Companies: 11,260     total market cap: $155.191 T
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Hawthorn Bancshares
HWBK
#8633
Rank
$0.26 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$39.08
Share price
0.23%
Change (1 day)
22.70%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Hawthorn Bancshares
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2026 Q2

Hawthorn Bancshares - 10-Q quarterly report FY2026 Q2


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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, 2026
OR
☐ 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)

Missouri43-1626350
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1.00 par valueHWBKThe 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 6, 2026, the registrant had 6,900,678 shares of common stock, par value $1.00 per share, outstanding.

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Table of Contents
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 5.
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Item 6.
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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, 2026December 31, 2025
(Unaudited)
ASSETS
Cash and due from banks$22,900 $16,632 
Other interest bearing deposits9,83587,680
Cash and cash equivalents32,735104,312
Certificates of deposit in other banks1,0001,000 
Available-for-sale debt securities, at fair value233,476209,939
Other investments2,6955,976
Loans held for investment1,416,3601,486,792
Allowance for credit losses(20,730)(21,111)
Net loans1,395,6301,465,681
Loans held for sale152616
Premises and equipment - net30,47229,963
Premises and equipment held for sale, net1,3503,956
Other real estate owned - net84598
Cash surrender value of bank-owned life insurance41,04040,444
Accrued interest receivable and other assets33,64532,865
Total assets$1,773,040 $1,894,850 
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand$416,389 $423,568 
Savings, interest checking and money market775,792827,069
Time deposits296,008303,512
Total deposits1,488,1891,554,149
Federal Home Loan Bank advances and other borrowings29,362102,086
Subordinated notes49,48649,486
Operating lease liabilities3,5642,682
Finance lease liabilities1,1301,205
Accrued interest payable and other liabilities18,51511,013
Total liabilities1,590,2461,720,621
Stockholders’ equity:
Common stock, $1.00 par value, authorized 15,000,000 shares; issued 7,554,893 shares
7,5557,555
Surplus76,69176,828
Retained earnings118,034107,863
Accumulated other comprehensive loss, net of tax(5,097)(3,613)
Treasury stock; 654,215 and 653,633 shares, at cost, respectively
(14,389)(14,404)
Total stockholders’ equity182,794174,229
Total liabilities and stockholders’ equity$1,773,040 $1,894,850 
See accompanying notes to the consolidated financial statements (unaudited).
2

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, except per share data)2026202520262025
INTEREST INCOME
Interest and fees on loans$21,852 $21,549 $43,944 $42,745 
Interest and fees on loans held for sale3375
Interest on investment securities:
Taxable1,3641,3982,5282,702
Nontaxable5855861,1691,173
Federal funds sold and Other interest-bearing deposits449290886539
Dividends on other investments9985212205
Total interest income24,35223,91148,74647,369
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market3,5084,0867,1708,435
Time deposits2,1772,4224,3864,886
Total interest expense on deposits5,6856,50811,55613,321
Interest on federal funds purchased and securities sold under agreements to repurchase and other131261
Interest on Federal Home Loan Bank advances6174041,252903
Interest on subordinated notes7798561,5521,708
Total interest expense on borrowings1,4091,2612,8302,612
Total interest expense7,0947,76914,38615,933
Net interest income17,25816,14234,36031,436
Release of credit losses on loans(65)(159)(185)(441)
Provision for credit losses on unfunded commitments30310849650
Total provision for (release of) credit losses on loans and unfunded commitments238(51)311(391)
Net interest income after provision for (release of) credit losses on loans and unfunded commitments17,02016,19334,04931,827
NON-INTEREST INCOME
Service charges and other fees8159401,6351,853
Bank card income and fees1,0181,0031,9251,929
Earnings on bank-owned life insurance4985099911,019
Wealth management revenue6545421,2701,016
Gain on sale of mortgage loans, net69117146242
Gains (losses) on other real estate owned and other assets, net335(177)302(156)
Other1,9886112,2081,105
Total non-interest income5,3773,5458,4777,008
Investment securities gains (losses), net280(1)285(3)
NON-INTEREST EXPENSE
Salaries and employee benefits7,5936,70314,40713,615
Occupancy expense, net8599471,8501,883
Furniture and equipment expense7916731,5611,466
Processing, network, and bank card expense1,4191,4432,8372,844
Legal, examination, and professional fees9444281,746921
Advertising and promotion236212439372
Postage, printing, and supplies202342501636
Other1,7031,5213,4083,031
Total non-interest expense13,74712,26926,74924,768
Income before income taxes8,9307,46816,06214,064
Income tax expense1,6041,3672,9932,580
Net income$7,326 $6,101 $13,069 $11,484 
Basic earnings per share$1.06 $0.88 $1.89 $1.65 
Diluted earnings per share$1.06 $0.88 $1.89 $1.65 
See accompanying notes to the consolidated financial statements (unaudited).
3

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2026202520262025
Net income$7,326 $6,101 $13,069 $11,484 
Other comprehensive income (loss), net of tax
Investment securities available-for-sale:
Change in unrealized gains (losses) on investment securities available-for-sale, net of tax1,872 674 (741)1,058 
Adjustment for gains on sale of investment securities, net of tax(211)— (220)
Defined benefit pension plans:
Amortization of net gains included in net periodic pension income, net of tax(287)(288)(523)(504)
Total other comprehensive income (loss)1,374 386 (1,484)554 
Total comprehensive income$8,700 $6,487 $11,585 $12,038 
See accompanying notes to the consolidated financial statements (unaudited).
4

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (unaudited)
Three Months Ended June 30, 2026 and 2025
(In thousands, except per share data)Common StockSurplusRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
Balance, March 31, 2026$7,555 $76,927 $112,156 $(6,471)$(14,781)$175,386 
Net income——7,326——7,326
Other comprehensive income———1,374—1,374
Share-based compensation expense—152———152
Restricted share unit vesting and taxes paid related to net share settlement—(388)——3924
Cash dividends declared, common stock ($0.21 per share)
——(1,448)——(1,448)
Balance, June 30, 2026
$7,555 $76,691 $118,034 $(5,097)$(14,389)$182,794 
Balance, March 31, 2025$7,555 $76,938 $93,597 $(12,275)$(12,404)$153,411 
Net income— — 6,101 — — 6,101 
Other comprehensive income———386—386
Share-based compensation expense—96———96
Purchase of treasury stock————(1,782)(1,782)
Restricted share unit vesting and taxes paid related to net share settlement—(222)——222—
Cash dividends declared, common stock ($0.19 per share)
——(1,389)——(1,389)
Balance, June 30, 2025
$7,555 $76,812 $98,309 $(11,889)$(13,964)$156,823 
Six Months Ended June 30, 2026 and 2025
(In thousands, except per share data)Common StockSurplusRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Stockholders' Equity
Balance, December 31, 2025
$7,555 $76,828 $107,863 $(3,613)$(14,404)$174,229 
Net income— — 13,069 — — 13,069 
Other comprehensive loss— — — (1,484)— (1,484)
Share-based compensation expense— 274 — — — 274 
Purchase of treasury stock— — — — (396)(396)
Restricted share unit vesting and taxes paid related to net share settlement— (411)— — 411 — 
Cash dividends declared, common stock ($0.21 per share)
— — (2,898)— — (2,898)
Balance, June 30, 2026
$7,555 $76,691 $118,034 $(5,097)$(14,389)$182,794 
Balance, December 31, 2024
$7,555 $76,857 $89,542 $(12,443)$(11,964)$149,547 
Net income— — 11,484 — — 11,484 
Other comprehensive income— — — 554 — 554 
Share-based compensation expense— 177 — — — 177 
Purchase of treasury stock— — — — (2,222)(2,222)
Restricted share unit vesting and taxes paid related to net share settlement— (222)— — 222 — 
Cash dividends declared, common stock ($0.19 per share)
— — (2,717)— — (2,717)
Balance, June 30, 2025
$7,555 $76,812 $98,309 $(11,889)$(13,964)$156,823 
See accompanying notes to the consolidated financial statements (unaudited).
5

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30,
(In thousands)20262025
Cash flows from operating activities:
Net income$13,069 $11,484 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (release of) credit losses on loans and unfunded commitments311(391)
Depreciation expense1,2571,140
Net amortization of investment securities, premiums, and discounts125208
Provision for valuation allowance for premises and equipment held for sale278—
Investment securities (gains) losses, net(285)3
Gain on sales and dispositions of premises and equipment(1,390)(48)
Gain on sales and dispositions of other real estate(302)(28)
Provision for valuation allowance for other real estate owned—184
Share-based compensation expense274177
Increase in cash surrender value - life insurance(596)(765)
Decrease (increase) in accrued interest receivable and other assets732(384)
Decrease in operating lease liabilities(240)(138)
Increase in accrued interest payable and other liabilities5,06849
Origination of mortgage loans held for sale(18,066)(2,661)
Proceeds from the sale of mortgage loans held for sale18,0602,903
Gain on sale of mortgage loans, net(146)(242)
Net cash provided by operating activities18,14911,491
Cash flows from investing activities:
Net decrease in loans72,2173,229
Purchase of available-for-sale debt securities(36,470)(13,332)
Proceeds from maturities, calls, and paydowns of available-for-sale debt securities11,87011,378
Purchases of FHLB stock(48,852)(9,657)
Proceeds from sales of FHLB stock52,1397,147
Purchases of premises and equipment(2,508)(924)
Proceeds from sales of premises and equipment1,89549
Proceeds from sales of other real estate and repossessed assets651,418
Net cash provided by (used in) investing activities50,356(692)
Cash flows from financing activities:
Net increase (decrease) in demand deposits(7,179)34,892
Net decrease in interest bearing transaction accounts(51,277)(58,123)
Net increase (decrease) in time deposits(7,504)8,035
Repayment of FHLB advances and other borrowings(1,154,764)(170,100)
Proceeds from FHLB advances and other borrowings 1,082,040228,675
Decrease in finance lease liabilities(75)—
Proceeds from financing obligation1,908—
Repayment of financing obligation(3)— 
Purchase of treasury stock(396)(2,222)
Cash dividends paid - common stock(2,832)(2,656)
Net cash provided by (used in) financing activities(140,082)38,501
Net (decrease) increase in cash and cash equivalents(71,577)49,300
Cash and cash equivalents, beginning of period104,31250,994
Cash and cash equivalents, end of period$32,735 $100,294 
See accompanying notes to the consolidated financial statements (unaudited).
6

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited) continued
Six Months Ended June 30,
(In thousands)20262025
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$14,471 $16,041 
Income taxes3,206 597 
Non-cash investing and financing activities:
Other real estate and repossessed assets acquired in settlement of loans$2,609 $— 
Loans held for investment originated through other real estate and repossessed assets sold2,099 — 
Loans held for investment originated through premises and equipment sold$1,875 $— 
Right of use assets obtained in exchange for new operating lease liabilities1,122 1,351 
Dividends declared not paid - common stock1,448 1,389 
See accompanying notes to the consolidated financial statements (unaudited).
7
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)

(1) Summary of Significant Accounting Policies
Hawthorn Bancshares, Inc. (the “Company”) through its subsidiary, Hawthorn Bank (the “Bank”), provides a broad range of banking services to individual and corporate customers located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions that provide financial products and services. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.
The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for credit losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Developments
One Big Beautiful Bill Act. On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”), which includes a broad range of tax reform provisions, was signed into law in the United States. The OBBBA tax provisions have multiple effective dates, with certain provisions effective in 2025 and others being phased in through 2027. The Company is continuing to evaluate the effect that the OBBBA will have on the Company’s financial condition, but does not currently expect it will have a material impact on its results of operations.
Shelf Registration. On June 24, 2025, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became effective on July 2, 2025. The shelf registration statement is intended to provide the Company with financial flexibility to raise capital from the offering of up to $150 million of any combination of common stock, preferred stock, debt securities, depositary shares, warrants, purchase contracts, purchase units, subscription rights and units in one or multiple offerings while the shelf registration statement is effective.

Failed Sale-Leaseback/Financing Obligation. In March 2026, the Company transferred legal title to certain real estate and entered into a related lease and development arrangement with the buyer. The transaction did not qualify as a sale under Accounting Standards Codification (“ASC”) Topic 842 because control did not transfer under ASC Topic 606 due to continuing involvement, including contractual provisions that affect the transfer of control. Accordingly, the Company continues to recognize the real estate within premises and equipment and recorded the $1.9 million of proceeds received as a financing obligation. The financing obligation is subsequently accounted for under the effective interest method and periodic payments are allocated between interest expense and reduction of the financing obligation. Proceeds received are presented as financing cash inflows and principal repayments as financing cash outflows in the statement of cash flows.

Pending Acquisition. On April 29, 2026, the Company entered into an agreement to acquire FSC Bancshares, Inc. in a cash-and-stock merger valued at approximately $28.3 million, with the transaction expected to close in the third quarter of
8
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
2026, subject to approval by shareholders of FSC Bancshares, Inc. and other customary closing conditions. Refer to Note 17, “Pending Acquisition”, for further details regarding this transaction.
Recent Accounting Pronouncements
Income Statement. In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this ASU require public companies to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Additionally, in January 2025, the FASB issued ASU No. 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. The ASU addresses investors’ requests for more disaggregated expense information to better understand an entity's performance, better assess the entity's prospects for future cash flows, and compare an entity's performance over time and with that of other entities. This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements and disclosures.
(2) Loans and Allowance for Credit Losses
Loans
Major classifications within the Company’s loans held for investment portfolio at June 30, 2026 and December 31, 2025 were as follows:
(dollars in thousands)June 30, 2026December 31, 2025
Commercial, financial, and agricultural$196,084 $227,584 
Real estate construction − residential42,30739,609
Real estate construction − commercial85,91483,846
Real estate mortgage − residential370,185369,636
Real estate mortgage − commercial712,619755,892
Installment and other consumer9,25110,225
Total loans held for investment$1,416,360 $1,486,792 
The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the Missouri communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one geographic sector. Accrued interest on loans totaled $5.9 million and $6.8 million at June 30, 2026 and December 31, 2025, respectively, and is included in accrued interest receivable and other assets on the Company's consolidated balance sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. At June 30, 2026, loans of $707.7 million were pledged to the Federal Home Loan Bank (“FHLB”) as collateral for borrowings and letters of credit.
Allowance for Credit Losses
The allowance for credit losses is measured using a lifetime expected loss model that incorporates relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The allowance for credit losses is a valuation account that is deducted from loans amortized cost basis to present the net amount
9
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
expected to be collected on the instrument. Expected recoveries are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Loans are charged off against the allowance for credit losses when management believes the balance has become uncollectible.
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company maintains a separate allowance for credit losses for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. The allowance for credit losses on unfunded commitments totaled $1.5 million and $1.0 million at June 30, 2026 and December 31, 2025, respectively.
Sensitivity in the Allowance for Credit Loss Model
The allowance for credit losses is an estimate that requires significant judgment including projections of the macroeconomic environment. The forecasted macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.
10
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following tables illustrate the changes in the allowance for credit losses on loans by portfolio segment:
Three Months Ended June 30, 2026
(dollars in thousands)Commercial, Financial, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Allowance for Credit Losses on Loans
Balance at beginning of period$4,329 $1,047 $1,900 $4,389 $9,172 $96 $— $20,933 
Charge-offs(185)— — — (2)(56)— (243)
Recoveries48 — 22 5 1 29 — 105 
Provision for (release of) credit losses(564)(6)299 163 (143)24 162 (65)
Balance at end of period$3,628 $1,041 $2,221 $4,557 $9,028 $93 $162 $20,730 
Six Months Ended June 30, 2026
(dollars in thousands)Commercial, Financial, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Allowance for Credit Losses on Loans
Balance at beginning of period$3,655 $975 $1,719 $4,823 $9,839 $100 $— $21,111 
Charge-offs(195)— — — (25)(116)— (336)
Recoveries52 — 22 10 1 55 — 140 
Provision for (release of) credit losses116 66 480 (276)(787)54 162 (185)
Balance at end of period$3,628 $1,041 $2,221 $4,557 $9,028 $93 $162 $20,730 
Three Months Ended June 30, 2025
(dollars in thousands)Commercial, Financial, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Allowance for Credit Losses on Loans
Balance at beginning of period$1,447 $583 $1,667 $5,134 $12,608 $117 $224 $21,780 
Charge-offs(21)— — (8)(3)(109)— (141)
Recoveries34 — — 12 — 44 — 90 
Provision for (release of) credit losses684 (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, & AgriculturalReal Estate Construction - ResidentialReal Estate Construction - CommercialReal Estate Mortgage - ResidentialReal Estate Mortgage - CommercialInstallment and Other ConsumerUn- allocatedTotal
Allowance for Credit Losses on Loans
Balance at beginning of period$1,560 $578 $2,221 $5,310 $12,305 $138 $(68)$22,044 
Charge-offs(34)— — (14)(36)(199)— (283)
Recoveries102 — — 19 58 71 — 250 
Provision for (release of) credit losses516 (250)(737)(398)65 102 261 (441)
Balance at end of period$2,144 $328 $1,484 $4,917 $12,392 $112 $193 $21,570 


Collateral-Dependent loans
Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Under the CECL methodology, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance on the fair value of collateral.
The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and the loan’s amortized cost. If the fair value of the collateral exceeds the loan’s amortized cost, no allowance is necessary. The Company’s policy is to obtain current appraisals on any
11
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
significant pieces of collateral. Higher discounts are applied in determining fair value for real estate collateral in industries that are undergoing significant stress, or for properties that are specialized use or have limited marketability.
There have been no significant changes to the types of collateral securing the Company's collateral-dependent loans since December 31, 2025.

The amortized cost of collateral-dependent loans by class as of June 30, 2026 and December 31, 2025 was as follows:
Collateral Type
(dollars in thousands)Real EstateOtherAllowance Allocated
June 30, 2026
Commercial, financial, and agricultural$— $3,690 $2,066 
Real estate mortgage − residential1,289 — 35 
Real estate mortgage − commercial1,332 — 278 
Total$2,621 $3,690 $2,379 
December 31, 2025
Commercial, financial, and agricultural$— $3,558 $1,477 
Real estate mortgage − residential3,914 — 432 
Total$3,914 $3,558 $1,909 
Credit Quality
The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment.
•Pass - loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell in a timely manner, of any underlying collateral.
•Watch - loans that have one or more weaknesses identified that may result in the borrower being unable to meet repayment terms or when the Company’s credit position could deteriorate at some future date.
•Special Mention - loans that have negative financial trends, or other weaknesses that if left uncorrected, could threaten the borrower’s capacity to meet its debt obligations. This is a transitional grade that is closely monitored by management for improvement or deterioration.
•Substandard - loans that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. The substandard category includes non-accrual loans.
•Doubtful - loans that have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.
The following table presents the recorded investment by risk categories at June 30, 2026:
12
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Term Loans
Amortized Cost Basis by Origination Year and Risk Grades
(dollars in thousands)20262025202420232022PriorTotal
Commercial, Financial, & Agricultural
Pass$14,622 $33,239 $9,813 $5,775 $13,728 $33,893 $75,412 $666 $187,148 
Watch— 47 — 53 6 145 479 — 730 
Special Mention— 479 — 2,814 — 235 — — 3,528 
Substandard8 291 678 15 2,719 555 412 — 4,678 
Total$14,630 $34,056 $10,491 $8,657 $16,453 $34,828 $76,303 $666 $196,084 
Gross YTD charge-offs$— $171 $— $— $— $24 $— $— $195 
Real Estate Construction - Residential
Pass$11,622 $25,020 $549 $4,849 $— $— $179 $— $42,219 
Watch— — — 88 — — — — 88 
Total$11,622 $25,020 $549 $4,937 $— $— $179 $— $42,307 
Gross YTD charge-offs$— $— $— $— $— $— $— $— $— 
Real Estate Construction - Commercial
Pass$7,797 $28,050 $24,515 $1,387 $2,808 $3,163 $16,988 $1,085 $85,793 
Watch58 — 27 — 6 1 — — 92 
Substandard— 29 — — — — — — 29 
Total$7,855 $28,079 $24,542 $1,387 $2,814 $3,164 $16,988 $1,085 $85,914 
Gross YTD charge-offs$— $— $— $— $— $— $— $— $— 
Real Estate Mortgage - Residential
Pass$27,471 $58,757 $16,778 $32,593 $89,701 $85,409 $54,183 $518 $365,410 
Watch229 431 — — 326 563 31 98 1,678 
Substandard— 853 95 475 1,263 207 204 — 3,097 
Total$27,700 $60,041 $16,873 $33,068 $91,290 $86,179 $54,418 $616 $370,185 
Gross YTD charge-offs$— 
Real Estate Mortgage - Commercial
Pass$88,726 $147,311 $37,927 $60,848 $141,126 $155,880 $20,376 $2,405 $654,599 
Watch9,045 2,869 132 156 14,282 250 — — 26,734 
Special Mention— — 20,164 — 4,799 — — — 24,963 
Substandard— 1,310 146 46 3,909 912 — — 6,323 
Total$97,771 $151,490 $58,369 $61,050 $164,116 $157,042 $20,376 $2,405 $712,619 
Gross YTD charge-offs$— $— $— $— $— $25 $— $— $25 
Installment and other Consumer
Pass$1,624 $2,028 $759 $1,042 $1,009 $2,724 $60 $— $9,246 
Substandard— — — 5 — — — — 5 
Total$1,624 $2,028 $759 $1,047 $1,009 $2,724 $60 $— $9,251 
Gross YTD charge-offs$— $— $— $8 $— $108 $— $— $116 
Total Portfolio
Pass$151,862 $294,405 $90,341 $106,494 $248,372 $281,069 $167,198 $4,674 $1,344,415 
Watch9,332 3,347 159 297 14,620 959 510 98 29,322 
Special Mention— 479 20,164 2,814 4,799 235 — — 28,491 
Substandard8 2,483 919 541 7,891 1,674 616 — 14,132 
Total$161,202 $300,714 $111,583 $110,146 $275,682 $283,937 $168,324 $4,772 $1,416,360 
Total Gross YTD charge-offs$— $171 $— $8 $— $157 $— $— $336 
The following table presents the recorded investment by risk categories at December 31, 2025:
13
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Term Loans
Amortized Cost Basis by Origination Year and Risk Grades
(dollars in thousands)20252024202320222021PriorTotal
December 31, 2025
Commercial, Financial, & Agricultural
Pass$65,367 $11,383 $9,223 $17,270 $19,867 $24,386 $66,741 $1,279 $215,516 
Watch581 164 93 8 — 148 1,473 — 2,467 
Special Mention729 — 3,058 317 — 261 — — 4,365 
Substandard203 679 15 3,184 536 25 594 — 5,236 
Total$66,880 $12,226 $12,389 $20,779 $20,403 $24,820 $68,808 $1,279 $227,584 
Gross YTD charge-offs$— $307 $73 $78 $— $59 $521 $— $1,038 
Real Estate Construction - Residential
Pass$30,523 $4,066 $4,881 $— $— $— $51 $— $39,521 
Watch— — 88 — — — — — 88 
Total$30,523 $4,066 $4,969 $— $— $— $51 $— $39,609 
Gross YTD charge-offs$— $— $— $— $— $— $— $— $— 
Real Estate Construction - Commercial
Pass$44,693 $17,876 $8,737 $3,226 $2,757 $687 $4,660 $1,085 $83,721 
Watch59 29 — 8 — — — — 96 
Substandard29 — — — — — — — 29 
Total$44,781 $17,905 $8,737 $3,234 $2,757 $687 $4,660 $1,085 $83,846 
Gross YTD charge-offs$— $— $— $— $— $— $— $— $— 
Real Estate Mortgage - Residential
Pass$63,792 $21,182 $36,980 $98,512 $42,745 $48,795 $48,900 $1,039 $361,945 
Watch442 — — 487 370 442 31 157 1,929 
Substandard3,463 98 495 1,301 — 189 216 — 5,762 
Total$67,697 $21,280 $37,475 $100,300 $43,115 $49,426 $49,147 $1,196 $369,636 
Gross YTD charge-offs$— $— $— $— $— $14 $— $— $14 
Real Estate Mortgage - Commercial
Pass$186,984 $43,797 $82,928 $161,945 $151,011 $70,426 $16,381 $1,642 $715,114 
Watch3,185 445 214 3,978 325 631 — — 8,778 
Special Mention— 20,561 — 4,932 — — — — 25,493 
Substandard1,311 147 — 4,145 — 760 144 — 6,507 
Total$191,480 $64,950 $83,142 $175,000 $151,336 $71,817 $16,525 $1,642 $755,892 
Gross YTD charge-offs$— $49 $76 $— $— $32 $— $— $157 
Installment and other Consumer
Pass$2,696 $1,063 $1,764 $1,628 $367 $2,605 $68 $— $10,191 
Substandard— — 7 13 14 — — — 34 
Total$2,696 $1,063 $1,771 $1,641 $381 $2,605 $68 $— $10,225 
Gross YTD charge-offs$— $3 $33 $13 $— $330 $— $— $379 
Total Portfolio
Pass$394,055 $99,367 $144,513 $282,581 $216,747 $146,899 $136,801 $5,045 $1,426,008 
Watch4,267 638 395 4,481 695 1,221 1,504 157 13,358 
Special Mention729 20,561 3,058 5,249 — 261 — — 29,858 
Substandard5,006 924 517 8,643 550 974 954 — 17,568 
Total$404,057 $121,490 $148,483 $300,954 $217,992 $149,355 $139,259 $5,202 $1,486,792 
Total Gross YTD charge-offs$— $359 $182 $91 $— $435 $521 $— $1,588 

14
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Delinquent and Non-Accrual Loans
The delinquency status of loans is determined based on the contractual terms of the notes. Loans are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectability of interest or principal is no longer probable. In general, loans are placed on non-accrual status when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual status, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Subsequent interest payments received on non-accrual loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectability of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.
The following table presents the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of June 30, 2026 and December 31, 2025:
(dollars in thousands)Non-accrual with no AllowanceNon-accrual with AllowanceTotal Non-accrual90 Days Past Due And Still AccruingTotal Non-performing Loans
June 30, 2026
Commercial, Financial, and Agricultural$1,538 $413 $1,951 $— $1,951 
Real estate mortgage − residential854 2,182 3,036 156 3,192 
Real estate mortgage − commercial— 1,502 1,502 — 1,502 
Installment and Other Consumer— 5 5 5 10 
Total$2,392 $4,102 $6,494 $161 $6,655 
December 31, 2025
Commercial, Financial, and Agricultural$603 $400 $1,003 $— $1,003 
Real estate mortgage − residential— 5,656 5,656 295,685 
Real estate mortgage − commercial— 143 143 —143 
Installment and Other Consumer— 34 34 — 34 
Total$603 $6,233 $6,836 $29 $6,865 
No material amount of interest income was recognized on non-accrual loans during the three and six months ended June 30, 2026.
15
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following table provides aging information for the Company’s past due and non-accrual loans at June 30, 2026 and December 31, 2025:
(dollars in thousands)Current or Less Than 30 Days Past Due30 - 89 Days Past Due90 Days Past Due And Still AccruingNon-AccrualTotal
June 30, 2026
Commercial, Financial, and Agricultural$193,156 $977 $— $1,951 $196,084 
Real estate construction − residential42,307 — — — 42,307 
Real estate construction − commercial85,459 455 — — 85,914 
Real estate mortgage − residential366,421 572 156 3,036 370,185 
Real estate mortgage − commercial711,039 78 — 1,502 712,619 
Installment and Other Consumer9,143 98 5 5 9,251 
Total$1,407,525 $2,180 $161 $6,494 $1,416,360 
December 31, 2025
Commercial, Financial, and Agricultural$226,129 $452 $— $1,003 $227,584 
Real estate construction − residential39,521 88 — — 39,609 
Real estate construction − commercial83,846 — — — 83,846 
Real estate mortgage − residential362,289 1,662 29 5,656 369,636 
Real estate mortgage − commercial755,512 237 — 143 755,892 
Installment and Other Consumer10,105 86 — 34 10,225 
Total$1,477,402 $2,525 $29 $6,836 $1,486,792 
Loan Modifications for Borrowers Experiencing Financial Difficulty
In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long-term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral-dependent and evaluated as part of the allowance for credit losses as described above in the Allowance for Credit Losses section of this note.

