five years . The Company elected to use the equity method to account for this investment. As of June 30, 2026, the Company has not recorded any income or loss on the investment due to the first capital call occurring at quarter-end. The Company will evaluate the need to adjust the balance of the investment for earnings generated by the SBIC through the equity method in future periods. (17) Pending Acquisition On April 29, 2026, the Company announced its entry into a definitive agreement under which the Company will acquire FSC Bancshares, Inc. and its wholly owned subsidiary, Farmers State Bank (collectively, “FSC”) in a cash and stock transaction valued at approximately $ 28.3 million. The business combination transaction is expected to result in the mergers of FSC Bancshares, Inc. with and into the Company and Farmers State Bank with and into the Bank. The acquisition will be accounted for under ASC Topic 805. FSC has nine branch locations located in northern Missouri. As of June 30, 2026, Farmers State Bank reported total assets of $ 383.7 million, which included gross loans of $ 303.5 million; total deposits of $ 343.6 million; and $ 2.0 million in net income. The Company anticipates there will be a core deposit intangible and goodwill recorded with this acquisition. The transaction is anticipated to close in the third quarter of 2026, subject to FSC shareholder approval and other customary closing conditions. (18) 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. 36 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited)