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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 March 31, 2026

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

For the transition period from ______________ to ______________

Commission file number: 0-23636

HAWTHORN BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices) (Zip Code)

(573) 761-6100

(Registrant’s telephone number, including area code)

N/A

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

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


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

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

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

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

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

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

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

As of May 8, 2026, the registrant had 6,896,585 shares of common stock, par value $1.00 per share, outstanding.

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Stockholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to the Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
Item 4.	Controls and Procedures	55
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58
SIGNATURES		59

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets


(dollars in thousands, except per share data)	March 31, 2026		December 31, 2025
	(Unaudited)
ASSETS
Cash and due from banks	$	13,369	$	16,632

Other interest bearing deposits	88,549		87,680
Cash and cash equivalents	101,918		104,312
Certificates of deposit in other banks	1,000		1,000
Available-for-sale debt securities, at fair value	205,193		209,939
Other investments	5,615		5,976

Loans held for investment	1,454,171		1,486,792
Allowance for credit losses	(20,933)		(21,111)
Net loans	1,433,238		1,465,681
Loans held for sale	1		616
Premises and equipment - net	30,762		29,963
Premises and equipment held for sale, net	3,706		3,956
Other real estate owned - net	64		98

Cash surrender value of bank-owned life insurance	40,801		40,444
Accrued interest receivable and other assets	33,562		32,865
Total assets	$	1,855,860	$	1,894,850
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand	$	425,433	$	423,568
Savings, interest checking and money market	788,316		827,069

Time deposits	304,567		303,512
Total deposits	1,518,316		1,554,149

Federal Home Loan Bank advances and other borrowings	94,376		102,086
Subordinated notes	49,486		49,486
Operating lease liabilities	3,694		2,682
Finance lease liabilities	1,167		1,205

Accrued interest payable and other liabilities	13,435		11,013
Total liabilities	1,680,474		1,720,621
Stockholders’ equity:
Common stock, $1.00 par value, authorized 15,000,000 shares; issued 7,554,893 shares	7,555		7,555
Surplus	76,927		76,828
Retained earnings	112,156		107,863
Accumulated other comprehensive loss, net of tax	(6,471)		(3,613)
Treasury stock; 665,083 and 653,633 shares, at cost, respectively	(14,781)		(14,404)
Total stockholders’ equity	175,386		174,229
Total liabilities and stockholders’ equity	$	1,855,860	$	1,894,850

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)


	Three Months Ended March 31,
(dollars in thousands, except per share data)	2026		2025
INTEREST INCOME
Interest and fees on loans	$	22,093	$	21,196
Interest and fees on loans held for sale	4		2
Interest on investment securities:
Taxable	1,164		1,304
Nontaxable	584		587

Federal funds sold and Other interest-bearing deposits	436		249
Dividends on other investments	113		120
Total interest income	24,394		23,458
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market	3,662		4,349

Time deposits	2,209		2,464
Total interest expense on deposits	5,871		6,813
Interest on federal funds purchased and securities sold under agreements to repurchase and other	13		—
Interest on Federal Home Loan Bank advances	635		499
Interest on subordinated notes	773		852
Total interest expense on borrowings	1,421		1,351
Total interest expense	7,292		8,164
Net interest income	17,102		15,294
Release of credit losses on loans	(120)		(282)
Provision for (release of) credit losses on unfunded commitments	193		(58)
Total provision for (release of) credit losses on loans and unfunded commitments	73		(340)
Net interest income after provision for (release of) credit losses on loans and unfunded commitments	17,029		15,634
NON-INTEREST INCOME
Service charges and other fees	820		914
Bank card income and fees	908		925
Earnings on bank-owned life insurance	493		509
Wealth management revenue	616		473

Gain on sale of mortgage loans, net	77		126
(Losses) gains on other real estate owned and other assets, net	(34)		21
Other	221		495
Total non-interest income	3,101		3,463
Investment securities gains (losses), net	5		(2)
NON-INTEREST EXPENSE
Salaries and employee benefits	6,814		6,912
Occupancy expense, net	991		935
Furniture and equipment expense	770		793
Processing, network, and bank card expense	1,418		1,401
Legal, examination, and professional fees	802		493
Advertising and promotion	204		160
Postage, printing, and supplies	299		294

Other	1,705		1,511
Total non-interest expense	13,003		12,499
Income before income taxes	7,132		6,596
Income tax expense	1,389		1,213
Net income	$	5,743	$	5,383
Basic earnings per share	$	0.83	$	0.77
Diluted earnings per share	$	0.83	$	0.77

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)


	Three Months Ended March 31,
(dollars in thousands)	2026		2025
Net income	$	5,743	$	5,383
Other comprehensive income (loss), net of tax
Investment securities available-for-sale:
Change in unrealized gains on investment securities available-for-sale, net of tax	(2,613)		383
Adjustment for gains on sale of investment securities, net of tax	(9)		—
Defined benefit pension plans:

Amortization of net gains included in net periodic pension income, net of tax	(236)		(215)
Total other comprehensive income (loss)	(2,858)		168
Total comprehensive income	$	2,885	$	5,551

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (unaudited)
























	Three Months Ended March 31, 2026 and 2025
(In thousands, except per share data)	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2025	$	7,555	$	76,828	$	107,863	$	(3,613)	$	(14,404)	$	174,229


Net income	—		—		5,743		—		—		5,743
Other comprehensive loss	—		—		—		(2,858)		—		(2,858)
Share-based compensation expense	—		122		—		—		—		122
Purchase of treasury stock	—		—		—		—		(396)		(396)
Restricted share unit vesting and taxes paid related to net share settlement	—		(23)		—		—		19		(4)

Cash dividends declared, common stock ($0.21 per share)	—		—		(1,450)		—		—		(1,450)
Balance, March 31, 2026	$	7,555	$	76,927	$	112,156	$	(6,471)	$	(14,781)	$	175,386

Balance, December 31, 2024	$	7,555	$	76,857	$	89,542	$	(12,443)	$	(11,964)	$	149,547


Net income	—		—		5,383		—		—		5,383
Other comprehensive income	—		—		—		168		—		168
Share-based compensation expense	—		81		—		—		—		81
Purchase of treasury stock	—		—		—		—		(440)		(440)


Cash dividends declared, common stock ($0.19 per share)	—		—		(1,328)		—		—		(1,328)
Balance, March 31, 2025	$	7,555	$	76,938	$	93,597	$	(12,275)	$	(12,404)	$	153,411

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)


	Three Months Ended March 31,
(In thousands)	2026		2025
Cash flows from operating activities:
Net income	$	5,743	$	5,383
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (release of) for credit losses on loans and unfunded commitments	73		(340)
Depreciation expense	439		535
Net amortization of investment securities, premiums, and discounts	77		118
Provision for valuation allowance for premises and equipment held for sale	278		—
Investment securities (gains) losses, net	(5)		2
Losses on sales and dispositions of premises and equipment	(5)		(50)
Gain on sales and dispositions of other real estate	—		(21)
Provision for valuation allowance for other real estate owned	34		—

Share-based compensation expense	122		81

Increase in cash surrender value - life insurance	(357)		(386)
Decrease in accrued interest receivable and other assets	1,263		889
Increase (decrease) in operating lease liabilities	39		(70)

Increase in accrued interest payable and other liabilities	271		(183)
Origination of mortgage loans held for sale	(14,690)		(1,335)
Proceeds from the sale of mortgage loans held for sale	14,766		1,237
Gain on sale of mortgage loans, net	(77)		(126)

Net cash provided by operating activities	7,971		5,734
Cash flows from investing activities:
Purchase of certificates of deposit in other banks	(1,000)		—
Proceeds from maturities of certificates of deposit in other banks	1,000		—

Net decrease (increase) in loans	33,179		(4,145)
Purchase of available-for-sale debt securities	(4,515)		(6,656)
Proceeds from maturities of available-for-sale debt securities	5,865		4,273
Proceeds from calls of available-for-sale debt securities	12		1,755

Purchases of FHLB stock	(32,527)		(4,029)
Proceeds from sales of FHLB stock	32,881		2,242
Purchases of premises and equipment	(1,871)		(272)
Proceeds from sales of premises and equipment	29		50


Proceeds from sales of other real estate and repossessed assets	—		799
Net cash provided by (used in) investing activities	33,053		(5,983)
Cash flows from financing activities:
Net increase in demand deposits	1,865		42,085
Net decrease in interest bearing transaction accounts	(38,753)		(27,445)
Net increase (decrease) in time deposits	1,055		(3,934)

Repayment of FHLB advances and other borrowings	(727,000)		(46,100)
Proceeds from FHLB advances and other borrowings	719,290		88,675
Proceeds from financing obligation	1,908		—
Purchase of treasury stock	(400)		(440)
Cash dividends paid - common stock	(1,383)		(1,328)
Net cash provided by (used in) financing activities	(43,418)		51,513
Net (decrease) increase in cash and cash equivalents	(2,394)		51,264
Cash and cash equivalents, beginning of period	104,312		50,994
Cash and cash equivalents, end of period	$	101,918	$	102,258

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

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited) continued


	Three Months Ended March 31,
(In thousands)	2026		2025

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	7,213	$	8,288
Income taxes	3,206		—
Non-cash investing and financing activities:

Right of use assets obtained in exchange for new operating lease liabilities	935		1,420
Dividends declared not paid - common stock	1,449		1,328

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(1) Summary of Significant Accounting Policies

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

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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. During the quarter, 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 ASC 842 because control did not transfer under ASC 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.

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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The ASU addresses investors requests for more disaggregated expense information to better understand an entity's performance, better assess the entity's prospects for future cash flows, and compare an entity's performance over time and with that of other entities. This ASU amends the effective date of ASU No. 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU No. 2024-03 is permitted. The Company is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.

(2) Loans and Allowance for Credit Losses

Loans

Major classifications within the Company’s loans held for investment portfolio at March 31, 2026 and December 31, 2025 were as follows:


(dollars in thousands)	March 31, 2026		December 31, 2025
Commercial, financial, and agricultural	$	223,378	$	227,584
Real estate construction − residential	42,487		39,609
Real estate construction − commercial	83,666		83,846
Real estate mortgage − residential	367,081		369,636
Real estate mortgage − commercial	728,184		755,892
Installment and other consumer	9,375		10,225
Total loans held for investment	$	1,454,171	$	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 $6.8 million at both March 31, 2026 and December 31, 2025, 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 March 31, 2026, loans of $724.6 million were pledged to the Federal Home Loan Bank (“FHLB”) as collateral for borrowings and letters of credit.

Allowance for Credit Losses

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

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

The Company maintains a separate allowance for credit losses for off-balance-sheet credit exposures, including unfunded loan commitments, unless the associated obligation is unconditionally cancellable by the Company. This allowance is included in other liabilities on the consolidated balance sheets with associated expense recognized as a component of the provision for credit losses on the consolidated statements of income. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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 $1.2 million and $1.0 million at March 31, 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.

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


	Three Months Ended March 31, 2026
(dollars in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and Other Consumer		Un- allocated		Total

Balance at beginning of period	$	3,655	$	975	$	1,719	$	4,823	$	9,839	$	100	$	—	$	21,111
Charge-offs	(10)		—		—		—		(23)		(60)		—		(93)
Recoveries	4		—		—		5		—		26		—		35
Provision for (release of) credit losses	680		72		181		(439)		(644)		30		—		(120)
Balance at end of period	$	4,329	$	1,047	$	1,900	$	4,389	$	9,172	$	96	$	—	$	20,933
















	Three Months Ended March 31, 2025
(dollars in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and Other Consumer		Un- allocated		Total

Balance at beginning of period	$	1,560	$	578	$	2,221	$	5,310	$	12,305	$	138	$	(68)	$	22,044


Charge-offs	(13)		—		—		(6)		(33)		(90)		—		(142)
Recoveries	67		—		—		8		58		27		—		160
Provision for (release of) credit losses	(167)		5		(554)		(178)		278		42		292		(282)
Balance at end of period	$	1,447	$	583	$	1,667	$	5,134	$	12,608	$	117	$	224	$	21,780

Collateral-Dependent loans

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Under the CECL methodology, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance on the fair value of collateral.

The allowance is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and the loan’s amortized cost. If the fair value of the collateral exceeds the loan’s amortized cost, no allowance is necessary. The Company’s policy is to obtain current appraisals on any significant pieces of collateral. Higher discounts are applied in determining fair value for real estate collateral in industries that are undergoing significant stress, or for properties that are specialized use or have limited marketability.

There have been no significant changes to the types of collateral securing the Company's collateral dependent loans since December 31, 2025.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The amortized cost of collateral-dependent loans by class as of March 31, 2026 and December 31, 2025 was as follows:


	Collateral Type
(dollars in thousands)	Real Estate		Other		Allowance Allocated
March 31, 2026
Commercial, financial, and agricultural	$	—	$	3,437	$	2,078


Real estate mortgage − residential	3,906		—		42
Real estate mortgage − commercial	—		—		—

Total	$	3,906	$	3,437	$	2,120

December 31, 2025
Commercial, financial, and agricultural	$	—	$	3,558	$	1,477


Real estate mortgage − residential	3,914		—		432


Total	$	3,914	$	3,558	$	1,909

Credit Quality

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

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

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

•Special Mention - loans that have negative financial trends, or other weaknesses that if left uncorrected, could threaten the borrower’s capacity to meet its debt obligations. This is a transitional grade that is closely monitored by management for improvement or deterioration.

•Substandard - loans that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. The substandard category includes non-accrual loans.

•Doubtful - loans that have all the weaknesses inherent in loans classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The following table presents the recorded investment by risk categories at March 31, 2026:


													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Term Loans
	Amortized Cost Basis by Origination Year and Risk Grades
(dollars in thousands)	2026		2025		2024		2023		2022		Prior						Total

Commercial, Financial, & Agricultural
Pass	$	8,200	$	61,867	$	10,408	$	8,089	$	15,506	$	43,438	$	64,594	$	851	$	212,953
Watch	—		304		2		56		7		146		343		744		1,602
Special Mention	—		342		—		2,993		313		248		—		—		3,896
Substandard	—		217		678		15		3,050		555		412		—		4,927


Total	$	8,200	$	62,730	$	11,088	$	11,153	$	18,876	$	44,387	$	65,349	$	1,595	$	223,378
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	10	$	—	$	—	$	10
Real Estate Construction - Residential
Pass	$	3,901	$	29,462	$	3,552	$	4,865	$	—	$	—	$	619			$	42,399
Watch	—		—		—		88		—		—		—				88



Total	$	3,901	$	29,462	$	3,552	$	4,953	$	—	$	—	$	619	$	—	$	42,487
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real Estate Construction - Commercial
Pass	$	4,742	$	38,617	$	21,804	$	6,380	$	2,850	$	3,399	$	4,666	$	1,085	$	83,543
Watch	59		—		28		—		7		—		—		—		94

Substandard	—		29		—		—		—		—		—		—		29

Total	$	4,801	$	38,646	$	21,832	$	6,380	$	2,857	$	3,399	$	4,666	$	1,085	$	83,666
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real Estate Mortgage - Residential
Pass	$	9,487	$	64,117	$	19,734	$	35,121	$	94,434	$	85,043	$	51,043	$	458	$	359,437
Watch	231		437		—		—		498		571		31		98		1,866