For each of the three and six months ended June 30, 2026 and 2025, the Company did not modify any loans made to borrowers experiencing financial difficulty. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term.
Loans Held for Sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale. Loans held for sale are being carried at the lower of cost or estimated fair value. The loans are primarily sold to Freddie Mac, Fannie Mae, PennyMac, and various other secondary market investors. Loans held for sale totaled $0.2 million at June 30, 2026 and $0.6 million at December 31, 2025.
16
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(3) Other Real Estate and Other Assets Acquired in Settlement of Loans
The following table provides details of the Company’s other real estate and other assets acquired in the settlement of loans as of June 30, 2026 and December 31, 2025:
(dollars in thousands)June 30, 2026December 31, 2025
Real estate mortgage - residential$845 $— 
Real estate mortgage - commercial— 98 
Total$845 $98 
Less valuation allowance for other real estate owned— — 
Total other real estate owned and repossessed assets$845 $98 
At June 30, 2026, there were $0.6 million of consumer mortgage loans secured by residential real estate properties in the process of foreclosure. There were no such loans outstanding at December 31, 2025.
Activity in the valuation allowance for other real estate owned was as follows for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2026202520262025
Balance at beginning of period$34$2,003$—$2,003
Provision for (release of) provision for valuation allowance for other real estate owned (34)184—184
Charge-offs—(1,962)—(1,962)
Balance at end of period$—$225$—$225
17
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(4) Investment Securities
The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2026 and December 31, 2025 were as follows:
Gross Unrealized
(dollars in thousands)Total Amortized CostGainsLossesFair Value
June 30, 2026
U.S. Treasury$6,911 $22 $— $6,933 
U.S. government-sponsored enterprises4,0013(136)3,868
Obligations of states and political subdivisions119,99825(17,535)102,488
Mortgage-backed securities
Residential69,722275(2,403)67,594
Commercial14,3993(1,834)12,568
Other debt securities (1)
39,174370(843)38,701
Bank issued trust preferred securities (1)
1,486—(162)1,324
Total available-for-sale securities$255,691 $698 $(22,913)$233,476 
December 31, 2025
U.S. Treasury$4,949 $119 $— $5,068 
U.S. government-sponsored enterprises5,00131(116)4,916
Obligations of states and political subdivisions121,56928(17,406)104,191
Mortgage-backed securities
Residential59,865750(2,232)58,383
Commercial15,09019(1,995)13,114
Other debt securities (1)
22,979297(325)22,951
Bank issued trust preferred securities (1)
1,486—(170)1,316
Total available-for-sale securities$230,939 $1,244 $(22,244)$209,939 
(1)Certain hybrid instruments possessing characteristics typically associated with debt obligations.

The Company’s investment securities are classified as available-for-sale. Agency bonds and notes, loan certificates guaranteed by the Small Business Administration, residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations include securities issued by the Government National Mortgage Association, a U.S. government agency, and the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the FHLB, which are U.S. government-sponsored enterprises.
Debt securities with carrying values aggregating approximately $110.8 million and $101.5 million at June 30, 2026 and December 31, 2025, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.
There were no proceeds from sales of available-for-sale securities for each of the three and six months ended June 30, 2026 and 2025. All gains and losses recognized on equity securities during each of the three and six months ended June 30, 2026 and 2025 were unrealized. During the six months ended June 30, 2026, the Company recorded net investment securities gains of approximately $0.3 million from called securities.
The amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2026, by contractual maturity are shown below. Accrued interest on investments totaled $1.7 million and $1.5 million at June 30, 2026 and December 31, 2025, respectively, and is included in accrued interest receivable and other assets on the Company's consolidated balance sheets. The total amount of accrued interest is excluded from the amortized cost basis of investments presented below.
18
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.
June 30, 2026
(dollars in thousands)Amortized CostFair Value
Due in one year or less$1,448 $1,448 
Due after one year through five years20,00319,585
Due after five years through ten years56,87653,319
Due after ten years93,24378,962
Total171,570 153,314 
Mortgage-backed securities84,12180,162
Total available-for-sale securities$255,691 $233,476 
Other Investment Securities
Other investment securities include equity securities with readily determinable fair values and other investment securities that do not have readily determinable fair values and are shown in the table below. Investments in FHLB stock and Midwest Independent BankersBank (“MIB”) stock that do not have readily determinable fair values are required for membership in those organizations.
(dollars in thousands)June 30, 2026December 31, 2025
FHLB stock$2,473$5,759
MIB stock151151
Equity securities with readily determinable fair values7166
Total other investment securities$2,695$5,976
19
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2026 and December 31, 2025 were as follows:
Less than 12 months12 months or more
(dollars in thousands)Fair ValueUnrealized Losses Fair ValueUnrealized LossesTotal Fair ValueTotal Unrealized Losses
June 30, 2026
U.S. government-sponsored enterprises$— $— $1,864 $(136)$1,864 $(136)
Obligations of states and political subdivisions1,117 (4)97,703 (17,531)98,820 (17,535)
Mortgage-backed securities
Residential17,134 (84)18,561 (2,319)35,695 (2,403)
Commercial2,542 (37)8,755 (1,797)11,297 (1,834)
Other debt securities14,067 (587)4,569 (256)18,636 (843)
Bank issued trust preferred securities— — 1,324 (162)1,324 (162)
Total$34,860 $(712)$132,776 $(22,201)$167,636 $(22,913)
December 31, 2025
U.S. government-sponsored enterprises— — 1,884 (116)1,884 (116)
Obligations of states and political subdivisions604 (1)100,994 (17,405)101,598 (17,406)
Mortgage-backed securities
Residential— — 20,533 (2,232)20,533 (2,232)
Commercial848 (7)9,639 (1,988)10,487 (1,995)
Other debt securities2,703 (72)4,572 (253)7,275 (325)
Bank issued trust preferred securities— — 1,316 (170)1,316 (170)
Total$4,155 $(80)$138,938 $(22,164)$143,093 $(22,244)
The total available-for-sale portfolio consisted of approximately 396 securities at June 30, 2026. The portfolio included 347 securities having an aggregate fair value of $167.6 million that were in a loss position at June 30, 2026. The $22.9 million aggregate unrealized loss included in accumulated other comprehensive loss at June 30, 2026 was caused by interest rate fluctuations.
The decline in fair value is attributable to changes in interest rates and not credit quality. In the absence of changes in credit quality of these investments, the fair value is expected to recover on all debt securities as they approach their maturity date or re-pricing date, or if market yields for such investments decline. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that the Company will be required to sell such investment securities.
(5)    Derivative Instruments
As part of the Company’s overall interest rate risk management, the Company utilizes derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility, including interest rate lock commitments, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.
Interest Rate Swap Contracts Not Designated as Hedges
The Company enters into interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings. These derivative contracts do not qualify for hedge accounting.
20
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following table reflects the estimated fair value of derivative instruments not designated as hedging instruments included in other assets and other liabilities on the consolidated balance sheets along with their respective notional amounts on a gross basis:
As of June 30, 2026As of December 31, 2025
Fair ValueFair Value
(dollars in thousands)Notional Amount Derivative Assets Derivative LiabilitiesNotional AmountDerivative AssetsDerivative Liabilities
Interest Rate Products$16,542 $3 $27 $16,542 $180 $191 
Total derivatives not designated as hedging instruments $3 $27 $180 $191 
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for each of the three and six months ended June 30, 2026 and 2025. The Company did not recognize other income related to client swaps in any of the three or six months ended June 30, 2026 and 2025.
Gain or (Loss) Recognized in Income on Derivative
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)Location of Gain or (Loss) Recognized in Income on Derivative2026202520262025
Interest Rate Products (1)
Other non-interest income $(5)$4 $13 $(19)
Total$(5)$4 $13 $(19)
(1)Gain (loss) represents net fair value adjustments (including credit related adjustments) for client swaps.
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision to the effect that, if the Company either defaults or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
Collateral Requirements
The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized or adequately-capitalized institution, then the Company could be required to post additional collateral.

Certain derivative transactions have collateral requirements, both at the inception of the trade, and as the value of each derivative position changes. As of June 30, 2026, the Company had recorded the obligation to collect cash collateral of $0.04 million.
As of June 30, 2026, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0.02 million. As of June 30, 2026, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2026, it could have been required to settle its obligations under the agreements at their termination value of $0.
(6) Deposits
The table below presents the aggregate amount of time deposits with balances that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000 and brokered deposits for the periods indicated.
(dollars in thousands)June 30, 2026December 31, 2025
Time deposits with balances > $250,000$92,144 $90,504 
Brokered deposits4,025 502 
Total$96,169 $91,006 

21
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(7) Leases
Leases are classified as operating or finance leases at the lease commencement date. The Company's leases primarily consist of office space, bank branches and bank equipment with original lease terms of generally 1 to 10 years. Lease right-of-use ("ROU") assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the lease commencement date.
Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in net occupancy expense in the Consolidated Statements of Income.
The components of lease expense for the three and six months ended June 30, 2026, and 2025 are shown in the table below.
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2026202520262025
Operating lease expense$228$161 $455$302 
Financing lease expense13—26—
ROU assets and lease liabilities by lease type, and the associated balance sheet classifications are shown in table below as of June 30, 2026 and December 31, 2025.
(dollars in thousands)Balance Sheet Classification June 30, 2026December 31, 2025
ROU assets
ROU assets-operating leasesPremises and equipment, net$3,298 $2,476 
ROU assets-finance leases Premises and equipment, net1,130 1,205 
Total ROU assets $4,428 $3,681 
Lease liabilities
Operating lease liabilitiesOperating lease liabilities$3,564 $2,682 
Finance lease liabilitiesFinance lease liabilities1,130 1,205 
Total lease liabilities$4,694 $3,887 
Contractual lease payment obligations for each of the next five years and thereafter, in addition to a reconciliation to the Company's lease liabilities were as follows:
Lease payments due in:Operating LeaseFinance LeasesTotal
(dollars in thousands)
2026 remaining
$380$100$480
2027789201990
2028789201990
2029596201797
2030567200767
Thereafter9094011,310
Total lease payments4,030 1,304 5,334 
Less imputed interest(466)(174)(640)
Total lease liabilities, as reported$3,564$1,130$4,694
22
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following table presents the weighted average remaining lease term, in years, and the weighted average discount rate by lease type as of June 30, 2026 and 2025.
June 30, 2026December 31, 2025
Operating lease weighted average remaining lease term (in years)5.55.4
Operating lease weighted average discount rate4.40 %4.38 %
Finance lease weighted average remaining lease term (in years)6.57
Finance lease weighted average discount rate 4.55 %4.55 %
(8) Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the change in the components of the Company’s accumulated other comprehensive income (loss) for the six months ended June 30, 2026 and 2025:
Six Months Ended June 30, 2026
(dollars in thousands)
Unrealized Gains (Losses) on Securities (1)
Unrecognized Net Pension and Postretirement (Income) Costs (2)
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period$(16,590)$12,977 $(3,613)
Other comprehensive loss, before reclassifications(931)(662)(1,593)
Amounts reclassified from accumulated other comprehensive loss(285)— (285)
Current period other comprehensive loss, before tax(1,216)(662)(1,878)
Income tax benefit255 139 394 
Current period other comprehensive loss, net of tax(961)(523)(1,484)
Balance at end of period$(17,551)$12,454 $(5,097)
Six Months Ended June 30, 2025
(dollars in thousands)
Unrealized Gains (Losses) on Securities (1)
Unrecognized Net Pension and Postretirement (Income) Costs (2)
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period$(24,416)$11,973 $(12,443)
Other comprehensive income (loss), before reclassifications1,339 (638)701 
Current period other comprehensive income (loss), before tax1,339 (638)701 
Income tax (benefit) expense(281)134 (147)
Current period other comprehensive income (loss), net of tax1,058 (504)554 
Balance at end of period$(23,358)$11,469 $(11,889)
(1)The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in investment securities gains (losses), net, in the consolidated statements of income.
(2)The pre-tax amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension income.
Repurchase Program
On June 5, 2025, the Company announced that its Board of Directors approved a new common stock repurchase program under which the Company may repurchase up to $10.0 million of its common stock, which replaced the Company’s prior common stock repurchase program. Pursuant to the repurchase program, management is given discretion to determine the number and pricing of the shares to be repurchased, as well as the timing of any such repurchases. The timing and total amount of stock repurchases will depend on market and other conditions and may be made from time to time in open market purchases or privately negotiated transactions. The program has no termination date, may be suspended or discontinued at any time and does not obligate the Company to acquire any amount of common stock. The Company
23
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
repurchased 12,000 common shares under its repurchase program during the first six months of 2026 at an average cost of $32.68 per share totaling $0.4 million. As of June 30, 2026, $8.0 million remained available for share repurchases pursuant to the Company's current repurchase program.

