##### Table of Contents



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 March 31, 2011
 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
(Former name, former address and former fiscal year, if changed since last report.)
 þ o
 o o
  Large
accelerated
filer oAccelerated
filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company 
o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. (Removed and Reserved)Item 5. Other InformationItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITSEX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
  
 Item 1. Financial Statements
 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
 March 31,
    
    December 31,2011
    
    2010ASSETSLoans
    
    $
    874,481,187
    
    
    $
    898,472,463Allowances for loan losses
    
    
    (12,402,110
    )
    
    
    (14,564,867
    )Net loans
    
    
    862,079,077
    
    
    
    883,907,596Investment in available-for-sale securities, at fair value
    
    
    217,542,201
    
    
    
    178,977,550Federal funds sold and securities purchased under agreements to resell
    
    
    142,111
    
    
    
    125,815Cash and due from banks
    
    
    37,887,136
    
    
    
    50,853,985Premises and equipment  net
    
    
    36,953,833
    
    
    
    36,980,503Other real estate owned and repossessed assets  net
    
    
    15,425,721
    
    
    
    14,009,017Accrued interest receivable
    
    
    5,648,193
    
    
    
    5,733,684Mortgage servicing rights
    
    
    2,327,929
    
    
    
    2,355,990Intangible assets  net
    
    
    859,483
    
    
    
    977,509Cash surrender value  life insurance
    
    
    2,023,088
    
    
    
    2,001,965Other assets
    
    
    23,658,468
    
    
    
    24,248,590Total assets
    
    $
    1,204,547,240
    
    
    $
    1,200,172,204LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing demand
    
    $
    142,194,780
    
    
    $
    137,749,571Savings, interest checking and money market
    
    
    401,326,674
    
    
    
    379,137,539Time deposits $100,000 and over
    
    
    121,960,867
    
    
    
    124,566,760Other time deposits
    
    
    300,543,398
    
    
    
    305,208,786Total deposits
    
    
    966,025,719
    
    
    
    946,662,656Federal funds purchased and securities sold
under agreements to repurchase
    
    
    29,045,521
    
    
    
    30,068,453Subordinated notes
    
    
    49,486,000
    
    
    
    49,486,000Other borrowed money
    
    
    51,821,482
    
    
    
    66,985,978Accrued interest payable
    
    
    1,604,609
    
    
    
    1,491,503Other liabilities
    
    
    4,618,355
    
    
    
    3,989,303Total liabilities
    
    
    1,102,601,686
    
    
    
    1,098,683,893Stockholders equity:Preferred stock, $1,000 par valueAuthorized and issued 30,255 shares
    
    
    28,960,361
    
    
    
    28,841,242Common stock, $1 par valueAuthorized 15,000,000 shares; issued 4,635,891 shares
    
    
    4,635,891
    
    
    
    4,635,891Surplus
    
    
    28,950,345
    
    
    
    28,928,545Retained earnings
    
    
    42,089,899
    
    
    
    41,857,302Accumulated other comprehensive income, net of tax
    
    
    825,876
    
    
    
    742,149Treasury stock; 161,858 shares, at cost
    
    
    (3,516,818
    )
    
    
    (3,516,818
    )Total stockholders equity
    
    
    101,945,554
    
    
    
    101,488,311Total liabilities and stockholders equity
    
    $
    1,204,547,240
    
    
    $
    1,200,172,204
  2




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##### Table of Contents



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
 For the Three Months EndedMarch 31,2011
    
    2010INTEREST INCOMEInterest and fees on loans
    
    $
    12,087,642
    
    
    $
    13,418,476Interest on debt securities:Taxable
    
    
    1,154,896
    
    
    
    1,063,979Nontaxable
    
    
    275,808
    
    
    
    326,202Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    37
    
    
    
    36Interest on interest-bearing deposits
    
    
    20,593
    
    
    
    13,631Dividends on other securities
    
    
    43,700
    
    
    
    50,697Total interest income
    
    
    13,582,676
    
    
    
    14,873,021INTEREST EXPENSEInterest on deposits:Savings, interest checking and money market
    
    
    483,691
    
    
    
    630,753Time deposit accounts $100,000 and over
    
    
    463,172
    
    
    
    711,382Other time deposit accounts
    
    
    1,422,802
    
    
    
    1,998,651Interest on federal funds purchased and securities sold
under agreements to repurchase
    
    
    13,355
    
    
    
    20,540Interest on subordinated notes
    
    
    319,951
    
    
    
    524,300Interest on other borrowed money
    
    
    399,169
    
    
    
    676,361Total interest expense
    
    
    3,102,140
    
    
    
    4,561,987Net interest income
    
    
    10,480,536
    
    
    
    10,311,034Provision for loan losses
    
    
    1,750,002
    
    
    
    2,505,000Net interest income after provision for loan losses
    
    
    8,730,534
    
    
    
    7,806,034NON-INTEREST INCOMEService charges on deposit accounts
    
    
    1,310,491
    
    
    
    1,296,088Trust department income
    
    
    195,095
    
    
    
    178,862Gain on sale of mortgage loans, net
    
    
    246,234
    
    
    
    224,573Other
    
    
    300,260
    
    
    
    305,933Total non-interest income
    
    
    2,052,080
    
    
    
    2,005,456NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,677,073
    
    
    
    4,657,121Occupancy expense, net
    
    
    638,364
    
    
    
    621,672Furniture and equipment expense
    
    
    506,679
    
    
    
    492,039FDIC insurance assessment
    
    
    478,747
    
    
    
    410,178Legal, examination, and professional fees
    
    
    490,504
    
    
    
    247,290Advertising and promotion
    
    
    232,175
    
    
    
    278,189Postage, printing, and supplies
    
    
    268,707
    
    
    
    288,166Processing expense
    
    
    822,077
    
    
    
    850,365Other real estate expense
    
    
    492,433
    
    
    
    506,455Other
    
    
    770,965
    
    
    
    779,271Total non-interest expense
    
    
    9,377,724
    
    
    
    9,130,746Income before income taxes
    
    
    1,404,890
    
    
    
    680,744Income tax expense
    
    
    451,273
    
    
    
    186,976Net income
    
    
    953,617
    
    
    
    493,768Preferred stock dividends
    
    
    369,783
    
    
    
    369,783Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119Net income available to common shareholders
    
    $
    464,715
    
    
    $
    4,866Basic earnings per share
    
    $
    0.10
    
    
    $
    Diluted earnings per share
    
    $
    0.10
    
    
    $
    
  3




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##### Table of Contents



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity and Comprehensive Income (unaudited)
 Accumulated
    
    
    
    
    
    
    TotalOther
    
    
    
    
    
    
    Stock Preferred
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    holdersStock
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income
    
    
    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 loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,551,740
    )
    
    
    
    
    
    
    
    
    
    
    (3,551,740
    )Change in unrealized gain (loss) on securities:Unrealized loss on debt securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (389,428
    )
    
    
    
    
    
    
    (389,428
    )Defined benefit pension plans:Net gain arising during the year, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,388
    
    
    
    
    
    
    
    171,388Amortization of prior service cost included
in net periodic pension cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,965
    
    
    
    
    
    
    
    47,965Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (170,075
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,721,815
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    87,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,310Accretion of preferred stock discount
    
    
    476,474
    
    
    
    
    
    
    
    
    
    
    
    (476,474
    )
    
    
    
    
    
    
    
    
    
    
    Stock dividend
    
    
    
    
    
    
    172,078
    
    
    
    1,870,490
    
    
    
    (2,042,568
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,512,750
    )
    
    
    
    
    
    
    
    
    
    
    (1,512,750
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,135,717
    )
    
    
    
    
    
    
    
    
    
    
    (1,135,717
    )Balance, December 31, 2010
    
    $
    28,841,242
    
    
    $
    4,635,891
    
    
    $
    28,928,545
    
    
    $
    41,857,302
    
    
    $
    742,149
    
    
    $
    (3,516,818
    )
    
    $
    101,488,311Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    953,617
    
    
    
    
    
    
    
    
    
    
    
    953,617Change in unrealized gain on securities:Unrealized gain on debt securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,736
    
    
    
    
    
    
    
    71,736Defined benefit pension plans:Amortization of prior service cost included
in net periodic pension cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,991
    
    
    
    
    
    
    
    11,991Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,727Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037,344Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    21,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,800Accretion of preferred stock discount
    
    
    119,119
    
    
    
    
    
    
    
    
    
    
    
    (119,119
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (378,188
    )
    
    
    
    
    
    
    
    
    
    
    (378,188
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (223,713
    )
    
    
    
    
    
    
    
    
    
    
    (223,713
    )Balance, March 31, 2011
    
    $
    28,960,361
    
    
    $
    4,635,891
    
    
    $
    28,950,345
    
    
    $
    42,089,899
    
    
    $
    825,876
    
    
    $
    (3,516,818
    )
    
    $
    101,945,554
  4




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##### Table of Contents



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES  Consolidated Statements of Cash Flows (unaudited)
 Three Months Ended March 31,2011
    
    2010Cash flows from operating activities:Net income
    
    $
    953,617
    
    
    $
    493,768Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    1,750,002
    
    
    
    2,505,000Depreciation expense
    
    
    484,514
    
    
    
    506,615Net amortization of debt securities, premiums, and discounts
    
    
    232,963
    
    
    
    160,499Amortization of core deposit intangible assets
    
    
    118,026
    
    
    
    150,519Stock based compensation expense
    
    
    21,800
    
    
    
    29,181Loss (gain) on sales and dispositions of premises and equipment
    
    
    667
    
    
    
    (104
    )Loss on sales and dispositions of other real estate owned
and repossessions
    
    
    33,441
    
    
    
    62,690Provision for other real estate owned
    
    
    160,665
    
    
    
    Decrease in accrued interest receivable
    
    
    85,491
    
    
    
    610,551Increase in cash surrender value -life insurance
    
    
    (21,123
    )
    
    
    (18,744
    )(Increase) decrease in other assets
    
    
    (105,155
    )
    
    
    629,603Increase (decrease) in accrued interest payable
    
    
    113,106
    
    
    
    (101,829
    )Increase in other liabilities
    
    
    629,040
    
    
    
    516,709Origination of mortgage loans for sale
    
    
    (12,000,717
    )
    
    
    (10,355,738
    )Proceeds from the sale of mortgage loans
    
    
    12,048,588
    
    
    
    10,580,311Gain on sale of mortgage loans, net
    
    
    (246,234
    )
    
    
    (224,573
    )Decrease in net deferred tax asset
    
    
    7,666
    
    
    
    7,667Other, net
    
    
    11,991
    
    
    
    11,991Net cash provided by operating activities
    
    
    4,278,348
    
    
    
    5,564,116Cash flows from investing activities:Net decrease in loans
    
    
    16,102,329
    
    
    
    10,683,563Purchase of available-for-sale debt securities
    
    
    (58,387,175
    )
    
    
    (108,812,450
    )Proceeds from maturities of available-for-sale debt securities
    
    
    12,429,161
    
    
    
    81,462,422Proceeds from calls of available-for-sale debt securities
    
    
    7,278,000
    
    
    
    21,225,800Proceeds from sales of FHLB stock
    
    
    674,800
    
    
    
    230,900Purchases of premises and equipment
    
    
    (491,273
    )
    
    
    (135,298
    )Proceeds from sales of premises and equipment
    
    
    27,769
    
    
    
    400Proceeds from sales of other real estate owned and repossessions
    
    
    2,563,742
    
    
    
    1,094,910Net cash (used) provided in investing activities
    
    
    (19,802,647
    )
    
    
    5,750,247Cash flows from financing activities:Net increase (decrease) in demand deposits
    
    
    4,445,210
    
    
    
    (4,161,288
    )Net increase in interest-bearing transaction accounts
    
    
    22,189,135
    
    
    
    47,758,283Net decrease in time deposits
    
    
    (7,271,281
    )
    
    
    (10,124,530
    )Net decrease in federal funds purchased and securities sold
under agreements to repurchase
    
    
    (1,022,932
    )
    
    
    (4,537,574
    )Repayment of Federal Home Loan Bank advances
    
    
    (15,164,496
    )
    
    
    (5,189,219
    )Cash dividends paid  preferred stock
    
    
    (378,188
    )
    
    
    (378,187
    )Cash dividends paid  common stock
    
    
    (223,702
    )
    
    
    (473,215
    )Net cash provided by financing activities
    
    
    2,573,746
    
    
    
    22,894,270Net (decrease) increase in cash and cash equivalents
    
    
    (12,950,553
    )
    
    
    34,208,633Cash and cash equivalents, beginning of year
    
    
    50,979,800
    
    
    
    24,665,695Cash and cash equivalents, end of year
    
    $
    38,029,247
    
    
    $
    58,874,328
  5




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##### Table of Contents



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES  Consolidated Statements of Cash Flows (continued)
 Three Months Ended March 31,2011
    
    2010Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    2,989,034
    
    
    $
    4,663,816Income taxes
    
    $
    
    
    
    $
    200,000Supplemental schedule of noncash investing and financing activities:Other real estate and repossessions acquired in settlement of loans
    
    $
    4,174,551
    
    
    $
    4,099,478
  6




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (1)
    
    Basis of Presentation and Principles of Consolidation
  Consolidated Financial Statements
   7




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (2)
    
    Loans and Allowance for Loan Losses
  March 31,
    
    December 31,2011
    
    2010Commercial, financial, and agricultural
    
    $
    126,364,523
    
    
    $
    131,382,467Real estate construction  residential
    
    
    29,543,321
    
    
    
    31,834,174Real estate construction  commercial
    
    
    52,274,329
    
    
    
    56,052,910Real estate mortgage  residential
    
    
    203,589,632
    
    
    
    207,834,488Real estate mortgage  commercial
    
    
    430,997,862
    
    
    
    439,068,622Installment and other consumer
    
    
    31,533,942
    
    
    
    32,132,336Unamortized loan origination fees and costs, net
    
    
    177,578
    
    
    
    167,466Total loans
    
    $
    874,481,187
    
    
    $
    898,472,463
   Allowance for loan losses
  8




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
  Commercial,
    
    Real Estate
    
    Real Estate
    
    Real Estate
    
    Real Estate
    
    InstallmentFinancial, and
    
    Construction 
    
    Construction 
    
    Mortgage 
    
    Mortgage 
    
    Loans to(in thousands)
    
    Agricultural
    
    Residential
    
    Commercial
    
    Residential
    
    Commercial
    
    Individuals
    
    Unallocated
    
    TotalMarch 31, 2011Allowance for loan
losses:Balance, beginning of
year
    
    $
    2,931
    
    
    $
    2,067
    
    
    $
    1,339
    
    
    $
    3,922
    
    
    $
    3,458
    
    
    $
    231
    
    
    $
    617
    
    
    $
    14,565Additions:Provision for loan losses
    
    
    93
    
    
    
    410
    
    
    
    17
    
    
    
    227
    
    
    
    827
    
    
    
    45
    
    
    
    131
    
    
    
    1,750Deductions:Loans charged off
    
    
    828
    
    
    
    1,547
    
    
    
    
    
    
    
    1,073
    
    
    
    581
    
    
    
    109
    
    
    
    
    
    
    
    4,138Less recoveries on loans
    
    
    (61
    )
    
    
    (61
    )
    
    
    
    
    
    
    (42
    )
    
    
    (5
    )
    
    
    (56
    )
    
    
    
    
    
    
    (225
    )Net loans charged off
    
    
    767
    
    
    
    1,486
    
    
    
    
    
    
    
    1,031
    
    
    
    576
    
    
    
    53
    
    
    
    
    
    
    
    3,913Balance, end of year
    
    $
    2,257
    
    
    $
    991
    
    
    $
    1,356
    
    
    $
    3,118
    
    
    $
    3,709
    
    
    $
    223
    
    
    $
    748
    
    
    $
    12,402Individually evaluated
for
impairment
    
    $
    1,121
    
    
    $
    42
    
    
    $
    114
    
    
    $
    533
    
    
    $
    1,927
    
    
    $
    
    
    
    $
    
    
    
    $
    3,737Collectively evaluated
for
impairment
    
    
    1,136
    
    
    
    949
    
    
    
    1,242
    
    
    
    2,585
    
    
    
    1,782
    
    
    
    223
    
    
    
    748
    
    
    
    8,665Total
    
    $
    2,257
    
    
    $
    991
    
    
    $
    1,356
    
    
    $
    3,118
    
    
    $
    3,709
    
    
    $
    223
    
    
    $
    748
    
    
    $
    12,402Loans outstanding:Individually evaluated
for impairment
    
    

    $
    3,834
    
    $
    1,940
    
    
    $
    10,030
    
    
    $
    6,905
    
    
    $
    27,099
    
    
    $
    
    
    
    $
    
    
    
    $
    49,808Collectively evaluated
for
impairment
    
    
    122,531
    
    
    
    27,603
    
    
    
    42,244
    
    
    
    196,685
    
    
    
    403,899
    
    
    
    31,711
    
    
    
    
    
    
    
    824,673Total
    
    $
    126,365
    
    
    $
    29,543
    
    
    $
    52,274
    
    
    $
    203,590
    
    
    $
    430,998
    
    
    $
    31,711
    
    
    $
    
    
    
    $
    874,481December 31, 2010Allowance for loan
losses:Balance, beginning of
year
    
    $
    2,773
    
    
    $
    348
    
    
    $
    1,740
    
    
    $
    3,488
    
    
    $
    4,693
    
    
    $
    380
    
    
    $
    1,375
    
    
    $
    14,797Additions:Provision for loan losses
    
    
    1,908
    
    
    
    2,622
    
    
    
    4,133
    
    
    
    4,740
    
    
    
    2,577
    
    
    
    32
    
    
    
    (758
    )
    
    
    15,254Deductions:Loans charged off
    
    
    1,903
    
    
    
    933
    
    
    
    4,556
    
    
    
    4,534
    
    
    
    3,841
    
    
    
    422
    
    
    
    
    
    
    
    16,189Less recoveries on loans
    
    
    (153
    )
    
    
    (30
    )
    
    
    (22
    )
    
    
    (228
    )
    
    
    (29
    )
    
    
    (241
    )
    
    
    
    
    
    
    (703
    )Net loans charged off
    
    
    1,750
    
    
    
    903
    
    
    
    4,534
    
    
    
    4,306
    
    
    
    3,812
    
    
    
    181
    
    
    
    
    
    
    
    15,486Balance, end of year
    
    $
    2,931
    
    
    $
    2,067
    
    
    $
    1,339
    
    
    $
    3,922
    
    
    $
    3,458
    
    
    $
    231
    
    
    $
    617
    
    
    $
    14,565Individually evaluated
for
impairment
    
    $
    1,737
    
    
    $
    1,553
    
    
    $
    201
    
    
    $
    1,117
    
    
    $
    1,768
    
    
    $
    
    
    
    $
    
    
    
    $
    6,376Collectively evaluated
for
impairment
    
    
    1,194
    
    
    
    514
    
    
    
    1,138
    
    
    
    2,805
    
    
    
    1,690
    
    
    
    231
    
    
    
    617
    
    
    
    8,189Total
    
    $
    2,931
    
    
    $
    2,067
    
    
    $
    1,339
    
    
    $
    3,922
    
    
    $
    3,458
    
    
    $
    231
    
    
    $
    617
    
    
    $
    14,565Loans outstanding:Individually evaluated
for impairment
    
    $
    3,660
    
    
    $
    3,586
    
    
    $
    11,783
    
    
    $
    8,040
    
    
    $
    29,076
    
    
    $
    
    
    
    $
    
    
    
    $
    56,145Collectively evaluated
for
impairment
    
    
    127,722
    
    
    
    28,248
    
    
    
    44,270
    
    
    
    199,795
    
    
    
    409,993
    
    
    
    32,299
    
    
    
    
    
    
    
    842,327Total
    
    $
    131,382
    
    
    $
    31,834
    
    
    $
    56,053
    
    
    $
    207,835
    
    
    $
    439,069
    
    
    $
    32,299
    
    
    $
    
    
    
    $
    898,472
  9




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 Impaired loans
   March 31,
    
    December 31,2011
    
    2010Non-accrual loans
    
    $
    47,523,846
    
    
    $
    50,586,887Troubled debt restructurings continuing to
accrue interest
    
    
    2,503,861
    
    
    
    5,683,656Total impaired loans
    
    $
    50,027,707
    
    
    $
    56,270,543
   Three Months Ended March 31,2011
    
    2010Contractual interest due on non-accrual loans
    
    $
    606,436
    
    
    $
    507,241Interest income recognized on loans in
non-accrual status
    
    
    38
    
    
    
    13,354Net reduction in interest income
    
    $
    606,398
    
    
    $
    493,887
  10




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
  Unpaid
    
    
    
    
    
    Average
    
    InterestRecorded
    
    Principal
    
    Related
    
    Recorded
    
    IncomeInvestment
    
    Balance
    
    Allowance
    
    Investment
    
    RecognizedAt March 31, 2011With no related allowance
recorded:Commercial, financial and
Agricultural
    
    $
    1,963,637
    
    
    $
    2,016,732
    
    
    $
    
    
    
    $
    1,734,723
    
    
    $
    Real estate  construction
residential
    
    
    1,768,233
    
    
    
    2,355,936
    
    
    
    
    
    
    
    2,764,408
    
    
    
    Real estate  construction
commercial
    
    
    8,222,862
    
    
    
    9,320,617
    
    
    
    
    
    
    
    8,220,718
    
    
    
    Real estate  residential
    
    
    2,651,719
    
    
    
    3,031,610
    
    
    
    
    
    
    
    3,718,693
    
    
    
    4,684Real estate  commercial
    
    
    11,471,124
    
    
    
    13,127,747
    
    
    
    
    
    
    
    11,499,818
    
    
    
    Consumer
    
    
    219,840
    
    
    
    230,120
    
    
    
    
    
    
    
    207,991
    
    
    
    Total
    
    $
    26,297,415
    
    
    $
    30,082,762
    
    
    $
    
    
    
    $
    28,146,351
    
    
    $
    4,684With an allowance recorded:Commercial, financial and
Agricultural
    
    $
    1,870,086
    
    
    $
    1,895,088
    
    
    $
    1,121,326
    
    
    $
    1,871,362
    
    
    $
    2,192Real estate  construction
residential
    
    
    171,982
    
    
    
    181,002
    
    
    
    42,000
    
    
    
    172,649
    
    
    
    Real estate  construction
commercial
    
    
    1,807,063
    
    
    
    3,062,063
    
    
    
    113,816
    
    
    
    1,794,542
    
    
    
    Real estate  residential
    
    
    4,253,289
    
    
    
    4,355,082
    
    
    
    533,010
    
    
    
    3,933,353
    
    
    
    27,332Real estate  commercial
    
    
    15,627,872
    
    
    
    15,821,270
    
    
    
    1,927,120
    
    
    
    14,828,936
    
    
    
    1,641Total
    
    $
    23,730,292
    
    
    $
    25,314,505
    
    
    $
    3,737,272
    
    
    $
    22,600,842
    
    
    $
    31,165Total impaired loans
    
    $
    50,027,707
    
    
    $
    55,397,267
    
    
    $
    3,737,272
    
    
    $
    50,747,193
    
    
    $
    35,849At December 31, 2010With no related allowance
recorded:Commercial, financial and
Agricultural
    
    $
    441,861
    
    
    $
    629,296
    
    
    $
    Real estate  construction
residential
    
    
    1,769,622
    
    
    
    2,355,936
    
    
    
    Real estate  construction
commercial
    
    
    8,297,388
    
    
    
    9,393,368
    
    
    
    Real estate  residential
    
    
    2,463,735
    
    
    
    2,950,560
    
    
    
    Real estate  commercial
    
    
    12,939,973
    
    
    
    14,869,833
    
    
    
    Consumer
    
    
    125,858
    
    
    
    132,688
    
    
    
    Total
    
    $
    26,038,437
    
    
    $
    30,331,681
    
    
    $
    With an allowance recorded:Commercial, financial and
Agricultural
    
    $
    3,217,995
    
    
    $
    3,260,009
    
    
    $
    1,737,159Real estate  construction
residential
    
    
    1,816,276
    
    
    
    1,848,593
    
    
    
    1,552,406Real estate  construction
commercial
    
    
    3,485,517
    
    
    
    4,740,517
    
    
    
