UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    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.
  Missouri
    
    43-1626350(State or other jurisdiction of
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 300 Southwest Longview Boulevard, Lees Summit, Missouri 64081
 (816) 347-8100
 N/A
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Item 1. Financial Statements
 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSLoans
    
    $
    933,456,302
    
    
    $
    991,614,007Allowances for loan losses
    
    
    (13,953,687
    )
    
    
    (14,796,549
    )Net loans
    
    
    919,502,615
    
    
    
    976,817,458Investment in available-for-sale securities, at fair value
    
    
    165,172,611
    
    
    
    152,926,685Federal funds sold and securities purchased under agreements to resell
    
    
    125,820
    
    
    
    89,752Cash and due from banks
    
    
    52,099,695
    
    
    
    24,575,943Premises and equipment  net
    
    
    37,236,395
    
    
    
    38,623,293Other real estate owned and repossessed assets
    
    
    10,012,412
    
    
    
    8,490,914Accrued interest receivable
    
    
    6,020,411
    
    
    
    6,625,557Mortgage servicing rights
    
    
    2,198,887
    
    
    
    2,020,964Intangible assets  net
    
    
    1,095,535
    
    
    
    1,503,986Cash surrender value  life insurance
    
    
    1,979,466
    
    
    
    1,929,910Other assets
    
    
    19,622,328
    
    
    
    22,866,092Total assets
    
    $
    1,215,066,175
    
    
    $
    1,236,470,554LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing demand
    
    $
    143,143,196
    
    
    $
    135,017,639Savings, interest checking and money market
    
    
    363,916,607
    
    
    
    354,284,004Time deposits $100,000 and over
    
    
    127,609,669
    
    
    
    137,860,435Other time deposits
    
    
    315,904,482
    
    
    
    329,160,719Total deposits
    
    
    950,573,954
    
    
    
    956,322,797Federal funds purchased and securities sold
under agreements to repurchase
    
    
    31,460,010
    
    
    
    36,645,434Subordinated notes
    
    
    49,486,000
    
    
    
    49,486,000Other borrowed money
    
    
    67,168,047
    
    
    
    79,317,302Accrued interest payable
    
    
    1,344,701
    
    
    
    2,438,121Other liabilities
    
    
    5,112,064
    
    
    
    4,489,617Total liabilities
    
    
    1,105,144,776
    
    
    
    1,128,699,271Stockholders equity:Preferred stock, $1,000 par valueAuthorized and issued 30,255 shares
    
    
    28,722,124
    
    
    
    28,364,768Common stock, $1 par valueAuthorized 15,000,000 shares; issued 4,635,891 and
4,463,813 shares, respectively
    
    
    4,635,891
    
    
    
    4,463,813Surplus
    
    
    28,909,244
    
    
    
    26,970,745Retained earnings
    
    
    48,828,486
    
    
    
    50,576,551Accumulated other comprehensive income, net of tax
    
    
    2,342,472
    
    
    
    912,224Treasury stock; 161,858 shares, at cost
    
    
    (3,516,818
    )
    
    
    (3,516,818
    )Total stockholders equity
    
    
    109,921,399
    
    
    
    107,771,283Total liabilities and stockholders equity
    
    $
    1,215,066,175
    
    
    $
    1,236,470,554
  2




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##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009INTEREST INCOMEInterest and fees on loans
    
    $
    13,234,729
    
    
    $
    14,340,996
    
    
    $
    40,286,802
    
    
    $
    43,332,581Interest on debt securities:Taxable
    
    
    1,054,667
    
    
    
    1,152,935
    
    
    
    3,236,744
    
    
    
    3,430,153Nontaxable
    
    
    273,538
    
    
    
    350,839
    
    
    
    894,293
    
    
    
    1,088,561Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    50
    
    
    
    60
    
    
    
    133
    
    
    
    253Interest on interest-bearing deposits
    
    
    27,851
    
    
    
    11,556
    
    
    
    63,373
    
    
    
    43,565Dividends on other securities
    
    
    33,577
    
    
    
    53,742
    
    
    
    119,024
    
    
    
    110,010Total interest income
    
    
    14,624,412
    
    
    
    15,910,128
    
    
    
    44,600,369
    
    
    
    48,005,123INTEREST EXPENSEInterest on deposits:Savings, interest checking and money market
    
    
    511,442
    
    
    
    693,242
    
    
    
    1,696,648
    
    
    
    2,390,089Time deposit accounts $100,000 and over
    
    
    594,334
    
    
    
    949,273
    
    
    
    1,956,968
    
    
    
    3,056,793Other time deposit accounts
    
    
    1,758,850
    
    
    
    2,532,085
    
    
    
    5,607,583
    
    
    
    8,311,234Interest on federal funds purchased and securities sold
under agreements to repurchase
    
    
    19,690
    
    
    
    23,458
    
    
    
    59,353
    
    
    
    64,028Interest on subordinated notes
    
    
    353,536
    
    
    
    588,554
    
    
    
    1,201,082
    
    
    
    1,878,657Interest on other borrowed money
    
    
    527,818
    
    
    
    687,535
    
    
    
    1,794,832
    
    
    
    2,320,481Total interest expense
    
    
    3,765,670
    
    
    
    5,474,147
    
    
    
    12,316,466
    
    
    
    18,021,282Net interest income
    
    
    10,858,742
    
    
    
    10,435,981
    
    
    
    32,283,903
    
    
    
    29,983,841Provision for loan losses
    
    
    2,450,000
    
    
    
    1,250,000
    
    
    
    7,105,000
    
    
    
    4,404,000Net interest income after provision for loan losses
    
    
    8,408,742
    
    
    
    9,185,981
    
    
    
    25,178,903
    
    
    
    25,579,841NON-INTEREST INCOMEService charges on deposit accounts
    
    
    1,427,130
    
    
    
    1,547,038
    
    
    
    4,150,420
    
    
    
    4,380,248Trust department income
    
    
    186,989
    
    
    
    237,939
    
    
    
    566,495
    
    
    
    623,258Gain on sale of mortgage loans, net
    
    
    1,011,253
    
    
    
    489,069
    
    
    
    1,533,027
    
    
    
    2,437,169Other
    
    
    284,932
    
    
    
    326,560
    
    
    
    1,115,838
    
    
    
    732,189Total non-interest income
    
    
    2,910,304
    
    
    
    2,600,606
    
    
    
    7,365,780
    
    
    
    8,172,864NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,256,523
    
    
    
    4,454,183
    
    
    
    13,463,964
    
    
    
    13,403,853Occupancy expense, net
    
    
    654,687
    
    
    
    599,555
    
    
    
    1,881,093
    
    
    
    1,762,990Furniture and equipment expense
    
    
    472,657
    
    
    
    506,469
    
    
    
    1,499,307
    
    
    
    1,794,400FDIC insurance assessment
    
    
    442,965
    
    
    
    421,690
    
    
    
    1,288,163
    
    
    
    2,085,472Legal, examination, and professional fees
    
    
    348,792
    
    
    
    311,780
    
    
    
    932,115
    
    
    
    985,274Advertising and promotion
    
    
    311,219
    
    
    
    301,348
    
    
    
    886,242
    
    
    
    901,066Postage, printing, and supplies
    
    
    299,997
    
    
    
    271,434
    
    
    
    874,353
    
    
    
    833,846Processing expense
    
    
    853,710
    
    
    
    845,288
    
    
    
    2,560,570
    
    
    
    2,538,067Other real estate expense
    
    
    882,264
    
    
    
    239,747
    
    
    
    2,895,010
    
    
    
    575,008Other
    
    
    842,703
    
    
    
    1,088,245
    
    
    
    2,535,084
    
    
    
    2,815,972Total non-interest expense
    
    
    9,365,517
    
    
    
    9,039,739
    
    
    
    28,815,901
    
    
    
    27,695,948Income before income taxes
    
    
    1,953,529
    
    
    
    2,746,848
    
    
    
    3,728,782
    
    
    
    6,056,757Less income taxes
    
    
    531,327
    
    
    
    840,070
    
    
    
    1,030,346
    
    
    
    1,889,060Net income
    
    
    1,422,202
    
    
    
    1,906,778
    
    
    
    2,698,436
    
    
    
    4,167,697Preferred stock dividends
    
    
    378,187
    
    
    
    378,187
    
    
    
    1,130,360
    
    
    
    1,134,562Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119
    
    
    
    357,356
    
    
    
    357,356Net income available to common shareholders
    
    $
    924,896
    
    
    $
    1,409,472
    
    
    $
    1,210,720
    
    
    $
    2,675,779Basic earnings per share
    
    $
    0.21
    
    
    $
    0.32
    
    
    $
    0.27
    
    
    $
    0.60Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.32
    
    
    $
    0.27
    
    
    $
    0.60
  3




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##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity (Unaudited)
 Accumulated
    
    
    
    
    
    
    Totalother
    
    
    
    
    
    
    Stock -Preferred
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    holdersStock
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, December 31, 2009
    
    $
    28,364,768
    
    
    $
    4,463,813
    
    
    $
    26,970,745
    
    
    $
    50,576,551
    
    
    $
    912,224
    
    
    $
    (3,516,818
    )
    
    $
    107,771,283Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,698,436
    
    
    
    
    
    
    
    
    
    
    
    2,698,436Change in unrealized gain (loss) on securities:Unrealized gain on debt and equity securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,394,275
    
    
    
    
    
    
    
    1,394,275Defined benefit pension plans:Amortization of prior service cost included
in net periodic pension cost,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,973
    
    
    
    
    
    
    
    35,973Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,430,248Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,128,684Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    68,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,009Accretion of preferred stock discount
    
    
    357,356
    
    
    
    
    
    
    
    
    
    
    
    (357,356
    )
    
    
    
    
    
    
    
    
    
    
    Stock dividend
    
    
    
    
    
    
    172,078
    
    
    
    1,870,490
    
    
    
    (2,042,568
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,134,562
    )
    
    
    
    
    
    
    
    
    
    
    (1,134,562
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (912,015
    )
    
    
    
    
    
    
    
    
    
    
    (912,015
    )Balance, September 30, 2010
    
    $
    28,722,124
    
    
    $
    4,635,891
    
    
    $
    28,909,244
    
    
    $
    48,828,486
    
    
    $
    2,342,472
    
    
    $
    (3,516,818
    )
    
    $
    109,921,399Balance, December 31, 2008
    
    $
    27,888,294
    
    
    $
    4,298,353
    
    
    $
    25,144,323
    
    
    $
    51,598,678
    
    
    $
    1,005,553
    
    
    $
    (3,516,818
    )
    
    $
    106,418,383Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,167,697
    
    
    
    
    
    
    
    
    
    
    
    4,167,697Change in unrealized gain (loss) on securities:Unrealized loss on debt and equity securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    558,218
    
    
    
    
    
    
    
    558,218Defined benefit pension plans:Amortization of prior service cost included
in net periodic pension cost,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,142
    
    
    
    
    
    
    
    36,142Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    594,360Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,762,057Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    99,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,697Accretion of preferred stock discount
    
    
    357,355
    
    
    
    
    
    
    
    
    
    
    
    (357,355
    )
    
    
    
    
    
    
    
    
    
    
    Stock dividend
    
    
    
    
    
    
    165,460
    
    
    
    1,695,963
    
    
    
    (1,861,423
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (991,691
    )
    
    
    
    
    
    
    
    
    
    
    (991,691
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,796,893
    )
    
    
    
    
    
    
    
    
    
    
    (1,796,893
    )Balance, September 30, 2009
    
    $
    28,245,649
    
    
    $
    4,463,813
    
    
    $
    26,939,983
    
    
    $
    50,759,013
    
    
    $
    1,599,913
    
    
    $
    (3,516,818
    )
    
    $
    108,491,553
  4




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##### 



Consolidated Statements of Cash Flows (Unaudited)
 Nine months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    2,698,436
    
    
    $
    4,167,697Adjustments
to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    7,105,000
    
    
    
    4,404,000Depreciation expense
    
    
    1,484,686
    
    
    
    1,540,942Net amortization of debt securities, premiums, and discounts
    
    
    454,671
    
    
    
    366,383Amortization of intangible assets
    
    
    408,451
    
    
    
    475,592Stock based compensation expense
    
    
    68,009
    
    
    
    99,697Loss on sales and dispositions of premises and equipment
    
    
    59,621
    
    
    
    147,166Other real estate owned impairment charges
    
    
    1,595,638
    
    
    
    62,535Decrease in deferred tax asset, net
    
    
    728,912
    
    
    
    380,001Decrease in accrued interest receivable
    
    
    605,146
    
    
    
    598,071Increase in cash surrender value -life insurance
    
    
    (49,556
    )
    
    
    (57,750
    )Decrease in other assets
    
    
    578,938
    
    
    
    93,894Decrease in accrued interest payable
    
    
    (1,093,420
    )
    
    
    (1,455,466
    )Increase in other liabilities
    
    
    871,960
    
    
    
    1,808,432Origination of mortgage loans held for sale
    
    
    (72,437,349
    )
    
    
    (125,186,177
    )Proceeds from the sale of mortgage loans held for sale
    
    
    69,193,376
    
    
    
    127,623,346Gain on sale of mortgage loans, net
    
    
    (1,533,027
    )
    
    
    (2,437,169
    )Other, net
    
    
    398,872
    
    
    
    371,107Net cash provided by operating activities
    
    
    11,138,364
    
    
    
    13,002,301Cash flows from investing activities:Net decrease in loans
    
    
    42,321,380
    
    
    
    6,768,359Purchase of available-for-sale debt securities
    
    
    (154,204,703
    )
    
    
    (110,865,517
    )Proceeds from maturities of available-for-sale debt securities
    
    
    105,724,703
    
    
    
    83,996,365Proceeds from calls of available-for-sale debt securities
    
    
    38,065,100
    
    
    
    17,805,000Proceeds from sales of FHLB stock
    
    
    995,600
    
    
    
    Purchases of premises and equipment
    
    
    (320,967
    )
    
    
    (420,575
    )Proceeds from sales of premises and equipment
    
    
    34,528
    
    
    
    582,816Proceeds from sales of other real estate owned and repossessions
    
    
    9,185,427
    
    
    
    1,929,955Net cash provided (used) by investing activities
    
    
    41,801,068
    
    
    
    (203,597
    )Cash flows from financing activities:Net increase in non-interest-bearing demand deposits
    
    
    8,125,557
    
    
    
    871,554Net increase in savings, interest checking, and money market accounts
    
    
    9,632,603
    
    
    
    15,278,667Net decrease in time deposits
    
    
    (23,507,003
    )
    
    
    (3,311,738
    )Net (decrease) increase in federal funds purchased and securities sold
under agreements to repurchase
    
    
    (5,185,424
    )
    
    
    3,235,954Proceeds from other borrowed money
    
    
    10,000,000
    
    
    
    Repayment of other borrowed money
    
    
    (22,149,255
    )
    
    
    (57,576,317
    )Cash dividends paid  preferred stock
    
    
    (1,134,562
    )
    
    
    (991,691
    )Cash dividends paid  common stock
    
    
    (1,161,528
    )
    
    
    (2,192,342
    )Net cash used by financing activities
    
    
    (25,379,612
    )
    
    
    (44,685,913
    )Net increase (decrease) in cash and cash equivalents
    
    
    27,559,820
    
    
    
    (31,887,209
    )Cash and cash equivalents, beginning of year
    
    
    24,665,695
    
    
    
    53,827,468Cash and cash equivalents, end of period
    
    $
    52,225,515
    
    
    $
    21,940,259Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    13,409,886
    
    
    $
    19,476,748Income taxes
    
    
    200,000
    
    
    
    390,000Supplemental schedule of noncash investing and financing activities:Other real estate and repossessions acquired in settlement of loans
    
    $
    12,665,463
    
    
    $
    5,739,740
  5




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##### 



(Unaudited)
 Basis of Presentation
  Consolidated Financial Statements
   Loans and Allowance for Loan Losses
  September 30,
    
    
    December 31,2010
    
    
    2009Commercial, financial, and agricultural
    
    $
    132,919,752
    
    
    $
    151,399,300Real estate construction  residential
    
    
    38,229,395
    
    
    
    38,840,664Real estate construction  commercial
    
    
    76,586,537
    
    
    
    77,936,569Real estate mortgage  residential
    
    
    217,802,375
    
    
    
    232,332,124Real estate mortgage  commercial
    
    
    433,930,074
    
    
    
    453,975,271Installment loans to individuals
    
    
    33,821,909
    
    
    
    36,966,018Unamortized loan origination fees and costs, net
    
    
    166,260
    
    
    
    164,061Total loans
    
    $
    933,456,302
    
    
    $
    991,614,007
  6




---



##### 



September 30, 2010
    
    
    December 31, 2009Loans classified as impaired:Non-accrual loans
    
    $
    49,847,089
    
    
    $
    34,153,731Impaired loans continuing to accrue interest
    
    
    16,635,933
    
    
    
    39,713,014Total impaired loans
    
    $
    66,483,022
    
    
    $
    73,866,745Balance of impaired loans with reserves
    
    $
    34,715,944
    
    
    $
    26,294,560Balance of impaired loans without reserves
    
    
    31,767,078
    
    
    
    47,572,185Total impaired loans
    
    $
    66,483,022
    
    
    $
    73,866,745Reserves for impaired loans
    
    $
    7,797,557
    
    
    $
    6,414,729Average balance of impaired loans during the period
    
    
    64,700,592
    
    
    
    39,048,298Balance of
trouble debt restructured loans included in impaired loans
    
    
    22,457,385
    
    
    
    11,233,326
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    12,231,596
    
    
    $
    13,704,736
    
    
    $
    14,796,549
    
    
    $
    12,666,546Additions:Provision for loan losses
    
    
    2,450,000
    
    
    
    1,250,000
    
    
    
    7,105,000
    
    
    
    4,404,000Total additions
    
    
    2,450,000
    
    
    
    1,250,000
    
    
    
    7,105,000
    
    
    
    4,404,000Deductions:Loans charged off
    
    
    899,795
    
    
    
    1,198,165
    
    
    
    8,466,456
    
    
    
    3,549,572Less recoveries on loans
    
    
    (171,886
    )
    
    
    (170,963
    )
    
    
    (518,594
    )
    
    
    (406,560
    )Net loans charged off
    
    
    727,909
    
    
    
    1,027,202
    
    
    
    7,947,862
    
    
    
    3,143,012Balance at end of period
    
    $
    13,953,687
    
    
    $
    13,927,534
    
    
    $
    13,953,687
    
    
    $
    13,927,534
 7




---



##### 



Investment Securities
  September 30,
    
    
    December 31,2010
    
    
    2009U.S. treasury
    
    $
    1,040,234
    
    
    $
    Government sponsored enterprises
    
    
    46,898,658
    
    
    
    44,380,798Asset-backed securities
    
    
    85,822,384
    
    
    
    69,434,650Obligations of states and political subdivisions
    
    
    31,411,335
    
    
    
    39,111,237Total available for sale securities
    
    $
    165,172,611
    
    
    $
    152,926,685
   Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueSeptember 30, 2010U.S. treasury
    
    $
    999,808
    
    
    $
    40,426
    
    
    $
    
    
    
    $
    1,040,234Government sponsored enterprises
    
    
    46,285,100
    
    
    
    614,861
    
    
    
    1,303
    
    
    
    46,898,658Asset-backed securities
    
    
    82,943,924
    
    
    
    2,878,460
    
    
    
    
    
    
    
    85,822,384Obligations of states and political
subdivisions
    
    
    30,340,035
    
    
    
    1,073,842
    
    
    
    2,542
    
    
    
    31,411,335Total available for sale securities
    
    $
    160,568,867
    
    
    $
    4,607,589
    
    
    $
    3,845
    
    
    $
    165,172,611December 31, 2009Government sponsored enterprises
    
    $
    44,059,540
    
    
    $
    371,258
    
    
    $
    50,000
    
    
    $
    44,380,798Asset-backed securities
    
    
    68,092,852
    
    
    
    1,585,774
    
    
    
    243,976
    
    
    
    69,434,650Obligations of states and political
subdivisions
    
    
    38,456,246
    
    
    
    708,196
    
    
    
    53,205
    
    
    
    39,111,237Total available for sale securities
    
    $
    150,608,638
    
    
    $
    2,665,228
    
    
    $
    347,181
    
    
    $
    152,926,685
 8




---



##### 



Amortized
    
    
    Faircost
    
    
    valueDue in one year or less
    
    $
    3,716,849
    
    
    $
    3,766,402Due after one year through five years
    
    
    57,445,491
    
    
    
    58,400,399Due after five years through ten years
    
    
    12,604,036
    
    
    
    13,176,191Due after ten years
    
    
    3,858,567
    
    
    
    4,007,23577,624,943
    
    
    
    79,350,227Asset-backed securities
    
    
    82,943,924
    
    
    
    85,822,384Total available for sale investment securities
    
    $
    160,568,867
    
    
    $
    165,172,611
   Less than 12 months
    
    
    12 months or more
    
    
    
    
    
    
    TotalNumber ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Investment
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    LossesAt September 30, 2010Government sponsored
enterprises
    
    $
    998,697
    
    
    $
    (1,303
    )
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    998,697
    
    
    $
    (1,303
    )Obligations of states and
political subdivisions
    
    
    365,173
    
    
    
    (2,542
    )
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    365,173
    
    
    
    (2,542
    )$
    1,363,870
    
    
    $
    (3,845
    )
    
    $
    
    
    
    $
    
    
    
    
    3
    
    
    $
    1,363,870
    
    
    $
    (3,845
    )
 Less than 12 months
    
    
    12 months or more
    
    
    
    
    
    
    TotalNumber ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Investment
    
    
    Fair
    
    
    UnrealizedAt December 31, 2009
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    LossesGovernment sponsored
enterprises
    
    $
    5,943,819
    
    
    $
    (50,000
    )
    
    $
    
    
    
    $
    
    
    
    
    6
    
    
    $
    5,943,819
    
    
    
    (50,000
    )Asset-backed securities
    
    
    14,600,160
    
    
    
    (243,904
    )
    
    
    20,551
    
    
    
    (72
    )
    
    
    15
    
    
    
    14,620,711
    
    
    $
    (243,976
    )Obligations of states and
political subdivisions
    
    
    3,576,780
    
    
    
    (53,205
    )
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    3,576,780
    
    
    
    (53,205
    )$
    24,120,759
    
    
    $
    (347,109
    )
    
    $
    20,551
    
    
    $
    (72
    )
    
    
    35
    
    
    $
    24,141,310
    
    
    $
    (347,181
    )
   9




---



##### 



Intangible Assets
  September 30, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable intangible assets:Core deposit intangible
    
    $
    7,060,224
    
    
    $
    (5,964,689
    )
    
    $
    1,095,535
    
    
    $
    7,060,224
    
    
    $
    (5,556,238
    )
    
    $
    1,503,986Mortgage servicing rights
    
    
    2,880,735
    
    
    
    (681,848
    )
    
    
    2,198,887
    
    
    
    2,945,019
    
    
    
    (924,055
    )
    
    
    2,020,964Total amortizable intangible assets
    
    $
    9,940,959
    
    
    $
    (6,646,537
    )
    
    $
    3,294,422
    
    
    $
    10,005,243
    
    
    $
    (6,480,293
    )
    
    $
    3,524,950
  CoreDeposit
    
    
    MortgageIntangible
    
    
    ServicingAsset
    
    
    RightsBalance at December 31, 2009
    
    $
    1,503,986
    
    
    $
    2,020,964Additions
    
    
    
    
    
    
    772,880Amortization
    
    
    (408,451
    )
    
    
    (594,957
    )Balance at September 30, 2010
    
    $
    1,095,535
    
    
    $
    2,198,887
 Fair Value of Financial Instruments.
  CoreDeposit
    
    
    MortgageIntangible
    
    
    ServicingAsset
    
    
    Rights2010
    
    $
    118,026
    
    
    $
    440,0002011
    
    
    434,763
    
    
    
    477,0002012
    
    
    408,062
    
    
    
    363,0002013
    
    
    134,684
    
    
    
    277,0002014
    
    
    
    
    
    
    212,0002015
    
    
    
    
    
    
    162,000
 10




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Aggregate amortization expense
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Core deposit intangible asset
    
    $
    118,026
    
    
    $
    150,519
    
    
    $
    408,451
    
    
    $
    475,592Mortgage servicing rights
    
    
    307,981
    
    
    
    156,365
    
    
    
    594,957
    
    
    
    746,682
 Income Taxes
    Employee Benefit Plans
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Payroll taxes
    
    $
    257,947
    
    
    $
    246,232
    
    
    $
    863,587
    
    
    $
    855,230Medical plans
    
    
    372,789
    
    
    
    370,113
    
    
    
    1,171,144
    
    
    
    1,127,477401k match
    
    
    84,300
    
    
    
    81,045
    
    
    
    238,088
    
    
    
    227,902Pension plan
    
    
    216,298
    
    
    
    229,000
    
    
    
    648,895
    
    
    
    687,000Profit-sharing
    
    
    (72,468
    )
    
    
    99,000
    
    
    
    2
    
    
    
    233,350Other
    
    
    28,288
    
    
    
    28,906
    
    
    
    102,304
    
    
    
    81,538Total employee benefits
    
    $
    887,154
    
    
    $
    1,054,296
    
    
    $
    3,024,020
    
    
    $
    3,212,497
 11




---



##### 



Estimated
    
    
    Actual2010
    
    
    2009Service cost  benefits earned during the year
    
    $
    844,178
    
    
    $
    850,940Interest cost on projected benefit obligations
    
    
    556,047
    
    
    
    509,482Expected return on plan assets
    
    
    (613,659
    )
    
    
    (539,283
    )Amortization of prior service cost
    
    
    78,628
    
    
    
    78,628Amortization of net gains
    
    
    
    
    
    
    (9,075
    )Net periodic pension expense  Annual
    
    $
    865,194
    
    
    $
    890,692Pension
expense  three months ended September 30, (actual)
    
    $
    216,298
    
    
    $
    229,000Pension
expense  nine months ended September 30, (actual)
    
    $
    648,895
    
    
    $
    687,000
  Stock-Based Compensation
   WeightedWeighted
    
    
    Aggregate
    
    
    AverageAverage
    
    
    Intrinsic
    
    
    ContractualExercise
    
    
    Value
    
    
    TermOptions
    
    
    Price
    
    
    (000)
    
    
    (in years)Outstanding at January 1, 2010*
    
    
    286,948
    
    
    $
    24.11Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    Outstanding at September 30, 2010
    
    
    286,948
    
    
    $
    24.11
    
    
    $
    
    
    
    
    4.2Exercisable at September 30, 2010
    
    
    245,617
    
    
    $
    23.96
    
    
    $
    
    
    
    
    3.7
 
 *
    
    Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2010.  12




---



##### 



Comprehensive Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    1,422,202
    
    
    $
    1,906,778
    
    
    $
    2,698,436
    
    
    $
    4,167,697Other comprehensive income:Unrealized gain on securities:Unrealized gain on debt and equity
securities available-for-sale, net of tax
    
    
    249,006
    
    
    
    808,079
    
    
    
    1,394,275
    
    
    
    558,218Defined benefit pension plan:Amortization of prior service cost included in
net periodic pension cost, net of tax
    
    
    11,991
    
    
    
    12,052
    
    
    
    35,973
    
    
    
    36,142Total other comprehensive income
    
    
    260,997
    
    
    
    820,131
    
    
    
    1,430,248
    
    
    
    594,360Comprehensive income
    
    $
    1,683,199
    
    
    $
    2,726,909
    
    
    $
    4,128,684
    
    
    $
    4,762,057
 Preferred Stock
     13




---



##### 



Earnings per Share
   For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic income per common share:Net income
    
    $
    1,422,202
    
    
    $
    1,906,778
    
    
    $
    2,698,436
    
    
    $
    4,167,697Less:Preferred stock dividends
    
    
    378,187
    
    
    
    378,187
    
    
    
    1,130,360
    
    
    
    1,134,562Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119
    
    
    
    357,356
    
    
    
    357,356Net income available to
common shareholders
    
    $
    924,896
    
    
    $
    1,409,472
    
    
    $
    1,210,720
    
    
    $
    2,675,779Basic earnings per share
    
    $
    0.21
    
    
    $
    0.32
    
    
    $
    0.27
    
    
    $
    0.60Diluted earnings per common share:Net income
    
    $
    1,422,202
    
    
    $
    1,906,778
    
    
    $
    2,698,436
    
    
    $
    4,167,697Less:Preferred stock dividends
    
    
    378,187
    
    
    
    378,187
    
    
    
    1,130,360
    
    
    
    1,134,562Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119
    
    
    
    357,356
    
    
    
    357,356Net income available to
common shareholders
    
    $
    924,896
    
    
    $
    1,409,472
    
    
    $
    1,210,720
    
    
    $
    2,675,779Average shares outstanding
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033Effect of dilutive stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average shares outstanding including
dilutive stock options
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.32
    
    
    $
    0.27
    
    
    $
    0.60
   Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Anti-dilutive shares  option shares
    
    
    286,948
    
    
    
    286,948
    
    
    
    286,948
    
    
    
    286,948Anti-dilutive shares  warrant shares
    
    
    265,471
    
    
    
    265,471
    
    
    
    265,471
    
    
    
    265,471
 14




---



##### 



Fair Value Measurements
 Fair Value Measurements and Disclosures,
  Level 1  Inputs are unadjusted quoted prices for identical assets or liabilities in active
markets.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 our Companys best information and assumptions
that a market participant would consider.
    Valuation methods for instruments measured at fair value on a recurring basis
  Available-for-sale securities
  15




---



##### 



Fair Value MeasurementsAt September 30, 2010 UsingQuoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    September 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. treasury
    
    $
    1,040,234
    
    
    $
    
    
    
    $
    1,040,234
    
    
    $
    Government sponsored enterprises
    
    
    46,898,658
    
    
    
    
    
    
    
    46,898,658
    
    
    
    Asset-backed securities
    
    
    85,822,384
    
    
    
    
    
    
    
    85,822,384
    
    
    
    Obligations
of states and political
    subdivisions
    
    
    31,411,335
    
    
    
    
    
    
    
    31,411,335
    
    
    
    Total
    
    $
    165,172,611
    
    
    $
    
    
    
    $
    165,172,611
    
    
    $
    
 Fair Value MeasurementsAt December 31, 2009 UsingQuoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    December 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Government sponsored enterprises
    
    $
    44,380,798
    
    
    $
    
    
    
    $
    44,380,798
    
    
    $
    Asset-backed securities
    
    
    69,434,650
    
    
    
    
    
    
    
    69,434,650
    
    
    
    Obligations
of states and political subdivisions
    
    
    39,111,237
    
    
    
    
    
    
    
    39,111,237
    
    
    
    Total
    
    $
    152,926,685
    
    
    $
    
    
    
    $
    152,926,685
    
    
    $
    
 Valuation methods for instruments measured at fair value on a nonrecurring basis
  Impaired Loans
  Other Real Estate Owned and Repossessed Assets
  16




---



##### 



Fair Value MeasurementsAt September 30, 2010 UsingQuoted Prices
    
    
    
    
    
    
    
    
    
    
    Nine Monthsin Active
    
    
    
    
    
    
    
    
    
    
    EndedMarkets for
    
    
    Other
    
    
    Significant
    
    
    September 30,Fair Value
    
    
    Identical
    
    
    Observable
    
    
    Unobservable
    
    
    2010September 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    

    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses) *Impaired loans:Commercial
    
    $
    1,094,006
    
    
    $
    
    
    
    $
    
    
    
    $
    1,094,006
    
    
    $
    (1,355,716
    )Construction  residential
    
    
    1,859,653
    
    
    
    
    
    
    
    
    
    
    
    1,859,653
    
    
    
    (324,742
    )Construction  commercial
    
    
    14,372,565
    
    
    
    
    
    
    
    
    
    
    
    14,372,565
    
    
    
    (64,000
    )Real estate  residential
    
    
    5,129,696
    
    
    
    
    
    
    
    
    
    
    
    5,129,696
    
    
    
    (3,238,263
    )Real estate  commercial
    
    
    4,462,467
    
    
    
    
    
    
    
    
    
    
    
    4,462,467
    
    
    
    (2,188,893
    )Total
    
    $
    26,918,387
    
    
    $
    
    
    
    $
    
    
    
    
    26,918,387
    
    
    $
    (7,171,614
    )Other real estate owned
and repossessed assets
    
    $
    10,012,412
    
    
    $
    
    
    
    $
    
    
    
    $
    10,012,412
    
    
    $
    (3,002,454
    )
 
 *
    
    Total gains (losses) include charge offs, valuation write downs, and net losses taken on impaired loans and other
real estate owned during the periods reported. Fair Value MeasurementsAt December 31, 2009 UsingQuoted Prices
    
    
    
    
    
    
    
    
    
    
    Yearin Active
    
    
    
    
    
    
    
    
    
    
    EndedMarkets for
    
    
    Other
    
    
    Significant
    
    
    December 31,Fair Value
    
    
    Identical
    
    
    Observable
    
    
    Unobservable
    
    
    2009December 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses) *Impaired loans:Commercial
    
    $
    970,937
    
    
    $
    
    
    
    $
    
    
    
    $
    970,937
    
    
    $
    (1,043,465
    )Construction  residential
    
    
    1,776,267
    
    
    
    
    
    
    
    
    
    
    
    1,776,267
    
    
    
    (778,041
    )Construction  commercial
    
    
    272,106
    
    
    
    
    
    
    
    
    
    
    
    272,106
    
    
    
    (160,727
    )Real estate  residential
    
    
    7,104,961
    
    
    
    
    
    
    
    
    
    
    
    7,104,961
    
    
    
    (1,914,530
    )Real estate  commercial
    
    
    9,755,560
    
    
    
    
    
    
    
    
    
    
    
    9,755,560
    
    
    
    (323,522
    )Total
    
    $
    19,879,831
    
    
    $
    
    
    
    $
    
    
    
    
    19,879,831
    
    
    $
    (4,220,285
    )Other real estate owned
and repossessed assets
    
    $
    8,490,914
    
    
    $
    
    
    
    $
    
    
    
    $
    8,490,914
    
    
    $
    (1,367,207
    )
 
 *
    
    Total gains (losses) include charge offs, valuation write downs, and net losses taken on impaired loans and other
real estate owned during the periods reported.  Fair Value of Financial Instruments
  Loans
  17




---



##### 



Investment Securities
 Fair Value Measurement Investment Securities.
 Federal Funds Sold, Cash, and Due from Banks
  Mortgage Servicing Rights
  Accrued Interest Receivable and Payable
  Deposits
  Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury
  Other Borrowings
  18




---



##### 



September 30,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueAssets:Loans
    
    $
    919,502,615
    
    
    $
    925,518,000
    
    
    $
    976,817,458
    
    
    $
    984,305,000Investment in debt securities
    
    
    165,172,611
    
    
    
    165,172,611
    
    
    
    152,926,685
    
    
    
    152,926,685Federal fund sold and securities
purchased under agreements to resell
    
    
    125,820
    
    
    
    125,820
    
    
    
    89,752
    
    
    
    89,752Cash and due from banks
    
    
    52,099,695
    
    
    
    52,099,695
    
    
    
    24,575,943
    
    
    
    24,575,943Mortgage servicing rights
    
    
    2,198,887
    
    
    
    3,082,000
    
    
    
    2,020,964
    
    
    
    2,904,000Accrued interest receivable
    
    
    6,020,411
    
    
    
    6,020,411
    
    
    
    6,625,557
    
    
    
    6,625,557$
    1,145,120,039
    
    
    $
    1,152,018,537
    
    
    $
    1,163,056,359
    
    
    $
    1,171,426,937Liabilities:Deposits:Demand
    
    $
    143,143,196
    
    
    $
    143,143,196
    
    
    $
    135,017,639
    
    
    $
    135,017,639NOW
    
    
    148,709,953
    
    
    
    148,709,953
    
    
    
    139,623,577
    
    
    
    139,623,577Savings
    
    
    53,502,642
    
    
    
    53,502,642
    
    
    
    47,637,148
    
    
    
    47,637,148Money market
    
    
    161,704,012
    
    
    
    161,704,012
    
    
    
    167,023,279
    
    
    
    167,023,279Time
    
    
    443,514,151
    
    
    
    453,030,000
    
    
    
    467,021,154
    
    
    
    478,011,000Federal funds purchased and securities
sold under agreements to repurchase
    
    
    31,460,010
    
    
    
    31,460,010
    
    
    
    36,645,434
    
    
    
    36,645,434Subordinated notes
    
    
    49,486,000
    
    
    
    21,106,000
    
    
    
    49,486,000
    
    
    
    18,329,000Other borrowings
    
    
    67,168,047
    
    
    
    69,695,000
    
    
    
    79,317,302
    
    
    
    80,557,000Accrued interest payable
    
    
    1,344,701
    
    
    
    1,344,701
    
    
    
    2,438,121
    
    
    
    2,438,121$
    1,100,032,712
    
    
    $
    1,083,695,514
    
    
    $
    1,124,209,654
    
    
    $
    1,105,282,198
 19




---



##### 



Item 2 - Managements Discussion and Analysis of Financial Condition
And Results of Operations
 Forward-Looking Statements
  
    
    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 or similar expressions.
  
    
    competitive pressures among financial services companies may increase significantly,
    
    changes in the interest rate environment may reduce interest margins,
    
    general economic conditions, either nationally or in Missouri, may be less favorable than
expected and may adversely affect the quality of our loans and other assets,
    
    increases in non-performing assets in our loan portfolios and adverse economic conditions
may necessitate increases to our provisions for loan losses,
    
    costs or difficulties related to the integration of the business of our Company and its
acquisition targets may be greater than expected,
    
    legislative or regulatory changes may adversely affect the business in which our Company
and its subsidiaries are engaged, including those discussed below in the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, and
    
    changes may occur in the securities markets.
   Overview
  20




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses
  Income Taxes
  21




---



##### 



SELECTED CONSOLIDATED FINANCIAL DATA
  Selected Financial Data
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Per Share DataBasic earnings per common share
    
    $
    0.21
    
    
    $
    0.32
    
    
    $
    0.27
    
    
    $
    0.60Diluted earnings per common share
    
    
    0.21
    
    
    
    0.32
    
    
    
    0.27
    
    
    
    0.60Dividends paid on preferred stock
    
    
    378
    
    
    
    378
    
    
    
    1,130
    
    
    
    1,135Amortization of discount on preferred stock
    
    
    119
    
    
    
    119
    
    
    
    357
    
    
    
    357Dividends paid on common stock
    
    
    215
    
    
    
    455
    
    
    
    1,161
    
    
    
    2,192Book value per common share
    
    
    
    
    
    
    
    
    
    
    18.15
    
    
    
    17.94Market price common stock
    
    
    
    
    
    
    
    
    
    
    10.08
    
    
    
    9.75Selected Ratios(Based on average balance sheets)Return on average total assets
    
    
    0.46
    %
    
    
    0.60
    %
    
    
    0.29
    %
    
    
    0.44
    %Return on average common stockholders
equity
    
    
    4.52
    %
    
    
    7.03
    %
    
    
    2.01
    %
    
    
    4.51
    %Average common stockholders equity
to average total assets
    
    
    6.62
    %
    
    
    6.33
    %
    
    
    6.46
    %
    
    
    6.28
    %(Based on end-of-period data)Efficiency ratio (1)
    
    
    68.02
    %
    
    
    69.35
    %
    
    
    72.68
    %
    
    
    72.59
    %Period-end stockholders equity
to period-end assets
    
    
    
    
    
    
    
    
    
    
    6.68
    %
    
    
    6.47
    %Period-end common stockholders equity
to period-end assets
    
    
    
    
    
    
    
    
    
    
    9.05
    %
    
    
    8.75
    %Total risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    17.47
    
    
    
    16.50Tier 1 risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    14.94
    
    
    
    14.01Leverage ratio
    
    
    
    
    
    
    
    
    
    
    11.61
    
    
    
    11.24
 (1)
    
    Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total
revenue includes net interest and non-interest income. 22




---



##### 



Results of Operations
 Summary
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNet interest income
    
    $
    10,859
    
    
    $
    10,436
    
    
    $
    423
    
    
    
