HWBK 10-Q Quarterly Report June 30, 2025

HAWTHORN BANCSHARES, INC.

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hwbk-20250630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2025

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________ to ______________

Commission file number: 0-23636

HAWTHORN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Missouri			43-1626350
(State or other jurisdiction of			(I.R.S. Employer Identification No. )
incorporation or organization)

132 East High Street, Box 688 , Jefferson City , Missouri 65102

(Address of principal executive offices) (Zip Code)

( 573 ) 761-6100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	HWBK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 11, 2025, the registrant had 6,905,968 shares of common stock, par value $1.00 per share, outstanding.

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets at June 30, 2025 (Unaudited) and December 31, 2024	2
	Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2025 and 2024	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2025 and 2024	4
	Consolidated Statements of Stockholders' Equity (Unaudited) for the three and six months ended June 30, 2025 and 2024	5
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2025 and 2024	6
	Notes to the Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	58
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 5.	Other Information	60
Item 6.	Exhibits	60
SIGNATURES		61

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets


(dollars in thousands, except per share data)	June 30, 2025		December 31, 2024
	(Unaudited)
ASSETS
Cash and due from banks	$	22,911	$	23,668

Other interest-bearing deposits	77,383		27,326
Cash and cash equivalents	100,294		50,994
Certificates of deposit in other banks	1,000		1,000
Available-for-sale debt securities, at fair value	221,736		218,652
Other investments	7,656		5,149

Loans held for investment	1,462,898		1,466,160
Allowance for credit losses	( 21,570 )		( 22,044 )
Net loans	1,441,328		1,444,116

Premises and equipment - net	29,652		31,166

Other real estate owned - net	2,425		1,446

Cash surrender value of bank-owned life insurance	39,677		38,912
Accrued interest receivable and other assets	33,649		33,750
Total assets	$	1,877,417	$	1,825,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand	$	419,914	$	385,022
Savings, interest checking and money market	788,216		846,339

Time deposits	309,856		301,821
Total deposits	1,517,986		1,533,182

Federal Home Loan Bank advances and other borrowings	140,100		81,525
Subordinated notes	49,486		49,486
Operating lease liabilities	2,891		1,678


Accrued interest payable and other liabilities	10,131		9,767
Total liabilities	1,720,594		1,675,638
Stockholders’ equity:
Common stock, $ 1.00 par value, authorized 15,000,000 shares; issued 7,554,893 shares	7,555		7,555
Surplus	76,812		76,857
Retained earnings	98,309		89,542
Accumulated other comprehensive loss, net of tax	( 11,889 )		( 12,443 )
Treasury stock; 638,236 and 566,268 shares, at cost, respectively	( 13,964 )		( 11,964 )
Total stockholders’ equity	156,823		149,547
Total liabilities and stockholders’ equity	$	1,877,417	$	1,825,185

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

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)	2025		2024		2025		2024
INTEREST INCOME
Interest and fees on loans	$	21,549	$	21,534	$	42,745	$	43,265
Interest and fees on loans held for sale	3		36		5		66
Interest on investment securities:
Taxable	1,398		788		2,702		1,539
Nontaxable	586		596		1,173		1,188

Federal funds sold and Other interest-bearing deposits	290		452		539		1,263
Dividends on other investments	85		150		205		287
Total interest income	23,911		23,556		47,369		47,608
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market	4,086		4,493		8,435		9,123

Time deposits	2,422		3,075		4,886		5,910
Total interest expense on deposits	6,508		7,568		13,321		15,033
Interest on federal funds purchased and securities sold under agreements to repurchase	1		—		1		—
Interest on Federal Home Loan Bank advances	404		831		903		1,680
Interest on subordinated notes	856		985		1,708		1,975
Total interest expense on borrowings	1,261		1,816		2,612		3,655
Total interest expense	7,769		9,384		15,933		18,688
Net interest income	16,142		14,172		31,436		28,920
(Release of) provision for credit losses on loans	( 159 )		282		( 441 )		282
Provision for (release of) credit losses on unfunded commitments	108		175		50		( 55 )
Total (release of) provision for credit losses on loans and unfunded commitments	( 51 )		457		( 391 )		227
Net interest income after provision for credit losses on loans and unfunded commitments	16,193		13,715		31,827		28,693
NON-INTEREST INCOME
Service charges and other fees	940		777		1,853		1,594
Bank card income and fees	1,003		1,075		1,929		2,048
Earnings on bank-owned life insurance	509		505		1,019		641
Wealth management revenue	542		450		1,016		830

Gain on sale of mortgage loans, net	117		398		242		675
(Losses) gains on other real estate owned, net	( 177 )		454		( 156 )		488
Other	611		337		1,105		739
Total non-interest income	3,545		3,996		7,008		7,015
Investment securities losses, net	( 1 )		( 15 )		( 3 )		( 15 )
NON-INTEREST EXPENSE
Salaries and employee benefits	6,703		6,724		13,615		13,454
Occupancy expense, net	947		708		1,883		1,521
Furniture and equipment expense	673		722		1,466		1,478
Processing, network, and bank card expense	1,443		1,362		2,844		2,732
Legal, examination, and professional fees	428		512		921		1,335
Advertising and promotion	212		261		372		524
Postage, printing, and supplies	342		190		636		357

Other	1,521		1,555		3,031		3,208
Total non-interest expense	12,269		12,034		24,768		24,609
Income before income taxes	7,468		5,662		14,064		11,084
Income tax expense	1,367		1,033		2,580		1,999
Net income	$	6,101	$	4,629	$	11,484	$	9,085
Basic earnings per share	$	0.88	$	0.66	$	1.65	$	1.29
Diluted earnings per share	$	0.88	$	0.66	$	1.65	$	1.29

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2025		2024		2025		2024
Net income	$	6,101	$	4,629	$	11,484	$	9,085
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	674		( 983 )		1,058		( 3,198 )

Defined benefit pension plans:

Amortization of net gains included in net periodic pension income, net of tax	( 288 )		( 147 )		( 504 )		( 273 )
Total other comprehensive income (loss)	386		( 1,130 )		554		( 3,471 )
Total comprehensive income	$	6,487	$	3,499	$	12,038	$	5,614

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (unaudited)


	Three Months Ended June 30, 2025 and 2024
(In thousands, except per share data)	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
Balance, 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 ($ 0.20 per share)	—		—		( 1,389 )		—		—		( 1,389 )
Balance, June 30, 2025	$	7,555	$	76,812	$	98,309	$	( 11,889 )	$	( 13,964 )	$	156,823

Balance, March 31, 2024	$	7,555	$	76,847	$	79,725	$	( 16,103 )	$	( 11,404 )	$	136,620
Net income	—		—		4,629		—		—		4,629
Other comprehensive loss	—		—		—		( 1,130 )		—		( 1,130 )
Share-based compensation expense	—		42		—		—		—		42
Purchase of treasury stock	—		—		—		—		( 592 )		( 592 )
Restricted share unit vesting and taxes paid related to net share settlement	—		( 81 )		—		—		81		—

Cash dividends declared, common stock ($ 0.19 per share)	—		—		( 1,328 )		—		—		( 1,328 )
Balance, June 30, 2024	$	7,555	$	76,808	$	83,026	$	( 17,233 )	$	( 11,915 )	$	138,241

	Six Months Ended June 30, 2025 and 2024
(In thousands, except per share data)	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2024	$	7,555	$	76,857	$	89,542	$	( 12,443 )	$	( 11,964 )	$	149,547


Net income	—		—		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 ($ 0.39 per share)	—		—		( 2,717 )		—		—		( 2,717 )
Balance, June 30, 2025	$	7,555	$	76,812	$	98,309	$	( 11,889 )	$	( 13,964 )	$	156,823

Balance, December 31, 2023	$	7,555	$	76,818	$	76,464	$	( 13,762 )	$	( 10,990 )	$	136,085


Net income	—		—		9,085		—		—		9,085
Other comprehensive loss	—		—		—		( 3,471 )		—		( 3,471 )
Share-based compensation expense	—		71		—		—		—		71
Purchase of treasury stock	—		—		—		—		( 1,006 )		( 1,006 )
Restricted share unit vesting and taxes paid related to net share settlement	—		( 81 )		—		—		81		—

Cash dividends declared, common stock ($ 0.36 per share)	—		—		( 2,523 )		—		—		( 2,523 )
Balance, June 30, 2024	$	7,555	$	76,808	$	83,026	$	( 17,233 )	$	( 11,915 )	$	138,241

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)


	Six Months Ended June 30,
(In thousands)	2025		2024
Cash flows from operating activities:
Net income	$	11,484	$	9,085
Adjustments to reconcile net income to net cash provided by operating activities:
(Release of) provision for credit losses on loans and unfunded commitments	( 391 )		227
Depreciation expense	1,140		925
Net amortization of investment securities, premiums, and discounts	208		418
Change in fair value of mortgage servicing rights	—		( 149 )
Investment securities losses, net	3		15
Gain on sales and dispositions of premises and equipment	( 48 )		( 6 )
Gain on sales and dispositions of other real estate	( 28 )		( 94 )
Provision for (release of) valuation allowance for other real estate owned	184		( 386 )
Proceeds from the sale of mortgage servicing rights	—		1,589
Share-based compensation expense	177		71

Increase in cash surrender value - life insurance	( 765 )		( 485 )
(Increase) decrease in accrued interest receivable and other assets	( 384 )		2,057
Decrease in operating lease liabilities	( 138 )		( 103 )

Increase (decrease) in accrued interest payable and other liabilities	49		( 1,143 )
Origination of mortgage loans held for sale	( 2,661 )		( 34,810 )
Proceeds from the sale of mortgage loans held for sale	2,903		38,001
Gain on sale of mortgage loans, net	( 242 )		( 675 )

Net cash provided by operating activities	11,491		14,537
Cash flows from investing activities:
Purchase of certificates of deposit in other banks	—		( 1,000 )

Purchase of bank-owned life insurance	—		( 35,000 )
Net decrease in loans	3,229		35,867
Purchase of available-for-sale debt securities	( 13,332 )		( 18,965 )
Proceeds from maturities of available-for-sale debt securities	7,623		5,660
Proceeds from calls of available-for-sale debt securities	3,755		12,256

Purchases of FHLB stock	( 9,657 )		( 767 )
Proceeds from sales of FHLB stock	7,147		1,218
Purchases of premises and equipment	( 924 )		( 1,082 )
Proceeds from sales of premises and equipment	49		11


Proceeds from sales of other real estate and repossessed assets	1,418		1,548
Net cash used in investing activities	( 692 )		( 254 )
Cash flows from financing activities:
Net increase (decrease) in demand deposits	34,892		( 623 )
Net decrease in interest-bearing transaction accounts	( 58,123 )		( 42,269 )
Net increase in time deposits	8,035		22,298

Repayment of FHLB advances and other borrowings	( 170,100 )		( 22,200 )
FHLB advances	228,675		14,300
Purchase of treasury stock	( 2,222 )		( 1,006 )
Cash dividends paid - common stock	( 2,656 )		( 2,391 )
Net cash provided by (used in) financing activities	38,501		( 31,891 )
Net increase (decrease) in cash and cash equivalents	49,300		( 17,608 )
Cash and cash equivalents, beginning of period	50,994		93,450
Cash and cash equivalents, end of period	$	100,294	$	75,842

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited) continued


	Six Months Ended June 30,
(In thousands)	2025		2024

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	16,041	$	18,347
Income taxes	$	597	$	—
Non-cash investing and financing activities:
Other real estate and repossessed assets acquired in settlement of loans	$	—	$	2,730
Right of use assets obtained in exchange for new operating lease liabilities	$	1,351	$	—
Dividends declared not paid - common stock	$	1,389	$	1,329

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(1) Summary of Significant Accounting Policies

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions that provide financial products and services. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with United States (U.S.) generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for credit losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements other than mentioned below.

Recent Accounting Pronouncements

Impact of Recently Issued Accounting Standards But Not Yet Adopted

Income Taxes. In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The ASU requires that all entities disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal or greater than 5 percent of total income taxes paid. The ASU also requires that all entities disclose (1) income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign. The ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for public business entities for annual periods beginning after December 15, 2024. The Company does not expect adoption of the ASU to have a material effect on the Company's consolidated financial statements.

Income Statement. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . The amendments in this ASU require public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Additionally, in January 2025, the FASB issued ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date . The ASU addresses investors requests for more disaggregated expense information to better understand an entity's performance, better assess the entity's prospects for future cash flows, and compare an entity's performance over time and with that of other entities. This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

(2) Loans and Allowance for Credit Losses

Loans

Major classifications within the Company’s loans held for investment portfolio at June 30, 2025 and December 31, 2024 were as follows:


(dollars in thousands)	June 30, 2025		December 31, 2024
Commercial, financial, and agricultural	$	212,266	$	202,329
Real estate construction − residential	24,117		32,046
Real estate construction − commercial	66,441		80,435
Real estate mortgage − residential	381,037		361,735
Real estate mortgage − commercial	767,240		775,594
Installment and other consumer	11,797		14,021
Total loans held for investment	$	1,462,898	$	1,466,160

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Accrued interest on loans totaled $ 6.0 million and $ 6.5 million at June 30, 2025 and December 31, 2024, respectively, and is included in accrued interest receivable and other assets on the Company's consolidated balance sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. At June 30, 2025, loans of $ 723.2 million were pledged to the Federal Home Loan Bank (FHLB) as collateral for borrowings and letters of credit.