On July 29, 2026, the Company’s Board of Directors amended the repurchase program to increase the authorized repurchase limit to $10.0 million.

(9) Share-Based Compensation
Equity-Based Compensation Plan
At the 2023 Annual Meeting of Shareholders, the Company's shareholders approved the Hawthorn Bancshares, Inc. Equity Incentive Plan (the “Equity Plan”), which was previously approved by the Company's Board of Directors. The purpose of the Equity Plan is to allow eligible participants of the Company and its subsidiaries to acquire or increase a proprietary and vested interest in the growth and performance of the Company. The Equity Plan is designed to assist the Company with attracting and retaining selected service providers by providing them with the opportunity to participate in the success and profitability of the Company. The terms of the Equity Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, other equity-based awards and cash awards. Subject to certain adjustments, the maximum number of shares of the Company's common stock that may be delivered pursuant to awards under the Equity Plan is 203,000 shares. Eligible participants under the Equity Plan include all employees, non-employee directors and consultants of the Company or its subsidiaries. The Equity Plan is currently administered by the Compensation Committee of the Board of Directors.
The Compensation Committee adopted a form of restricted stock unit award agreement (service-based vesting). The Company issues restricted share units (“RSUs”) to provide additional incentives to key officers, employees, and non-employee directors. Awards are granted as determined by the Compensation Committee. The service-based RSUs vest, and shares of common stock are issued, in equal installments on the first, second, and third anniversaries of the date of grant.
The following table summarizes the status of the Company's RSUs for the six months ended June 30, 2026 and 2025:
Six Months Ended June 30,
20262025
QuantityWeighted-Average Grant Date Fair Value Per shareQuantityWeighted-Average Grant Date Fair Value Per share
Non-vested at beginning of period39,037 $26.64 35,336 $22.84 
Granted14,849 34.99 11,174 29.18 
Vested11,534 22.43 7,809 28.48 
Forfeited667 32.01 — — 
Non-vested at end of period41,685 $30.69 38,701 $21.91 
The fair value of the RSUs is determined using the Company’s stock price on the date of grant. Total share-based compensation expense recognized for these RSUs was $0.2 million and $0.3 million for the three and six months ended June 30, 2026, respectively, compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2025, respectively. Forfeitures will be recognized as they occur.
At June 30, 2026, there was $1.1 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 1.9 years.
24
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(10) Retirement Plans
Profit-sharing Plan
The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions for the discretionary portion in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions. Total expense recorded for the Company match was $0.2 million and $0.3 million for the three and six months ended June 30, 2026, respectively, compared to $0.1 million and $0.3 million for the three and six months ended June 30, 2025, respectively. The employer discretionary profit-sharing expense for the 401(k) plan was $0.3 million and $0.5 million for the three and six months ended June 30, 2026, respectively, compared to $0.3 million and $0.6 million for the three and six months ended June 30, 2025, respectively.
Other Plans
On November 7, 2018, the Board of Directors of the Company adopted a supplemental executive retirement plan (“SERP”), effective as of January 1, 2018. The SERP provides select employees who satisfy certain eligibility requirements with certain benefits upon retirement, termination of employment or death.
The accrued liability relating to the SERP was $1.6 million as of June 30, 2026, and the expense for the three and six months ended June 30, 2026 was $0.02 million and $0.04 million, respectively, compared to $0.02 million and $0.04 million for the three and six months ended June 30, 2025, respectively, and is recognized over the required service period.
Pension
The Company maintains a noncontributory defined benefit pension plan for all full-time and eligible employees hired before September 30, 2017. Beginning January 1, 2018, and for all retrospective periods presented, the Company adopted the guidance under ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under the guidance, only the service cost component of the net periodic benefit cost is reported in the same income statement line item as salaries and benefits, and the remaining components are reported as other non-interest expense. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year.
Effective July 1, 2017, the Company amended the pension plan to effectuate a “soft freeze” such that no individual hired (or rehired in the case of a former employee) by the Company after September 30, 2017, whether or not such individual is or was a vested member in the plan, will be eligible to be an active member and be entitled to accrue any benefits under the plan.
Components of Net Pension Cost (Income) and Other Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
The following items are components of net pension income for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2026202520262025
Service cost - benefits earned during the year$61 $127 $247 $347 
Interest costs on projected benefit obligations (1)
377 376 774 775 
Expected return on plan assets (1)
(616)(585)(1,232)(1,170)
Expected administrative expenses37 36 75 73 
Amortization of unrecognized net gain (1)
(364)(365)(663)(638)
Net periodic pension income$(505)$(411)$(799)$(613)
25
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(1)The components of net periodic pension (income) other than the service cost and expected administrative expenses are included in other non-interest income.
Net periodic pension benefit (income) includes interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial (gains) losses. Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive (loss) income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the pension plan. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits. Currently, there is no prior service cost or net transition (asset)/obligation to be amortized.
(11) Earnings per Share
Basic earnings per share is computed by dividing income available to shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential shares that were outstanding during the period.
Presented below is a summary of the components used to calculate basic and diluted earnings per common share:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)2026202520262025
Net income available to shareholders$7,326$6,101$13,069$11,484
Basic weighted-average shares outstanding6,895,8116,935,5416,896,6446,959,221
Effect of dilutive equity-based awards10,6869,5239,2108,292
Diluted weighted-average shares outstanding6,906,4976,945,0646,905,8546,967,513
Basic earnings per share$1.06$0.88$1.89$1.65
Diluted earnings per share$1.06$0.88$1.89$1.65
The dilutive effect of RSUs is reflected in diluted earnings per share unless the impact is anti-dilutive, by application of the treasury stock method. No RSUs were determined to be anti-dilutive during the three and six months ended June 30, 2026 and June 30, 2025.
(12) Fair Value Measurements
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date.
Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
26
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.
In accordance with fair value accounting guidance, the Company measures, records, and reports various types of assets and liabilities at fair value on either a recurring or non-recurring basis in the consolidated financial statements. Nonfinancial assets measured at fair value on a non-recurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred.
Valuation Methods for Assets and Liabilities Measured at Fair Value on a Recurring Basis
Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:
Available-for-Sale Securities
The fair value measurements of the Company’s investment securities are determined by a third party pricing service that considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to management's independent verification to another pricing source for reasonableness each quarter. U.S. Treasury securities are classified as Level 1, and all other available-for-sale securities are classified as Level 2.
Other Investment Securities
Other investment securities include equity securities with readily determinable fair values and other investment securities that do not have readily determinable fair values. Investments in FHLB stock and MIB stock, which do not have readily determinable fair values, are required for membership in those organizations. Equity securities that are not actively traded are classified in Level 2.
Equity securities with readily determinable fair values are recorded at fair value, with changes in fair value reflected in earnings. Equity securities that do not have readily determinable fair values are carried at cost and are periodically assessed for impairment. The Company uses Level 1 inputs to value equity securities that are traded in active markets.
Derivative Assets and Liabilities
Derivative assets and liabilities include interest rate swaps. The fair value is determined using a discounted cash flow analysis on the expected cash flows of each derivative, which also includes a credit value adjustment for client swaps. An independent third-party valuation is used to verify and confirm these values, which are classified as Level 2 within the fair value hierarchy.
27
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The following table presents assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025 aggregated by the level in the fair value hierarchy within which those measurements fall:
Fair Value Measurements
(dollars in thousands)Fair ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Other Observable Inputs (Level 2)Significant Unobservable Inputs
(Level 3)
June 30, 2026
Assets:
U.S. Treasury$6,933 $6,933 $— $— 
U.S. government-sponsored enterprises3,868—3,868—
Obligations of states and political subdivisions102,488—102,488—
Mortgage-backed securities
Residential67,594—67,594—
Commercial12,568—12,568—
Other debt securities38,701—38,701—
Bank-issued trust preferred securities1,324—1,324—
Equity securities7171——
Derivative instruments, interest rate swaps3 — 3 — 
Total$233,550 $7,004 $226,546 $— 
Liabilities:
Derivative instruments, interest rate swaps$27 $— $27 $— 
Total$27 $— $27 $— 
December 31, 2025
Assets:
U.S. Treasury$5,068 $5,068 $— $— 
U.S. government-sponsored enterprises4,916—4,916—
Obligations of states and political subdivisions104,191—104,191—
Mortgage-backed securities
Residential58,383—58,383—
Commercial13,114 — 13,114 — 
Other debt securities22,951—22,951—
Bank-issued trust preferred securities1,316—1,316—
Equity securities6666——
Derivative instruments, interest rate swaps180 — 180 — 
Total$210,185 $5,134 $205,051 $— 
Liabilities:
Derivative instruments, interest rate swaps$191 $— $191 $— 
Total$191 $— $191 $— 
Valuation Methods for Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a non-recurring basis:
Collateral-Dependent Loans
While the overall loan portfolio is not carried at fair value, the Company periodically records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments also include certain impairment amounts for collateral-dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan less estimated selling costs. In determining the value of real estate collateral, the Company relies on external and
28
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
internal appraisals of property values depending on the size and complexity of the real estate collateral. Appraisals may be discounted based on the Company’s historical experience or other available information. The Company maintains staff trained to perform in-house evaluations and also to review third-party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by the executive loan committee. Because many of these inputs are not observable, the measurements are classified as Level 3.
Other Real Estate and Repossessed Assets
Other real estate owned (“OREO”) and repossessed assets consisted of loan collateral repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Subsequent to foreclosure, these assets are initially carried at fair value of the collateral less estimated selling costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state-certified appraisers. Like collateral-dependent loans, appraisals on OREO may be discounted based on the Company’s historical knowledge, changes in market conditions from the time of appraisal or other information available. During the holding period, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.
Premises and Equipment Held for Sale, net
Premises and equipment held for sale, net, are carried at the lower of cost or estimated fair value less disposal costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3. Subsequent write-downs and gains or losses on sales are recorded to (losses) gains on other real estate owned and other assets, net.
Fair Value Measurements Using
(dollars in thousands)Total Fair ValueQuoted Prices in Active Markets for Identical Assets (Level 1)Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
June 30, 2026
Collateral-dependent loans:
Commercial, financial, & agricultural$1,624 $— $— $1,624 
Real estate mortgage - residential1,254 — — 1,254 
Real estate mortgage - commercial1,054 — — 1,054 
Total$3,932 $— $— $3,932 
Other real estate and repossessed assets$845 $— $— $845 
Premises and equipment held for sale, net1,350 — — 1,350 
December 31, 2025
Collateral-dependent loans:
Commercial, financial, & agricultural$2,081 $— $— $2,081 
Real estate mortgage - residential3,482 — — 3,482 
Total$5,563 $— $— $5,563 
Other real estate and repossessed assets$98 $— $— $98 
Premises and equipment held for sale, net3,956 — — 3,956 







29
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Quantitative Information about Level 3 Fair Value Instruments

Weighted Average Discount
Valuation TechniqueUnobservable InputJune 30, 2026December 31, 2025
Nonrecurring measurements:
Collateral-dependent loansDiscounted appraisalsCollateral discounts39 %48 %
Other real estate and repossessed assets and Premises and equipment held for sale, netDiscounted appraisalsCollateral discounts and estimated costs to sell15 %5 %