    4.1
    %
    
    $
    32,284
    
    
    $
    29,984
    
    
    $
    2,300
    
    
    
    7.7
    %Provision for loan losses
    
    
    2,450
    
    
    
    1,250
    
    
    
    1,200
    
    
    
    96.0
    
    
    
    7,105
    
    
    
    4,404
    
    
    
    2,701
    
    
    
    61.3Noninterest income
    
    
    2,910
    
    
    
    2,600
    
    
    
    310
    
    
    
    11.9
    
    
    
    7,366
    
    
    
    8,173
    
    
    
    (807
    )
    
    
    (9.9
    )Noninterest expense
    
    
    9,366
    
    
    
    9,040
    
    
    
    326
    
    
    
    3.6
    
    
    
    28,816
    
    
    
    27,696
    
    
    
    1,120
    
    
    
    4.0Income before
income taxes
    
    
    1,953
    
    
    
    2,746
    
    
    
    (793
    )
    
    
    (28.9
    )
    
    
    3,729
    
    
    
    6,057
    
    
    
    (2,328
    )
    
    
    (38.4
    )Income taxes
    
    
    531
    
    
    
    840
    
    
    
    (309
    )
    
    
    (36.8
    )
    
    
    1,031
    
    
    
    1,889
    
    
    
    (858
    )
    
    
    (45.4
    )Net income
    
    $
    1,422
    
    
    $
    1,906
    
    
    $
    (484
    )
    
    
    (25.4
    )%
    
    $
    2,698
    
    
    $
    4,168
    
    
    $
    (1,470
    )
    
    
    (35.3
    )%Less: preferred dividends
    
    
    378
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    1,130
    
    
    
    1,135Less: accretion of discount
on preferred stock
    
    
    119
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    357
    
    
    
    
    
    
    
    Net income available
to common shareholders
    
    $
    925
    
    
    $
    1,409
    
    
    $
    (484
    )
    
    
    (34.4
    )%
    
    $
    1,211
    
    
    $
    2,676
    
    
    $
    (1,465
    )
    
    
    (54.7
    )%
    Net Interest Income
  23




---



##### 



Average Balance Sheets
  Three Months Ended September 30,2010
    
    
    2009Interest
    
    
    Rate
    
    
    
    
    
    
    Interest
    
    
    RateAverage
    
    
    Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/(dollars in thousands)
    
    Balance
    
    
    Expense(1)
    
    
    Paid(1)
    
    
    Balance
    
    
    Expense(1)
    
    
    Paid(1)ASSETSLoans (2)(4)Commercial
    
    $
    136,613
    
    
    $
    1,929
    
    
    
    5.60
    %
    
    $
    149,059
    
    
    $
    2,040
    
    
    
    5.43
    %Real estate construction  residential
    
    
    38,374
    
    
    
    516
    
    
    
    5.33
    
    
    
    43,026
    
    
    
    488
    
    
    
    4.50Real estate construction  commercial
    
    
    76,356
    
    
    
    764
    
    
    
    3.97
    
    
    
    76,115
    
    
    
    838
    
    
    
    4.37Real estate mortgage  residential
    
    
    213,774
    
    
    
    3,174
    
    
    
    5.89
    
    
    
    277,626
    
    
    
    3,556
    
    
    
    5.08Real estate mortgage  commercial
    
    
    439,261
    
    
    
    6,266
    
    
    
    5.66
    
    
    
    421,172
    
    
    
    6,786
    
    
    
    6.39Consumer
    
    
    34,583
    
    
    
    615
    
    
    
    7.06
    
    
    
    35,254
    
    
    
    659
    
    
    
    7.42Investment in securities: (3)U.S. Treasury
    
    
    1,028
    
    
    
    5
    
    
    
    1.93
    
    
    
    
    
    
    
    
    
    
    
    Government sponsored enterprises
    
    
    49,311
    
    
    
    301
    
    
    
    2.42
    
    
    
    48,915
    
    
    
    469
    
    
    
    3.80Asset backed securities
    
    
    83,450
    
    
    
    742
    
    
    
    3.53
    
    
    
    65,858
    
    
    
    662
    
    
    
    3.99State and municipal
    
    
    31,489
    
    
    
    411
    
    
    
    5.18
    
    
    
    39,527
    
    
    
    536
    
    
    
    5.38Restricted investments
    
    
    6,310
    
    
    
    34
    
    
    
    2.14
    
    
    
    8,875
    
    
    
    54
    
    
    
    2.41Federal funds sold
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    36,223
    
    
    
    28
    
    
    
    0.31
    
    
    
    14,288
    
    
    
    11
    
    
    
    0.31Total interest earning assets
    
    
    1,146,955
    
    
    
    14,785
    
    
    
    5.11
    
    
    
    1,179,977
    
    
    
    16,099
    
    
    
    5.41All other assets
    
    
    92,794
    
    
    
    
    
    
    
    
    
    
    
    89,610Allowance for loan losses
    
    
    (12,654
    )
    
    
    
    
    
    
    
    
    
    
    (13,857
    )Total assets
    
    $
    1,227,095
    
    
    
    
    
    
    
    
    
    
    $
    1,255,730LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    163,142
    
    
    $
    226
    
    
    
    0.55
    %
    
    $
    138,149
    
    
    $
    268
    
    
    
    0.77
    %Savings
    
    
    53,128
    
    
    
    33
    
    
    
    0.25
    
    
    
    47,199
    
    
    
    35
    
    
    
    0.29Money market
    
    
    165,480
    
    
    
    253
    
    
    
    0.61
    
    
    
    178,719
    
    
    
    389
    
    
    
    0.86Time deposits of$100,000 and over
    
    
    127,889
    
    
    
    595
    
    
    
    1.85
    
    
    
    141,791
    
    
    
    950
    
    
    
    2.66Other time deposits
    
    
    318,075
    
    
    
    1,758
    
    
    
    2.19
    
    
    
    347,783
    
    
    
    2,532
    
    
    
    2.89Total time deposits
    
    
    827,714
    
    
    
    2,865
    
    
    
    1.37
    
    
    
    853,641
    
    
    
    4,174
    
    
    
    1.94Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    32,149
    
    
    
    20
    
    
    
    0.25
    
    
    
    36,416
    
    
    
    23
    
    
    
    0.25Subordinated notes
    
    
    49,486
    
    
    
    353
    
    
    
    2.83
    
    
    
    49,486
    
    
    
    589
    
    
    
    4.72Other borrowed money
    
    
    68,644
    
    
    
    528
    
    
    
    3.05
    
    
    
    71,603
    
    
    
    688
    
    
    
    3.81Total interest bearing liabilities
    
    
    977,993
    
    
    
    3,766
    
    
    
    1.53
    
    
    
    1,011,146
    
    
    
    5,474
    
    
    
    2.15Demand deposits
    
    
    133,196
    
    
    
    
    
    
    
    
    
    
    
    125,092Other liabilities
    
    
    6,028
    
    
    
    
    
    
    
    
    
    
    
    11,794Total liabilities
    
    
    1,117,217
    
    
    
    
    
    
    
    
    
    
    
    1,148,032Stockholders equity
    
    
    109,878
    
    
    
    
    
    
    
    
    
    
    
    107,698Total liabilities and
stockholders equity
    
    $
    1,227,095
    
    
    
    
    
    
    
    
    
    
    $
    1,255,730Net interest income (FTE)
    
    
    
    
    
    $
    11,019
    
    
    
    
    
    
    
    
    
    
    $
    10,625Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.58
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.81
    %
    
    
    
    
    
    
    
    
    
    
    3.57
    %
 (1)
    
    Interest income and yields are presented on a fully taxable equivalent basis using the
Federal statutory income tax rate of 35%, net of
nondeductible interest expense. Such adjustments totaled $161,000 and $189,000 for the three
months ended September 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Average balances based on amortized cost.(4)
    
    Fees and costs on loans are included in interest income. 24




---



##### 



Nine Months Ended September 30,2010
    
    
    2009Interest
    
    
    Rate
    
    
    
    
    
    
    Interest
    
    
    RateAverage
    
    
    Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/(dollars in thousands)
    
    Balance
    
    
    Expense(1)
    
    
    Paid(1)
    
    
    Balance
    
    
    Expense(1)
    
    
    Paid(1)ASSETSLoans (2)(4)Commercial
    
    $
    142,976
    
    
    $
    5,939
    
    
    
    5.55
    %
    
    $
    150,876
    
    
    $
    6,117
    
    
    
    5.42
    %Real estate construction  residential
    
    
    38,775
    
    
    
    1,530
    
    
    
    5.28
    
    
    
    35,592
    
    
    
    1,617
    
    
    
    6.07Real estate construction  commercial
    
    
    76,939
    
    
    
    2,195
    
    
    
    3.81
    
    
    
    59,862
    
    
    
    2,703
    
    
    
    6.04Real estate mortgage  residential
    
    
    225,074
    
    
    
    9,648
    
    
    
    5.73
    
    
    
    218,075
    
    
    
    10,756
    
    
    
    6.59Real estate mortgage  commercial
    
    
    440,990
    
    
    
    19,033
    
    
    
    5.77
    
    
    
    508,884
    
    
    
    20,274
    
    
    
    5.33Consumer
    
    
    35,611
    
    
    
    2,033
    
    
    
    7.63
    
    
    
    33,603
    
    
    
    1,937
    
    
    
    7.71Investment in securities: (3)U.S. Treasury
    
    
    705
    
    
    
    10
    
    
    
    1.90
    
    
    
    
    
    
    
    
    
    
    
    Government sponsored enterprises
    
    
    46,897
    
    
    
    946
    
    
    
    2.70
    
    
    
    49,133
    
    
    
    1,419
    
    
    
    3.86Asset backed securities
    
    
    81,807
    
    
    
    2,246
    
    
    
    3.67
    
    
    
    62,077
    
    
    
    1,947
    
    
    
    4.19State and municipal
    
    
    33,349
    
    
    
    1,344
    
    
    
    5.39
    
    
    
    39,725
    
    
    
    1,646
    
    
    
    5.54Restricted investments
    
    
    6,427
    
    
    
    119
    
    
    
    2.48
    
    
    
    8,875
    
    
    
    110
    
    
    
    1.66Federal funds sold
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    34,366
    
    
    
    64
    
    
    