Allowance for Credit Losses

The allowance for credit losses is measured using a lifetime expected loss model that incorporates relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The allowance for credit losses is a valuation account that is deducted from loans amortized cost basis to present the net amount expected to be collected on the instrument. Expected recoveries are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Loans are charged off against the allowance for credit losses when management believes the balance has become uncollectible.

Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures

The Company maintains a separate allowance for credit losses for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. The allowance for credit losses on unfunded commitments totaled $ 1.0 million and $ 0.9 million at June 30, 2025 and December 31, 2024, respectively.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

Sensitivity in the Allowance for Credit Loss Model

The allowance for credit losses is an estimate that requires significant judgment including projections of the macroeconomic environment. The forecasted macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.

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


	Three Months Ended 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

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

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


	Three Months Ended June 30, 2024
(dollars in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and Other Consumer		Un- allocated		Total

Balance at beginning of period	$	3,374	$	672	$	1,297	$	5,109	$	12,857	$	172	$	194	$	23,675
Charge-offs	( 1,857 )		—		—		( 22 )		( 67 )		( 61 )		—		( 2,007 )
Recoveries	10		—		—		4		—		16		—		30
Provision for (release of) credit losses	94		( 74 )		180		122		118		36		( 194 )		282
Balance at end of period	$	1,621	$	598	$	1,477	$	5,213	$	12,908	$	163	$	—	$	21,980






	Six Months Ended June 30, 2024
(dollars in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and Other Consumer		Un- allocated		Total

Balance at beginning of period	$	3,208	$	1,043	$	3,273	$	5,264	$	10,537	$	232	$	187	$	23,744


Charge-offs	( 1,888 )		—		—		( 23 )		( 89 )		( 130 )		—		( 2,130 )
Recoveries	20		—		—		5		—		59		—		84
Provision for (release of) credit losses	281		( 445 )		( 1,796 )		( 33 )		2,460		2		( 187 )		282
Balance at end of period	$	1,621	$	598	$	1,477	$	5,213	$	12,908	$	163	$	—	$	21,980

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 appraisals on any significant

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

pieces of collateral. Higher discounts are applied in determining fair value for real estate collateral in industries that are undergoing significant stress, or for properties that are specialized use or have limited marketability.

There have been no significant changes to the types of collateral securing the Company's collateral dependent loans since December 31, 2024.

The amortized cost of collateral-dependent loans by class as of June 30, 2025 and December 31, 2024 was as follows:


	Collateral Type
(dollars in thousands)	Real Estate		Other		Allowance Allocated
June 30, 2025
Commercial, financial, and agricultural	$	—	$	1,814	$	649


Real estate mortgage − residential	454		—		87
Real estate mortgage − commercial	65		—		—

Total	$	519	$	1,814	$	736
December 31, 2024
Commercial, financial, and agricultural	$	—	$	766	$	125
Real estate construction − residential	454		—		194


Real estate mortgage − commercial	65		—		—

Total	$	519	$	766	$	319

Credit Quality

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment.

• Pass - loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral.

• Watch - loans that have one or more weaknesses identified that may result in the borrower being unable to meet repayment terms or when the Company’s credit position could deteriorate at some future date.

• Special Mention - loans that have negative financial trends, or other weaknesses that if left uncorrected, could threaten its 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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The following table presents the recorded investment by risk categories at June 30, 2025:


															Revolving
															Loans
													Revolving		Converted to
	Term Loans												Loans		Term Loans
	Amortized Cost Basis by Origination Year and Risk Grades												Amortized		Amortized
(dollars in thousands)	2025		2024		2023		2022		2021		Prior		Cost Basis		Cost Basis		Total
June 30, 2025
Commercial, Financial, & Agricultural
Pass	$	31,092	$	14,532	$	12,034	$	20,330	$	21,849	$	28,239	$	70,128	$	1,411	$	199,615
Watch	55		—		102		1,007		—		251		—		—		1,415
Special Mention	—		—		3,512		337		—		284		557		—		4,690
Substandard	—		780		87		3,510		547		75		1,144		403		6,546


Total	$	31,147	$	15,312	$	15,735	$	25,184	$	22,396	$	28,849	$	71,829	$	1,814	$	212,266
Gross YTD charge-offs	—		9		—		—		—		25		—		—		34
Real Estate Construction - Residential
Pass	$	7,010	$	8,264	$	8,755	$	—	$	—	$	—	$	—	$	—	$	24,029
Watch	—		—		88		—		—		—		—		—		88



Total	$	7,010	$	8,264	$	8,843	$	—	$	—	$	—	$	—	$	—	$	24,117
Gross YTD charge-offs	—		—		—		—		—		—		—		—		—
Real Estate Construction - Commercial
Pass	$	17,430	$	18,787	$	8,386	$	5,780	$	2,918	$	1,114	$	5,905	$	—	$	60,320
Watch	—		1,257		—		4,795		—		40		—		—		6,092

Substandard	—		—		29		—		—		—		—		—		29

Total	$	17,430	$	20,044	$	8,415	$	10,575	$	2,918	$	1,154	$	5,905	$	—	$	66,441
Gross YTD charge-offs	—		—		—		—		—		—		—		—		—
Real Estate Mortgage - Residential
Pass	$	36,051	$	23,073	$	42,867	$	108,716	$	46,149	$	58,932	$	44,883	$	2,404	$	363,075
Watch	14,110		1,427		—		—		381		629		242		—		16,789

Substandard	58		—		—		783		—		218		114		—		1,173


Total	$	50,219	$	24,500	$	42,867	$	109,499	$	46,530	$	59,779	$	45,239	$	2,404	$	381,037
Gross YTD charge-offs	—		—		—		—		—		14		—		—		14
Real Estate Mortgage - Commercial
Pass	$	76,490	$	68,294	$	105,314	$	180,036	$	168,896	$	110,030	$	16,339	$	887	$	726,286
Watch	582		2,407		458		4,067		684		177		—		—		8,375
Special Mention	—		20,559		—		5,060		—		—		—		—		25,619
Substandard	—		1,782		65		4,190		—		779		144		—		6,960

Total	$	77,072	$	93,042	$	105,837	$	193,353	$	169,580	$	110,986	$	16,483	$	887	$	767,240
Gross YTD charge-offs	—		—		12		—		—		24		—		—		36
Installment and other Consumer
Pass	$	1,244	$	1,607	$	2,573	$	2,585	$	713	$	2,997	$	62	$	—	$	11,781


Substandard	—		—		9		—		—		7		—		—		16

Total	$	1,244	$	1,607	$	2,582	$	2,585	$	713	$	3,004	$	62	$	—	$	11,797
Gross YTD charge-offs	—		—		20		2		—		177		—		—		199
Total Portfolio
Pass	$	169,317	$	134,557	$	179,929	$	317,447	$	240,525	$	201,312	$	137,317	$	4,702	$	1,385,106
Watch	14,747		5,091		648		9,869		1,065		1,097		242		—		32,759
Special Mention	—		20,559		3,512		5,397		—		284		557		—		30,309
Substandard	58		2,562		190		8,483		547		1,079		1,402		403		14,724


Total	$	184,122	$	162,769	$	184,279	$	341,196	$	242,137	$	203,772	$	139,518	$	5,105	$	1,462,898
Total Gross YTD charge-offs	$	—	$	9	$	32	$	2	$	—	$	240	$	—	$	—	$	283

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The following table presents the recorded investment by risk categories at December 31, 2024:


															Revolving
															Loans
													Revolving		Converted to
	Term Loans												Loans		Term Loans
	Amortized Cost Basis by Origination Year and Risk Grades												Amortized		Amortized
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Cost Basis		Cost Basis		Total
December 31, 2024
Commercial, Financial, & Agricultural
Pass	$	22,726	$	21,302	$	30,025	$	25,338	$	26,557	$	3,932	$	62,205	$	1,531	$	193,616
Watch	—		120		1,473		—		—		262		504		—		2,359
Special Mention	—		—		—		—		309		—		741		—		1,050
Substandard	286		87		3,428		628		37		—		356		403		5,225
Doubtful	—		—		—		—		—		—		79		—		79

Total	$	23,012	$	21,509	$	34,926	$	25,966	$	26,903	$	4,194	$	63,885	$	1,934	$	202,329
Gross YTD charge-offs	—		230		—		104		2		106		1,796		—		2,238
Real Estate Construction - Residential
Pass	$	16,368	$	13,808	$	601	$	617	$	165	$	—	$	—	$	33	$	31,592

Substandard	454		—		—		—		—		—		—		—		454

Total	$	16,822	$	13,808	$	601	$	617	$	165	$	—	$	—	$	33	$	32,046
Gross YTD charge-offs	—		—		—		—		—		—		—		—		—
Real Estate Construction - Commercial
Pass	$	49,742	$	7,057	$	10,424	$	3,828	$	622	$	564	$	7,072	$	—	$	79,309
Watch	911		124		13		—		—		—		—		—		1,048
Substandard	—		29		—		—		—		49		—		—		78

Total	$	50,653	$	7,210	$	10,437	$	3,828	$	622	$	613	$	7,072	$	—	$	80,435
Gross YTD charge-offs	—		—		—		—		—		—		—		—		—
Real Estate Mortgage - Residential
Pass	$	30,005	$	46,795	$	115,928	$	49,519	$	42,036	$	23,440	$	44,148	$	1,543	$	353,414
Watch	5,702		—		40		391		423		675		30		—		7,261
Substandard	—		—		426		89		—		376		169		—		1,060

Total	$	35,707	$	46,795	$	116,394	$	49,999	$	42,459	$	24,491	$	44,347	$	1,543	$	361,735
Gross YTD charge-offs	—		—		—		—		—		14		37		—		51
Real Estate Mortgage - Commercial
Pass	$	56,648	$	117,853	$	212,698	$	203,591	$	69,342	$	57,352	$	14,815	$	137	$	732,436
Watch	2,298		51		4,763		1,961		—		184		—		581		9,838
Special Mention	27,271		—		5,679		—		—		—		—		—		32,950
Substandard	64		75		231		—		—		—		—		—		370

Total	$	86,281	$	117,979	$	223,371	$	205,552	$	69,342	$	57,536	$	14,815	$	718	$	775,594
Gross YTD charge-offs	—		340		—		65		—		32		—		—		437
Installment and other Consumer
Pass	$	2,188	$	3,636	$	3,591	$	1,165	$	554	$	2,805	$	72	$	—	$	14,011

Substandard	—		—		—		—		—		10		—		—		10

Total	$	2,188	$	3,636	$	3,591	$	1,165	$	554	$	2,815	$	72	$	—	$	14,021
Gross YTD charge-offs	10		11		9		3		1		230		1		—		265
Total Portfolio
Pass	$	177,677	$	210,451	$	373,267	$	284,058	$	139,276	$	88,093	$	128,312	$	3,244	$	1,404,378
Watch	8,911		295		6,289		2,352		423		1,121		534		581		20,506
Special Mention	27,271		—		5,679		—		309		—		741		—		34,000
Substandard	804		191		4,085		717		37		435		525		403		7,197
Doubtful	—		—		—		—		—		—		79		—		79

Total	$	214,663	$	210,937	$	389,320	$	287,127	$	140,045	$	89,649	$	130,191	$	4,228	$	1,466,160
Total Gross YTD charge-offs	$	10	$	581	$	9	$	172	$	3	$	382	$	1,834	$	—	$	2,991

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, 2025 and December 31, 2024:


(dollars in thousands)	Non-accrual with no Allowance		Non-accrual with Allowance		Total Non-accrual		90 Days Past Due And Still Accruing		Total Non-performing Loans
June 30, 2025
Commercial, Financial, and Agricultural	$	—	$	1,006	$	1,006	$	—	$	1,006


Real estate mortgage − residential	—		1,026		1,026		498		1,524
Real estate mortgage − commercial	—		208		208		—		208
Installment and Other Consumer	—		16		16		7		23
Total	$	—	$	2,256	$	2,256	$	505	$	2,761
December 31, 2024
Commercial, Financial, and Agricultural	$	—	$	923	$	923	$	—	$	923
Real estate construction − residential	—		454		454		—		454
Real estate construction − commercial	—		49		49		—		49
Real estate mortgage − residential	—		963		963		207		1,170
Real estate mortgage − commercial	—		138		138		—		138
Installment and Other Consumer	—		10		10		3		13
Total	$	—	$	2,537	$	2,537	$	210	$	2,747

No material amount of interest income was recognized on non-accrual loans during the three and six months ended June 30, 2025.

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, 2025 and December 31, 2024.


(dollars in thousands)	Current or Less Than 30 Days Past Due		30 - 89 Days Past Due		90 Days Past Due And Still Accruing		Non-Accrual		Total
June 30, 2025
Commercial, Financial, and Agricultural	$	209,069	$	2,191	$	—	$	1,006	$	212,266
Real estate construction − residential	24,117		—		—		—		24,117
Real estate construction − commercial	66,441		—		—		—		66,441
Real estate mortgage − residential	378,970		543		498		1,026		381,037
Real estate mortgage − commercial	766,174		858		—		208		767,240
Installment and Other Consumer	11,636		138		7		16		11,797
Total	$	1,456,407	$	3,730	$	505	$	2,256	$	1,462,898

December 31, 2024
Commercial, Financial, and Agricultural	$	201,201	$	205	$	—	$	923	$	202,329
Real estate construction − residential	31,592		—		—		454		32,046
Real estate construction − commercial	80,386		—		—		49		80,435
Real estate mortgage − residential	358,393		2,172		207		963		361,735
Real estate mortgage − commercial	773,918		1,538		—		138		775,594
Installment and Other Consumer	13,900		108		3		10		14,021
Total	$	1,459,390	$	4,023	$	210	$	2,537	$	1,466,160

Loan Modifications for Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long-term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral-dependent and evaluated as part of the allowance for credit losses as described above in the Allowance for Credit Losses section of this note.