    201,147Real estate  residential
    
    
    5,576,292
    
    
    
    5,669,041
    
    
    
    1,117,141Real estate  commercial
    
    
    16,136,025
    
    
    
    16,215,862
    
    
    
    1,767,893Total
    
    $
    30,232,106
    
    
    $
    31,734,022
    
    
    $
    6,375,746Total impaired loans
    
    $
    56,270,543
    
    
    $
    62,065,703
    
    
    $
    6,375,746
 11




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
  Age Analysis of Past Due and Non-Accrual Loans
 Current or
    
    
    
    
    
    90 DaysLess Than
    
    
    
    
    
    Past Due30 Days
    
    30 - 89 Days
    
    And StillPast Due
    
    Past Due
    
    Accruing
    
    Non-Accrual
    
    TotalMarch 31, 2011Commercial, Financial, and
Agricultural
    
    $
    121,793,421
    
    
    $
    479,658
    
    
    $
    383,926
    
    
    $
    3,707,518
    
    
    $
    126,364,523Real Estate Construction  Residential
    
    
    27,603,106
    
    
    
    
    
    
    
    
    
    
    
    1,940,215
    
    
    
    29,543,321Real Estate Construction  Commercial
    
    
    42,235,412
    
    
    
    8,993
    
    
    
    
    
    
    
    10,029,924
    
    
    
    52,274,329Real Estate Mortgage  Residential
    
    
    196,955,492
    
    
    
    1,997,075
    
    
    
    
    
    
    
    4,637,065
    
    
    
    203,589,632Real Estate Mortgage  Commercial
    
    
    403,438,021
    
    
    
    570,557
    
    
    
    
    
    
    
    26,989,284
    
    
    
    430,997,862Installment and Other Consumer
    
    
    31,267,207
    
    
    
    217,734
    
    
    
    6,739
    
    
    
    219,840
    
    
    
    31,711,520Total
    
    $
    823,292,659
    
    
    $
    3,274,017
    
    
    $
    390,665
    
    
    $
    47,523,846
    
    
    $
    874,481,187December 31, 2010Commercial, Financial, and
Agricultural
    
    $
    127,315,586
    
    
    $
    534,865
    
    
    $
    
    
    
    $
    3,532,016
    
    
    $
    131,382,467Real Estate Construction  Residential
    
    
    28,200,876
    
    
    
    47,400
    
    
    
    
    
    
    
    3,585,898
    
    
    
    31,834,174Real Estate Construction  Commercial
    
    
    45,511,088
    
    
    
    474,934
    
    
    
    
    
    
    
    10,066,888
    
    
    
    56,052,910Real Estate Mortgage  Residential
    
    
    199,386,784
    
    
    
    2,775,654
    
    
    
    
    
    
    
    5,672,050
    
    
    
    207,834,488Real Estate Mortgage  Commercial
    
    
    409,906,845
    
    
    
    1,557,599
    
    
    
    
    
    
    
    27,604,178
    
    
    
    439,068,622Installment and Other Consumer
    
    
    31,784,217
    
    
    
    356,812
    
    
    
    32,916
    
    
    
    125,857
    
    
    
    32,299,802Total
    
    $
    842,105,396
    
    
    $
    5,747,264
    
    
    $
    32,916
    
    
    $
    50,586,887
    
    
    $
    898,472,463
 watch substandard non-accrual
 12




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 Real Estate
    
    Real Estate
    
    Installment andCommercial
    
    Construction
    
    Mortgage
    
    other Consumer
    
    TotalAt March 31, 2011Watch
    
    $
    20,683,503
    
    
    $
    16,981,786
    
    
    $
    36,479,225
    
    
    $
    448,373
    
    
    $
    74,592,887Substandard
    
    
    4,243,957
    
    
    
    3,417,666
    
    
    
    23,192,968
    
    
    
    349,332
    
    
    
    31,203,923Non-accrual
    
    
    3,707,518
    
    
    
    11,970,139
    
    
    
    31,626,349
    
    
    
    219,840
    
    
    
    47,523,846Total
    
    $
    28,634,978
    
    
    $
    32,369,591
    
    
    $
    91,298,542
    
    
    $
    1,017,545
    
    
    $
    153,320,656At December 31, 2010Watch
    
    $
    21,981,367
    
    
    $
    16,919,978
    
    
    $
    44,234,865
    
    
    $
    564,489
    
    
    $
    83,700,699Substandard
    
    
    2,840,703
    
    
    
    5,000,571
    
    
    
    17,058,382
    
    
    
    441,514
    
    
    
    25,341,170Non-accrual
    
    
    3,532,016
    
    
    
    13,652,786
    
    
    
    33,276,228
    
    
    
    125,857
    
    
    
    50,586,887Total
    
    $
    28,354,086
    
    
    $
    35,573,335
    
    
    $
    94,569,475
    
    
    $
    1,131,860
    
    
    $
    159,628,756
 (3) Real Estate Acquired in Settlement of Loans
 March 31,
    
    December 31,2011
    
    2010Commercial
    
    $
    67,421
    
    
    $
    67,421Real estate mortgage  construction
    
    
    12,145,547
    
    
    
    13,229,199Real estate mortgage
    
    
    8,801,850
    
    
    
    6,254,221Total
    
    $
    21,014,818
    
    
    $
    19,550,841Less valuation allowance for other real estate owned
    
    
    (6,319,098
    )
    
    
    (6,158,433
    )Total
    
    $
    14,695,720
    
    
    $
    13,392,408Balance at December 31, 2010
    
    
    
    
    
    $
    19,550,841Additions
    
    
    
    
    
    
    4,773,157Net reductions
    
    
    
    
    
    
    (3,309,180
    )Total other real estate owned
    
    
    
    
    
    $
    21,014,818Less valuation allowance for other real estate owned
    
    
    
    
    
    
    (6,319,098
    )Balance at March 31, 2011
    
    
    
    
    
    $
    14,695,720
  Three Months Ended March 31,2011
    
    2010Balance, beginning of period
    
    $
    6,158,433
    
    
    $
    Provision for other real estate owned
    
    
    160,665
    
    
    
    Charge-offs
    
    
    
    
    
    
    Balance, end of period
    
    $
    6,319,098
    
    
    $
    
 13




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (4) Investment Securities
  March 31,
    
    December 31,2011
    
    2010U.S. treasury
    
    $
    1,023,047
    
    
    $
    1,027,891Government sponsored enterprises
    
    
    74,048,988
    
    
    
    53,341,551Asset-backed securities
    
    
    110,102,728
    
    
    
    90,176,241Obligations of states and political subdivisions
    
    
    32,367,438
    
    
    
    34,431,867Total available for sale securities
    
    $
    217,542,201
    
    
    $
    178,977,550
    Gross
    
    GrossAmortized
    
    unrealized
    
    unrealizedcost
    
    gains
    
    losses
    
    Fair valueMarch 31, 2011U.S Treasury
    
    $
    999,837
    
    
    $
    23,210
    
    
    $
    
    
    
    $
    1,023,047Government sponsored enterprises
    
    
    74,337,601
    
    
    
    214,476
    
    
    
    503,089
    
    
    
    74,048,988Asset-backed securities
    
    
    108,585,817
    
    
    
    1,930,789
    
    
    
    413,878
    
    
    
    110,102,728Obligations of states and political
subdivisions
    
    
    31,821,706
    
    
    
    643,768
    
    
    
    98,036
    
    
    
    32,367,438Total available for sale securities
    
    $
    215,744,961
    
    
    $
    2,812,243
    
    
    $
    1,015,003
    
    
    $
    217,542,201December 31, 2010U.S Treasury
    
    $
    999,823
    
    
    $
    28,068
    
    
    $
    
    
    
    $
    1,027,891Government sponsored enterprises
    
    
    53,516,545
    
    
    
    327,051
    
    
    
    502,045
    
    
    
    53,341,551Asset-backed securities
    
    
    88,634,760
    
    
    
    1,905,377
    
    
    
    363,896
    
    
    
    90,176,241Obligations of states and political
subdivisions
    
    
    34,146,782
    
    
    
    555,240
    
    
    
    270,155
    
    
    
    34,431,867Total available for sale securities
    
    $
    177,297,910
    
    
    $
    2,815,736
    
    
    $
    1,136,096
    
    
    $
    178,977,550
 14




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
  Amortized
    
    Faircost
    
    valueDue in one year or less
    
    $
    9,723,451
    
    
    $
    9,768,796Due after one year through five years
    
    
    78,372,238
    
    
    
    78,405,212Due after five years through ten years
    
    
    16,956,579
    
    
    
    17,151,461Due after ten years
    
    
    2,106,876
    
    
    
    2,114,004107,159,144
    
    
    
    107,439,473Asset-backed securities
    
    
    108,585,817
    
    
    
    110,102,728Total
    
    $
    215,744,961
    
    
    $
    217,542,201
   Less than 12 months
    
    12 months or more
    
    
    
    
    
    TotalNumber ofFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Investment
    
    Fair
    
    UnrealizedAt March 31, 2011
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Positions
    
    Value
    
    LossesGovernment
sponsored enterprises
    
    $
    34,004,890
    
    
    $
    (503,089
    )
    
    $
    
    
    
    $
    
    
    
    
    33
    
    
    $
    34,004,890
    
    
    
    (503,089
    )Asset-backed
securities
    
    
    36,498,689
    
    
    
    (413,878
    )
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    36,498,689
    
    
    $
    (413,878
    )Obligations of
states and political
subdivisions
    
    
    4,336,922
    
    
    
    (98,036
    )
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    4,336,922
    
    
    
    (98,036
    )$
    74,840,501
    
    
    $
    (1,015,003
    )
    
    $
    
    
    
    $
    
    
    
    
    84
    
    
    $
    74,840,501
    
    
    $
    (1,015,003
    )
 Less than 12 months
    
    12 months or more
    
    
    
    
    
    TotalNumber ofFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Investment
    
    Fair
    
    UnrealizedAt December 31, 2010
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Positions
    
    Value
    
    LossesGovernment
sponsored enterprises
    
    $
    20,504,526
    
    
    $
    (502,045
    )
    
    $
    
    
    
    $
    
    
    
    
    19
    
    
    $
    20,504,526
    
    
    
    (502,045
    )Asset-backed
securities
    
    
    21,177,793
    
    
    
    (363,896
    )
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    21,177,793
    
    
    $
    (363,896
    )Obligations of
states and political
subdivisions
    
    
    8,038,946
    
    
    
    (270,155
    )
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    8,038,946
    
    
    
    (270,155
    )$
    49,721,265
    
    
    $
    (1,136,096
    )
    
    $
    
    
    
    $
    
    
    
    
    68
    
    
    $
    49,721,265
    
    
    $
    (1,136,096
    )
  15




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
   (5) Intangible Assets
  March 31, 2011
    
    December 31, 2010Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Net
    
    Carrying
    
    Accumulated
    
    NetAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortizable intangible
assets:Core deposit intangible
    
    $
    4,795,224
    
    
    $
    (3,935,741
    )
    
    $
    859,483
    
    
    $
    7,060,224
    
    
    $
    (6,082,715
    )
    
    $
    977,509Mortgage servicing
rights
    
    
    3,089,572
    
    
    
    (761,643
    )
    
    
    2,327,929
    
    
    
    3,067,368
    
    
    
    (711,378
    )
    
    
    2,355,990Total intangible assets
    
    $
    7,884,796
    
    
    $
    (4,697,384
    )
    
    $
    3,187,412
    
    
    $
    10,127,592
    
    
    $
    (6,794,093
    )
    
    $
    3,333,499
  Core Deposit
    
    MortgageIntangible
    
    ServicingAsset
    
    RightsBalance at December 31, 2010
    
    $
    977,509
    
    
    $
    2,355,990Additions
    
    
    
    
    
    
    121,188Amortization
    
    
    (118,026
    )
    
    
    (149,239
    )Balance at March 31, 2011
    
    $
    859,483
    
    
    $
    2,327,939
 Fair Value of Financial Instruments.
 16




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
  For the Three Months EndedMarch 31,Aggregate amortization expense
    
    2011
    
    2010Core deposit intangible asset
    
    $
    118,026
    
    
    $
    150,519Mortgage servicing rights
    
    
    149,239
    
    
    