    0.25
    
    
    
    20,551
    
    
    
    44
    
    
    
    0.29Total interest earning assets
    
    
    1,164,090
    
    
    
    45,107
    
    
    
    5.18
    
    
    
    1,187,561
    
    
    
    48,570
    
    
    
    5.47All other assets
    
    
    94,499
    
    
    
    
    
    
    
    
    
    
    
    89,073Allowance for loan losses
    
    
    (13,796
    )
    
    
    
    
    
    
    
    
    
    
    (13,303
    )Total assets
    
    $
    1,244,793
    
    
    
    
    
    
    
    
    
    
    $
    1,263,331LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    173,206
    
    
    $
    758
    
    
    
    0.59
    %
    
    $
    139,765
    
    
    $
    902
    
    
    
    0.86
    %Savings
    
    
    51,749
    
    
    
    97
    
    
    
    0.25
    
    
    
    45,912
    
    
    
    106
    
    
    
    0.31Money market
    
    
    167,867
    
    
    
    842
    
    
    
    0.67
    
    
    
    176,562
    
    
    
    1,382
    
    
    
    1.05Time deposits of$100,000 and over
    
    
    131,825
    
    
    
    1,957
    
    
    
    1.98
    
    
    
    140,658
    
    
    
    3,057
    
    
    
    2.91Other time deposits
    
    
    321,827
    
    
    
    5,607
    
    
    
    2.33
    
    
    
    357,403
    
    
    
    8,311
    
    
    
    3.11Total time deposits
    
    
    846,474
    
    
    
    9,261
    
    
    
    1.46
    
    
    
    860,300
    
    
    
    13,758
    
    
    
    2.14Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    32,963
    
    
    
    59
    
    
    
    0.24
    
    
    
    32,483
    
    
    
    64
    
    
    
    0.26Subordinated notes
    
    
    49,486
    
    
    
    1,201
    
    
    
    3.24
    
    
    
    49,486
    
    
    
    1,879
    
    
    
    5.08Other borrowed money
    
    
    71,586
    
    
    
    1,795
    
    
    
    3.35
    
    
    
    79,874
    
    
    
    2,320
    
    
    
    3.88Total interest bearing liabilities
    
    
    1,000,509
    
    
    
    12,316
    
    
    
    1.65
    
    
    
    1,022,143
    
    
    
    18,021
    
    
    
    2.36Demand deposits
    
    
    128,617
    
    
    
    
    
    
    
    
    
    
    
    123,206Other liabilities
    
    
    6,744
    
    
    
    
    
    
    
    
    
    
    
    10,606Total liabilities
    
    
    1,135,870
    
    
    
    
    
    
    
    
    
    
    
    1,155,955Stockholders equity
    
    
    108,923
    
    
    
    
    
    
    
    
    
    
    
    107,376Total liabilities and
stockholders equity
    
    $
    1,244,793
    
    
    
    
    
    
    
    
    
    
    $
    1,263,331Net interest income (FTE)
    
    
    
    
    
    $
    32,791
    
    
    
    
    
    
    
    
    
    
    $
    30,549Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.11
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.77
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %
 
 (1)
    
    Interest income and yields are presented on a fully taxable equivalent basis using the
Federal statutory income tax rate of 35%, net of
nondeductible interest expense. Such adjustments totaled $507,000 and $565,000 for the nine
months ended September 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Average balances based on amortized cost.(4)
    
    Fees and costs on loans are included in interest income. 25




---



##### 



Comparison of the three months ended September 30, 2010 and 2009
  Lending and Credit Management
 Three Months Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeAverage loans:Commercial
    
    $
    136,613
    
    
    $
    149,059
    
    
    $
    (12,446
    )
    
    
    (8.3)
    %Real estate construction  residential
    
    
    38,374
    
    
    
    43,026
    
    
    
    (4,652
    )
    
    
    (10.8
    )Real estate construction  commercial
    
    
    76,356
    
    
    
    76,115
    
    
    
    241
    
    
    
    0.3Real estate mortgage  residential
    
    
    213,774
    
    
    
    277,626
    
    
    
    (63,852
    )
    
    
    (23.0
    )Real estate mortgage  commercial
    
    
    439,261
    
    
    
    421,172
    
    
    
    18,089
    
    
    
    4.3Consumer
    
    
    34,583
    
    
    
    35,254
    
    
    
    (671
    )
    
    
    (1.9
    )Total
    
    $
    938,961
    
    
    $
    1,002,252
    
    
    $
    (63,291
    )
    
    
    (6.3)
    %
 Liquidity Management
  Comparison of the nine months ended September 30, 2010 and 2009
  26




---



##### 



Lending
and Credit Management
 Nine Months Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeAverage loans:Commercial
    
    $
    142,976
    
    
    $
    150,876
    
    
    $
    (7,900
    )
    
    
    (5.2)
    %Real estate construction  residential
    
    
    38,775
    
    
    
    35,592
    
    
    
    3,183
    
    
    
    8.9Real estate construction  commercial
    
    
    76,939
    
    
    
    59,862
    
    
    
    17,077
    
    
    
    28.5Real estate mortgage  residential
    
    
    225,074
    
    
    
    218,075
    
    
    
    6,999
    
    
    
    3.2Real estate mortgage  commercial
    
    
    440,990
    
    
    
    508,884
    
    
    
    (67,894
    )
    
    
    (13.3
    )Consumer
    
    
    35,611
    
    
    
    33,603
    
    
    
    2,008
    
    
    
    6.0Total
    
    $
    960,365
    
    
    $
    1,006,892
    
    
    $
    (46,527
    )
    
    
    (4.6)
    %
 Liquidity Management
  27




---



##### 



Rate and volume analysis
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010 vs. 2009
    
    
    2010 vs. 2009Change due to
    
    
    
    
    
    
    Change due toTotal
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average(Dollars In thousands)
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    RateInterest income on a fully
taxable equivalent basis:Loans: (1) (3)Commercial
    
    $
    (111
    )
    
    $
    (170
    )
    
    $
    59
    
    
    $
    (178
    )
    
    $
    (320
    )
    
    $
    142Real estate construction  residential
    
    
    28
    
    
    
    (57
    )
    
    
    85
    
    
    
    (87
    )
    
    
    137
    
    
    
    (224
    )Real estate construction  commercial
    
    
    (74
    )
    
    
    3
    
    
    
    (77
    )
    
    
    (508
    )
    
    
    647
    
    
    
    (1,155
    )Real estate mortgage  residential
    
    
    (382
    )
    
    
    (895
    )
    
    
    513
    
    
    
    (1,108
    )
    
    
    336
    
    
    
    (1,444
    )Real estate mortgage  commercial
    
    
    (520
    )
    
    
    282
    
    
    
    (802
    )
    
    
    (1,241
    )
    
    
    (2,844
    )
    
    
    1,603Consumer
    
    
    (44
    )
    
    
    (13
    )
    
    
    (31
    )
    
    
    96
    
    
    
    115
    
    
    
    (19
    )Investment securities:U.S. Treasury
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    10
    
    
    
    
    
    
    
    10Government sponsored entities
    
    
    (168
    )
    
    
    4
    
    
    
    (172
    )
    
    
    (473
    )
    
    
    (62
    )
    
    
    (411
    )Asset backed securities
    
    
    80
    
    
    
    163
    
    
    
    (83
    )
    
    
    299
    
    
    
    564
    
    
    
    (265
    )State and municipal(2)
    
    
    (125
    )
    
    
    (106
    )
    
    
    (19
    )
    
    
    (302
    )
    
    
    (258
    )
    
    
    (44
    )Restricted investments
    
    
    (20
    )
    
    
    (15
    )
    
    
    (5
    )
    
    
    9
    
    
    
    (35
    )
    
    
    44Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    17
    
    
    
    17
    
    
    
    
    
    
    
    20
    
    
    
    27
    
    
    
    (7
    )Total interest income
    
    
    (1,314
    )
    
    
    (787
    )
    
    
    (527
    )
    
    
    (3,463
    )
    
    
    (1,693
    )
    
    
    (1,770
    )Interest expense:NOW accounts
    
    
    (42
    )
    
    
    43
    
    
    
    (85
    )
    
    
    (144
    )
    
    
    186
    
    
    
    (330
    )Savings
    
    
    (2
    )
    
    
    4
    
    
    
    (6
    )
    
    
    (9
    )
    
    
    12
    
    
    
    (21
    )Money market
    
    
    (136
    )
    
    
    (27
    )
    
    
    (109
    )
    
    
    (540
    )
    
    
    (65
    )
    
    
    (475
    )Time deposits of 100,000 and over
    
    
    (355
    )
    
    
    (86
    )
    
    
    (269
    )
    
    
    (1,100
    )
    
    
    (182
    )
    
    
    (918
    )Other time deposits
    
    
    (774
    )
    
    
    (202
    )
    
    
    (572
    )
    
    
    (2,704
    )
    
    
    (768
    )
    
    
    (1,936
    )Federal funds purchased and
securities sold under agreements to repurchase
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    (5
    )
    
    
    1
    
    
    
    (6
    )Subordinated notes
    
    
    (236
    )
    
    
    
    
    
    
    (236
    )
    
    
    (678
    )
    
    
    
    
    
    
    (678
    )Other borrowed money
    
    
    (160
    )
    
    
    (27
    )
    
    
    (133
    )
    
    
    (525
    )
    
    
    (227
    )
    
    
    (298
    )Total interest expense
    
    
    (1,708
    )
    
    
    (298
    )
    
    
    (1,410
    )
    
    
    (5,705
    )
    
    
    (1,043
    )
    
    
    (4,662
    )Net interest income on a fully
taxable equivalent basis
    
    $
    394
    
    
    $
    (489
    )
    
    $
    883
    
    
    $
    2,242
    
    
    $
    (650
    )
    
    $
    2,892
 (1)
    
    Interest income and yields are presented on a fully taxable equivalent basis using the
Federal statutory income tax rate of 35%, net of
nondeductible interest expense. Such adjustments totaled $161,000 and $507,000, and $189,000
and $565,000 for the three and nine months ended September 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Fees and costs on loans are included in interest income.  28




---



##### 



Non-interest Income and Expense
 Non-interest income
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNon-interest IncomeService charges on deposit
    