For each of the three and six months ended June 30, 2025 and June 30, 2024, the Company did not modify any loans made to borrowers experiencing financial difficulty. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. 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. There were no loans held for sale at both June 30, 2025 and December 31, 2024.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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


	June 30,		December 31,
(dollars in thousands)	2025		2024
Commercial	$	2,552	$	—
Real estate construction - commercial	—		2,549
Real estate mortgage - residential	—		42
Real estate mortgage - commercial	98		858

Total	$	2,650	$	3,449
Less valuation allowance for other real estate owned	( 225 )		( 2,003 )
Total other real estate owned and repossessed assets	$	2,425	$	1,446

At June 30, 2025, there were no consumer mortgage loans secured by residential real estate properties in the process of foreclosure compared to $ 0.3 million at December 31, 2024.

Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2025		2024		2025		2024
Balance at beginning of period	$	2,003	$	5,950	$	2,003	$	5,950
Provision for (release of) provision for valuation allowance for other real estate owned	184		( 386 )		184		( 386 )
Charge-offs	( 1,962 )		( 3,820 )		( 1,962 )		( 3,820 )
Balance at end of period	$	225	$	1,744	$	225	$	1,744

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, 2025 and December 31, 2024 were as follows:


			Gross Unrealized
(dollars in thousands)	Total Amortized Cost		Gains		Losses		Fair Value
June 30, 2025
U.S. Treasury	$	4,943	$	104	$	—	$	5,047
U.S. government and federal agency obligations	381		—		( 2 )		379
U.S. government-sponsored enterprises	13,010		30		( 161 )		12,879
Obligations of states and political subdivisions	121,902		—		( 24,515 )		97,387
Mortgage-backed securities
Residential	66,012		543		( 2,757 )		63,798
Commercial	15,715		13		( 2,201 )		13,527
Other debt securities (a)	27,854		171		( 585 )		27,440
Bank issued trust preferred securities (a)	1,486		—		( 207 )		1,279
Total available-for-sale securities	$	251,303	$	861	$	( 30,428 )	$	221,736

December 31, 2024
U.S. Treasury	$	4,937	$	—	$	( 22 )	$	4,915
U.S. government and federal agency obligations	408		—		( 7 )		401
U.S. government-sponsored enterprises	13,020		11		( 227 )		12,804
Obligations of states and political subdivisions	125,559		7		( 23,080 )		102,486
Mortgage-backed securities
Residential	68,346		59		( 4,034 )		64,371
Commercial	16,383		—		( 2,644 )		13,739
Other debt securities (a)	19,419		49		( 781 )		18,687
Bank issued trust preferred securities (a)	1,486		—		( 237 )		1,249
Total available-for-sale securities	$	249,558	$	126	$	( 31,032 )	$	218,652

(a) 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 $ 89.8 million and $ 82.4 million at June 30, 2025 and December 31, 2024, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

There were no proceeds from sales of available-for-sale securities for each of the three and six months ended June 30, 2025 and 2024. All gains and losses recognized on equity securities during each of the three and six months ended June 30, 2025 and 2024 were unrealized.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2025, by contractual maturity are shown below. Accrued interest on investments was consistent at $ 1.6 million at both June 30, 2025 and December 31, 2024, and is included in accrued interest receivable and other assets on the Company's consolidated balance sheets. The total amount of accrued interest is excluded from the amortized cost basis of investments presented below. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.


(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,209	$	2,208
Due after one year through five years	18,082		18,118
Due after five years through ten years	43,662		41,229
Due after ten years	105,623		82,856
Total	$	169,576	$	144,411
Mortgage-backed securities	81,727		77,325
Total available-for-sale securities	$	251,303	$	221,736

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 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, 2025		December 31, 2024
Other securities:
FHLB stock	$	7,434	$	4,924
MIB stock	151		151
Equity securities with readily determinable fair values	71		74
Total other investment securities	$	7,656	$	5,149

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, 2025 and December 31, 2024 were as follows:


	Less than 12 months				12 months or more
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Total Fair Value		Total Unrealized Losses
June 30, 2025

U.S. government and federal agency obligations	$	—	$	—	$	380	$	( 2 )	$	380	$	( 2 )
U.S. government-sponsored enterprises	—		—		1,839		( 161 )		1,839		( 161 )
Obligations of states and political subdivisions	2,968		( 86 )		94,095		( 24,429 )		97,063		( 24,515 )
Mortgage-backed securities
Residential	3,560		( 5 )		22,147		( 2,752 )		25,707		( 2,757 )
Commercial	2,204		( 20 )		9,956		( 2,181 )		12,160		( 2,201 )
Other debt securities	7,087		( 122 )		7,361		( 463 )		14,448		( 585 )
Bank issued trust preferred securities	—		—		1,279		( 207 )		1,279		( 207 )
Total	$	15,819	$	( 233 )	$	137,057	$	( 30,195 )	$	152,876	$	( 30,428 )

(dollars in thousands)
December 31, 2024
U.S. Treasury	$	4,915	$	( 22 )	$	—	$	—	$	4,915	$	( 22 )
U.S. government and federal agency obligations	—		—		401		( 7 )		401		( 7 )
U.S. government-sponsored enterprises	996		( 5 )		1,778		( 222 )		2,774		( 227 )
Obligations of states and political subdivisions	2,791		( 163 )		98,442		( 22,917 )		101,233		( 23,080 )
Mortgage-backed securities
Residential	34,179		( 435 )		23,453		( 3,599 )		57,632		( 4,034 )
Commercial	3,580		( 128 )		10,159		( 2,516 )		13,739		( 2,644 )
Other debt securities	4,900		( 58 )		9,101		( 723 )		14,001		( 781 )
Bank issued trust preferred securities	—		—		1,249		( 237 )		1,249		( 237 )
Total	$	51,361	$	( 811 )	$	144,583	$	( 30,221 )	$	195,944	$	( 31,032 )

The total available-for-sale portfolio consisted of approximately 390 securities at June 30, 2025. The portfolio included 354 securities having an aggregate fair value of $ 152.9 million that were in a loss position at June 30, 2025. Securities identified as temporarily impaired that had been in a loss position for 12 months or longer totaled $ 137.1 million at fair value at June 30, 2025. The $ 30.4 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2025 was caused by interest rate fluctuations.

The decline in fair value is attributable to changes in interest rates and not credit quality. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date, or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.

(5) Derivative Instruments

As part of the Company’s overall interest rate risk management, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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.

The following table reflects the estimated fair value of derivative 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, 2025						As of December 31, 2024
			Fair Value						Fair Value
(dollars in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives not designated as hedging instruments
Interest Rate Products	$	16,542	$	286	$	328	$	16,542	$	66	$	89


Total derivatives not designated as hedging instruments			$	286	$	328			$	66	$	89

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for each of the three and six months ended June 30, 2025 and 2024. The Company did not recognize other income related to client swaps in any of the three and six months ended June 30, 2025 and 2024.


		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	2025		2024		2025		2024
Derivatives Not Designated as Hedging Instruments:
Interest Rate Products (1)	Other non-interest income	$	4	$	—	$	( 19 )	$	—


Total		$	4	$	—	$	( 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 / 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, 2025, the Company had recorded the obligation to collect cash collateral of $ 0.1 million.

As of June 30, 2025, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 0.04 million. As of June 30, 2025, the Company

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2025, 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, 2025		December 31, 2024
Time deposits with balances > $250,000	$	91,158	$	100,383
Brokered deposits	$	10	$	13

(7) Leases

The Company's leases primarily consist of office space and bank branches with remaining lease terms of generally 1 to 10 years. As of June 30, 2025, operating right of use (ROU) assets and liabilities were $ 2.7 million and $ 2.9 million, respectively. As of June 30, 2025, the weighted-average remaining lease term on these operating leases was approximately 5.8 years and the weighted-average discount rate used to measure the lease liabilities was approximately 4.4 %.

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities. Currently, the Company does not have any finance leases. The ROU assets are included in premises and equipment, net on the consolidated balance sheets.

Operating lease ROU assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the lease commencement date.

Operating lease cost, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the consolidated statements of income. The operating lease cost was $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2025, respectively, compared to $ 0.06 million and $ 0.1 million for the three and six months ended June 30, 2024, respectively.

The table below summarizes the maturity of remaining operating lease liabilities at June 30, 2025:


Lease payments due in:	Operating Lease
(dollars in thousands)
2025 remaining	$	268
2026	550
2027	621
2028	630
2029	420


Thereafter	803
Total lease payments	$	3,292
Less imputed interest	( 401 )
Total lease liabilities, as reported	$	2,891

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(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, 2025 and 2024:


	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
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		—
Current period other comprehensive income (loss), before tax	1,339		( 638 )		701
Income tax (expense) benefit	( 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 )


	Six Months Ended June 30, 2024
(dollars in thousands)	Unrealized Gains (Losses) on Securities (1)		Unrecognized Net Pension and Postretirement (Income) Costs (2)		Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	$	( 21,461 )	$	7,699	$	( 13,762 )
Other comprehensive loss, before reclassifications	( 4,048 )		( 345 )		( 4,393 )
Amounts reclassified from accumulated other comprehensive loss	—		—		—
Current period other comprehensive loss, before tax	( 4,048 )		( 345 )		( 4,393 )
Income tax benefit	850		72		922
Current period other comprehensive loss, net of tax	( 3,198 )		( 273 )		( 3,471 )
Balance at end of period	$	( 24,659 )	$	7,426	$	( 17,233 )

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

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

Repurchase Program

On June 5, 2025, the Company announced that its Board of Directors approved a new common stock repurchase program under which the Company may repurchase up to $ 10.0 million of its common stock, which replaced the Company’s prior common stock repurchase program. Pursuant to the repurchase program, management is given discretion to determine the number and pricing of the shares to be repurchased, as well as the timing of any such repurchases. The timing and total amount of stock repurchases will depend on market and other conditions and may be made from time to time in open market purchases or privately negotiated transactions. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company repurchased 79,777 common shares under its repurchase programs during the first six months of 2025 at an average cost of $ 27.62 per share totaling $ 2.2 million. As of June 30, 2025, $ 9.0 million remained available for share repurchases pursuant to the Company's current repurchase program.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(9) Share-Based Compensation

Equity-Based Compensation Plan

At the 2023 Annual Meeting of Shareholders, held on June 6, 2023, 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 also designed to assist the Company in 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, 2025 and 2024:


	June 30,
	2025			2024
(dollars in thousands, except per share amounts)	Quantity	Weighted-Average Grant Date Fair Value Per share		Quantity	Weighted-Average Grant Date Fair Value Per share
Non-vested at beginning of period	35,336	$	22.84	18,277	$	20.63
Granted	11,174	29.18		—


Vested	7,809	28.48		—
Forfeited	—	—		—
Non-vested at end of period	38,701	$	21.91	18,277

The fair value of the RSUs units is determined using the Company’s stock price on the date of grant. Total share-based compensation expense recognized for these RSUs was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2025, respectively, compared to $ 0.04 million and $ 0.1 million for the three and six ended June 30, 2024, respectively. Forfeitures will be recognized as they occur.

At June 30, 2025, there was $ 0.8 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 1.5 years.

(10) Retirement Plans

Profit-sharing Plan

The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3 % of eligible employee contributions. The Company made annual contributions for the discretionary portion in an amount up to 6 % of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions. Total expense recorded for the Company-match was $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2025, respectively, compared to $ 0.1 million and $ 0.3 million for the three and six ended June 30, 2024, respectively. The employer discretionary profit-sharing contribution made to the 401(k) plan was $ 0.8 million and $ 0.6 million for plan years 2024 and 2023, respectively.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

Other Plans

On November 7, 2018, the Board of Directors of the Company adopted a supplemental executive retirement plan (SERP), effective as of January 1, 2018. The SERP provides select employees who satisfy certain eligibility requirements with certain benefits upon retirement, termination of employment or death.

The accrued liability relating to the SERP was $ 1.7 million as of June 30, 2025, and the expense for the three and six months ended June 30, 2025 was $ 0.02 million and $ 0.04 million, respectively, compared to $ 0.02 million and $ 0.05 million for the three and six months ended June 30, 2024, respectively, and is recognized over the required service period.

Pension

The Company provides a noncontributory defined benefit pension plan for all full-time and eligible employees. 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 cost (income) for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2025		2024		2025		2024
Service cost - benefits earned during the year	$	127	$	218	$	347	$	474
Interest costs on projected benefit obligations (a)	376		366		775		738
Expected return on plan assets (a)	( 585 )		( 589 )		( 1,170 )		( 1,179 )
Expected administrative expenses	36		27		73		54

Amortization of unrecognized net gain (a)	( 365 )		( 186 )		( 638 )		( 345 )
Net periodic pension income	$	( 411 )	$	( 164 )	$	( 613 )	$	( 258 )

(a) The components of net periodic pension cost (income) other than the service cost and expected administrative expenses are included in other non-interest income.

Net periodic pension benefit costs (income) include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial (gains) losses. Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive (loss) income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the pension plan. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits. Currently, there is no prior service cost or net transition (asset)/obligation to be amortized.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(11) Earnings per Share

Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the period.

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


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share data)	2025		2024		2025		2024
Basic and Diluted Earnings Per Share:
Net income available to shareholders	$	6,101	$	4,629	$	11,484	$	9,085
Basic weighted-average shares outstanding	6,935,541		6,995,956		6,959,221		7,014,063



Effect of dilutive equity-based awards	9,523		—		8,292		—
Diluted weighted-average shares outstanding	6,945,064		6,995,956		6,967,513		7,014,063
Basic earnings per share	$	0.88	$	0.66	$	1.65	$	1.29
Diluted earnings per share	$	0.88	$	0.66	$	1.65	$	1.29

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

(12) Fair Value Measurements

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date.

Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows.

The fair value hierarchy is as follows:

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the consolidated financial statements. Nonfinancial assets measured at fair value on a non-recurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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, that 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.

Loans Held for Sale

The fair value of the commitment in forward sale agreements loans 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.

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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)


			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, 2025
Assets:
U.S. Treasury	$	5,047	$	5,047	$	—	$	—
U.S. government and federal agency obligations	379		—		379		—
U.S. government-sponsored enterprises	12,879		—		12,879		—
Obligations of states and political subdivisions	97,387		—		97,387		—
Mortgage-backed securities
Residential	63,798		—		63,798		—
Commercial	13,527		—		13,527		—
Other debt securities	27,440		—		27,440		—
Bank-issued trust preferred securities	1,279		—		1,279		—
Equity securities	71		71		—		—
Derivative instruments, interest rate swaps	286				286




Total	$	222,093	$	5,118	$	216,975	$	—
Liabilities:
Derivative instruments, interest rate swaps	$	328	$	—	$	328	$	—

Total	$	328	$	—	$	328	$	—

December 31, 2024
Assets:
U.S. Treasury	$	4,915	$	4,915	$	—	$	—
U.S. government and federal agency obligations	401		—		401		—
U.S. government-sponsored enterprises	12,804		—		12,804		—
Obligations of states and political subdivisions	102,486		—		102,486		—
Mortgage-backed securities
Residential	64,371		—		64,371		—
Commercial	13,739		—		13,739
Other debt securities	18,687		—		18,687		—
Bank-issued trust preferred securities	1,249		—		1,249		—
Equity securities	74		74		—		—



Derivative instruments, interest rate swaps	66		—		66		—
Total	$	218,792	$	4,989	$	213,803	$	—
Liabilities:
Derivative instruments, interest rate swaps	$	89	$	—	$	89	$	—

Total	$	89	$	—	$	89	$	—

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Mortgage Servicing Rights				Interest Rate Lock Commitments
	Six Months Ended June 30,
(dollars in thousands)	2025		2024		2025		2024
Balance at beginning of period	$	—	$	1,738	$	—	$	41

Total gains or (losses) (realized/unrealized):
Included in earnings	—		( 149 )		—		( 11 )


Sales (1)	—		( 1,589 )		—		( 76 )
Issues	—		—		—		56

Balance at end of period	$	—	$	—	$	—	$	10

(1) The Company sold its servicing portfolio on January 31, 2024.

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

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a non-recurring basis:

Collateral Dependent Impaired 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. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral. The Company maintains staff trained to perform in-house evaluations and also to review third-party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by the executive loan committee. Because many of these inputs are not observable, the measurements are classified as Level 3.

Other Real Estate and Foreclosed Assets

Other real estate owned (OREO) and foreclosed assets consisted of loan collateral repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Subsequent to foreclosure, these assets are initially carried at fair value of the collateral less estimated selling costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state-certified appraisers. Like impaired 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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)


			Fair Value Measurements Using
(dollars in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Three Months Ended June 30, Total Gains (Losses)*		Six Months Ended June 30, Total Gains (Losses)*
June 30, 2025
Assets:
Collateral dependent impaired loans:
Commercial, financial, & agricultural	$	1,165	—		—		$	1,165	$	—	$	—


Real estate mortgage - residential	367		—		—		367		—		—
Real estate mortgage - commercial	65		—		—		65		—		—

Total	$	1,597	$	—	$	—	$	1,597	$	—	$	—
Other real estate and repossessed assets	$	—	$	—	$	—	$	—	$	21	$	( 156 )
June 30, 2024
Assets:
Collateral dependent impaired loans:
Commercial, financial, & agricultural	$	13	$	—	$	—	$	13	$	( 1,835 )	$	( 1,835 )
Real estate construction − residential	260		—		—		260		—		—

Real estate mortgage - residential	—		—		—		—		( 22 )		( 22 )
Real estate mortgage - commercial	740		—		—		740		( 66 )		( 89 )

Total	$	1,013	$	—	$	—	$	1,013	$	( 1,923 )	$	( 1,946 )
Other real estate and repossessed assets	$	3,625	$	—	$	—	$	3,625	$	446	$	480

* Total gains (losses) reported for other real estate and foreclosed assets include charge-offs, valuation write downs, and net losses taken during the periods reported.

(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.

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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal funds Purchased and Securities Sold Under Agreements to Repurchase

For Federal funds purchased and securities sold under agreements to repurchase, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Subordinated Notes and Other Borrowings

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash-flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

A summary of the carrying amounts and fair values of the Company’s financial instruments at June 30, 2025 and December 31, 2024 is as follows:


					June 30, 2025
					Fair Value Measurements
	June 30, 2025				Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Net Significant Unobservable Inputs
(dollars in thousands)	Carrying amount		Fair value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	22,911	$	22,911	$	22,911	$	—	$	—
Federal funds sold and overnight interest-bearing deposits	77,383		77,383		77,383		—		—
Certificates of deposit in other banks	1,000		1,000		1,000		—		—

Other investment securities	7,585		7,585		—		7,585		—
Loans, net	1,441,328		1,405,858		—		—		1,405,858




Accrued interest receivable	7,761		7,761		7,761		—		—

Liabilities:
Deposits:
Non-interest bearing demand	$	419,914	$	419,914	$	419,914	$	—	$	—
Savings, interest checking and money market	788,216		788,216		788,216		—		—
Time deposits	309,856		307,866		—		—		307,866

FHLB advances and other borrowings	140,100		140,131		—		140,131		—
Subordinated notes	49,486		42,591		—		42,591		—


Accrued interest payable	1,646		1,646		1,646		—		—

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)


					December 31, 2024
					Fair Value Measurements
	December 31, 2024				Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Net Significant Unobservable Inputs
(dollars in thousands)	Carrying amount		Fair value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	23,668	$	23,668	$	23,668	$	—	$	—
Federal funds sold and overnight interest-bearing deposits	27,326		27,326		27,326		—		—
Certificates of deposit in other banks	1,000		1,000		1,000		—		—

Other investment securities	5,075		5,075		—		5,075		—
Loans, net	1,444,116		1,380,252		—		—		1,380,252




Accrued interest receivable	8,221		8,221		8,221		—		—

Liabilities:
Deposits:
Non-interest bearing demand	$	385,022	$	385,022	$	385,022	$	—	$	—
Savings, interest checking and money market	846,339		846,339		846,339		—		—
Time deposits	301,821		300,386		—		—		300,386

FHLB advances and other borrowings	81,525		81,585		—		81,585		—
Subordinated notes	49,486		41,602		—		41,602		—


Accrued interest payable	1,754		1,754		1,754		—		—

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.

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, 2025 and December 31, 2024, the allowance for credit losses for unfunded commitments was $ 1.0 million and $ 0.9 million, respectively.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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


(dollars in thousands)	June 30, 2025		December 31, 2024
Commitments to extend credit	$	334,263	$	305,811


Standby letters of credit	53,699		141,807
Total	$	387,962	$	447,618

Commitments

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

The Company's forward loan sale commitments are related to mortgage loans held for sale. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit ranged from one month to five years at June 30, 2025.

Pending Litigation

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, 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. 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. The Company's existing trust services are also included in the Wealth Management segment.

The table below highlights 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, 2025 and 2024, respectively, was as follows:

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	$	23,885	$	—	$	26	$	23,911
Interest expense	6,914		—		855		7,769
Net interest income	$	16,971	$	—	$	( 829 )	$	16,142
Release of provision for credit losses	( 51 )		—		—		( 51 )
Operating expenses
Salaries and employee benefits	$	6,089	$	333	$	281	$	6,703
Occupancy, furniture and equipment expense	992		23		—		1,015
Processing, network, and bank card expense	1,425		18		—		1,443
Legal, examination, and professional fees	342		—		86		428
Depreciation	605		—		—		605
Other	1,801		31		243		2,075
Total operating expenses	$	11,254	$	405	$	610	$	12,269
Other
Non-interest income	$	2,484	$	542	$	519	$	3,545
Investment securities losses, net	( 1 )		—		—		( 1 )
Income taxes	1,560		—		( 193 )		1,367
Net income	$	6,691	$	137	$	( 727 )	$	6,101

	Six Months Ended June 30, 2025
(dollars in thousands)	Hawthorn Bank		Wealth Management		Non-Bank		Total

Operating revenue
Interest income	$	47,317	$	—	$	52	$	47,369
Interest expense	14,225		—		1,708		15,933
Net interest income	$	33,092	$	—	$	( 1,656 )	$	31,436
Release of provision for credit losses	( 391 )		—		—		( 391 )
Operating expenses
Salaries and employee benefits	$	12,310	$	665	$	640	$	13,615
Occupancy, furniture and equipment expense	2,171		38		—		2,209
Processing, network, and bank card expense	2,808		36		—		2,844
Legal, examination, and professional fees	737		—		184		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	$	5,074	$	1,054	$	880	$	7,008
Investment securities losses, net	( 3 )		—		—		( 3 )
Income taxes	3,011		—		( 431 )		2,580
Net income	$	12,837	$	269	$	( 1,622 )	$	11,484

Segment assets	$	1,866,399	$	20	$	10,998	$	1,877,417

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)


	Three Months Ended June 30, 2024
(dollars in thousands)	Hawthorn Bank		Non-Bank		Total
Operating revenue
Interest income	$	23,527	$	29	$	23,556
Interest expense	8,399		985		9,384
Net interest income	$	15,128	$	( 956 )	$	14,172
Provision for credit losses	457		—		457
Operating expenses
Salaries and employee benefits	$	6,412	$	312	$	6,724
Occupancy, furniture and equipment expense	968		—		968
Processing, network, and bank card expense	1,362		—		1,362
Legal, examination, and professional fees	404		108		512
Depreciation	462		—		462
Other	1,789		217		2,006
Total operating expenses	$	11,397	$	637	$	12,034
Other
Non-interest income	$	3,683	$	313	$	3,996
Investment securities losses, net	( 15 )		—		( 15 )
Income taxes	1,301		( 268 )		1,033
Net income	$	5,641	$	( 1,012 )	$	4,629

	Six Months Ended June 30, 2024
(dollars in thousands)	Hawthorn Bank		Non-Bank		Total

Operating revenue
Interest income	$	47,549	$	59	$	47,608
Interest expense	16,713		1,975		18,688
Net interest income	$	30,836	$	( 1,916 )	$	28,920
Provision for credit losses	227		—		227
Operating expenses
Salaries and employee benefits	$	12,805	$	649	$	13,454
Occupancy, furniture and equipment expense	2,074		—		2,074
Processing, network, and bank card expense	2,732		—		2,732
Legal, examination, and professional fees	1,115		220		1,335
Depreciation	925		—		925
Other	3,680		409		4,089
Total operating expenses	$	23,331	$	1,278	$	24,609
Other
Non-interest income	$	6,416	$	599	$	7,015
Investment securities losses, net	( 15 )		—		( 15 )
Income taxes	2,544		( 545 )		1,999
Net income	$	11,135	$	( 2,050 )	$	9,085

Segment assets	$	1,840,251	$	7,559	$	1,847,810

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(16) Subsequent Events

On July 4, 2025, the One Big Beautiful Bill Act, which includes a broad range of tax reform provisions, was signed into law in the United States. The Company is currently evaluating the impact of the new legislation but does not expect it will have a material impact on its results of operations.

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 us 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.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, strategy, future performance and business of Hawthorn Bancshares, Inc., and its subsidiaries (collectively, the "Company", "we", "our", or "us"), including, without limitation statements that are not historical in nature, and statements preceded by, followed by or that include the words believes , expects, may, will, should, could, anticipates, estimates, intends, plans, hopes or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, such possible events or factors such as: changes in economic conditions generally or in the Company's market area, changes in policies by regulatory agencies, governmental legislation and regulation, tariffs and trade disruptions, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, and cybersecurity threats and such other factors as described in described in the forward-looking statements under the caption Risk Factors in Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K"), and in other reports filed by us with the Securities and Exchange Commission ("SEC") from time to time. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made. Except as required by law, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in its business, results of operations or financial condition over time. During the quarter ended June 30, 2025, there were no material changes to the Risk Factors disclosed in the Company's 2024 Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies and estimates require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The Company has identified certain accounting policies as "critical accounting policies and estimates," consisting of those related to the allowance for credit losses, as described in the section captioned "Critical Accounting Policies and Estimates" incorporated by reference in Item 7, Management's Discussion and Analysis of Financial Condition and results of Operations included in the 2024 Form 10-K. There have been no changes in the Company's application of critical accounting policies and estimates since December 31, 2024.

Overview

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the "Bank"), the Company, with $1.9 billion in assets at June 30, 2025, provides a broad range of commercial and personal banking services. The Bank's specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration ("SBA") loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. The Company also provides other financial services through its Wealth Management business, including trust services, estate planning, investment and asset management services and a comprehensive suite of cash management services. Beginning with the first quarter of 2025, the Company's Wealth Management business is now reported as a separate reporting segment, and the Company now operates two reporting segments, consisting of the Bank and the Wealth Management business. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.

The Company's primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company's business is commercial, commercial real estate development, and residential mortgage lending. The Company's income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancing activity.

The success of the Company's growth strategy depends primarily on the ability of its banking subsidiary to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.