(13) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:
Loans
Fair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, and consumer. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans, or exit price, is estimated by using the future value of discounted cash flows using comparable market rates for similar types of loan products and adjusted for market factors. The discount rates used are estimated using comparable market rates for similar types of loan products adjusted to be commensurate with the credit risk, overhead costs, and optionality of such instruments.
Loans Held for Sale
The fair value of the loans held for sale is the price at which they could be sold in the principal market at the measurement date, therefore the Company classifies these loans as Level 2.
Federal Funds Sold, Cash, and Due from Banks
The carrying amounts of short-term federal funds sold, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold classified as short-term generally mature in 90 days or less.
Certificates of Deposit in Other Banks
Certificates of deposit are other investments made by the Company with other financial institutions that are carried at cost, which is equal to fair value.
Accrued Interest Receivable and Payable
For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value
30
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
For Federal funds purchased and securities sold under agreements to repurchase, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.
Subordinated Notes and Other Borrowings
The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash-flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.
A summary of the carrying amounts and fair values of the Company’s financial instruments at June 30, 2026 and December 31, 2025 is as follows:
June 30, 2026
Fair Value Measurements
June 30, 2026Quoted Prices in Active Markets for Identical AssetsOther Observable InputsNet Significant Unobservable Inputs
(dollars in thousands)Carrying amountFair value(Level 1)(Level 2)(Level 3)
Assets:
Cash and due from banks$22,900 $22,900 $22,900 $— $— 
Federal funds sold and overnight interest bearing deposits9,8359,8359,835——
Certificates of deposit in other banks1,0001,0001,000——
Other investment securities2,6242,624—2,624—
Loans, net1,395,6301,380,655——1,380,655
Loans held for sale152152—152—
Accrued interest receivable7,7387,7387,738——
Total assets $1,439,879 $1,424,904 $41,473 $2,776 $1,380,655 
Liabilities:
Deposits:
Non-interest bearing demand$416,389 $416,389 $416,389 $— $— 
Savings, interest checking and money market775,792775,792775,792——
Time deposits296,008294,112——294,112
FHLB advances and other borrowings
29,36228,161—28,161—
Subordinated notes49,48644,076—44,076—
Accrued interest payable1,5391,5391,539——
Total liabilities $1,568,576 $1,560,069 $1,193,720 $72,237 $294,112 
31
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
December 31, 2025
Fair Value Measurements
December 31, 2025Quoted Prices in Active Markets for Identical AssetsOther Observable InputsNet Significant Unobservable Inputs
(dollars in thousands)Carrying amountFair value (Level 1)(Level 2)(Level 3)
Assets:
Cash and due from banks$16,632 $16,632 $16,632 $— $— 
Federal funds sold and overnight interest-bearing deposits87,680 87,680 87,680 — — 
Certificates of deposit in other banks1,000 1,000 1,000 — — 
Other investment securities5,910 5,910 — 5,910 — 
Loans, net1,465,681 1,445,226 — — 1,445,226 
Loans held for sale616 616 — 616 — 
Accrued interest receivable8,447 8,447 8,447 — — 
Total assets$1,585,966 $1,565,511 $113,759 $6,526 $1,445,226 
Liabilities:
Deposits:
Non-interest bearing demand$423,568 $423,568 $423,568 $— $— 
Savings, interest checking and money market827,069 827,069 827,069 — — 
Time deposits303,512 302,189 — — 302,189 
FHLB advances and other borrowings
102,086 102,114 86 102,028 — 
Subordinated notes49,486 43,829 — 43,829 — 
Accrued interest payable1,625 1,625 1,625 — — 
Total liabilities$1,707,346 $1,700,394 $1,252,348 $145,857 $302,189 
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.
Limitations
The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.
(14) Commitments and Contingencies
The Company issues financial instruments with off-balance sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Company’s extent of involvement and maximum potential exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets.
32
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
The allowance for credit losses associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets. At June 30, 2026 and December 31, 2025, the allowance for credit losses for unfunded commitments was $1.5 million and $1.0 million, respectively.
The contractual amounts of off-balance sheet financial instruments were as follows as of the dates indicated:
(dollars in thousands)June 30, 2026December 31, 2025
Commitments to extend credit$375,495$335,244
Standby letters of credit29,36188,457
Total$404,856$423,701
Commitments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.
The Company's forward loan sale commitments are related to mortgage loans held for sale. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit ranged from one month to 2.7 years at June 30, 2026.
Pending Litigation
From time to time, the Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss is deemed probable or an amount can be estimated.
(15) Segment Information
The Company determines its operating segments based on how the chief operating decision maker (“CODM”) views and analyzes each segment’s operations, performance and allocates resources. The Chief Executive Officer (“CEO”) is the CODM. The CODM reviews the actual net income compared to budgeted net income on a monthly basis to evaluate segment performance, make decisions, and determine where to deploy capital. This analysis is also used for benchmarking performance against the Company's peers.
The Company previously reported under one segment. During 2025, the Company identified its Wealth Management business as a strategic opportunity and hired additional management resources to provide the structure for products and processes for this business. As a result, beginning in the first quarter of 2025, the Company identified its Wealth Management business as its own separate reporting segment and now reports two aggregated reporting segments, consisting of the Bank and its Wealth Management business, and the CEO is the CODM for both segments.
The Bank segment is composed of operations providing a broad range of banking products and services located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Wealth Management segment includes a broad range of financial and investment planning services for individuals and business owners as well as the Company's existing trust services.
33
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)

The tables below highlight the Company’s revenues, expenses and net income (loss) for each reportable segment and is reconciled to net income (loss) on a consolidated basis for the three and six months ended June 30, 2026 and 2025, respectively:
Three Months Ended June 30, 2026
(dollars in thousands)Hawthorn BankWealth ManagementNon-BankTotal
Operating revenue
Interest income$24,329 $— $23 $24,352 
Interest expense6,317 — 777 7,094 
Net interest income18,012 — (754)17,258 
Provision for credit losses238 — — 238 
Operating expenses
Salaries and employee benefits6,917 557 119 7,593 
Occupancy, furniture and equipment expense777 15 40 832 
Processing, network, and bank card expense1,379 40 — 1,419 
Legal, examination, and professional fees643 — 301 944 
Depreciation 818 — — 818 
Other1,788 47 306 2,141 
Total operating expenses12,322 659 766 13,747 
Other
Non-interest income2,899 654 1,824 5,377 
Investment securities gains, net280 — — 280 
Income taxes1,565 — 39 1,604 
Net income (loss)$7,066 $(5)$265 $7,326 
Six Months Ended June 30, 2026
(dollars in thousands)Hawthorn BankWealth ManagementNon-BankTotal
Operating revenue
Interest income$48,697 $— $49 $48,746 
Interest expense12,834 — 1,552 14,386 
Net interest income35,863 — (1,503)34,360 
Provision for credit losses311 — — 311 
Operating expenses
Salaries and employee benefits13,304 741 362 14,407 
Occupancy, furniture and equipment expense2,120 35 (1)2,154 
Processing, network, and bank card expense2,745 92 — 2,837 
Legal, examination, and professional fees1,291 — 455 1,746 
Depreciation 1,256 1 — 1,257 
Other3,760 77 511 4,348 
Total operating expenses24,476 946 1,327 26,749 
Other
Non-interest income6,285 1,270 922 8,477 
Investment securities gains, net285 — — 285 
Income taxes3,394 — (401)2,993 
Net income (loss)$14,252 $324 $(1,507)$13,069 
Segment assets$1,759,823 $18 $13,199 $1,773,040 
34
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
Three Months Ended June 30, 2025
(dollars in thousands)Hawthorn BankWealth ManagementNon-BankTotal
Operating revenue
Interest income$23,886 $— $25 $23,911 
Interest expense6,914 — 855 7,769 
Net interest income16,972 — (830)16,142 
Release of credit losses(51)— — (51)
Operating expenses
Salaries and employee benefits6,089 333 281 6,703 
Occupancy, furniture and equipment expense1,382 23 1 1,405 
Processing, network, and bank card expense1,796 18 (371)1,443 
Legal, examination, and professional fees578 — (150)428 
Depreciation215 — — 215 
Other1,196 31 848 2,075 
Total operating expenses11,256 405 609 12,269 
Other
Non-interest income2,484 542 519 3,545 
Investment securities gains (losses), net— — (1)(1)
Income taxes1,559 — (192)1,367 
Net income (loss)$6,692 $137 $(729)$6,101 
Six Months Ended June 30, 2025
(dollars in thousands)Hawthorn BankWealth ManagementNon-BankTotal
Operating revenue
Interest income$47,313 $— $56 $47,369 
Interest expense14,224 — 1,709 15,933 
Net interest income33,089 — (1,653)31,436 
Release of credit losses(391)— — (391)
Operating expenses
Salaries and employee benefits12,310 665 640 13,615 
Occupancy, furniture and equipment expense2,170 38 1 2,209 
Processing, network, and bank card expense2,808 36 — 2,844 
Legal, examination, and professional fees738 — 183 921 
Depreciation1,140 — — 1,140 
Other3,540 46 453 4,039 
Total operating expenses22,706 785 1,277 24,768 
Other
Non-interest income5,072 1,054 882 7,008 
Investment securities gains (losses), net(2)— (1)(3)
Income taxes3,011 — (431)2,580 
Net income (loss)$12,833 $269 $(1,618)$11,484 
Segment assets$1,871,265 $20 $6,132 $1,877,417 
(16) Qualified Affordable Housing Tax Credit and Other Investments

The Company invested in a qualified affordable housing project utilizing the Low-Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. This investment is intended to achieve a satisfactory return on capital, facilitate the sale of affordable housing product offerings, and assist in achieving goals associated with the Community Reinvestment Act. At June 30, 2026 and December 31, 2025, the balance of the investment for qualified housing projects was $0.8 million and $0, respectively. This balance is reflected in accrued interest receivable and other assets on the
35
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
consolidated balance sheets. Total unfunded commitments related to the affordable housing project investment was $3.9 million and $0 at June 30, 2026 and December 31, 2025, respectively. The Company expects to fulfill the majority of the commitment over the next two years. The Company elected to use the proportional amortization method (“PAM”) to amortize the investment. As of June 30, 2026, the project had not begun generating tax credits so no amortization expense was taken during the period. The Company expects the project to begin generating tax credits in 2027.

The Company also invested in a Small Business Investment Company (“SBIC”). At June 30, 2026 and December 31, 2025, the balance of the investment was $0.2 million and $0, respectively. This balance is reflected in accrued interest receivable and other assets on the consolidated balance sheets. Total unfunded commitments related to the SBIC investment totaled $1.8 million and $0 at June 30, 2026 and December 31, 2025, respectively. The Company expects to fulfill a majority of the commitment over the next five years. The Company elected to use the equity method to account for this investment. As of June 30, 2026, the Company has not recorded any income or loss on the investment due to the first capital call occurring at quarter-end. The Company will evaluate the need to adjust the balance of the investment for earnings generated by the SBIC through the equity method in future periods.

(17) Pending Acquisition

On April 29, 2026, the Company announced its entry into a definitive agreement under which the Company will acquire FSC Bancshares, Inc. and its wholly owned subsidiary, Farmers State Bank (collectively, “FSC”) in a cash and stock transaction valued at approximately $28.3 million. The business combination transaction is expected to result in the mergers of FSC Bancshares, Inc. with and into the Company and Farmers State Bank with and into the Bank. The acquisition will be accounted for under ASC Topic 805. FSC has nine branch locations located in northern Missouri. As of June 30, 2026, Farmers State Bank reported total assets of $383.7 million, which included gross loans of $303.5 million; total deposits of $343.6 million; and $2.0 million in net income. The Company anticipates there will be a core deposit intangible and goodwill recorded with this acquisition. The transaction is anticipated to close in the third quarter of 2026, subject to FSC shareholder approval and other customary closing conditions.

(18) Subsequent Events
The Company has evaluated subsequent events that may require recognition or disclosure through the filing date of this Quarterly Report on Form 10-Q.
36
HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)

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, cybersecurity threats, economic or other disruptions caused by acts of terrorism, war or other conflicts, changes in geopolitical conditions, natural disasters, such as hurricanes, wild fires, freezes, flooding and other man-made disasters, health emergencies, epidemics or pandemics, climate changes or other catastrophic events and such other factors as 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, 2025 (the “2025 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, 2026, there were no material changes to the Risk Factors disclosed in the Company’s 2025 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 2025 Form 10-K. There have been no changes in the Company's application of critical accounting policies and estimates since December 31, 2025.
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 $1.77 billion in assets at June 30, 2026, 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 reported as a separate reporting segment, and the Company 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.
37

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 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.
On April 29, 2026, the Company entered into an agreement to acquire FSC Bancshares, Inc. (“FSC”) in a cash-and-stock merger valued at approximately $28.3 million, with the transaction expected to close in the third quarter of 2026, subject to FSC shareholder approval and other customary closing conditions. Refer to Note 17, “Pending Acquisition”, in the Company’s consolidated financial statements for further details regarding this pending transaction.
The Wealth Management segment was immaterial to the Company’s total consolidated operating results for the periods presented in this report. Accordingly, for presentation purposes, the financial information and discussion below is presented on an aggregated basis, except as otherwise noted. Refer to Note 15, “Segment Information,” in the Company’s consolidated financial statements for further details regarding the financial results of each segment.
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.
38

As of and for theAs of and for the
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, except per share data)2026202520262025
Net interest income$17,258 $16,142 $34,360 $31,436 
Provision for (release of) credit losses238(51)311(391)
Non-interest income5,3773,5458,4777,008
Investment securities gains (losses), net280(1)285(3)
Non-interest expense13,74712,26926,74924,768
Income before income taxes8,9307,46816,06214,064
Income tax expense1,6041,3672,9932,580
Net income$7,326 $6,101 $13,069 $11,484 
Basic earnings per share$1.06$0.88$1.89$1.65
Diluted earnings per share$1.06$0.88$1.89$1.65
Performance Ratios
Return on average total assets1.63%1.36%1.45%1.28%
Return on average stockholders' equity16.3915.8514.7415.08
Efficiency ratio (1)
60.7362.3262.4464.43
Net interest margin, fully tax-equivalent4.163.894.113.78
Average stockholders' equity to total assets9.948.569.808.49
Market and per share data
Book value per share (2)
$26.50$22.53
Market price per share$39.30$29.14
Cash dividends declared on common stock$1,448$1,389$2,898$2,717
(1)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.
(2)Book value per share is calculated using weighted average shares.