Substandard	—		3,463		96		486		1,273		174		286		—		5,778


Total	$	9,718	$	68,017	$	19,830	$	35,607	$	96,205	$	85,788	$	51,360	$	556	$	367,081
Gross YTD charge-offs																	$	—
Real Estate Mortgage - Commercial
Pass	$	54,100	$	168,656	$	40,736	$	72,910	$	154,421	$	179,052	$	17,615	$	1,630	$	689,120
Watch	540		2,043		445		159		3,932		252		—		—		7,371
Special Mention	—		1		20,309		—		4,865		—		—		—		25,175
Substandard	—		1,311		147		47		3,945		924		144		—		6,518

Total	$	54,640	$	172,011	$	61,637	$	73,116	$	167,163	$	180,228	$	17,759	$	1,630	$	728,184
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	23	$	—	$	—	$	23
Installment and other Consumer
Pass	$	882	$	2,353	$	864	$	1,368	$	1,327	$	2,478	$	59	$	—	$	9,331


Substandard	—		—		—		17		13		14		—		—		44

Total	$	882	$	2,353	$	864	$	1,385	$	1,340	$	2,492	$	59	$	—	$	9,375
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	60	$	—	$	—	$	60
Total Portfolio
Pass	$	81,312	$	365,072	$	97,098	$	128,733	$	268,538	$	313,410	$	138,596	$	4,024	$	1,396,783
Watch	830		2,784		475		303		4,444		969		374		842		11,021
Special Mention	—		343		20,309		2,993		5,178		248		—		—		29,071
Substandard	—		5,020		921		565		8,281		1,667		842		—		17,296


Total	$	82,142	$	373,219	$	118,803	$	132,594	$	286,441	$	316,294	$	139,812	$	4,866	$	1,454,171

Total Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	93	$	—	$	—	$	93

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The following table presents the recorded investment by risk categories at December 31, 2025:


													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Term Loans
	Amortized Cost Basis by Origination Year and Risk Grades
(dollars in thousands)	2025		2024		2023		2022		2021		Prior						Total
December 31, 2025
Commercial, Financial, & Agricultural
Pass	$	65,367	$	11,383	$	9,223	$	17,270	$	19,867	$	24,386	$	66,741	$	1,279	$	215,516
Watch	581		164		93		8		—		148		1,473		—		2,467
Special Mention	729		—		3,058		317		—		261		—		—		4,365
Substandard	203		679		15		3,184		536		25		594		—		5,236


Total	$	66,880	$	12,226	$	12,389	$	20,779	$	20,403	$	24,820	$	68,808	$	1,279	$	227,584
Gross YTD charge-offs	$	—	$	307	$	73	$	78	$	—	$	59	$	521	$	—	$	1,038
Real Estate Construction - Residential
Pass	$	30,523	$	4,066	$	4,881	$	—	$	—	$	—	$	51	$	—	$	39,521
Watch	—		—		88		—		—		—		—		—		88


Total	$	30,523	$	4,066	$	4,969	$	—	$	—	$	—	$	51	$	—	$	39,609
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real Estate Construction - Commercial
Pass	$	44,693	$	17,876	$	8,737	$	3,226	$	2,757	$	687	$	4,660	$	1,085	$	83,721
Watch	59		29		—		8		—		—		—		—		96
Substandard	29		—		—		—		—		—		—		—		29

Total	$	44,781	$	17,905	$	8,737	$	3,234	$	2,757	$	687	$	4,660	$	1,085	$	83,846
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real Estate Mortgage - Residential
Pass	$	63,792	$	21,182	$	36,980	$	98,512	$	42,745	$	48,795	$	48,900	$	1,039	$	361,945
Watch	442		—		—		487		370		442		31		157		1,929
Substandard	3,463		98		495		1,301		—		189		216		—		5,762

Total	$	67,697	$	21,280	$	37,475	$	100,300	$	43,115	$	49,426	$	49,147	$	1,196	$	369,636
Gross YTD charge-offs	$	—	$	—	$	—	$	—	$	—	$	14	$	—	$	—	$	14
Real Estate Mortgage - Commercial
Pass	$	186,984	$	43,797	$	82,928	$	161,945	$	151,011	$	70,426	$	16,381	$	1,642	$	715,114
Watch	3,185		445		214		3,978		325		631		—		—		8,778
Special Mention	—		20,561		—		4,932		—		—		—		—		25,493
Substandard	1,311		147		—		4,145		—		760		144		—		6,507

Total	$	191,480	$	64,950	$	83,142	$	175,000	$	151,336	$	71,817	$	16,525	$	1,642	$	755,892
Gross YTD charge-offs	$	—	$	49	$	76	$	—	$	—	$	32	$	—	$	—	$	157
Installment and other Consumer
Pass	$	2,696	$	1,063	$	1,764	$	1,628	$	367	$	2,605	$	68	$	—	$	10,191

Substandard	—		—		7		13		14		—		—		—		34

Total	$	2,696	$	1,063	$	1,771	$	1,641	$	381	$	2,605	$	68	$	—	$	10,225
Gross YTD charge-offs	$	—	$	3	$	33	$	13	$	—	$	330	$	—	$	—	$	379
Total Portfolio
Pass	$	394,055	$	99,367	$	144,513	$	282,581	$	216,747	$	146,899	$	136,801	$	5,045	$	1,426,008
Watch	4,267		638		395		4,481		695		1,221		1,504		157		13,358
Special Mention	729		20,561		3,058		5,249		—		261		—		—		29,858
Substandard	5,006		924		517		8,643		550		974		954		—		17,568


Total	$	404,057	$	121,490	$	148,483	$	300,954	$	217,992	$	149,355	$	139,259	$	5,202	$	1,486,792

Total Gross YTD charge-offs	$	—	$	359	$	182	$	91	$	—	$	435	$	521	$	—	$	1,588

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 March 31, 2026 and December 31, 2025:


(dollars in thousands)	Non-accrual with no Allowance		Non-accrual with Allowance		Total Non-accrual		90 Days Past Due And Still Accruing		Total Non-performing Loans
March 31, 2026
Commercial, Financial, and Agricultural	$	603	$	231	$	834	$	2	$	836


Real estate mortgage − residential	3,463		2,251		5,714		—		5,714
Real estate mortgage − commercial	—		191		191		—		191
Installment and Other Consumer	—		44		44		6		50
Total	$	4,066	$	2,717	$	6,783	$	8	$	6,791

December 31, 2025
Commercial, Financial, and Agricultural	$	603	$	400	$	1,003	$	—	$	1,003


Real estate mortgage − residential	—		5,656		5,656		29		5,685
Real estate mortgage − commercial	—		143		143		—		143
Installment and Other Consumer	—		34		34		—		34
Total	$	603	$	6,233	$	6,836	$	29	$	6,865

No material amount of interest income was recognized on non-accrual loans during the three months ended March 31, 2026.

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 March 31, 2026 and December 31, 2025:


(dollars in thousands)	Current or Less Than 30 Days Past Due		30 - 89 Days Past Due		90 Days Past Due And Still Accruing		Non-Accrual		Total
March 31, 2026
Commercial, Financial, and Agricultural	$	222,542	$	—	$	2	$	834	$	223,378
Real estate construction − residential	42,487		—		—		—		42,487
Real estate construction − commercial	83,666		—		—		—		83,666
Real estate mortgage − residential	359,947		1,420		—		5,714		367,081
Real estate mortgage − commercial	727,337		656		—		191		728,184
Installment and Other Consumer	9,222		103		6		44		9,375
Total	$	1,445,201	$	2,179	$	8	$	6,783	$	1,454,171

December 31, 2025
Commercial, Financial, and Agricultural	$	226,129	$	452	$	—	$	1,003	$	227,584
Real estate construction − residential	39,521		88		—		—		39,609
Real estate construction − commercial	83,846		—		—		—		83,846
Real estate mortgage − residential	362,289		1,662		29		5,656		369,636
Real estate mortgage − commercial	755,512		237		—		143		755,892
Installment and Other Consumer	10,105		86		—		34		10,225
Total	$	1,477,402	$	2,525	$	29	$	6,836	$	1,486,792

Loan Modifications for Borrowers Experiencing Financial Difficulty

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

For each of the three months ended March 31, 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 $1.0 thousand at March 31, 2026 and $0.6 million at December 31, 2025.

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 March 31, 2026 and December 31, 2025:


(dollars in thousands)	March 31, 2026		December 31, 2025



Real estate mortgage - commercial	98		98

Total	$	98	$	98
Less valuation allowance for other real estate owned	(34)		—
Total other real estate owned and repossessed assets	$	64	$	98

At March 31, 2026, there were $0.2 million of consumer mortgage loans secured by residential real estate properties in the process of foreclosure. There were none at December 31, 2025.

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


	Three Months Ended March 31,
(dollars in thousands)		2026		2025
Balance at beginning of period		$	—	$	2,003
Provision for (release of) provision for valuation allowance for other real estate owned		34		—
Charge-offs		—		—
Balance at end of period		$	34	$	2,003

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 March 31, 2026 and December 31, 2025 were as follows:


			Gross Unrealized
(dollars in thousands)	Total Amortized Cost		Gains		Losses		Fair Value
March 31, 2026
U.S. Treasury	$	4,952	$	68	$	—	$	5,020

U.S. government-sponsored enterprises	4,001		15		(127)		3,889
Obligations of states and political subdivisions	120,145		7		(20,187)		99,965
Mortgage-backed securities
Residential	57,015		434		(2,260)		55,189
Commercial	14,763		16		(1,844)		12,935
Other debt securities (1)	27,150		346		(604)		26,892
Bank issued trust preferred securities (1)	1,486		—		(183)		1,303
Total available-for-sale securities	$	229,512	$	886	$	(25,205)	$	205,193

December 31, 2025
U.S. Treasury	$	4,949	$	119	$	—	$	5,068

U.S. government-sponsored enterprises	5,001		31		(116)		4,916
Obligations of states and political subdivisions	121,569		28		(17,406)		104,191
Mortgage-backed securities
Residential	59,865		750		(2,232)		58,383
Commercial	15,090		19		(1,995)		13,114
Other debt securities (1)	22,979		297		(325)		22,951
Bank issued trust preferred securities (1)	1,486		—		(170)		1,316
Total available-for-sale securities	$	230,939	$	1,244	$	(22,244)	$	209,939

(1)Certain hybrid instruments possessing characteristics typically associated with debt obligations.

The Company’s investment securities are classified as available for sale. Agency bonds and notes, loan certificates guaranteed by the Small Business Administration, residential and commercial agency mortgage-backed securities, and agency collateralized mortgage obligations include securities issued by the Government National Mortgage Association, a U.S. government agency, and the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the FHLB, which are U.S. government-sponsored enterprises.

Debt securities with carrying values aggregating approximately $105.6 million and $101.5 million at March 31, 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 months ended March 31, 2026 and 2025. All gains and losses recognized on equity securities during each of the three months ended March 31, 2026 and 2025 were unrealized. During the three months ended March 31, 2026, the Company recorded net investment securities gains of approximately $0.01 million from called securities.

The amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2026, by contractual maturity are shown below. Accrued interest on investments totaled $1.3 million and $1.5 million at March 31, 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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

presented below. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.


	March 31, 2026
(dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,450	$	1,452
Due after one year through five years	15,576		15,266
Due after five years through ten years	43,778		40,891
Due after ten years	96,930		79,460
Total	157,734		137,069
Mortgage-backed securities	71,778		68,124
Total available-for-sale securities	$	229,512	$	205,193

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)	March 31, 2026		December 31, 2025
FHLB stock	$	5,405	$	5,759
MIB stock	151		151
Equity securities with readily determinable fair values	59		66
Total other investment securities	$	5,615	$	5,976

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 March 31, 2026 and December 31, 2025 were as follows:


	Less than 12 months				12 months or more
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Total Fair Value		Total Unrealized Losses
March 31, 2026


U.S. government-sponsored enterprises	$	—	$	—	$	1,873	$	(127)	$	1,873	$	(127)
Obligations of states and political subdivisions	3,289		(21)		95,213		(20,166)		98,502		(20,187)
Mortgage-backed securities
Residential	—		—		19,552		(2,260)		19,552		(2,260)
Commercial	2,610		(10)		9,041		(1,834)		11,651		(1,844)
Other debt securities	11,539		(347)		4,568		(257)		16,107		(604)
Bank issued trust preferred securities	—		—		1,303		(183)		1,303		(183)
Total	$	17,438	$	(378)	$	131,550	$	(24,827)	$	148,988	$	(25,205)

December 31, 2025


U.S. government-sponsored enterprises	—		—		1,884		(116)		1,884		(116)
Obligations of states and political subdivisions	604		(1)		100,994		(17,405)		101,598		(17,406)
Mortgage-backed securities
Residential	—		—		20,533		(2,232)		20,533		(2,232)
Commercial	848		(7)		9,639		(1,988)		10,487		(1,995)
Other debt securities	2,703		(72)		4,572		(253)		7,275		(325)
Bank issued trust preferred securities	—		—		1,316		(170)		1,316		(170)
Total	$	4,155	$	(80)	$	138,938	$	(22,164)	$	143,093	$	(22,244)

The total available-for-sale portfolio consisted of approximately 382 securities at March 31, 2026. The portfolio included 343 securities having an aggregate fair value of $149.0 million that were in a loss position at March 31, 2026. The $25.2 million aggregate unrealized loss included in accumulated other comprehensive loss at March 31, 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, forward commitments to sell mortgage-backed securities, cash flow hedges and interest rate swap contracts. The notional amount does not represent amounts exchanged by the parties, rather the amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements.

Interest Rate Swap Contracts Not Designated as Hedges

The Company enters into interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral 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.

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 March 31, 2026						As of December 31, 2025
			Fair Value						Fair Value
(dollars in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Interest Rate Products	$	16,542	$	142	$	171	$	16,542	$	180	$	191


Total derivatives not designated as hedging instruments			$	142	$	171			$	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 months ended March 31, 2026 and 2025. The Company did not recognize other income related to client swaps in any of the three months ended March 31, 2026 and 2025.


			Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended March 31,
(dollars in thousands)	Location of Gain or (Loss) Recognized in Income on Derivative			2026		2025

Interest Rate Products (1)	Other non-interest income			$	(18)	$	(23)


Total				$	(18)	$	(23)

(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 March 31, 2026, the Company had recorded the obligation to collect cash collateral of $0.13 million.

As of March 31, 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 $0.03 million. As of March 31, 2026, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 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)	March 31, 2026		December 31, 2025
Time deposits with balances > $250,000	$	92,890	$	90,504
Brokered deposits	4,012		502

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 months ending March 31, 2026, and 2025 are shown in the table below.


	March 31,
(dollars in thousands)	2026		2025
Operating lease expense	$	227	$	141
Financing lease expense	13		—

ROU assets and lease liabilities by lease type, and the associated balance sheet classifications are shown in table below as of March 31, 2026 and 2025.


		March 31,
(dollars in thousands)	Balance Sheet Classification	2026		2025
ROU assets
ROU assets-operating leases	Premises and equipment, net	$	3,449	$	2,941
ROU assets-finance leases	Premises and equipment, net	1,168		—
Total ROU assets		$	4,617	$	2,941

Lease liabilities
Operating lease liabilities	Operating lease liabilities	$	3,694	$	3,028
Finance lease liabilities	Finance lease liabilities	1,167		—
Total lease liabilities		$	4,861	$	3,028

Contractual lease payment obligations for each of the next five years and thereafter, in addition to a reconciliation to the Company's lease liabilities were as follows:


Lease payments due in:	Operating Lease		Finance Leases		Total
(dollars in thousands)
2026 remaining	$	549	$	150	$	699
2027	789		201		990
2028	789		201		990
2029	596		201		797
2030	567		201		768


Thereafter	909		400		1,309
Total lease payments	4,199		1,354		5,553
Less imputed interest	(505)		(187)		(692)
Total lease liabilities, as reported	$	3,694	$	1,167	$	4,861

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 March 31, 2026 and 2025.


	March 31,
	2026		2025
Operating lease weighted average remaining lease term (in years)	5.7		5.9
Operating lease weighted average discount rate	4.40	%	4.40	%

Finance lease weighted average remaining lease term (in years)	6.75		0
Finance lease weighted average discount rate	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 three months ended March 31, 2026 and 2025:


	Three Months Ended March 31, 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	(3,310)		(299)		(3,609)
Amounts reclassified from accumulated other comprehensive loss	(9)		—		(9)
Current period other comprehensive loss, before tax	(3,319)		(299)		(3,618)
Income tax benefit	697		63		760
Current period other comprehensive loss, net of tax	(2,622)		(236)		(2,858)
Balance at end of period	$	(19,212)	$	12,741	$	(6,471)


	Three Months Ended March 31, 2025
(dollars in thousands)	Unrealized Gains (Losses) on Securities (1)		Unrecognized Net Pension and Postretirement (Income) Costs (2)		Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	$	(24,416)	$	11,973	$	(12,443)
Other comprehensive income (loss), before reclassifications	485		(272)		213

Current period other comprehensive income (loss), before tax	485		(272)		213
Income tax (benefit) expense	(102)		57		(45)
Current period other comprehensive income (loss), net of tax	383		(215)		168
Balance at end of period	$	(24,033)	$	11,758	$	(12,275)

(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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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 three months of 2026 at an average cost of $32.68 per share totaling $0.4 million. As of March 31, 2026, $8.0 million remained available for share repurchases pursuant to the Company's current repurchase program.

(9) Share-Based Compensation

Equity-Based Compensation Plan

At the 2023 Annual Meeting of Shareholders, the Company's shareholders approved the Hawthorn Bancshares, Inc. Equity Incentive Plan (the “Equity Plan”), which was previously approved by the Company's Board of Directors. The purpose of the Equity Plan is to allow eligible participants of the Company and its subsidiaries to acquire or increase a proprietary and vested interest in the growth and performance of the Company. The Equity Plan is designed to assist the Company with attracting and retaining selected service providers by providing them with the opportunity to participate in the success and profitability of the Company. The terms of the Equity Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, other equity-based awards and cash awards. Subject to certain adjustments, the maximum number of shares of the Company's common stock that may be delivered pursuant to awards under the Equity Plan is 203,000 shares. Eligible participants under the Equity Plan include all employees, non-employee 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 three months ended March 31, 2026 and 2025:


	Three Months Ended March 31,
	2026			2025
	Quantity	Weighted-Average Grant Date Fair Value Per share		Quantity	Weighted-Average Grant Date Fair Value Per share
Non-vested at beginning of period	39,037	$	26.64	35,336	$	22.84
Granted	2,000	33.49		2,000	33.17


Vested	666	33.17		—	—
Forfeited	667	32		—	—
Non-vested at end of period	39,704	$	26.79	37,336	$	23.39

The fair value of the RSUs units is determined using the Company’s stock price on the date of grant. Total share-based compensation expense recognized for these RSUs was $0.1 million for the three months ended March 31, 2026, compared to $0.08 million for the three months ended March 31, 2025. Forfeitures will be recognized as they occur.

At March 31, 2026, there was $0.8 million of total unrecognized compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.0 years.

(10) Retirement Plans

Profit-sharing Plan

The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions for the discretionary portion in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition,

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

employees were able to make additional tax-deferred contributions. Total expense recorded for the Company match was $0.1 million and $0.2 million in the three months ended March 31, 2026 and 2025, respectively. The employer discretionary profit-sharing expense for the 401(k) plan was $0.3 million and $0.3 million for the three months ended March 31, 2026 and 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 March 31, 2026, and the expense for the three months ended March 31, 2026 was $0.02 million, compared to $0.02 million for the three months ended March 31, 2025, 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 March 31,
(dollars in thousands)	2026		2025
Service cost - benefits earned during the year	$	186	$	221
Interest costs on projected benefit obligations (1)	397		399
Expected return on plan assets (1)	(616)		(585)
Expected administrative expenses	38		36

Amortization of unrecognized net gain (1)	(299)		(272)
Net periodic pension income	$	(294)	$	(201)

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

Net periodic pension benefit (income) include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial (gains) losses. Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive (loss) income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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 March 31,
(in thousands, except per share data)	2026		2025

Net income available to shareholders	$	5,743	$	5,383

Basic weighted-average shares outstanding	6,897,487		6,983,163



Effect of dilutive equity-based awards	16,617		15,013
Diluted weighted-average shares outstanding	6,914,104		6,998,176

Basic earnings per share	$	0.83	$	0.77
Diluted earnings per share	$	0.83	$	0.77

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

(12) Fair Value Measurements

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

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

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

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

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

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

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

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

Available-for-Sale Securities

The fair value measurements of the Company’s investment securities are determined by a third party pricing service that considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to management's independent verification to another pricing source for reasonableness each quarter. U.S. Treasury securities are classified as Level 1, and all other available for sale securities are classified as Level 2.

Other Investment Securities

Other investment securities include equity securities with readily determinable fair values and other investment securities that do not have readily determinable fair values. Investments in FHLB stock and MIB stock, 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.