The Company's subsidiary bank is a full-service bank that conducts general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust and brokerage services.

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.

Executive Summary

The Company has prepared all of the consolidated financial information in this report in accordance with United States (U.S.) generally accepted accounting principles ("U.S. GAAP") and the rules of the SEC. In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share data)	2025		2024		2025		2024
Net interest income	$	16,142	$	14,172	$	31,436	$	28,920
Release of provision for credit losses	(51)		457		(391)		227
Non-interest income	3,545		3,996		7,008		7,015
Investment securities losses, net	(1)		(15)		(3)		(15)
Non-interest expense	12,269		12,034		24,768		24,609
Income before income taxes	7,468		5,662		14,064		11,084
Income tax expense	1,367		1,033		2,580		1,999
Net income	$	6,101	$	4,629	$	11,484	$	9,085
Basic earnings per share	$	0.88	$	0.66	$	1.65	$	1.29
Diluted earnings per share	$	0.88	$	0.66	$	1.65	$	1.29


	As of and for the Three Months Ended				As of and for the Six Months Ended
	June 30,				June 30,
(dollars in thousands, except per share data)	2025		2024		2025		2024
Market and per share data
Book value per share (1)					$	22.53	$	19.71
Market price per share					$	29.14	$	19.80
Cash dividends paid on common stock	$	1,328	$	1,194	$	2,656	$	2,391
Performance Ratios
Return on total assets	1.36%		1.02%		1.28%		0.99%
Return on stockholders' equity	15.85%		13.75%		15.08%		13.43%
Efficiency ratio (2)	62.32%		66.24%		64.43%		68.48%
Net interest margin	3.89%		3.33%		3.78%		3.36%
Average stockholders' equity to total assets	8.56%		7.40%		8.49%		7.41%

(1) Book value per share is calculated using weighted average shares

(2) Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue is calculated as net interest income plus non-interest income.


	As of and for the Three Months Ended				As of and for the Six Months Ended
	June 30,				June 30,
(dollars in thousands, except per share data)	2025		2024		2025		2024










Capital Ratios
Stockholders' equity to assets					8.35%		7.48%
Total risk-based capital ratio					15.12%		14.30%
Tier 1 risk-based capital ratio					13.87%		12.94%
Common equity Tier 1 capital					10.82%		10.02%
Tier 1 leverage ratio (3)					11.87%		10.94%
Asset Quality
Non-performing loans					$	2,761	$	4,437
Non-performing assets					$	5,186	$	8,062
Net loan charge-offs	$	51	$	1,977	$	33	$	2,046
Net charge-offs to average loans (4)	0.01%		0.53%		—%		0.27%
Allowance for credit losses to total loans					1.47%		1.47%
Non-performing loans to total loans					0.19%		0.30%
Non-performing assets to total loans					0.35%		0.54%
Non-performing assets to total assets					0.28%		0.44%

(3) Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets

(4) Annualized

Results of Operations Highlights:

Consolidated net income was $6.1 million, or $0.88 per diluted share, and $11.5 million, or $1.65 per diluted share, for the three and six months ended June 30, 2025, respectively, compared to $4.6 million, or $0.66 per diluted share, and $9.1 million, or $1.29 per diluted share, for the three and six months ended June 30, 2024. For the three and six months ended June 30, 2025, the return on average assets was 1.36% and 1.28%, respectively, the return on average stockholders’ equity was 15.85% and 15.08%, respectively, and the efficiency ratio was 62.3% and 64.43%, respectively.

Net interest income was $16.1 million and $31.4 million for the three and six months ended June 30, 2025 compared to $14.2 million and $28.9 million for the three and six months ended June 30, 2024. Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.89% and 3.78% for the three and six months ended 2025, compared to 3.33% and 3.36% for the three and six months ended June 30, 2024. The change to net interest margin on a fully taxable equivalent basis is discussed in greater detail under the Average Balance Sheet Data and Rate and Volume Analysis sections.

Non-interest income was $3.5 million and $7.0 million for the three and six months ended June 30, 2025, respectively, compared to $4.0 million and $7.0 million for the three and six months ended June 30, 2024, respectively. These changes are discussed in greater detail under the Non-interest Income and Expense section.

Non-interest expense was $12.3 million and $24.8 million for the three and six months ended June 30, 2025, respectively, compared to $12.0 million and $24.6 million for the three and six months ended June 30, 2024, respectively. These changes are discussed in greater detail under the Non-interest Income and Expense section.

Balance Sheet Highlights:

Cash and cash equivalents – Cash and cash equivalents increased $49.3 million to $100.3 million as of June 30, 2025 compared to $51.0 million as of December 31, 2024 and increased $24.5 million compared to $75.8 million as of June 30, 2024. See the Liquidity Management section for further discussion.

Loans – Loans held for investment decreased $3.3 million to $1.46 billion as of June 30, 2025 compared to $1.47 billion as of December 31, 2024 and decreased $35.6 million compared to $1.50 billion as of June 30, 2024.

Asset quality – Non-performing assets totaled $5.2 million, or 0.35% of total loans, at June 30, 2025 compared to $4.2 million, or 0.29% of total loans, at December 31, 2024 and $8.1 million, or 0.54% of total loans, at June 30, 2024.

In the second quarter 2025, the Company had net loan charge-offs of $0.05 million, or 0.01%, of average loans, compared to net loan charge-offs $1.98 million, or 0.53% of average loans, in the prior year quarter.

The allowance for credit losses was $21.6 million, or 1.47%, of loans outstanding at June 30, 2025 compared to $22.0 million, or 1.50%, of loans outstanding at December 31, 2024, and $22.0 million, or 1.47% of loans outstanding at June 30, 2024. These changes are discussed in greater detail under the Lending and Credit Management section.

Deposit s – Total deposits decreased $15.2 million to $1.52 billion as of June 30, 2025 compared to $1.53 billion as of December 31, 2024, and decreased $32.3 million compared to $1.55 billion as of June 30, 2024.

Federal Home Loan Bank ("FHLB") advances and other borrowings – Total FHLB advances and other borrowings increased $58.6 million to $140.1 million as of June 30, 2025, compared to $81.5 million as of December 31, 2024, and increased $41.0 million compared to $99.1 million as of June 30, 2024.

Capital – The Company maintains its “well capitalized” regulatory capital position. At June 30, 2025, capital ratios were as follows: total risk-based capital to risk-weighted assets 15.12%; tier 1 capital to risk-weighted assets 13.87%; tier 1 leverage 11.87%; and common equity to assets 8.35%.

Average Balance Sheet Data

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest-earning assets and interest-bearing liabilities. The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a FTE basis for each of the three and six month periods ended June 30, 2025 and 2024, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.


	Three Months Ended June 30,
	2025					2024
(dollars in thousands)	Average Balance		Interest Income/ Expense (1)		Rate Earned/ Paid (1)	Average Balance		Interest Income/ Expense (1)		Rate Earned/ Paid (1)
ASSETS
Loans: (2)
Commercial	$	207,200	$	3,502	6.78%	$	221,899	$	3,652	6.62%
Real estate construction - residential	25,177		526		8.38	45,303		864		7.67
Real estate construction - commercial	64,457		1,222		7.60	53,423		1,051		7.91
Real estate mortgage - residential	378,192		5,510		5.84	372,088		5,237		5.66
Real estate mortgage - commercial	765,516		10,702		5.61	801,011		10,536		5.29
Installment and other consumer	12,049		193		6.42	17,885		256		5.76
Total loans	$	1,452,591	$	21,655	5.98%	$	1,511,609	$	21,596	5.75%
Loans held for sale	178		3		6.76	2,786		36		5.20
Investment securities:
U.S. Treasury	5,023		53		4.23	498		7		5.65
U.S. government and federal agency obligations	13,244		139		4.21	13,073		140		4.31
Obligations of states and political subdivisions	96,830		887		3.67	101,646		757		3.00
Mortgage-backed securities	78,630		761		3.88	54,322		432		3.20
Other debt securities	27,947		419		6.01	12,628		183		5.83
Total investment securities	$	221,674	$	2,259	4.09%	$	182,167	$	1,519	3.35%
Other investment securities	4,029		85		8.46	6,106		150		9.88

Interest bearing deposits in other financial institutions	24,429		290		4.76	32,838		452		5.54
Total interest earning assets	$	1,702,901	$	24,292	5.72%	$	1,735,506	$	23,753	5.50%
All other assets	121,652					117,687
Allowance for credit losses	(21,847)					(23,635)
Total assets	$	1,802,706				$	1,829,558
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings	$	275,295	$	1,227	1.79%	$	246,339	$	1,276	2.08%
NOW accounts	191,222		650		1.36	196,667		650		1.33
Interest checking	137,043		1,288		3.77	119,545		1,361		4.58
Money market	205,005		921		1.80	222,410		1,206		2.18
Time deposits	302,763		2,422		3.21	346,615		3,075		3.57
Total interest bearing deposits	$	1,111,328	$	6,508	2.35%	$	1,131,576	$	7,568	2.69%
Federal funds purchased and securities sold under agreements to repurchase	73		1		5.49	—		—		—
Federal Home Loan Bank advances and other borrowings	59,177		404		2.74	104,832		831		3.19
Subordinated notes	49,486		856		6.94	49,486		985		8.01
Total borrowings	$	108,736	$	1,261	4.65%	$	154,318	$	1,816	4.73%
Total interest bearing liabilities	$	1,220,064	$	7,769	2.55%	$	1,285,894	$	9,384	2.94%
Demand deposits	416,296					397,180
Other liabilities	11,983					11,104
Total liabilities	$	1,648,343				$	1,694,178
Stockholders' equity	154,363					135,380
Total liabilities and stockholders' equity	$	1,802,706				$	1,829,558
Net interest income (FTE)			$	16,523				$	14,369
Net interest spread (FTE)					3.17%					2.57%
Net interest margin (FTE)					3.89%					3.33%

(1) Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three months ended June 30, 2025 and 2024. Such adjustments totaled $0.38 million and $0.20 million for the three months ended June 30, 2025 and 2024, respectively.

(2) Non-accruing loans are included in the average amounts outstanding.


	Six Months Ended June 30, 2025
	2025					2024
(dollars in thousands)	Average Balance		Interest Income/ Expense(1)		Rate Earned/ Paid(1)	Average Balance		Interest Income/ Expense(1)		Rate Earned/ Paid(1)
ASSETS
Loans: (2)
Commercial	$	203,966	$	6,672	6.60%	$	221,010	$	7,257	6.60%
Real estate construction - residential	29,317		1,146		7.88	51,624		1,988		7.74
Real estate construction - commercial	73,268		2,791		7.68	74,953		2,519		6.76
Real estate mortgage - residential	370,800		10,686		5.81	372,085		10,481		5.66
Real estate mortgage - commercial	768,940		21,223		5.57	779,558		20,601		5.31
Installment and other consumer	12,623		401		6.41	18,896		545		5.80
Total loans	$	1,458,914	$	42,919	5.93%	$	1,518,126	$	43,391	5.75%
Loans held for sale	130		5		7.76	2,463		66		5.39
Investment securities:
U.S. Treasury	4,984		105		4.25	988		26		5.29
U.S. government and federal agency obligations	13,228		281		4.28	15,892		362		4.58
Obligations of states and political subdivisions	99,342		1,671		3.39	103,634		1,510		2.93
Mortgage-backed securities	79,345		1,543		3.92	50,539		740		2.94
Other debt securities	25,091		721		5.79	12,289		359		5.87
Total investment securities	$	221,990	$	4,321	3.93%	$	183,342	$	2,997	3.29%
Other investment securities	4,422		205		9.35	6,268		287		9.21

Interest bearing deposits in other financial institutions	23,818		539		4.56	44,713		1,263		5.68
Total interest earning assets	$	1,709,274	$	47,989	5.66%	$	1,754,912	$	48,004	5.50%
All other assets	121,496					105,457
Allowance for credit losses	(22,034)					(23,743)
Total assets	$	1,808,736				$	1,836,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings	$	273,648	$	2,505	1.85%	$	237,525	$	2,301	1.95%
NOW accounts	197,537		1,407		1.44	201,848		1,407		1.40
Interest checking	141,637		2,667		3.80	131,958		2,986		4.55
Money market	206,561		1,856		1.81	228,299		2,429		2.14
Time deposits	301,580		4,886		3.27	341,323		5,910		3.48
Total interest bearing deposits	$	1,120,963	$	13,321	2.40%	$	1,140,953	$	15,033	2.65%
Federal funds purchased and securities sold under agreements to repurchase	51		1		3.95	—		—		—
Federal Home Loan Bank advances and other borrowings	67,304		903		2.71	107,960		1,680		3.13
Subordinated notes	49,486		1,708		6.96	49,486		1,975		8.03
Total borrowings	$	116,841	$	2,612	4.51%	$	157,446	$	3,655	4.67%
Total interest bearing liabilities	$	1,237,804	$	15,933	2.60%	$	1,298,399	$	18,688	2.89%
Demand deposits	404,945					390,876
Other liabilities	12,437					11,343
Total liabilities	$	1,655,186				$	1,700,618
Stockholders' equity	153,550					136,008
Total liabilities and stockholders' equity	$	1,808,736				$	1,836,626
Net interest income (FTE)			$	32,056				$	29,316
Net interest spread (FTE)					3.06%					2.61%
Net interest margin (FTE)					3.78%					3.36%

(1) Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the six months ended June 30, 2025 and 2024. Such adjustments totaled $0.62 million and $0.40 million for the six months ended June 30, 2025 and 2024, respectively.

(2) Non-accruing loans are included in the average amounts outstanding.