39

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)2026202520262025
Capital Ratios
Stockholders' equity to assets10.31%8.35%
Total risk-based capital ratio16.4015.12
Tier 1 risk-based capital ratio15.1513.87
Common equity Tier 1 capital12.0710.82
Tier 1 leverage ratio (1)
12.9111.87
Asset Quality
Non-performing loans$6,655 $2,761 
Non-performing assets$7,500 $5,186 
Net loan charge-offs$138 $51 $196 $33 
Net charge-offs to average loans (2)
0.04%0.01%0.03%—%
Allowance for credit losses to total loans1.461.47%
Non-performing loans to total loans0.470.19%
Non-performing assets to total loans0.530.35%
Non-performing assets to total assets0.420.28%
(1)Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets.
(2)Annualized

Results of Operations Highlights:
Consolidated net income was $7.3 million, or $1.06 per diluted share, and $13.1 million, or $1.89 per diluted share, for the three and six months ended June 30, 2026, respectively, compared to $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. For the three and six months ended June 30, 2026, the return on average assets was 1.63% and 1.45%, respectively, the return on average stockholders’ equity was 16.39% and 14.74%, respectively, and the efficiency ratio was 60.73% and 62.44%, respectively.
Net interest income was $17.3 million and $34.4 million for the three and six months ended June 30, 2026, respectively, compared to $16.1 million and $31.4 million for the three and six months ended June 30, 2025, respectively. Net interest margin, on a fully taxable equivalent (“FTE”) basis, was 4.16% and 4.11% for the three and six months ended June 30, 2026, respectively, compared to 3.89% and 3.78% for the three and six months ended June 30, 2025, respectively. The change to net interest margin on an FTE basis is discussed in greater detail under the Average Balance Sheet Data and Rate and Volume Analysis sections.
Non-interest income was $5.4 million and $8.5 million for the three and six months ended June 30, 2026, respectively, compared to $3.5 million and $7.0 million for the three and six months ended June 30, 2025, respectively. These changes are discussed in greater detail under the Non-interest Income and Expense section.
Non-interest expense was $13.7 million and $26.7 million for the three and six months ended June 30, 2026, respectively, compared to $12.3 million and $24.8 million for the three and six months ended June 30, 2025, 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 decreased $71.6 million to $32.7 million as of June 30, 2026 compared to $104.3 million as of December 31, 2025, and decreased $67.6 million compared to $100.3 million as of June 30, 2025. See the Liquidity Management section for further discussion.
40

Loans – Loans held for investment decreased $70.4 million to $1.42 billion as of June 30, 2026 compared to $1.49 billion as of December 31, 2025, and decreased $46.5 million compared to $1.46 billion as of June 30, 2025.
Asset quality – Non-performing assets totaled $7.5 million, or 0.53% of total loans, at June 30, 2026 compared to $7.0 million, or 0.47% of total loans, at December 31, 2025 and $5.2 million, or 0.35% of total loans, at June 30, 2025.
In the second quarter of 2026, the Company had net loan charge-offs of $0.14 million, or 0.04% of average loans, compared to net loan charge-offs of $0.05 million, or 0.01% of average loans, in the same prior year quarter.
The allowance for credit losses was $20.7 million, or 1.46% of loans outstanding, at June 30, 2026 compared to $21.1 million, or 1.42% of loans outstanding, at December 31, 2025, and $21.6 million, or 1.47% of loans outstanding, at June 30, 2025. These changes are discussed in greater detail under the Lending and Credit Management section.
Deposits – Total deposits decreased $66.0 million to $1.49 billion as of June 30, 2026 compared to $1.55 billion as of December 31, 2025, and decreased $29.8 million compared to $1.52 billion as of June 30, 2025.
Federal Home Loan Bank (“FHLB”) advances and other borrowings – Total FHLB advances and other borrowings decreased $72.7 million to $29.4 million as of June 30, 2026, compared to $102.1 million as of December 31, 2025, and decreased $110.7 million compared to $140.1 million as of June 30, 2025.
Capital – The Company maintains its “well-capitalized” regulatory capital position. At June 30, 2026, capital ratios were as follows: total risk-based capital to risk-weighted assets 16.40%; tier 1 capital to risk-weighted assets 15.15%; tier 1 leverage 12.91%; and stockholders’ equity to assets 10.31%.
41

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 tables present 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 an FTE basis for each of the three and six month periods ended June 30, 2026 and 2025, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.
Three Months Ended June 30,
20262025
(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$200,336$3,4987.00%$207,200$3,5026.78%
Real estate construction - residential41,6177747.4625,1775268.38
Real estate construction - commercial85,2441,6517.7764,4571,2227.60
Real estate mortgage - residential361,6425,1975.76378,1925,5105.84
Real estate mortgage - commercial728,39010,7265.91765,51610,7025.61
Installment and other consumer8,8441406.3512,0491936.42
Total loans1,426,07321,9866.181,452,59121,6555.98
Loans held for sale1,32530.9117836.76
Investment securities:
U.S. Treasury5,951634.255,023534.23
U.S. government and federal agency obligations3,882323.3113,2441394.21
Obligations of states and political subdivisions101,3098103.2196,8308873.67
Mortgage-backed securities76,3237413.8978,6307613.88
Other debt securities33,4725026.0227,9474196.01
Total investment securities220,9372,1483.90221,6742,2594.09
Other investment securities4,662998.524,029858.46
Interest bearing deposits in other financial institutions44,4614494.0524,4292904.76
Total interest earning assets1,697,45824,6855.83%1,702,90124,2925.72%
All other assets126,870121,652
Allowance for credit losses(21,061)(21,847)
Total assets$1,803,267$1,802,706
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings$260,228$8821.36%$275,295$1,2271.79%
NOW accounts156,5905431.39191,2226501.36
Interest checking170,0031,3193.11137,0431,2883.77
Money market184,7857641.66205,0059211.80
Time deposits299,3132,1772.92302,7632,4223.21
Total interest bearing deposits1,070,9195,6852.131,111,3286,5082.35%
Federal funds purchased and securities sold under agreements to repurchase—13—7315.49
Federal Home Loan Bank advances and other borrowings73,1906173.3859,1774042.74
Subordinated notes49,4867796.3149,4868566.94
Total borrowings122,6761,4094.61108,7361,2614.65
Total interest bearing liabilities1,193,5957,0942.38%1,220,0647,7692.55%
Demand deposits412,935416,296
Other liabilities17,50411,983
Total liabilities1,624,0341,648,343
Stockholders' equity179,233154,363
Total liabilities and stockholders' equity$1,803,267$1,802,706
Net interest income (FTE)$17,591$16,523
Net interest spread (FTE)3.45%3.17%
Net interest margin (FTE)4.16%3.89%
42

(1)Interest income and yields are presented on an FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three months ended June 30, 2026 and 2025. Such adjustments totaled $0.3 million and $0.4 million for the three months ended June 30, 2026 and 2025, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
Six Months Ended June 30,
20262025
(dollars in thousands)Average BalanceInterest Income/ Expense(1)Rate Earned/ Paid(1)Average BalanceInterest Income/ Expense(1)Rate Earned/ Paid(1)
ASSETS
Loans: (2)
Commercial$209,020$7,2476.99%$203,966$6,6726.60%
Real estate construction - residential40,6651,4917.3929,3171,1467.88
Real estate construction - commercial85,2373,2307.6473,2682,7917.68
Real estate mortgage - residential365,98010,4215.74370,80010,6865.81
Real estate mortgage - commercial741,25321,5535.86768,94021,2235.57
Installment and other consumer9,2603026.5812,6234016.41
Total loans$1,451,415$44,2446.15%$1,458,914$42,9195.93%
Loans held for sale95171.48%13057.76%
Investment securities:
U.S. Treasury5,5141154.214,9841054.25
U.S. government and federal agency obligations4,248733.4713,2282814.28
Obligations of states and political subdivisions103,1891,6153.1699,3421,6713.39
Mortgage-backed securities73,3671,4003.8579,3451,5433.92
Other debt securities29,8018896.0225,0917215.79
Total investment securities216,1194,0923.82221,9904,3213.93
Other investment securities4,9012128.724,4222059.35
Federal funds sold——————
Interest bearing deposits in other financial institutions44,5858864.0123,8185394.56
Total interest earning assets$1,717,971$49,4415.80%$1,709,274$47,9895.66%
All other assets126,320121,496
Allowance for credit losses(21,226)(22,034)
Total assets$1,823,065$1,808,736
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings$261,397$1,7761.37%$273,648$2,5051.85%
NOW accounts167,4561,2421.50197,5371,4071.44
Interest checking172,5682,6263.07141,6372,6673.80
Money market186,1991,5261.65206,5611,8561.81
Time deposits301,0844,3862.94301,5804,8863.27
Total interest bearing deposits1,088,70411,5562.141,120,96313,3212.40
Federal funds purchased and securities sold under agreements to repurchase4261310.775113.95
Federal Home Loan Bank advances and other borrowings78,4091,2523.2267,3049032.71
Subordinated notes49,4861,5526.3249,4861,7086.96
Total borrowings127,8992,8304.46116,8412,6124.51
Total interest bearing liabilities$1,216,603$14,3862.38%$1,237,804$15,9332.60%
Demand deposits411,607404,945
Other liabilities16,11612,437
Total liabilities$1,644,326$1,655,186
Stockholders' equity178,739153,550
Total liabilities and stockholders' equity$1,823,065$1,808,736
Net interest income (FTE)$35,055$32,056
Net interest spread (FTE)3.42%3.06%
Net interest margin (FTE)4.11%3.78%
43

(1)Interest income and yields are presented on an FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the six months ended June 30, 2026 and 2025. Such adjustments totaled $0.7 million and $0.6 million for the six months ended June 30, 2026 and 2025, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
Rate and Volume Analysis
The following table summarizes the changes in net interest income on an FTE basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.
Three Months Ended June 30,Six Months Ended June 30,
2026 vs. 20252026 vs. 2025
Change due toChange due to
(dollars in thousands)Total ChangeAverage VolumeAverage RateTotal ChangeAverage VolumeAverage Rate
Interest income on a fully taxable equivalent basis: (1)
Loans: (2)
Commercial$(4)$(118)$114 $575 $168 $407 
Real estate construction - residential248310(62)345420 (75)
Real estate construction - commercial42940227439454 (15)
Real estate mortgage - residential(313)(239)(74)(265)(138)(127)
Real estate mortgage - commercial24(532)556330(780)1,110 
Installment and other consumer(53)(50)(3)(99)(110)11 
Loans held for sale—4(4)29 (7)
Investment securities:
U.S. Treasury1010—1011 (1)
U.S. government and federal agency obligations(107)(82)(25)(208)(163)(45)
Obligations of states and political subdivisions(77)40(117)(56)63 (119)
Mortgage-backed securities(20)(22)2(143)(114)(29)
Other debt securities8383—168139 29 
Other investment securities 14131721 (14)
Interest bearing deposits in other financial institutions159208(49)347420 (73)
Total interest income393 27 366 1,452 400 1,052 
Interest expense:
Savings$(345)$(64)$(281)$(729)$(108)$(621)
NOW accounts(107)(120)13 (165)(221)56 
Interest checking31279 (248)(41)522 (563)
Money market(157)(87)(70)(330)(175)(155)
Time deposits(245)(28)(217)(500)(8)(492)
Federal funds purchased and securities sold under agreements to repurchase12(1)1325 (2)27 
FHLB advances and other borrowings213107 106349162 187
Subordinated notes(77)— (77)(156)— (156)
Total interest expense(675)86 (761)(1,547)170 (1,717)
Net interest income on an FTE basis$1,068 $(59)$1,127 $2,999 $230 $2,769 
(1)Interest income and yields are presented on an FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for each of the three and six months ended June 30, 2026 and 2025. Such adjustments totaled $0.3 million and $0.7 million for the three and six months ended June 30, 2026, respectively, compared to $0.4 million and $0.6 million for the three and six months ended June 30, 2025, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.

Financial results for the quarter ended June 30, 2026 compared to the quarter ended June 30, 2025, reflected an increase in net interest income on an FTE basis of $1.1 million, or 6.5%. Measured as a percentage of average earning assets, the net interest margin (expressed on an FTE basis) increased to 4.16% for the quarter ended June 30, 2026 compared to 3.89% for
44

the quarter ended June 30, 2025 and increased to 4.11% for the six months ended June 30, 2026 compared to 3.78% for the six months ended June 30, 2025.
Average interest earning assets remained consistent at $1.70 billion for the quarters ended June 30, 2026 and June 30, 2025, and average interest bearing liabilities decreased $26.5 million, or 2.2%, to $1.19 billion for the quarter ended June 30, 2026 compared to $1.22 billion for the quarter ended June 30, 2025.
Average interest earning assets increased $8.7 million, or 0.5%, to $1.72 billion for the six months ended June 30, 2026 compared to $1.71 billion for the six months ended June 30, 2025, and average interest bearing liabilities decreased $21.2 million, or 1.7%, to $1.22 billion for the six months ended June 30, 2026 compared to $1.24 billion for the six months ended June 30, 2025.
Total interest income (expressed on an FTE basis) was $24.7 million and $49.4 million for the three and six months ended June 30, 2026, respectively, compared to $24.3 million and $48.0 million for the three and six months ended June 30, 2025, respectively. The Company’s rates earned on interest earning assets were 5.83% and 5.80% for the three and six months ended June 30, 2026, respectively, compared to 5.72% and 5.66% for the three and six months ended June 30, 2025, respectively.
Interest income on loans held for investment (expressed on an FTE basis) was $22.0 million and $44.2 million for the three and six months ended June 30, 2026, respectively, compared to $21.7 million and $42.9 million for the three and six months ended June 30, 2025, respectively.
Average loans outstanding decreased $26.5 million, or 1.8%, to $1.43 billion for the quarter ended June 30, 2026 compared to $1.45 billion for the quarter ended June 30, 2025. The average yield on loans increased to 6.18% for the quarter ended June 30, 2026 compared to 5.98% for the quarter ended June 30, 2025.
Average loans outstanding decreased $7.5 million, or 0.5%, to $1.45 billion for the six months ended ended June 30, 2026 compared to $1.46 billion for the six months ended June 30, 2025. The average yield on loans increased to 6.15% for the six months ended June 30, 2026 compared to 5.93% for the six months ended June 30, 2025. 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 (expressed on an FTE basis) was $2.1 million and $4.1 million for the three and six months ended June 30, 2026, respectively, compared to $2.3 million and $4.3 million for the three and six months ended June 30, 2025, respectively.
Average securities decreased $0.8 million, or 0.3%, to $220.9 million for the quarter ended June 30, 2026 compared to $221.7 million for the quarter ended June 30, 2025. The average yield on securities decreased to 3.90% for the quarter ended June 30, 2026 compared to 4.09% for the quarter ended June 30, 2025.
Average securities decreased $5.9 million, or 2.6%, to $216.1 million for the six months ended June 30, 2026 compared to $222.0 million for the six months ended June 30, 2025. The average yield on securities decreased to 3.82% for the six months ended June 30, 2026 compared to 3.93% for the six months ended June 30, 2025. See the Liquidity Management section for further discussion.