    134,874
  Core Deposit
    
    MortgageIntangible
    
    ServicingAsset
    
    Rights2011
    
    $
    316,737
    
    
    $
    424,8222012
    
    
    408,062
    
    
    
    444,0002013
    
    
    134,684
    
    
    
    361,0002014
    
    
    
    
    
    
    294,0002015
    
    
    
    
    
    
    239,000
 (6) Income Taxes
 Income Taxes, .
   17




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (7) Employee Benefit Plans
 Employee benefits charged to operating expenses are summarized in the table below.
 For the Three Months EndedMarch 31,2011
    
    2010Payroll taxes
    
    $
    314,529
    
    
    $
    321,967Medical plans
    
    
    442,319
    
    
    
    404,852401k match
    
    
    67,599
    
    
    
    80,012Pension plan
    
    
    227,593
    
    
    
    216,299Profit-sharing
    
    
    23,000
    
    
    
    72,470Other
    
    
    41,563
    
    
    
    41,328Total employee benefits
    
    $
    1,116,603
    
    
    $
    1,136,928
  Pension
   Estimated
    
    Actual2011
    
    2010Service
costbenefits earned during the year
    
    $
    930,691
    
    
    $
    844,178Interest
costs on projected benefit obligations
    
    
    603,903
    
    
    
    556,047Expected return on plan assets
    
    
    (702,852
    )
    
    
    (613,982
    )Amortization of prior service cost
    
    
    78,628
    
    
    
    78,628Net periodic pension expense
    
    $
    910,370
    
    
    $
    864,871Pension expense  three months ended March 31, (actual)
    
    $
    227,593
    
    
    $
    216,299
 18




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (8) Stock Compensation
   WeightedWeighted
    
    Average
    
    AggregateNumber
    
    Average
    
    Contractual
    
    Intrinsicof
    
    Exercise
    
    Term
    
    ValueShares
    
    Price
    
    (in years)
    
    (000)Outstanding at January 1, 2011
    
    
    250,491
    
    
    $
    25.42Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at March 31, 2011
    
    
    250,491
    
    
    $
    25.42
    
    
    
    4.3
    
    
    $
    Exercisable at March 31, 2011
    
    
    211,243
    
    
    $
    25.52
    
    
    
    3.9
    
    
    $
    
  (9) Comprehensive Income
 Consolidated Statements of Stockholders Equity and Comprehensive Income
 (10) Preferred Stock
   19




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
    (11) Earnings per Share
  20




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 For the Three Months EndedMarch 31,2011
    
    2010Basic earnings per common share:Net income
    
    $
    953,617
    
    
    $
    493,768Less:Preferred stock dividends
    
    
    369,783
    
    
    
    369,783Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119Net income available to
common shareholders
    
    $
    464,715
    
    
    $
    4,866Basic earnings per share
    
    $
    0.10
    
    
    $
    0.00Diluted earnings per common share:Net income
    
    $
    953,617
    
    
    $
    493,768Less:Preferred stock dividends
    
    
    369,783
    
    
    
    369,783Accretion of discount on preferred stock
    
    
    119,119
    
    
    
    119,119Net income available to
common shareholders
    
    $
    464,715
    
    
    $
    4,866Average shares outstanding
    
    
    4,474,033
    
    
    
    4,474,033Effect of dilutive stock options
    
    
    
    
    
    
    Average shares outstanding including
dilutive stock options
    
    
    4,474,033
    
    
    
    4,474,033Diluted earnings per share
    
    $
    0.10
    
    
    $
    0.00
   Three Months EndedMarch 31,2011
    
    2010Anti-dilutive shares  option shares
    
    
    250,491
    
    
    
    250,491Anti-dilutive shares  warrant shares
    
    
    265,471
    
    
    
    265,471
 21




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 (12) 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
  22




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 Fair Value Measurements UsingQuoted Pricesin ActiveMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    InputsDescription
    
    Fair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)March 31, 2011U.S. treasury
    
    $
    1,023,047
    
    
    $
    
    
    
    $
    1,023,047
    
    
    $
    Government sponsored enterprises
    
    
    74,048,988
    
    
    
    
    
    
    
    74,048,988
    
    
    
    Asset-backed securities
    
    
    110,102,728
    
    
    
    
    
    
    
    110,102,728
    
    
    
    Obligations of states and political
subdivisions
    
    
    32,367,438
    
    
    
    
    
    
    
    32,367,438
    
    
    
    Total
    
    $
    217,542,201
    
    
    
    
    
    
    $
    217,542,201
    
    
    $
    December 31, 2010U.S. treasury
    
    $
    1,027,891
    
    
    $
    
    
    
    $
    1,027,891
    
    
    $
    Government sponsored enterprises
    
    
    53,341,551
    
    
    
    
    
    
    
    53,341,551
    
    
    
    Asset-backed securities
    
    
    90,176,241
    
    
    
    
    
    
    
    90,176,241
    
    
    
    Obligations of states and political
subdivisions
    
    
    34,431,867
    
    
    
    
    
    
    
    34,431,867
    
    
    
    Total
    
    $
    178,977,550
    
    
    
    
    
    
    $
    178,977,550
    
    
    $
    
 Valuation methods for instruments measured at fair value on a nonrecurring basis
  Impaired Loans
  Other Real Estate Owned and Repossessed Assets
  23




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 Fair Value Measurements UsingQuoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)*March 31, 2011Impaired loans:Commercial, financial, & agricultural
    
    $
    748,760
    
    
    $
    
    
    
    $
    
    
    
    $
    748,760
    
    
    $
    (784,866
    )Real estate construction  residential
    
    
    129,982
    
    
    
    
    
    
    
    
    
    
    
    129,982
    
    
    
    (1,492,875
    )Real estate construction  commercial
    
    
    1,693,247
    
    
    
    
    
    
    
    
    
    
    
    1,693,247
    
    
    
    Real estate mortgage  residential
    
    
    3,720,279
    
    
    
    
    
    
    
    
    
    
    
    3,720,279
    
    
    
    (716,984
    )Real estate mortgage  commercial
    
    
    13,700,752
    
    
    
    
    
    
    
    
    
    
    
    13,700,752
    
    
    
    (156,313
    )Total
    
    $
    19,993,020
    
    
    $
    
    
    
    $
    
    
    