Rate and Volume Analysis

The following table summarizes the changes in net interest income on a FTE basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three and six months ended June 30, 2025 compared to the three and six months ending ended June 30, 2024, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.


	Three Months Ended June 30,						Six Months Ended June 30,
	2025 vs. 2024						2025 vs. 2024
			Change due to						Change due to
(dollars in thousands)	Total Change		Average Volume		Average Rate		Total Change		Average Volume		Average Rate
Interest income on a fully taxable equivalent basis: (1)
Loans: (2)
Commercial	$	(150)	$	(248)	$	98	$	(585)	$	(559)	$	(26)
Real estate construction - residential	(338)		(416)		78		(842)		(874)		32
Real estate construction - commercial	171		211		(40)		272		(58)		330
Real estate mortgage - residential	273		87		186		205		(36)		241
Real estate mortgage - commercial	166		(480)		646		622		(284)		906
Installment and other consumer	(63)		(91)		28		(144)		(195)		51
Loans held for sale	(33)		(42)		9		(61)		(81)		20
Investment securities:
U.S. Treasury	46		48		(2)		79		85		(6)
U.S. government and federal agency obligations	(1)		2		(3)		(81)		(58)		(23)
Obligations of states and political subdivisions	130		(37)		167		161		(65)		226
Mortgage-backed securities	329		222		107		803		511		292
Other debt securities	236		231		5		362		369		(7)
Other investment securities	(65)		(46)		(19)		(82)		(86)		4

Interest bearing deposits in other financial institutions	(162)		(106)		(56)		(724)		(510)		(214)
Total interest income	$	539	$	(665)	$	1,204	$	(15)	$	(1,841)	$	1,826
Interest expense:
Savings	$	(49)	$	140	$	(189)	$	204	$	337	$	(133)
NOW accounts	0		(18)		18		0		(30)		30
Interest checking	(73)		184		(257)		(319)		209		(528)
Money market	(285)		(90)		(195)		(573)		(218)		(355)
Time deposits	(653)		(369)		(284)		(1,024)		(662)		(362)

FHLB advances and other borrowings	(427)		(325)		(102)		(777)		(570)		(207)
Subordinated notes	(129)		—		(129)		(267)		—		(267)
Total interest expense	$	(1,615)	$	(478)	$	(1,137)	$	(2,755)	$	(934)	$	(1,821)
Net interest income on a FTE basis	$	2,154	$	(187)	$	2,341	$	2,740	$	(907)	$	3,647

(1) Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three and six months ended June 30, 2025 and 2024, respectively. Such adjustments totaled $0.38 million and $0.62 million for the three and six months ended June 30, 2025, respectively, compared to $0.20 million and $0.40 million for the three and six months ended June 30, 2024, respectively.

(2) Non-accruing loans are included in the average amounts outstanding.

Financial results for the quarter ended June 30, 2025 compared to the quarter ended June 30, 2024, reflected an increase in net interest income on an FTE basis, of $2.2 million, or 15.0%, and financial results for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 reflected an increase in net interest income on an FTE basis, of $2.7 million, or 9.3%. Measured as a percentage of average earning assets, the net interest margin (expressed on an FTE basis) increased to 3.89% for the quarter ended June 30, 2025 compared to 3.33% for the quarter ended June 30, 2024, and increased to 3.78% for the six months ended June 30, 2025 compared to 3.36% for the six months ended June 30, 2024.

Average interest-earning assets decreased $32.6 million, or 1.9%, to $1.70 billion for the quarter ended June 30, 2025 compared to $1.74 billion for the quarter ended June 30, 2024, and average interest-bearing liabilities decreased $65.8 million, or 5.1%, to $1.22 billion for the quarter ended June 30, 2025 compared to $1.29 billion for the quarter ended June 30, 2024.

Average interest-earning assets decreased $45.6 million, or 2.6%, to $1.71 billion for the six months ended June 30, 2025 compared to $1.75 billion for the six months ended June 30, 2024, and average interest-bearing liabilities decreased $60.6 million, or 4.7%, to $1.24 billion for the six months ended June 30, 2025 compared to $1.30 billion for the six months ended June 30, 2024.

Total interest income (expressed on an FTE basis) was $24.3 million and $48.0 million for the three and six months ended June 30, 2025, respectively compared to $23.8 million and $48.0 million for the three and six months ended June 30, 2024, respectively. The Company’s rates earned on interest earning assets were 5.72% and 5.66% for the three and six months ended June 30, 2025, respectively, compared to 5.50% for both the three and six months ended June 30, 2024.

Interest income on loans held for investment was $21.7 million and $42.9 million for the three and six months ended June 30, 2025, respectively, compared to $21.6 million and $43.4 million for the three and six months ended June 30, 2024, respectively.

Average loans outstanding decreased $59.0 million, or 3.9%, to $1.45 billion for the quarter ended June 30, 2025 compared to $1.51 billion for the quarter ended June 30, 2024. The average yield on loans increased to 5.98% for the quarter ended June 30, 2025 compared to 5.75% for the quarter ended June 30, 2024.

Average loans outstanding decreased $59.2 million, or 3.9%, to $1.46 billion for the six months ended June 30, 2025 compared to $1.52 billion for the six months ended June 30, 2024. The average yield on loans increased to 5.93% for the six months ended June 30, 2025 compared to 5.75% for the six months ended June 30, 2024. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Interest income on available-for-sale securities was $2.3 million and $4.3 million for the three and six months ended June 30, 2025, respectively, compared to $1.5 million and $3.0 million for the three and six months ended June 30, 2024, respectively.

Average securities increased $39.5 million, or 21.7%, to $221.7 million for the quarter ended June 30, 2025 compared to $182.2 million for the quarter ended June 30, 2024. The average yield on securities increased to 4.09% for the quarter ended June 30, 2025 compared to 3.35% for the quarter ended June 30, 2024.

Average securities increased $38.6 million, or 21.1%, to $222.0 million for the six months ended June 30, 2025 compared to $183.3 million for the six months ended June 30, 2024. The average yield on securities increased to 3.93% for the six months ended June 30, 2025 compared to 3.29% for the six months ended June 30, 2024. See the Liquidity Management section for further discussion.

Total interest expense was $7.8 million and $15.9 million for the three and six months ended June 30, 2025, respectively, compared to $9.4 million and $18.7 million for the three and six months ended June 30, 2024, respectively. The Company’s rates paid on interest bearing liabilities were 2.55% and 2.60% for the three and six months ended June 30, 2025, respectively, compared to 2.94% and 2.89% for the three and six months ended June 30, 2024, respectively. See the Liquidity Management section for further discussion.

Interest expense on deposits was $6.5 million and $13.3 million for the three and six months ended June 30, 2025, respectively, compared to $7.6 million and $15.0 million for the three and six months ended June 30, 2024, respectively.

Average interest-bearing deposits decreased $20.2 million, or 1.8%, to $1.11 billion for the quarter ended June 30, 2025 compared to $1.13 billion for the quarter ended June 30, 2024. The average cost of deposits decreased to 2.35% for the quarter ended June 30, 2025 compared to 2.69% for the quarter ended June 30, 2024.

Average interest-bearing deposits decreased $20.0 million, or 1.8%, to $1.12 billion for the six months ended June 30, 2025 compared to $1.14 billion for the six months ended June 30, 2024. The average cost of deposits decreased to 2.40% for the six months ended June 30, 2025 compared to 2.65% for the six months ended June 30, 2024.

Interest expense on borrowings was $1.3 million and $2.6 million for the three and six months ended June 30, 2025, respectively, compared to $1.8 million and $3.7 million for the three and six months ended June 30, 2024, respectively.

Average borrowings decreased $45.6 million, or 29.5%, to $108.7 million for the quarter ended June 30, 2025 compared to $154.3 million for the quarter ended June 30, 2024. The average cost of borrowings decreased to 4.65% for the quarter ended June 30, 2025 compared to 4.73% for the quarter ended June 30, 2024.

Average borrowings decreased $40.6 million, or 25.8%, to $116.8 million for the six months ended June 30, 2025 compared to $157.4 million for the six months ended June 30, 2024. The average cost of borrowings decreased to 4.51% for the six months ended June 30, 2025 compared to 4.67% for the six months ended June 30, 2024.

Non-interest Income

The following table shows the principal components of non-interest income.


	Three Months Ended June 30,										Six Months Ended June 30,
(dollars in thousands)	2025			2024			$ Change		% Change		2025			2024			$ Change		% Change
Service charges and other fees	$	940		$	777		$	163	21.0	%	$	1,853		$	1,594		$	259	16.2	%
Bank card income and fees	1,003			1,075			(72)		(6.7)	%	1,929			2,048			(119)		(5.8)	%
Earnings on bank-owned life insurance	509			505			4		0.8%		1,019			641			378		59.0%
Wealth management revenue	542			450			92		20.4	%	1,016			830			186		22.4	%

Gain on sales of mortgage loans, net	117			398			(281)		(70.6)	%	242			675			(433)		(64.1)	%
(Losses) gains on other real estate owned, net	(177)			454			(631)		(139.0)	%	(156)			488			(644)		(132.0)	%
Other	611			337			274		81.3	%	1,105			739			366		49.5	%
Total non-interest income	$	3,545		$	3,996		$	(451)	(11.3)	%	$	7,008		$	7,015		$	(7)	(0.1)	%
Non-interest income as a % of total revenue *	18.0		%	22.0		%					18.2		%	19.5		%

* Total revenue is calculated as net interest income plus non-interest income.

Total non-interest income decreased $0.5 million, or 11.3%, to $3.5 million for the quarter ended June 30, 2025 compared to $4.0 million for the quarter ended June 30, 2024, and remained unchanged at $7.0 million for the six months ended June 30, 2025 and June 30, 2024. Compared to the prior year quarter, the decrease was primarily due to lower gains on sales of mortgage loans and lower net gains on sales of other real estate owned, offset by increases in earnings on bank-owned life insurance and an increase in service charges and other fees.

Earnings on bank-owned life insurance was $0.5 million for both quarters ended June 30, 2025 and June 30, 2024, and increased to $1.0 million for the six months ended June 30, 2025 compared to $0.6 million for the six months ended June 30, 2024. The Company purchased $35.0 million in bank-owned life insurance policies in the first quarter of 2024. The earnings generated from these polices are primarily derived from the investment returns on the cash value component.

Gain on sales of mortgage loans decreased to $0.1 million for the quarter ended June 30, 2025 compared to $0.4 million for the quarter ended June 30, 2024, and decreased to $0.2 million for the six months ended June 30, 2025 compared to $0.7 million for the six months ended June 30, 2024. The Company sold mortgage loans totaling $1.7 million and $2.9 million for the three and six months ended June 30, 2025, respectively, compared to $21.7 million and $38.0 million for the three and six months ended June 30, 2024, respectively.

Non-interest Expense

The following table shows the principal components of non-interest expense.


	Three Months Ended June 30,									Six Months Ended June 30,
(dollars in thousands)	2025			2024			$ Change		% Change	2025			2024			$ Change		% Change
Salaries	$	5,415		$	5,392		$	23	0.4%	$	10,780		$	10,642		$	138	1.3%
Employee benefits	1,288			1,332			(44)		(3.3)	2,835			2,812			23		0.8
Occupancy expense, net	947			708			239		33.8	1,883			1,521			362		23.8
Furniture and equipment expense	673			722			(49)		(6.8)	1,466			1,478			(12)		(0.8)
Processing, network and bank card expense	1,443			1,362			81		5.9	2,844			2,732			112		4.1
Legal, examination, and professional fees	428			512			(84)		(16.4)	921			1,335			(414)		(31.0)
Advertising and promotion	212			261			(49)		(18.8)	372			524			(152)		(29.0)
Postage, printing, and supplies	342			190			152		80.0	636			357			279		78.2

Other	1,521			1,555			(34)		(2.2)	3,031			3,208			(177)		(5.5)
Total non-interest expense	$	12,269		$	12,034		$	235	2.0%	$	24,768		$	24,609		$	159	0.6%
Efficiency ratio*	62.3		%	66.2		%				64.4		%	68.5		%
Number of full-time equivalent employees	250			278						250			278

* Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total revenue is calculated as net interest income plus non-interest income.

Total non-interest expense increased $0.2 million, or 2.0%, to $12.3 million for the quarter ended June 30, 2025 compared to $12.0 million for the quarter ended June 30, 2024, and increased $0.2 million, or 0.6%, to $24.8 million for the six months ended June 30, 2025 compared to $24.6 million for the six months ended June 30, 2024.

Occupancy expense increased $0.2 million, or 33.8%, to $0.9 million for the quarter ended June 30, 2025 compared to $0.7 million for the quarter ended June 30, 2024, and increased $0.4 million, or 23.8%, to $1.9 million for the six months ended June 30, 2025 compared to $1.5 million for the six months ended June 30, 2024. The increase primarily resulted from the opening of two new branch locations and one new operations facility.

Legal, examination and professional fees decreased $0.1 million, or 16.4%, to $0.4 million for the quarter ended June 30, 2025 compared to $0.5 million for the quarter ended June 30, 2024, and decreased $0.4 million, or 31.0%, to $0.9 million for the six months ended June 30, 2025 compared to $1.3 million for the six months ended June 30, 2024. The decrease was primarily due to the costs from a settlement agreement from terminating a contract related to a digital account opening project in the prior year quarter.

Advertising and promotion decreased $0.05 million, or 18.8%, to $0.2 million for the quarter ended June 30, 2025 compared to $0.3 million for the quarter ended June 30, 2024, and decreased $0.2 million, or 29.0%, to $0.4 million for the six months ended June 30, 2025 compared to $0.5 million for the six months ended June 30, 2024. The Company is utilizing internal marketing resources whereas, in the prior year quarter, external resources were used.