    $
    1,427
    
    
    $
    1,547
    
    
    $
    (120
    )
    
    
    (7.8
    )%
    
    
    $4,150
    
    
    $
    4,380
    
    
    $
    (230
    )
    
    
    (5.3)
    %Trust department income
    
    
    187
    
    
    
    238
    
    
    
    (51
    )
    
    
    (21.4
    )
    
    
    567
    
    
    
    624
    
    
    
    (57
    )
    
    
    (9.1
    )Gain on sales of mortgage loans
    
    
    1,011
    
    
    
    489
    
    
    
    522
    
    
    
    106.7
    
    
    
    1,533
    
    
    
    2,437
    
    
    
    (904
    )
    
    
    (37.1
    )Other
    
    
    285
    
    
    
    326
    
    
    
    (41
    )
    
    
    (12.6
    )
    
    
    1,116
    
    
    
    732
    
    
    
    384
    
    
    
    52.5Total non-interest income
    
    $
    2,910
    
    
    $
    2,600
    
    
    $
    310
    
    
    
    11.9
    %
    
    $
    7,366
    
    
    $
    8,173
    
    
    $
    (807
    )
    
    
    (9.9)
    %Non-interest income as a
% of total revenue*
    
    
    21.1
    %
    
    
    19.9
    %
    
    
    
    
    
    
    
    
    
    
    18.6
    %
    
    
    21.4
    %Total revenue per full time
equivalent employee
    
    $
    40.1
    
    
    $
    37.9
    
    
    
    
    
    
    
    
    
    
    $
    115.6
    
    
    $
    110.9
 *
    
    Total revenue is calculated as net interest income plus non-interest income Three Months Ended September 30, 2010 and 2009
  Nine Months Ended September 30, 2010 and 2009
  29




---



##### 



Non-interest expense
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNon-interest ExpenseSalary expense
    
    $
    3,369
    
    
    $
    3,400
    
    
    $
    (31
    )
    
    
    (0.9
    )%
    
    $
    10,440
    
    
    $
    10,191
    
    
    $
    249
    
    
    
    2.4
    %Employee benefits
    
    
    887
    
    
    
    1,054
    
    
    
    (167
    )
    
    
    (15.8
    )
    
    
    3,024
    
    
    
    3,213
    
    
    
    (189
    )
    
    
    (5.9
    )Occupancy expense, net
    
    
    655
    
    
    
    600
    
    
    
    55
    
    
    
    9.2
    
    
    
    1,881
    
    
    
    1,763
    
    
    
    118
    
    
    
    6.7Furniture and equipment expense
    
    
    473
    
    
    
    507
    
    
    
    (34
    )
    
    
    (6.7
    )
    
    
    1,499
    
    
    
    1,794
    
    
    
    (295
    )
    
    
    (16.4
    )FDIC insurance assessment
    
    
    443
    
    
    
    422
    
    
    
    21
    
    
    
    5.0
    
    
    
    1,288
    
    
    
    2,086
    
    
    
    (798
    )
    
    
    (38.3
    )Legal, examination, and professional fees
    
    
    349
    
    
    
    312
    
    
    
    37
    
    
    
    11.9
    
    
    
    932
    
    
    
    985
    
    
    
    (53
    )
    
    
    (5.4
    )Advertising and promotion
    
    
    311
    
    
    
    301
    
    
    
    10
    
    
    
    3.3
    
    
    
    886
    
    
    
    901
    
    
    
    (15
    )
    
    
    (1.7
    )Postage, printing, and supplies
    
    
    300
    
    
    
    271
    
    
    
    29
    
    
    
    10.7
    
    
    
    875
    
    
    
    834
    
    
    
    41
    
    
    
    4.9Processing expense
    
    
    854
    
    
    
    845
    
    
    
    9
    
    
    
    1.1
    
    
    
    2,561
    
    
    
    2,538
    
    
    
    23
    
    
    
    0.9Other real estate expense
    
    
    882
    
    
    
    240
    
    
    
    642
    
    
    
    267.5
    
    
    
    2,895
    
    
    
    575
    
    
    
    2,320
    
    
    
    403.5Other
    
    
    843
    
    
    
    1,088
    
    
    
    (245
    )
    
    
    (22.5
    )
    
    
    2,535
    
    
    
    2,816
    
    
    
    (281
    )
    
    
    (10.0
    )Total non-interest expense
    
    $
    9,366
    
    
    $
    9,040
    
    
    $
    326
    
    
    
    3.6
    %
    
    $
    28,816
    
    
    $
    27,696
    
    
    $
    1,120
    
    
    
    4.0
    %Efficiency ratio
    
    
    68.0
    %
    
    
    69.3
    %
    
    
    
    
    
    
    
    
    
    
    72.7
    %
    
    
    72.6
    %Salaries and benefits as a % of total non-interest expense
    
    
    45.4
    %
    
    
    49.3
    %
    
    
    
    
    
    
    
    
    
    
    46.7
    %
    
    
    48.4
    %Number of full-time equivalent employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343
    
    
    
    344
 Three Months Ended September 30, 2010 and 2009
  Nine Months Ended September 30, 2010 and 2009
  Income Taxes
  30




---



##### 



Lending and Credit Management
    September 30,
    
    
    December 31,(In thousands)
    
    2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %Commercial, financial, and agricultural
    
    $
    132,920
    
    
    
    14.2
    %
    
    $
    151,399
    
    
    
    15.3
    %Real estate construction  residential
    
    
    38,229
    
    
    
    4.1
    
    
    
    38,841
    
    
    
    3.9Real estate construction  commercial
    
    
    76,587
    
    
    
    8.2
    
    
    
    77,937
    
    
    
    7.9Real estate mortgage  residential
    
    
    217,802
    
    
    
    23.3
    
    
    
    232,332
    
    
    
    23.4Real estate mortgage  commercial
    
    
    433,930
    
    
    
    46.5
    
    
    
    453,975
    
    
    
    45.8Installment loans to individuals
    
    
    33,822
    
    
    
    3.6
    
    
    
    36,966
    
    
    
    3.7Deferred fees
    
    
    166
    
    
    
    0.0
    
    
    
    164
    
    
    
    0.0Total loans
    
    $
    933,456
    
    
    
    100.0
    %
    
    $
    991,614
    
    
    
    100.0
    %
    31




---



##### 



Accounting by Creditors for
Impairment of a Loan,
 Provision and Allowance for Loan Losses
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(Dollars in thousands)
    
    2010
    


    2009
    
    
    2010
    

    
    2009Provision for loan losses
    
    $
    2,450
    
    
    $
    1,250
    
    
    $
    7,105
    
    
    $
    4,404Net loan charge-offs:Commercial, financial, and agricultural
    
    
    333
    
    
    
    157
    
    
    
    1,437
    
    
    
    417Real estate construction  residential
    
    
    (1
    )
    
    
    427
    
    
    
    258
    
    
    
    988Real estate construction  commercial
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    289Real estate mortgage  residential
    
    
    306
    
    
    
    256
    
    
    
    3,625
    
    
    
    948Real estate mortgage  commercial
    
    
    37
    
    
    
    115
    
    
    
    2,374
    
    
    
    321Installment loans to individuals
    
    
    53
    
    
    
    72
    
    
    
    153
    
    
    
    180Total net loan charge-offs
    
    $
    728
    
    
    $
    1,027
    
    
    $
    7,948
    
    
    $
    3,143
  32




---



##### 



September 30,
    
    
    December 31,(Dollars in thousands)
    
    2010
    
    
    2009Nonaccrual loans:Commercial, financial, and agricultural
    
    $
    1,854
    
    
    $
    2,067Real estate construction  residential
    
    
    3,086
    
    
    
    2,678Real estate construction  commercial
    
    
    22,580
    
    
    
    9,277Real estate mortgage  residential
    
    
    6,457
    
    
    
    6,692Real estate mortgage  commercial
    
    
    15,769
    
    
    
    13,161Installment loans to individuals
    
    
    101
    
    
    
    279Total nonaccrual loans
    
    
    49,847
    
    
    
    34,154Loans contractually past  due 90 days
or more and still accruing:Commercial, financial, and agricultural
    
    
    
    
    
    
    2Real estate mortgage  residential
    
    
    73
    
    
    
    Installment loans to individuals
    
    
    1
    
    
    
    Total loans contractually past -due
90 days or more and still accruing
    
    
    74
    
    
    
    2Troubled debt restructured loans
    
    
    15,958
    
    
    
    8,191Total nonperforming loans
    
    
    65,879
    
    
    
    42,347Other real estate and repossessions
    
    
    10,012
    
    
    
    8,491Total nonperforming assets
    
    $
    75,891
    
    
    $
    50,838Loans
    
    $
    933,456
    
    
    $
    991,614Allowance for loan losses to loans
    
    
    1.49
    %
    
    
    1.49
    %Nonperforming loans to loans
    
    
    7.06
    %
    
    
    4.27
    %Allowance for loan losses to nonperforming loans
    
    
    21.18
    %
    
    
    34.94
    %Nonperforming assets to loans and foreclosed assets
    
    
    8.04
    %
    
    
    5.08
    %
    33




---



##### 



34




---



##### 



September 30,
    
    
    December 31,(Dollars in thousands)
    
    2010
    
    
    2009Allocation of allowance for
loan losses at end of period:Commercial, financial, and agricultural
    
    $
    2,123
    
    
    $
    2,773Real estate construction  residential
    
    
    995
    
    
    
    348Real estate construction  commercial
    
    
    3,875
    
    
    
    1,740Real estate mortgage  residential
    
    
    2,700
    
    
    
    3,488Real estate mortgage  commercial
    
    
    3,259
    
    
    
    4,693Installment loans to individuals
    
    
    262
    
    
    
    380Unallocated
    
    
    740
    
    
    
    1,375Total
    
    $
    13,954
    
    
    $
    14,797
   Financial Condition
     35




---



##### 



Liquidity and Capital Resources
 Liquidity Management
    September 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Liquid assets:Federal funds sold
    
    $
    126
    
    
    $
    90Federal Reserve  excess reserves
    
    
    34,680
    
    
    
    2,216Available for sale investments securities
    
    
    165,173
    
    
    
    152,927Total
    
    $
    199,979
    
    
    $
    155,233
  36




---



##### 



September 30,(dollars in thousands)
    