Total interest expense was $7.1 million and $14.4 million for the three and six months ended June 30, 2026, respectively, compared to $7.8 million and $15.9 million for the three and six months ended June 30, 2025, respectively. The Company’s rates paid on interest bearing liabilities were 2.38% for both the three and six months ended June 30, 2026, respectively, compared to 2.55% and 2.60% for the three and six months ended June 30, 2025, respectively. See the Liquidity Management section for further discussion.
Interest expense on deposits was $5.7 million and $11.6 million for the three and six months ended June 30, 2026, respectively, compared to $6.5 million and $13.3 million for the three and six months ended June 30, 2025, respectively.
Average interest bearing deposits decreased $40.4 million, or 3.6%, to $1.07 billion for the quarter ended June 30, 2026 compared to $1.11 billion for the quarter ended June 30, 2025. The average cost of deposits decreased to 2.13% for the quarter ended June 30, 2026 compared to 2.35% for the quarter ended June 30, 2025.
45

Average interest bearing deposits decreased $32.3 million, or 2.9%, to $1.09 billion for the six months ended June 30, 2026 compared to $1.12 billion for the six months ended June 30, 2025. The average cost of deposits decreased to 2.14% for the six months ended June 30, 2026 compared to 2.40% for the six months ended June 30, 2025.
Interest expense on borrowings was $1.4 million and $2.8 million for the three and six months ended June 30, 2026, respectively, compared to $1.3 million and $2.6 million for the three and six months ended June 30, 2025, respectively.

Average borrowings increased $14.0 million, or 12.8%, to $122.7 million for the quarter ended June 30, 2026 compared to $108.7 million for the quarter ended June 30, 2025. The average cost of borrowings decreased to 4.61% for the quarter ended June 30, 2026 compared to 4.65% for the quarter ended June 30, 2025.
Average borrowings increased $11.1 million, or 9.5%, to $127.9 million for the six months ended June 30, 2026 compared to $116.8 million for the six months ended June 30, 2025. The average cost of borrowings decreased to 4.5% for the six months ended June 30, 2026 compared to 4.51% for the six months ended June 30, 2025.
Non-interest Income
The following table shows the principal components of non-interest income for the three and six months ended June 30, 2026 and 2025.
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)20262025$ Change% Change 20262025$ Change% Change
Service charges and other fees$815 $940 $(125)(13.3)%$1,635 $1,853 $(218)(11.8)%
Bank card income and fees1,018 1,003 15 1.5 1,925 1,929 (4)(0.2)
Earnings on bank-owned life insurance498 509 (11)(2.2)991 1,019 (28)(2.7)
Wealth management revenue654 542 112 20.7 1,270 1,016 254 25.0 
Gain on sales of mortgage loans, net69 117 (48)(41.0)146 242 (96)(39.7)
Gains (losses) on other real estate owned, net335 (177)512 (289.3)302 (156)458 (293.6)
Other1,988 611 1,377 225.4 2,208 1,105 1,103 99.8 
Total non-interest income$5,377 $3,545 $1,832 51.7 %$8,477 $7,008 $1,469 21.0 %
Non-interest income as a % of total revenue (1)
23.8 %18.0 %19.8 %18.2 %
(1)Total revenue is calculated as net interest income plus non-interest income.

Total non-interest income increased $1.8 million, or 51.7%, to $5.4 million for the quarter ended June 30, 2026 compared to $3.5 million for the quarter ended June 30, 2025, and increased $1.5 million, or 21.0% to $8.5 million for the six months ended June 30, 2026 compared to $7.0 million for the six months ended June 30, 2025. The increase for the three and six months ended June 30, 2026 was primarily due to gains recorded on other real estate owned and premises and equipment held for sale.
Service charges and other fees decreased $0.1 million, or 13.3%, to $0.8 million for the quarter ended June 30, 2026 compared to $0.9 million for the quarter ended June 30, 2025, and decreased $0.2 million, or 11.8%, to $1.6 million for the six months ended June 30, 2026 compared to $1.9 million for the six months ended June 30, 2025. The decrease for the three and six months ended June 30, 2026 was primarily attributable to a decrease in overall service charges on accounts and lower NSF charges.
Wealth management revenue increased $0.1 million, or 20.7%, to $0.7 million for the quarter ended June 30, 2026 compared to $0.5 million for the quarter ended June 30, 2025, and increased $0.3 million, or 25.0% to $1.3 million for the six months ended June 30, 2026 compared to $1.0 million for the six months ended June 30, 2025. The increase for the three and six months ended June 30, 2026 was primarily attributable to continued growth in accounts.
Gains on other real estate owned were $0.3 million for the quarter ended June 30, 2026 compared to losses of $0.2 million for the quarter ended June 30, 2025, and gains of $0.3 million for the six months ended June 30, 2026 compared to losses of $0.2 million for the six months ended June 30, 2025. The increase for the three and six months ended June 30, 2026 is primarily attributed to a large sale of other real estate owned during the quarter ended June 30, 2026.
46

Non-interest Expense
The following table shows the principal components of non-interest expense for the three and six months ended June 30, 2026 and 2025.
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)20262025$ Change% Change 20262025$ Change% Change
Salaries$6,179 $5,415 $764 14.1%$11,547 $10,780 $767 7.1%
Employee benefits1,414 1,288 126 9.82,860 2,835 25 0.9
Occupancy expense, net859 947 (88)(9.3)1,850 1,883 (33)(1.8)
Furniture and equipment expense791 673 118 17.51,561 1,466 95 6.5
Processing, network and bank card expense1,419 1,443 (24)(1.7)2,837 2,844 (7)(0.2)
Legal, examination, and professional fees944 428 516 120.61,746 921 825 89.6
Advertising and promotion236 212 24 11.3439 372 67 18.0
Postage, printing, and supplies202 342 (140)(40.9)501 636 (135)(21.2)
Other1,703 1,521 182 12.03,408 3,031 377 12.4
Total non-interest expense$13,747 $12,269 $1,478 12.0%$26,749 $24,768 $1,981 8.0%
Efficiency ratio (1)
60.7 %62.3 %62.4 %64.4 %
Number of full-time equivalent employees269 250 269 250 
(1)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 $1.5 million, or 12.0%, to $13.7 million for the quarter ended June 30, 2026 compared to $12.3 million for the quarter ended June 30, 2025, and increased $2.0 million, or 8.0%, to $26.7 million for the six months ended June 30, 2026 compared to $24.8 million for the six months ended June 30, 2025.
Salaries increased $0.8 million, or 14.1%, to $6.2 million for the quarter ended June 30, 2026 compared to $5.4 million for the quarter ended June 30, 2025, and increased $0.8 million, or 7.1%, to $11.5 million for the six months ended June 30, 2026 compared to $10.8 million for the six months ended June 30, 2025. The increase for the three and six months ended June 30, 2026 is attributed to incentive payouts paid during the periods and increases in number of full-time equivalent employees.
Occupancy expense, net, decreased $0.1 million, or 9.3%, to $0.9 million for the quarter ended June 30, 2026 compared to $0.9 million for the quarter ended June 30, 2025, and remained consistent at $1.9 million for the six months ended June 30, 2026 and 2025. The decrease for the quarter ended June 30, 2026 primarily resulted from rental income received from renting a bank property that was held for sale. That property was sold during the quarter ended June 30, 2026.
Furniture and equipment expense increased $0.1 million, or 17.5%, to $0.8 million for the quarter ended June 30, 2026 compared to $0.7 million for the quarter ended June 30, 2025 and increased $0.1 million, or 6.5%, to $1.6 million for the six months ended June 30, 2026 compared to $1.5 million for the six months ended June 30, 2025. The increase is attributed to an increase in maintenance fees paid during the quarter.
Legal, examination, and professional fees increased $0.5 million, or 120.6%, to $0.9 million for the quarter ended June 30, 2026, compared to $0.4 million for the quarter ended June 30, 2025, and increased $0.8 million, or 89.6%, to $1.7 million for the six months ended June 30, 2026 compared to $0.9 million for the six months ended June 30, 2025. The increase for the three and six months ended June 30, 2026 is attributed to legal and professional fees incurred for the acquisition of FSC Bancshares, Inc.
Postage, printing, and supplies decreased $0.1 million, or 40.9%, to $0.2 million for the quarter ended June 30, 2026, compared to $0.3 million for the quarter ended June 30, 2025, and decreased $0.1 million, or 21.2%, to $0.5 million for the six months ended June 30, 2026 compared to $0.6 million for the six months ended June 30, 2025. The decrease is attributed to customer mailings sent in conjunction with an account consolidation project in the prior year quarter.
47

Income Taxes
Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 18.0% and 18.6% for the three and six months ended June 30, 2026, respectively, compared to 18.3% for both the three and six months ended June 30, 2025. The effective tax rate for each of the three and six months ended June 30, 2026 and 2025 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 79.9% of total assets as of June 30, 2026 compared to 78.5% as of December 31, 2025.
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 are as follows:
June 30, 2026December 31, 2025
(dollars in thousands)Amount% of LoansAmount% of Loans
Commercial, financial, and agricultural $196,084 13.8 %$227,584 15.3 %
Real estate construction − residential
42,307 3.0 39,609 2.7 
Real estate construction − commercial
85,914 6.1 83,846 5.6 
Real estate mortgage − residential
370,185 26.1 369,636 24.9 
Real estate mortgage − commercial
712,619 50.3 755,892 50.8 
Installment and other consumer9,251 0.7 10,225 0.7 
Total loans held for investment$1,416,360 100.0 %$1,486,792 100.0 %
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, 2026 and December 31, 2025:
June 30, 2026December 31, 2025
(dollars in thousands)Amount% of LoansAmount% of Loans
Retail$167,079 28.7 %$171,366 27.9 %
Multi Family145,226 25.0 165,663 27.0 
Hotel & Food Service57,647 9.9 63,279 10.3 
Other Construction52,561 9.0 55,947 9.1 
Office Buildings44,832 7.7 48,028 7.8 
1-4 Family Construction42,307 7.3 39,609 6.4 
Other Real Estate23,421 4.0 24,379 4.0 
Land Subdivision18,511 3.2 15,765 2.6 
Industrial15,275 2.6 18,450 3.0 
Residential Building Construction7,551 1.3 5,906 1.0 
Commercial and Institutional Building Construction7,291 1.3 6,228 1.0 
Total Commercial Real Estate - Non Owner Occupied$581,701 100.0 %$614,620 100.0 %
48

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, 2026 and December 31, 2025, the ACL on loans included a qualitative adjustment of approximately $9.4 million and $10.3 million, respectively.
49

Non-Performing Assets
The following table summarizes non-performing assets at the dates indicated:
June 30,December 31,
(dollars in thousands)20262025
Non-accrual loans:
Commercial, financial, and agricultural$1,951$1,003
Real estate mortgage − residential3,0365,656
Real estate mortgage − commercial1,502143
Installment and other consumer534
Total6,4946,836
Loans contractually past due 90 days or more and still accruing:
Real estate mortgage − residential15629
Installment and other consumer5—
Total16129
Total non-performing loans (1)
6,6556,865
Other real estate owned and repossessed assets84598
Total non-performing assets (2)
$7,500$6,963
Loans held for investment$1,416,360$1,486,792
Allowance for credit losses on loans$20,730$21,111
Allowance for credit losses to loans1.46 %1.42 %
Non-accrual loans to total loans0.46 0.46 
Non-performing loans to loans (1)
0.47 0.46 
Non-performing assets to loans (2)
0.53 0.47 
Non-performing assets to assets (2)
0.42 0.37 
Allowance for credit losses to non-accrual loans319.22 308.82 
Allowance for credit losses to non-performing loans311.50 307.52 
(1)Non-performing loans include loans 90 days past due and accruing and non-accrual loans.
(2)Non-performing assets include non-performing loans and other real estate owned and repossessed assets.