Postage, printing and supplies increased $0.2 million, or 80.0%, to $0.3 million for the quarter ended June 30, 2025 compared to $0.2 million for the quarter ended June 30, 2024, and increased $0.3 million, or 78.2%, to $0.6 million for the six months ended June 30, 2025 compared to $0.4 million for the six months ended June 30, 2024. The increase was primarily a result of customer mailings related to an account consolidation project.

Income Taxes

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was consistent at 18.3% for both the three and six months ended June 30, 2025, respectively, compared to 18.2% and 18.0% for the three and six months ended June 30, 2024, respectively. The effective tax rate for each of the three and six months ended June 30, 2025 and 2024 was lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.

Lending and Credit Management

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 76.8% of total assets as of June 30, 2025 compared to 79.1% as of December 31, 2024.

Lending activities are conducted pursuant to an established loan policy approved by the Bank's Board of Directors. The Bank's credit review process is overseen by regional loan committees with established loan approval limits. In addition, the executive loan committee reviews all credit relationships in aggregate over an established dollar amount. The executive loan committee meets weekly and is comprised of senior managers of the Bank.

Major classifications within the Company’s held-for-investment loan portfolio as of the dates indicated is as follows:


	June 30, 2025				December 31, 2024
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans
Commercial, financial, and agricultural	$	212,266	14.5	%	$	202,329	13.8	%
Real estate construction − residential	24,117		1.7		32,046		2.2
Real estate construction − commercial	66,441		4.5		80,435		4.5
Real estate mortgage − residential	381,037		26.1		361,735		25.2
Real estate mortgage − commercial	767,240		52.4		775,594		53.3
Installment and other consumer	11,797		0.8		14,021		1.0
Total loans held for investment	$	1,462,898	100.0	%	$	1,466,160	100.0	%

Commercial Real Estate Loans

Commercial real estate loans ("CRE") consist primarily of income-producing investment property loans. Additionally, CRE loans include 1-4 family property loans as well as land and development loans.

The following table shows the categories of the Company's non-owner occupied CRE loan portfolio at June 30, 2025 and December 31, 2024:


	June 30, 2025				December 31, 2024
(Dollars in thousands)	Amount		% of Loans		Amount		% of Loans
Retail	$	172,122	29.2	%	$	190,915	30.0	%
Multi Family	168,173		28.5		168,629		26.5
Hotel & Food Service	62,058		10.5		70,816		11.2
Office Buildings	52,326		8.9		47,042		7.4
Other Construction	39,678		6.7		39,696		6.3
1-4 Family Construction	24,117		4.1		32,046		5.0
Other Real Estate	22,782		3.9		27,053		4.3
Industrial	21,187		3.6		18,446		2.9
Land Subdivision	10,066		1.7		10,844		1.7
Residential Building Construction	9,894		1.7		20,413		3.2
Commercial and Institutional Building Construction	6,802		1.2		9,481		1.5
Total Commercial Real Estate - Non Owner Occupied	$	589,205	100.0	%	$	635,381	100.0	%

The Company extends credit to its local community markets through traditional real estate mortgage products. The Company does not participate in credit extension to sub-prime residential real estate markets. The Company does not lend funds for transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table.

Risk Elements of the Loan Portfolio

Management, internal loan review and the executive loan committee formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Loans in excess of $2.0 million in the aggregate and all adversely classified credits identified by management are reviewed by the executive loan committee. In addition, all other loans are reviewed on a risk weighted selection process. The executive loan committee reviews and reports to the Board of Directors, at scheduled meetings: past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, special mention, substandard, doubtful, or loss. During this review, management will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is individually analyzed and in conjunction with current economic conditions and loss experience, reserves are estimated as further discussed below.

Loans not individually evaluated are aggregated and collectively analyzed. Management determined that segmenting loans not individually analyzed by the federal call report codes represents the most prudent way to consolidate loans by their associated risk qualities.

General reserves are recorded for collectively analyzed loans using a consistent methodology. Two different models are used for calculating the general reserve. The Discounted Cash Flow model considers quantitative peer group historic loss experience, forecasts over the estimated life of the loan pools, industry data, and qualitative or environmental factors, such as: lending policies and procedures; economic conditions; the nature, volume and terms of the portfolio; lending staff and management; past due loans; the loan review system; collateral values; concentrations of credit; and external factors. The Remaining Life model applies a long-term average loss rate calculated using peer data that is adjusted for qualitative or environmental factors such as those previously noted. The model used depends on the loan portfolio segment. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. At June 30, 2025 and December 31, 2024, the ACL on loans included a qualitative adjustment of approximately $10.0 million and $11.2 million, respectively.

Non-Performing Assets

The following table summarizes non-performing assets at the dates indicated:


	June 30,			December 31,
(dollars in thousands)	2025			2024

Non-accrual loans:
Commercial, financial, and agricultural	$	1,006		$	923
Real estate construction − residential	—			454
Real estate construction − commercial	—			49
Real estate mortgage − residential	1,026			963
Real estate mortgage − commercial	208			138
Installment and other consumer	16			10
Total	$	2,256		$	2,537
Loans contractually past - due 90 days or more and still accruing:



Real estate mortgage − residential	$	498		$	207

Installment and other consumer	7			3
Total	$	505		$	210
Total non-performing loans (a)	2,761			2,747
Other real estate owned and repossessed assets	2,425			1,446
Total non-performing assets (b)	$	5,186		$	4,193

Loans held for investment	$	1,462,898		$	1,466,160
Allowance for credit losses on loans	$	21,570		$	22,044

Allowance for credit losses to loans	1.47		%	1.50		%
Non-accrual loans to total loans	0.15		%	0.17		%
Non-performing loans to loans (a)	0.19		%	0.19		%
Non-performing assets to loans (b)	0.35		%	0.29		%
Non-performing assets to assets (b)	0.28		%	0.23		%
Allowance for credit losses to non-accrual loans	956.12		%	868.90		%
Allowance for credit losses to non-performing loans	781.24		%	802.48		%

(a) Non-performing loans include loans 90 days past due and accruing and non-accrual loans.

(b) Non-performing assets include non-performing loans and other real estate owned and repossessed assets.

Total non-performing assets were $5.2 million, or 0.35% of total loans, at June 30, 2025 compared to $4.2 million, or 0.29% of total loans, at December 31, 2024.

Total non-accrual loans at June 30, 2025 decreased $0.3 million, or 11.1%, to $2.3 million compared to $2.5 million at December 31, 2024. There were $0.51 million in loans past due 90 days and still accruing interest at June 30, 2025 compared to $0.21 million at December 31, 2024. Other real estate and repossessed assets were $2.4 million and $1.4 million at June 30, 2025 and December 31, 2024, respectively. There were no non-accrual loans added to other real estate owned and repossessed assets during the six months ended June 30, 2025 and 2024.

Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Commitments

Allowance for Credit Losses

The following table is a summary of the allocation of the allowance for credit losses:


	June 30, 2025				December 31, 2024
(dollars in thousands)	Amount		% of loans in each category to total loans		Amount		% of loans in each category to total loans
Allocation of allowance for credit losses at end of period:
Commercial, financial, and agricultural	$	2,144	14.5	%	$	1,560	13.8	%
Real estate construction − residential	328		1.7		578		2.2
Real estate construction − commercial	1,484		4.5		2,221		4.5
Real estate mortgage − residential	4,917		26.1		5,310		25.2
Real estate mortgage − commercial	12,392		52.4		12,305		53.3
Installment and other consumer	112		0.8		138		1.0
Unallocated	193		—		(68)		—
Total	$	21,570	100.0	%	$	22,044	100.0	%

The allowance for credit losses was $21.6 million, or 1.47%, of loans outstanding at June 30, 2025 compared to $22.0 million, or 1.50%, of loans outstanding at December 31, 2024. The ratio of the allowance for credit losses to non-performing loans was 781.24% at June 30, 2025, compared to 802.48% at December 31, 2024.

(Release of) Provision for Credit Losses


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2025		2024		2025		2024
(Release of) provision for credit losses on loans	$	(159)	$	282	$	(441)	$	282

Provision for (release of) credit losses for off-balance sheet commitments	108		175		50		(55)
Total (release of) provision for credit losses	$	(51)	$	457	$	(391)	$	227

The Company recognized a release of provision for credit losses of $0.1 million and $0.4 million for the three and six months ended June 30, 2025, respectively, compared to $0.5 million and $0.2 million of provisions for credit losses for the three and six months ended June 30, 2024, respectively.

The following table summarizes credit loss experience for the periods indicated:


	Three Months Ended June 30,
	2025						2024
(dollars in thousands)	(Net Charge-offs) Recoveries		Average Loans		Net (Charge-offs) Recoveries / Average Loans		(Net Charge-offs) Recoveries		Average Loans		Net (Charge-offs) Recoveries / Average Loans
Commercial, financial, and agricultural	$	13	$	207,200	0.01	%	$	(1,847)	$	221,899	(0.83)	%
Real estate construction − residential	—		25,177		—		—		45,303		—
Real estate construction − commercial	—		64,457		—		—		53,423		—
Real estate mortgage − residential	4		378,192		—		(18)		372,088		—
Real estate mortgage − commercial	(3)		765,516		—		(67)		801,011		(0.01)
Installment and other consumer	(65)		12,049		(0.54)		(45)		17,885		(0.25)
Total	$	(51)	$	1,452,591	—	%	$	(1,977)	$	1,511,609	(0.13)	%

	Six Months Ended June 30,
	2025						2024
(dollars in thousands)	(Net Charge-offs) Recoveries		Average Loans		Net (Charge-offs) Recoveries / Average Loans		(Net Charge-offs) Recoveries		Average Loans		Net (Charge-offs) Recoveries / Average Loans
Commercial, financial, and agricultural	$	68	$	203,966	0.03	%	$	(1,868)	$	221,010	(0.85)	%
Real estate construction − residential	—		29,317		—		—		51,624		—
Real estate construction − commercial	—		73,268		—		—		74,953		—
Real estate mortgage − residential	5		370,800		—		(18)		372,085		—
Real estate mortgage − commercial	22		768,940		—		(89)		779,558		(0.01)
Installment and other consumer	(128)		12,623		(1.01)		(71)		18,896		(0.38)
Total	$	(33)	$	1,458,914	—	%	$	(2,046)	$	1,518,126	(0.13)	%

Net Loan Recoveries (Charge-Offs)

The Company’s net charge-offs were $0.05 million and $0.03 million for the three and six months ended June 30, 2025, respectively, compared to $2.0 million net charge-offs for both the three and six months ended June 30, 2024.

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, and PennyMac and various other secondary market investors. There were no loans held for sale at either June 30, 2025 or December 31, 2024.

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. During the six months ended June 30, 2025, the Company sold approximately $2.9 million of loans to investors compared to $38.0 million for the six months ended June 30, 2024.

Liquidity and Capital Resources

Liquidity Management

The role of liquidity management is to ensure that funds are available to meet depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet these demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full-service relationships with customers as the primary sources of funding.

The Company’s Asset/Liability Committee (ALCO), primarily made up of senior management, has direct oversight responsibility for the Company’s liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company’s liquidity.

The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company’s most liquid assets are comprised of available-for-sale investment securities, not including other debt securities, federal funds sold, and excess reserves held at the Federal Reserve.


(dollars in thousands)	June 30, 2025		December 31, 2024

Other interest-bearing deposits	$	77,383	$	27,326
Certificates of deposit in other banks	1,000		1,000
Available-for-sale investment securities	221,736		218,652
Total	$	300,119	$	246,978

Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available-for-sale investment portfolio was $221.7 million at June 30, 2025 and included an unrealized net loss of $29.6 million. The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $2.2 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s borrowings.

The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes as required or permitted by law. At June 30, 2025 and December 31, 2024, the Company’s unpledged securities in the available-for-sale portfolio totaled approximately $132.0 million and $136.3 million, respectively.

Total investment securities pledged for these purposes were as follows:


(dollars in thousands)	June 30, 2025		December 31, 2024

Federal Reserve Bank borrowings	$	7,705	$	7,915

Other deposits	82,046		74,470
Total pledged, at fair value	$	89,751	$	82,385

Liquidity is available from the Company’s base of core customer deposits, defined as demand, interest checking, savings, money market deposit accounts, and time deposits less than $250,000, less all brokered deposits under $250,000. At June 30, 2025, such deposits totaled $1.4 billion and represented 94.0% of the Company’s total deposits. These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships.

Core deposits at June 30, 2025 and December 31, 2024 were as follows:


(dollars in thousands)	June 30, 2025		December 31, 2024

Non-interest bearing demand	$	419,914	$	385,022
Interest checking	309,427		381,877
Savings and money market	478,779		464,449
Other time deposits	218,698		201,438
Total	$	1,426,818	$	1,432,786

Estimated uninsured deposits totaled $352.9 million, including $91.2 million of certificates of deposit, at June 30, 2025, compared to $352.0 million, including $100.4 million of certificates of deposit, at December 31, 2024. The Company's brokered deposits were consistent at $0.01 million at June 30, 2025 and December 31, 2024.

Other components of liquidity are the level of borrowings from third-party sources and the availability of future credit. The Company’s outside borrowings are comprised of federal funds purchased, advances from the Federal Home Loan Bank (FHLB) and subordinated notes. Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines. As of June 30, 2025, under agreements with these unaffiliated banks, the Bank may borrow up to $35.0 million in federal funds on an unsecured basis and $7.2 million on a secured basis. There were no federal funds purchased outstanding at June 30, 2025. The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window, although no such borrowings were outstanding at June 30, 2025.