    2010Investment securities pledged for the purpose of securing:Federal Reserve Bank borrowings
    
    $
    3,306Repurchase agreements
    
    
    40,589Other Deposits
    
    
    97,578Total pledged, at fair value
    
    $
    141,473
   September 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Core deposit base:Non-interest bearing demand
    
    $
    143,143
    
    
    $
    135,018Interest checking
    
    
    148,710
    
    
    
    139,624Savings and money market
    
    
    215,207
    
    
    
    214,660Total
    
    $
    507,060
    
    
    $
    489,302
  September 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Borrowings:Federal funds purchased
    
    $
    
    
    
    $
    4,980Securities sold under agreements to repurchase
    
    
    31,460
    
    
    
    31,665FHLB advances
    
    
    67,168
    
    
    
    79,317Subordinated notes
    
    
    49,486
    
    
    
    49,486Total
    
    $
    148,114
    
    
    $
    165,448
  37




---



##### 



September 30, 2010(dollars in thousands)
    
    FHLB
    
    
    Federal Reserve
    
    
    OtherCollateral value pledged
    
    
    $273,909
    
    
    $
    3,306
    
    
    $
    7,573Letters of Credit
    
    
    (96
    )Advances outstanding
    
    
    (67,168
    )
    
    
    
    
    
    
    Total
    
    $
    206,645
    
    
    $
    3,306
    
    
    $
    7,573
 Sources and Uses of Funds
     38




---



##### 



Regulatory Capital
    Minimum
    
    
    Well-CapitalizedActual
    
    
    Capital requirements
    
    
    Capital RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioSeptember 30, 2010Total capital (to risk-weighted assets):Company
    
    $
    166,430
    
    
    
    17.47
    %
    
    $
    76,233
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    137,113
    
    
    
    14.64
    
    
    
    74,908
    
    
    
    8.00
    
    
    $
    93,635
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets):Company
    
    $
    142,343
    
    
    
    14.94
    
    
    $
    38,117
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    125,387
    
    
    
    13.39
    
    
    
    37,454
    
    
    
    4.00
    
    
    $
    56,181
    
    
    
    6.00
    %Tier I capital (to adjusted average assets):Company
    
    $
    142,343
    
    
    
    11.61
    
    
    $
    36,769
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    125,387
    
    
    
    10.42
    
    
    
    36,089
    
    
    
    3.00
    
    
    $
    60,148
    
    
    
    5.00
    %
 Minimum
    
    
    Well-CapitalizedActual
    
    
    Capital requirements
    
    
    Capital RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2009Total capital (to risk-weighted assets):Company
    
    $
    165,969
    
    
    
    16.49
    %
    
    $
    80,502
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    134,673
    
    
    
    13.62
    
    
    
    79,129
    
    
    
    8.00
    
    
    $
    98,911
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets):Company
    
    $
    140,974
    
    
    
    14.01
    
    
    $
    40,251
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    122,285
    
    
    
    12.36
    
    
    
    39,564
    
    
    
    4.00
    
    
    $
    59,347
    
    
    
    6.00
    %Tier I capital (to adjusted average assets):Company
    
    $
    140,974
    
    
    
    11.35
    
    
    $
    37,254
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    122,285
    
    
    
    10.04
    
    
    
    36,556
    
    
    
    3.00
    
    
    $
    60,926
    
    
    
    5.00
    %
 39




---



##### 



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
   Over5 years orno stated(Dollars in thousands)
    
    Year 1
    
    
    Year 2
    
    
    Year 3
    
    
    Year 4
    
    
    Year 5
    
    
    Maturity
    
    
    TotalASSETSInvestment securities
    
    $
    4,065
    
    
    $
    3,349
    
    
    $
    12,621
    
    
    $
    21,432
    
    
    $
    19,714
    
    
    $
    103,992
    
    
    $
    165,173Interest-bearing deposits
    
    
    35,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,209Other restricted investments
    
    
    6,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,150Federal funds sold and securities
purchased under agreements to resell
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126Loans
    
    
    479,656
    
    
    
    183,927
    
    
    
    177,327
    
    
    
    44,055
    
    
    
    15,188
    
    
    
    33,303
    
    
    
    933,456Total
    
    $
    525,206
    
    
    $
    187,276
    
    
    $
    189,948
    
    
    $
    65,487
    
    
    $
    34,902
    
    
    $
    137,295
    
    
    $
    1,140,114LIABILITIESSavings, Now deposits
    
    $
    
    
    
    $
    
    
    
    $
    141,499
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    141,499Rewards checking, Super Now,
money market deposits
    
    
    222,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222,871Time deposits
    
    
    325,525
    
    
    
    58,962
    
    
    
    48,382
    
    
    
    4,359
    
    
    
    5,833
    
    
    
    
    
    
    
    443,061Federal funds purchased and securities
sold under agreements to repurchase
    
    
    31,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,460Subordinated notes
    
    
    49,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,486Other borrowed money
    
    
    48,683
    
    
    
    293
    
    
    
    18,190
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    67,168Total
    
    $
    678,025
    
    
    $
    59,255
    
    
    $
    208,071
    
    
    $
    4,361
    
    
    $
    5,833
    
    
    $
    
    
    
    $
    955,545Interest-sensitivity GAPPeriodic GAP
    
    $
    (152,819
    )
    
    $
    128,021
    
    
    $
    (18,123
    )
    
    $
    61,126
    
    
    $
    29,069
    
    
    $
    137,295
    
    
    $
    184,569Cumulative GAP
    
    $
    (152,819
    )
    
    $
    (24,798
    )
    
    $
    (42,921
    )
    
    $
    18,205
    
    
    $
    47,274
    
    
    $
    184,569
    
    
    $
    184,569Ratio of interest-earnings
assets to interest-bearing liabilitiesPeriodic GAP
    
    
    0.77
    
    
    
    3.16
    
    
    
    0.91
    
    
    
    15.02
    
    
    
    5.98
    
    
    NM
    
    
    
    1.19Cumulative GAP
    
    
    0.77
    
    
    
    0.97
    
    
    
    0.95
    
    
    
    1.02
    
    
    
    1.05
    
    
    
    1.19
    
    
    
    1.19
 40




---



##### 



Item 4.
    
    Controls and Procedures
   Impact of New Accounting Standards
 Fair Value Measurements and Disclosures.
 Consolidation.
 Receivables (ASC Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.
 Subsequent Events Subsequent Events Subsequent Events Subsequent Events Amendments to Certain Recognition and Disclosure Requirements
 41




---



##### 



Transfers and Servicing
 42




---



##### 



PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
    
    NoneItem 1A. Risk Factors
    
    NoneItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    NoneItem 3. Defaults Upon Senior Securities
    
    NoneItem 4. (Removed and Reserved)
    
    NoneItem 5. Other Information
    
    NoneItem 6. Exhibits
 Exhibit No.
    
    Description3.1
    
    Restated Articles of Incorporation of our Company (filed as
Exhibit 3.1 to our Companys current report on Form 8-K on
August 9, 2007 and incorporated herein by reference).3.1.1
    
    Certificate of Designations of Fixed Rate Cumulative Perpetual
Preferred Stock, Series 2008, dated December 17, 2008 (filed
as Exhibit 3.1.1 to our Companys current report on Form 8-K
on December 23, 2008 and incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of our Company (filed as Exhibit
3.1 to our Companys current report on Form 8-K on June 8,
2009 and incorporated herein by reference).4.1
    
    Specimen certificate representing shares of our
Companys $1.00 par value common stock (filed as Exhibit 4.1
to our Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (Commission file number 0-23636)
and incorporated herein by reference).4.2
    
    Specimen certificate representing shares of our Fixed Rate
Cumulative Perpetual Preferred Stock, Series 2008 (filed as
Exhibit 4.2 to our Companys current report on Form 8-K on
December 23, 2008 and incorporated herein by reference).4.3
    
    Warrant to purchase shares of our Companys $1.00 par value
Common Stock, dated December 19, 2008 (filed as Exhibit 4.3 to
our Companys current report on Form 8-K on December 23, 2008
and incorporated herein by reference).31.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 43




---



##### 



SIGNATURES
  HAWTHORN BANCSHARES, INC.Date/s/ James E. SmithNovember 9, 2010
    
    James E. Smith, Chairman of the Boardand Chief Executive Officer (Principal Executive Officer)/s/ Richard G. RoseNovember 9, 2010
    
    Richard G. Rose, Chief Financial Officer (Principal FinancialOfficer and Principal Accounting Officer)
 44




---



##### 



HAWTHORN BANCSHARES, INC.
   Exhibit No.
    
    Description
    
    
    Page No.3.1
    
    Restated Articles of Incorporation of our
Company (filed as Exhibit 3.1 to our Companys
current report on Form 8-K on August 9, 2007 and
incorporated herein by reference).
    
    
    **3.1.1
    
    Certificate of Designations of Fixed Rate
Cumulative Perpetual Preferred Stock, Series
2008, dated December 17, 2008 (filed as Exhibit
3.1.1 to our Companys current report on Form
8-K on December 23, 2008 and incorporated herein
by reference).
    
    
    **3.2
    
    Amended and Restated Bylaws of our Company
(filed as Exhibit 3.1 to our Companys current
report on Form 8-K on June 8, 2009 and
incorporated herein by reference).
    
    
    **4.1
    
    Specimen certificate representing shares of our
Companys $1.00 par value common stock (filed as
Exhibit 4.1 to our Companys Annual Report on
Form 10-K for the fiscal year ended December 31,
1999 (Commission file number 0-23636) and
incorporated herein by reference).
    
    
    **4.2
    
    Specimen certificate representing shares of our
Fixed Rate Cumulative Perpetual Preferred Stock,
Series 2008 (filed as Exhibit 4.2 to our
Companys current report on Form 8-K on December
23, 2008 and incorporated herein by reference).
    
    
    **4.3
    
    Warrant to purchase shares of our Companys
$1.00 par value Common Stock, dated December 19,
2008 (filed as Exhibit 4.3 to our Companys
current report on Form 8-K on December 23, 2008
and incorporated herein by reference).
    
    
    **31.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    4631.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    4732.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    4832.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    49
 
 **
    
    Incorporated by reference. 45