Total non-performing assets were $7.5 million, or 0.53% of total loans, at June 30, 2026 compared to $7.0 million, or 0.47% of total loans, at December 31, 2025.
Total non-accrual loans at June 30, 2026 decreased $0.3 million, or 5.0%, to $6.5 million compared to $6.8 million at December 31, 2025. There were $0.16 million in loans past due 90 days and still accruing interest at June 30, 2026 compared to $0.03 million at December 31, 2025. Other real estate and repossessed assets were $0.8 million and $0.1 million at June 30, 2026 and December 31, 2025, respectively.
50

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 at the end of the periods shown below:
June 30, 2026December 31, 2025
(dollars in thousands)Amount% of loans to total loansAmount% of loans to total loans
Commercial, financial, and agricultural$3,628 13.8 %$3,655 15.3 %
Real estate construction − residential1,041 3.0 975 2.7 
Real estate construction − commercial2,221 6.1 1,719 5.6 
Real estate mortgage − residential4,557 26.1 4,823 24.9 
Real estate mortgage − commercial9,028 50.3 9,839 50.8 
Installment and other consumer93 0.7 100 0.7 
Unallocated162 — — — 
Total$20,730 100.0 %$21,111 100.0 %
The allowance for credit losses was $20.7 million, or 1.46% of loans outstanding, at June 30, 2026 compared to $21.1 million, or 1.42% of loans outstanding, at December 31, 2025. The ratio of the allowance for credit losses to non-performing loans was 311.50% at June 30, 2026, compared to 307.52% at December 31, 2025.
Provision for (Release of) Credit Losses
Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2026202520262025
Release of credit losses on loans$(65)$(159)$(185)$(441)
Provision for credit losses for off-balance sheet commitments303108496 50 
Total provision for (release of) credit losses $238 $(51)$311 $(391)
The Company recognized provision for credit losses of $0.2 million and $0.3 million for the three and six months ended June 30, 2026, respectively, compared to release of provision for credit losses $0.1 million and $0.4 million for the three and six months ended June 30, 2025, respectively.
51

The following table summarizes the credit loss experience for the periods indicated:
Three Months Ended June 30,
20262025
(dollars in thousands)Net (Charge-offs) RecoveriesAverage Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Net (Charge-offs) RecoveriesAverage Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Commercial, financial, and agricultural$(137)$200,336 (0.27)%$13 $207,200 0.01 %
Real estate construction − residential
— 41,617 — — 25,177 — 
Real estate construction − commercial
22 85,244 0.10 — 64,457 — 
Real estate mortgage − residential
5 361,642 0.01 4 378,192 — 
Real estate mortgage − commercial
(1)728,390 — (3)765,516 — 
Installment and other consumer(27)8,844 (1.22)(65)12,049 (0.54)
Total$(138)$1,426,073 (0.04)%$(51)$1,452,591 — %
Six Months Ended June 30,
20262025
(dollars in thousands)Net (Charge-offs) RecoveriesAverage Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Net (Charge-offs) RecoveriesAverage Loans
Net (Charge-offs) Recoveries / Average Loans (1)
Commercial, financial, and agricultural$(143)$209,020 (0.14)%$68 $203,966 0.03 %
Real estate construction − residential
— 40,665 — — 29,317 — 
Real estate construction − commercial
22 85,237 0.05 — 73,268 — 
Real estate mortgage − residential
10 365,980 0.01 5 370,800 — 
Real estate mortgage − commercial
(24)741,253 (0.01)22 768,940 — 
Installment and other consumer(61)9,260 (1.33)(128)12,623 (1.01)
Total$(196)$1,451,415 (0.03)%$(33)$1,458,914 — %
(1)Annualized ratio of net (charge-offs) recoveries to average loans by loan type.

Net Loan Charge-Offs/Recoveries
The Company’s net charge-offs were $0.1 million and $0.2 million for the three and six months ended June 30, 2026, respectively, compared to $0.05 million and $0.03 million of net charge-offs for the three and six months ended June 30, 2025, respectively.
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 $0.2 million of loans held for sale at June 30, 2026, and $0.6 million loans held for sale at December 31, 2025.
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, 2026, the Company sold approximately $18.1 million of loans to investors compared to $2.9 million for the six months ended June 30, 2025.
52

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. The following table shows the Company’s sources of funds as of June 30, 2026 and December 31, 2025.
(dollars in thousands)June 30, 2026December 31, 2025
Other interest bearing deposits$9,835 $87,680 
Certificates of deposit in other banks1,000 1,000 
Available-for-sale investment securities233,476209,939
Total$244,311 $298,619 
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 $233.5 million at June 30, 2026 and included an unrealized net loss of $22.2 million. The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $1.4 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, 2026 and December 31, 2025, the Company’s unpledged securities in the available-for-sale portfolio totaled approximately $122.7 million and $108.4 million, respectively.
Total investment securities pledged for these purposes were as follows as of June 30, 2026 and December 31, 2025:
(dollars in thousands)June 30, 2026December 31, 2025
Federal Reserve Bank borrowings$8,367 $8,288 
Other deposits102,39593,177
Total pledged, at fair value$110,762 $101,465 
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, 2026, such deposits totaled $1.39 billion and represented 93.5% 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.
53

Core deposits at June 30, 2026 and December 31, 2025 were as follows:
(dollars in thousands)June 30, 2026December 31, 2025
Non-interest bearing demand$416,389 $423,568 
Interest checking332,732 372,595 
Savings and money market439,035 453,972 
Other time deposits203,864 213,008 
Total$1,392,020 $1,463,143 
Estimated uninsured deposits totaled $310.8 million, including $92.1 million of certificates of deposit, at June 30, 2026, compared to $384.6 million, including $90.5 million of certificates of deposit, at December 31, 2025. The Company's brokered deposits were $4.0 million at June 30, 2026 and $0.5 million at December 31, 2025.
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 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, 2026, under agreements with these unaffiliated banks, the Bank may borrow up to $35.0 million in federal funds on an unsecured basis and $7.9 million on a secured basis. There were no federal funds purchased outstanding at June 30, 2026. 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, 2026.
The Bank is a member of the FHLB and has access to credit products of the FHLB. As of June 30, 2026, the Bank had $29.3 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, 2026 and December 31, 2025 were as follows:
(dollars in thousands)June 30, 2026December 31, 2025
Federal Home Loan Bank advances$29,291 $102,000 
Other borrowings7186
Subordinated notes49,48649,486
Total$78,848 $151,572 
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 as of June 30, 2026 and December 31, 2025:
June 30, 2026December 31, 2025
(dollars in thousands)FHLBFederal Reserve BankFederal Funds Purchased LinesTotalFHLBFederal Reserve BankFederal Funds Purchased LinesTotal
Advance equivalent$427,009$7,891$35,000$469,900$437,998$7,796$35,000$480,794
Letters of credit(24,825)——(24,825)(81,625)——(81,625)
Advances outstanding(29,290)——(29,290)(102,000)——(102,000)
Total available$372,894$7,891$35,000$415,785$254,373$7,796$35,000$297,169
54

At June 30, 2026, loans of $707.7 million were pledged to the FHLB as collateral for borrowings and letters of credit. At June 30, 2026, investments with a market value of $8.4 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 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 $32.7 million at June 30, 2026 compared to $104.3 million at December 31, 2025 and $100.3 million at June 30, 2025. The $67.6 million decrease since June 30, 2025 resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statements of cash flows for the six months ended June 30, 2026. Cash flow provided by operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided total cash of $18.1 million for the six months ended June 30, 2026.
Investing activities, consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio, provided total cash of $50.4 million during the six months ended June 30, 2026. The cash inflow primarily consisted of $11.9 million of proceeds from maturities and calls of available-for-sale securities, a $72.2 million net decrease in loans held for investment, and a $3.3 million net increase in FHLB stock, partially offset by $36.5 million in purchases of securities.
Financing activities used total cash of $140.1 million during the six months ended June 30, 2026, resulting primarily from a $51.3 million decrease in interest bearing transaction accounts, a $7.5 million decrease in time deposits, a $7.2 million decrease in demand deposits, and a $72.7 million net decrease in FHLB advances, partially offset by a $1.9 million increase from financing obligations.
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 $404.9 million in unused loan commitments and standby letters of credit as of June 30, 2026. 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 $2.8 million and $2.7 million during the six months ended June 30, 2026 and 2025, respectively. A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. The Bank declared $12.0 million and $10.0 million in dividends to the Company during the six months ended June 30, 2026 and 2025, respectively. At June 30, 2026 and December 31, 2025, the Company had cash and cash equivalents totaling $32.7 million and $25.5 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 12,000 common shares under its repurchase programs during the first six months of 2026 at an average cost of $32.68 per share totaling $0.4 million. As of June 30, 2026, $8.0 million remained available for share repurchases pursuant
55

to the Company's current repurchase program. On July 29, 2026, the Company’s Board of Directors amended the repurchase program to increase the authorized repurchase limit to $10.0 million.

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.

On April 29, 2026, the Company entered into an agreement to acquire FSC Bancshares, Inc. in a cash-and-stock merger valued at approximately $28.3 million, with the transaction expected to close in the third quarter of 2026, subject to FSC shareholder approval and other customary closing conditions. Refer to Note 17, “Pending Acquisition”, in the Company’s consolidated financial statements for further details regarding this pending transaction.
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, 2026, 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 both June 30, 2026 and December 31, 2025. 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 including its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
56

Under the Basel III Capital Rules, at both June 30, 2026 and December 31, 2025, 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:
ActualMinimum Capital Required - Basel III Fully Phased-InRequired to be Considered Well- Capitalized
(dollars in thousands)AmountRatioAmountRatioAmountRatio
June 30, 2026
Total Capital (to risk-weighted assets):
Company$255,387 16.40 %$163,472 10.50 %$— N.A.
Bank223,60914.49 162,06810.50 154,35110.00 %
Tier 1 Capital (to risk-weighted assets):
Company$235,891 15.15 %$132,334 8.50 %$— N.A.
Bank204,27813.23 131,1988.50 123,4818.00 %
Common Equity Tier 1 Capital (to risk-weighted assets):
Company$187,891 12.07 %$108,981 7.00 %$— N.A.
Bank204,27813.23 108,0457.00 100,3286.50 %
Tier 1 leverage ratio (to adjusted average assets):
Company$235,891 12.91 %$73,064 4.00 %$— N.A.
Bank204,27811.26 73,0644.00 91,3305.00 %
December 31, 2025
Total Capital (to risk-weighted assets):
Company$247,190 15.49 %$167,563 10.50 %$— N/A
Bank222,88714.08 166,16910.50 158,25610.00 %
Tier 1 Capital (to risk-weighted assets):
Company$227,237 14.24 %$135,646 8.50 %$— N/A
Bank203,09712.83 134,5188.50 126,6058.00 %
Common Equity Tier 1 Capital (to risk-weighted assets):
Company$179,237 11.23 %$111,709 7.00 %$— N/A
Bank203,09712.83 110,7797.00 102,8666.50 %
Tier 1 leverage ratio:
Company$227,237 12.12 %$74,994 4.00 %$— N/A
Bank203,09710.90 74,5464.00 93,1835.00 %
57

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 (“bps”) increase and a 200 and 100 bps decrease in interest rates on net interest income for the next 12 months based on the interest rate risk model at June 30, 2026 and December 31, 2025.

% Change in projected net interest income
Hypothetical shift in interest ratesJune 30,December 31,
(bps)20262025
2002.80%(0.43)%
1001.48(0.09)
(100)(1.67)(0.49)
(200)(4.50)(1.58)
The change in the interest rate risk exposure from December 31, 2025 to June 30, 2026 is primarily due to moderately higher rates on interest bearing assets projected to reprice in the next 12 months and projected repricing speeds on interest bearing assets and liabilities. In an immediate and sustained shock, interest bearing assets and liabilities are projected to reprice at relatively the same pace. In up rate scenarios, interest bearing assets are projected to reprice moderately faster than interest bearing liabilities providing slightly more interest income in a rising 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.
58


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, 2026.
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 of June 30, 2026. The term “disclosure controls and procedures,” as defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, means controls and procedures that are designed 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. 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 not effective due to the material weakness in internal control over financial reporting described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As previously reported, during the preparation of our financial statements for the three months ended March 31, 2026, management identified a material weakness in the Company’s internal control over financial reporting related to the evaluation and application of U.S. GAAP to certain non-routine transactions. This material weakness was evidenced by errors identified in the accounting for a sale-leaseback transaction under ASC 842-40 during the quarter ended March 31, 2026, and in the accounting for a low-income housing tax credit investment under ASC 323-740 during the quarter ended June 30, 2026. As of June 30, 2026, the material weakness had not been remediated. Management is in the process of developing remediation measures to address this material weakness, including enhancing its accounting review procedures for non-routine transactions, strengthening controls over the evaluation of technical accounting matters, engaging additional external resources with specialized accounting expertise when appropriate, and formalizing procedures for evaluating and documenting the accounting conclusions for non-routine transactions. Management may determine to take additional measures to address the material weakness or modify the remediation efforts described above. The material weakness will be considered remediated after applicable controls operate for a sufficient period of time, and management has concluded that the controls are effective.

Notwithstanding the material weakness, and based on additional analyses and other procedures management performed, we have concluded that our consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position and results of operations and cash flows as of each of the dates, and for each of the periods, presented herein. The material weakness did not result in any identified misstatements or require any restatement of our consolidated financial statements for any prior periods.

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
59

Except as disclosed above, 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, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

60

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, 2025.
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, 2026:
Period
Total Number of
Shares (or Units)
Purchased (1)
Average Price
Paid per Share (or
Unit)		Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (1)
April 2026—$——$8,037,685
May 2026———8,037,685
June 2026———8,037,685
Total—$——$8,037,685

    (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 did not repurchase any common shares under its repurchase programs during the second quarter of 2026. As of June 30, 2026, $8.0 million remained available for share repurchases pursuant to the Company's current repurchase program. On July 29, 2026, the Company’s Board of Directors amended the repurchase program to increase the authorized repurchase limit to $10.0 million.

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.
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Item 5. Other Information
During the three months ended June 30, 2026, 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, 2026 otherwise reportable under this Item 5.
Item 6. Exhibits
Exhibit No.Description
2.1
3.1
3.2
4.1
10.1
Form of Non-Employee Director Restricted Stock Unit Award Agreement (filed as Exhibit 10.1 to the Company’s current report on Form 8-K on June 8, 2026 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.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
62

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 6, 2026Brent M. Giles, Chief Executive Officer (Principal Executive Officer)
/s/ Chris E. Hafner
August 6, 2026
Chris E. Hafner, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
63

What is the market capitalization of a company?

The market capitalization sometimes referred as Marketcap, is the value of a publicly listed company.
In most cases it can be easily calculated by multiplying the share price with the amount of outstanding shares.

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