The Bank is a member of the FHLB and has access to credit products of the FHLB. As of June 30, 2025, the Bank had $140.0 million in outstanding borrowings with the FHLB. In addition, the Company has $49.5 million in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.

Borrowings outstanding at June 30, 2025 and December 31, 2024 were as follows:


(dollars in thousands)	June 30, 2025		December 31, 2024


Federal Home Loan Bank advances	$	140,000	$	81,425
Other borrowings	100		100
Subordinated notes	49,486		49,486

Total	$	189,586	$	131,011

The Company pledges certain assets, including loans and investment securities to the Federal Reserve Bank, FHLB, and other correspondent banks as security to establish lines of credit and to borrow from these entities. Based on the type and value of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against this collateral. This collateral is also used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The Federal Reserve Bank also establishes a collateral value of assets pledged to support borrowings from the discount window.

The following table reflects collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company:


	June 30, 2025								December 31, 2024
(dollars in thousands)	FHLB		Federal Reserve Bank		Federal Funds Purchased Lines		Total		FHLB		Federal Reserve Bank		Federal Funds Purchased Lines		Total
Advance equivalent	$	396,082	$	7,221	$	35,000	$	438,303	$	407,678	$	7,468	$	35,000	$	450,146
Letters of credit	(46,375)		—		—		(46,375)		(139,000)		—		—		(139,000)
Advances outstanding	(140,000)		—		—		(140,000)		(81,425)		—		—		(81,425)
Total available	$	209,707	$	7,221	$	35,000	$	251,928	$	187,253	$	7,468	$	35,000	$	229,721

At June 30, 2025, loans of $723.2 million were pledged to the FHLB as collateral for borrowings and letters of credit. At June 30, 2025, investments with a market value of $7.7 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.

Based upon the above, management believes the Company has more than adequate liquidity, both on balance sheet and through the additional funding capacity with the FHLB, the Federal Reserve Bank and Federal funds purchased lines to meet future anticipated liquidity needs in both the short and long-term.

Sources and Uses of Funds

Cash and cash equivalents were $100.3 million at June 30, 2025 compared to $51.0 million at December 31, 2024. The $49.3 million increase resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the six months ended June 30, 2025. Cash flow provided by operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided total cash of $11.5 million for the six months ended June 30, 2025.

Investing activities, consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio, used total cash of $0.7 million during the six months ended June 30, 2025. The cash outflow primarily consisted of a $13.3 million in purchases of securities and a $2.5 million net decrease in FHLB stock, partially offset by $11.4 million proceeds from maturities and calls of available-for-sale securities and a $3.2 million net decrease in loans held for investment.

Financing activities provided total cash of $38.5 million during the six months ended June 30, 2025, resulting primarily from a $34.9 million increase in demand deposits, a $58.6 million net increase in FHLB advances, and an $8.0 million increase in time deposits, partially offset by a $58.1 million decrease in interest-bearing transaction accounts.

In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity. The Company had $388.0 million in unused loan commitments and standby letters of credit as of June 30, 2025. Although the Company’s current liquidity resources are adequate to fund this commitment level, the nature of these commitments is such that the likelihood of such a funding demand is very low.

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company’s ongoing liquidity needs primarily include funding its operating expenses, paying cash dividends to its shareholders and, to a lesser extent, repurchasing its shares of common stock. The Company paid cash dividends to its shareholders totaling approximately $2.7 million and $2.4 million during the six months ended June 30, 2025 and 2024, respectively. A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. The Bank declared $10.0 million in dividends to the Company during both the six months ended June 30, 2025 and 2024, respectively. At June 30, 2025 and December 31, 2024, the Company had cash and cash equivalents totaling $21.0 million and $15.3 million, respectively. Subject to declaration by the Company's Board of Directors, the Company expects to continue paying quarterly cash dividends as a part of its current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of the Company's Board of Directors and compliance with applicable regulatory capital requirements.

On June 5, 2025, the Company announced that its Board of Directors approved a new common stock repurchase program under which the Company may repurchase up to $10.0 million of its common stock, which replaced the Company’s prior common stock repurchase program. Pursuant to the repurchase program, management is given discretion to determine the number and pricing of the shares to be repurchased, as well as the timing of any such repurchases. The timing and total amount of stock repurchases will depend on market and other conditions and may be made from time to time in open market purchases or privately negotiated transactions. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company repurchased 79,777 common shares under its repurchase programs during the first six months of 2025 at an average cost of $27.62 per share totaling $2.2 million. As of June 30, 2025, $9.0 million remained available for share repurchases pursuant to the Company's current repurchase program.

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.

Capital Management

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The Basel III regulatory capital reforms adopted by U.S. federal regulatory authorities (the "Basel III Capital Rules"), among other things, (i) establish the capital measure called "Common Equity Tier 1" ("CET1"), (ii) specify that Tier 1 capital consists of CET1 and "Additional Tier 1 Capital" instruments meeting stated requirements, (iii) require that most deductions/adjustments to regulatory capital measures be made to CET1 and not to other components of capital and (iv) define the scope of the deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that the Company maintain a 2.50% capital conservation buffer with respect to each of CET1, Tier 1 and total capital to risk-weighted assets, which provides for capital levels that exceed the minimum risk-based capital adequacy requirements. A financial institution with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations. Management believes, as of June 30, 2025, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios. As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of June 30, 2025 and December 31, 2024. Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well-capitalized. The regulatory authorities can apply changes in classification of assets and such changes may retroactively subject the Company to changes in capital ratios. Any such change could reduce one or more capital ratios below well-capitalized status. In addition, a change may result in imposition of additional assessments by the FDIC or could result in regulatory actions that could have a material effect on our condition and results of operations. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%.

Because the Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, the Company is allowed to continue its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.

Under the Basel III Capital Rules, at June 30, 2025 and December 31, 2024, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as the dates indicated:


	Actual				Minimum Capital Required - Basel III Fully Phased-In				Required to be Considered Well- Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2025
Total Capital (to risk-weighted assets):
Company	$	237,774	15.12	%	$	165,087	10.50	%	$	—	N.A%
Bank	221,178		14.18	%	163,730		10.50	%	155,933		10.00	%
Tier 1 Capital (to risk-weighted assets):
Company	$	218,107	13.87	%	$	133,642	8.50	%	$	—	N.A%
Bank	201,670		12.93	%	132,543		8.50	%	124,746		8.00	%
Common Equity Tier 1 Capital (to risk-weighted assets):
Company	$	170,107	10.82	%	$	110,058	7.00	%	$	—	N.A%
Bank	201,670		12.93	%	109,153		7.00	%	101,356		6.50	%
Tier 1 leverage ratio (to adjusted average assets):
Company	$	218,107	11.87	%	$	73,524	4.00	%	$	—	N.A%
Bank	201,670		11.06	%	72,929		4.00	%	91,161		5.00	%

December 31, 2024
Total Capital (to risk-weighted assets):
Company	$	232,400	14.79	%	$	164,953	10.50	%	$	—	N.A%
Bank	219,410		14.10	%	163,365		10.50	%	155,586		10.00	%
Tier 1 Capital (to risk-weighted assets):
Company	$	212,780	13.54	%	$	133,533	8.50	%	$	—	N.A%
Bank	199,960		12.85	%	132,248		8.50	%	124,469		8.00	%
Common Equity Tier 1 Capital (to risk-weighted assets):
Company	$	164,780	10.49	%	$	109,968	7.00	%	$	—	N.A%
Bank	199,960		12.85	%	108,910		7.00	%	101,131		6.50	%
Tier 1 leverage ratio:
Company	$	212,780	11.46	%	$	74,261	4.00	%	$	—	N.A%
Bank	199,960		10.83	%	73,847		4.00	%	92,309		5.00	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability and Interest Rate Risk

Management and the Board of Directors are responsible for managing interest rate risk and employing risk management policies that monitor and limit this exposure. Interest rate risk is measured using net interest income simulations and market value of portfolio equity analyses. These analyses use various assumptions, including the nature and timing of interest rate changes, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment/replacement of asset and liability cash flows.

The principal objective of the Company’s asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing earnings and preserving adequate levels of liquidity and capital. The asset and liability management function is under the guidance of the Asset Liability Committee from direction of the Board of Directors. The Asset Liability Committee meets quarterly to review the sensitivity of the Company’s assets and liabilities to interest rate changes and local and national market conditions. The Asset Liability Committee also reviews the liquidity, capital, deposit mix, loan mix, and investment positions of the Company.

Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

Management analyzes the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the market value of assets less the market value of liabilities. The economic value of equity is a longer-term view of interest rate risk because it measures the present value of the future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

The table below illustrates the impact of an immediate and sustained 200 and 100 basis point increase and a 200 and 100 basis point decrease in interest rates on net interest income for the next 12 months based on the interest rate risk model at June 30, 2025 and December 31, 2024.


	% Change in projected net interest income
Hypothetical shift in interest rates	June 30,		December 31,
(bps)	2025		2024
200	(0.58)%		(2.75)%
100	(0.14)%		(1.27)%
(100)	(0.65)	%	0.30	%
(200)	(1.97)	%	(0.38)	%

The Company’s interest rate risk position is relatively neutral as of June 30, 2025. In an immediate and sustained shock, in up rate scenarios, interest bearing assets are projected to reprice moderately slower than interest bearing liabilities providing slightly less net interest income in a falling rate market. Management believes the change in projected net interest income from interest rate shifts of up 200 bps and down 200 bps is an acceptable level of interest rate risk.

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than these projections due to several factors, including the timing and frequency of rate changes, market conditions, and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that management may undertake to manage the risks in response to anticipated changes in interest rates and actual results may also differ due to any actions taken in response to the changing rates.

Effects of Inflation

The effects of inflation on financial institutions are different from the effects on other commercial enterprises since financial institutions make few significant capital or inventory expenditures, which are directly affected by changing prices. Because bank assets and liabilities are virtually all monetary in nature, inflation does not affect a financial institution as

much as do changes in interest rates. The general level of inflation does underlie the general level of most interest rates, but interest rates do not increase at the rate of inflation as do prices of goods and services. Rather, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase capital at higher than normal rates to maintain an appropriate capital to asset ratio. In the opinion of management, inflation did not have a significant effect on the Company’s operations for the three months ended June 30, 2025.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Company’s management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as defined in Rules 13a – 15(e) or 15d – 15(e) of the Securities Exchange Act of 1934 as of June 30, 2025. Based upon and as of the date of that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were designed, and were effective, to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all circumstances.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934) that occurred during the three months ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is set forth under the caption "Pending Litigation" in Note 14 - Commitments and Contingencies, in our Company’s Notes to Consolidated Financial Statements ( unaudited) .

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company's Purchases of Equity Securities

The following table summarizes the purchases made by or on behalf of the Company or certain affiliated purchasers of shares of the Company's common stock during the quarter ended June 30, 2025:


Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
April 2025	29,830	$	26.95	29,830	$	2,654,142
May 2025	—	$	—	—	$	2,654,142
June 2025	34,091	$	28.26	34,091	$	9,036,745
Total	63,921	$	27.65	63,921	$	9,036,745

(1) 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 by the Company from time to time, as well as the timing of any such repurchases. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company repurchased 63,921 common shares under its repurchase programs during the second quarter of 2025 at an average cost of $27.65 per share totaling $1.8 million. As of June 30, 2025, $9.0 million remained available for share repurchases pursuant to the Company's current repurchase program.

The Company’s ability to pay dividends to its shareholders and repurchase shares is affected by the Company's financial condition and liquidity, general corporate law requirements and the regulations and policies of U.S. federal regulatory authorities applicable to bank holding companies, including the Basel III Capital Rules. The Company's principal source of funds to pay dividends on its common stock and to repurchase shares, other than further issuances of securities, is dividends received from the Bank. The ability of the Bank to pay dividends to the Company depends on the earnings and financial condition of the Bank and various business considerations. In addition, the Bank is subject to federal and state laws limiting the payment of dividends, including the Federal Deposit Insurance Act and Missouri banking law. Future dividends declared and paid by the Company are subject to the determination, declaration and discretion of the Company's Board of Directors and compliance with applicable regulatory capital requirements.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended June 30, 2025 , no director or officer of the Company adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. There were no reportable events during the quarter ended June 30, 2025 otherwise reportable under this Item 5.

Item 6. Exhibits


Exhibit No.						Description
3.1						Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
3.2						Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to the Company's current report on Form 8-K on January 27, 2021 and incorporated herein by reference).
4.1						Specimen certificate representing shares of the Company's $1.00 par value Common Stock (filed as Exhibit 4.1 to the Company's current report on Form 8-K/A on June 23, 2017 and incorporated herein by reference).
31.1						Certificate of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certificate of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certificate of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certificate of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			HAWTHORN BANCSHARES, INC.

Date

			/s/ Brent M. Giles

August 11, 2025			Brent M. Giles, Chief Executive Officer (Principal Executive Officer)

			/s/ Chris E. Hafner

August 11, 2025			Chris E. Hafner, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Item 2 - Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

3.1 Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference). 3.2 Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to the Company's current report on Form 8-K on January 27, 2021 and incorporated herein by reference). 4.1 Specimen certificate representing shares of the Company's $1.00 par value Common Stock (filed as Exhibit 4.1 to the Company's current report on Form 8-K/A on June 23, 2017 and incorporated herein by reference). 31.1 Certificate of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certificate of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certificate of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certificate of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

HWBK 10-Q Quarter ended June 30, 2025

Exhibits