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 March 31, 2026 and December 31, 2025 aggregated by the level in the fair value hierarchy within which those measurements fall:


			Fair Value Measurements
(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2026
Assets:
U.S. Treasury	$	5,020	$	5,020	$	—	$	—

U.S. government-sponsored enterprises	3,889		—		3,889		—
Obligations of states and political subdivisions	99,965		—		99,965		—
Mortgage-backed securities
Residential	55,189		—		55,189		—
Commercial	12,935		—		12,935		—
Other debt securities	26,892		—		26,892		—
Bank-issued trust preferred securities	1,303		—		1,303		—
Equity securities	59		59		—		—
Derivative instruments, interest rate swaps	142				142




Total	$	205,394	$	5,079	$	200,315	$	—
Liabilities:
Derivative instruments, interest rate swaps	$	171	$	—	$	171	$	—

Total	$	171	$	—	$	171	$	—

December 31, 2025
Assets:
U.S. Treasury	$	5,068	$	5,068	$	—	$	—

U.S. government-sponsored enterprises	4,916		—		4,916		—
Obligations of states and political subdivisions	104,191		—		104,191		—
Mortgage-backed securities
Residential	58,383		—		58,383		—
Commercial	13,114		—		13,114
Other debt securities	22,951		—		22,951		—
Bank-issued trust preferred securities	1,316		—		1,316		—
Equity securities	66		66		—		—



Derivative instruments, interest rate swaps	180		—		180		—
Total	$	210,185	$	5,134	$	205,051	$	—
Liabilities:
Derivative instruments, interest rate swaps	$	191	$	—	$	191	$	—

Total	$	191	$	—	$	191	$	—

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

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

Collateral Dependent Loans

While the overall loan portfolio is not carried at fair value, the Company periodically records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan less estimated selling costs. In determining the value of real estate collateral, the Company relies on external and

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

Other Real Estate and Repossessed Assets

Other real estate owned (“OREO”) and repossessed assets consisted of loan collateral repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Subsequent to foreclosure, these assets are initially carried at fair value of the collateral less estimated selling costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state-certified appraisers. Like collateral dependent loans, appraisals on OREO may be discounted based on the Company’s historical knowledge, changes in market conditions from the time of appraisal or other information available. During the holding period, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

Premises and Equipment Held for Sale, net

Premises and equipment held for sale, net, are carried at the lower of cost or estimated fair value less disposal costs. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3. Subsequent write-downs and gains or losses on sales are recorded to (losses) gains on other real estate owned and other assets, net.


			Fair Value Measurements Using
(dollars in thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)				Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year to Date Total Gains (Losses) (1)
March 31, 2026
Collateral dependent loans:
Commercial, financial, & agricultural	$	1,359	$	—			$	—	$	1,359	$	—


Real estate mortgage - residential	3,864		—				—		3,864		—


Total	$	5,223	$	—			$	—	$	5,223	$	—
Other real estate and repossessed assets	$	64	$	—			$	—	$	64	$	(34)
Premises and equipment held for sale, net	$	3,706	$	—	$	—	$	—	$	3,706	$	(278)
December 31, 2025
Collateral dependent loans:
Commercial, financial, & agricultural	$	2,081	$	—			$	—	$	2,081	$	(1,640)


Real estate mortgage - residential	3,482		—				—		3,482		(432)


Total	$	5,563	$	—			$	—	$	5,563	$	(2,072)
Other real estate and repossessed assets	$	98	$	—			$	—	$	98	$	—
Premises and equipment held for sale, net	$	3,956							$	3,956	$	(225)

(1)Total gains (losses) reported for Other real estate owned and repossessed assets and Premises and equipment held for sale, net, includes charge-offs,

valuation write-downs, and net losses taken during the periods reported.

(13) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Loans

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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 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.

HAWTHORN BANCSHARES, INC.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

A summary of the carrying amounts and fair values of the Company’s financial instruments at March 31, 2026 and December 31, 2025 is as follows:


					March 31, 2026
					Fair Value Measurements
	March 31, 2026				Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Net Significant Unobservable Inputs
(dollars in thousands)	Carrying amount		Fair value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	13,369	$	13,369	$	13,369	$	—	$	—
Federal funds sold and overnight interest bearing deposits	88,549		88,549		88,549		—		—
Certificates of deposit in other banks	1,000		1,000		1,000		—		—

Other investment securities	5,556		5,556		—		5,556		—
Loans, net	1,433,238		1,461,601		—		—		1,461,601
Loans held for sale	1		1		—		1		—



Accrued interest receivable	8,333		8,333		8,333		—		—
Total assets	$	1,550,046	$	1,578,409	$	111,251	$	5,557	$	1,461,601

Liabilities:
Deposits:
Non-interest bearing demand	$	425,433	$	425,433	$	425,433	$	—	$	—
Savings, interest checking and money market	788,316		788,316		788,316		—		—
Time deposits	304,567		302,985		—		—		302,985

FHLB advances and other borrowings	94,376		93,240		86		93,154		—
Subordinated notes	49,486		43,403		—		43,403		—


Accrued interest payable	1,704		1,704		1,704		—		—
Total liabilities	$	1,663,882

HAWTHORN BANCSHARES, INC. 10-Q