    $
    19,993,020
    
    
    $
    (3,151,038
    )Other real estate owned
and repossessed assets
    
    $
    15,425,721
    
    
    $
    
    
    
    $
    
    
    
    $
    15,425,721
    
    
    $
    (811,412
    )December 31, 2010Impaired loans:Commercial, financial, & agricultural
    
    $
    1,480,836
    
    
    $
    
    
    
    $
    
    
    
    $
    1,480,836
    
    
    $
    (1,634,544
    )Real estate construction  residential
    
    
    263,870
    
    
    
    
    
    
    
    
    
    
    
    263,870
    
    
    
    (863,399
    )Real estate construction  commercial
    
    
    3,284,371
    
    
    
    
    
    
    
    
    
    
    
    3,284,371
    
    
    
    (4,496,156
    )Real estate mortgage  residential
    
    
    4,459,151
    
    
    
    
    
    
    
    
    
    
    
    4,459,151
    
    
    
    (3,971,927
    )Real estate mortgage  commercial
    
    
    14,368,132
    
    
    
    
    
    
    
    
    
    
    
    14,368,132
    
    
    
    (3,626,892
    )Total
    
    $
    23,856,360
    
    
    $
    
    
    
    $
    
    
    
    $
    23,856,360
    
    
    $
    (14,592,918
    )Other real estate owned
and repossessed assets
    
    $
    14,009,017
    
    
    $
    
    
    
    $
    
    
    
    $
    14,009,017
    
    
    $
    (3,528,011
    )
 
 *
    
    Total gains (losses) reported for other real estate owned and repossessed assets includes
charge offs, valuation write downs, and net losses taken during the periods reported. (13)
    
    Fair Value of Financial Instruments
 The following methods and assumptions were used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate such value:Loans
 The fair value of loans is estimated based on present values using applicable risk-adjusted
spreads to the U. S. Treasury curve to approximate current interest rates applicable to each
category of such financial instruments. The net carrying amount of impaired loans is generally
based on the fair values of collateral obtained through independent appraisals or internal
evaluations, or by discounting the total expected future cash flows. This method of estimating
fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic
820.Investment Securities
 A detailed description of the fair value measurement of the debt instruments in the available
for sale sections of the investment security portfolio is provided in the Fair Value
Measurementsection above. A schedule of investment securities by category and maturity is
provided in the notes on Investment Securities.Federal Funds Sold, Cash, and Due from Banks
 For federal funds sold, cash, and due from banks, the carrying amount is a reasonable estimate
of fair value, as such instruments reprice in a short time period.
 24




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 Mortgage Servicing Rights
 The fair value of mortgage servicing rights is based on the discounted value of contractual
cash flows utilizing servicing rate, constant prepayment rate, servicing cost, and discount
rate factors.Accrued Interest Receivable and Payable
 For accrued interest receivable and payable, the carrying amount is a reasonable
estimate of fair value because of the short maturity for these financial instruments.Deposits
 The fair value of deposits with no stated maturity, such as noninterest-bearing demand,
NOW accounts, savings, and money market, is equal to the amount payable on demand. The
fair value of time deposits is based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for deposits of similar
remaining maturities.
 Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to
U.S. Treasury
 For securities sold under agreements to repurchase and interest-bearing demand notes to
U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such
instruments reprice in a short time period.Other Borrowings
 The fair value of subordinated notes and other borrowings, Federal Home Loan
borrowings, is based on the discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for other borrowed money of similar
remaining maturities.
 25




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 
  March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueAssets:Loans
    
    $
    862,079,077
    
    
    $
    866,484,000
    
    
    $
    883,907,596
    
    
    $
    889,291,000Investment in debt securities
    
    
    217,542,201
    
    
    
    217,542,201
    
    
    
    178,977,550
    
    
    
    178,977,550Federal fund sold and
securities purchased under
agreements to resell
    
    
    142,111
    
    
    
    142,111
    
    
    
    125,815
    
    
    
    125,815Cash and due from banks
    
    
    37,887,136
    
    
    
    37,887,136
    
    
    
    50,853,985
    
    
    
    50,853,985Mortgage servicing rights
    
    
    2,327,929
    
    
    
    2,998,000
    
    
    
    2,355,990
    
    
    
    3,027,000Accrued interest receivable
    
    
    5,648,193
    
    
    
    5,648,193
    
    
    
    5,733,684
    
    
    
    5,733,684$
    1,125,626,647
    
    
    $
    1,130,701,641
    
    
    $
    1,121,954,620
    
    
    $
    1,128,009,034Liabilities:Deposits:Demand
    
    $
    142,194,780
    
    
    $
    142,194,780
    
    
    $
    137,749,571
    
    
    $
    137,749,571NOW
    
    
    189,877,607
    
    
    
    189,877,607
    
    
    
    160,225,356
    
    
    
    160,225,356Savings
    
    
    60,453,191
    
    
    
    60,453,191
    
    
    
    54,722,129
    
    
    
    54,722,129Money market
    
    
    150,995,876
    
    
    
    150,995,876
    
    
    
    164,190,054
    
    
    
    164,190,054Time
    
    
    422,504,265
    
    
    
    429,783,000
    
    
    
    429,775,546
    
    
    
    437,996,000Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    29,045,521
    
    
    
    29,045,521
    
    
    
    30,068,453
    
    
    
    30,068,453Subordinated notes
    
    
    49,486,000
    
    
    
    21,698,000
    
    
    
    49,486,000
    
    
    
    21,105,000Other borrowings
    
    
    51,821,482
    
    
    
    53,954,000
    
    
    
    66,985,978
    
    
    
    69,329,000Accrued interest payable
    
    
    1,604,609
    
    
    
    1,604,609
    
    
    
    1,491,503
    
    
    
    1,491,503$
    1,097,983,331
    
    
    $
    1,079,606,584
    
    
    $
    1,094,694,590
    
    
    $
    1,076,877,066
 Off-Balance Sheet Financial InstrumentsThe fair value of commitments to extend credit and standby letters of credit are
estimated using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements, the likelihood of the counterparties
drawing on such financial instruments, and the present creditworthiness of such
counterparties. Our Company believes such commitments have been made on terms, which are
competitive in the markets in which it operates. See Note 16 for further discussion.Limitations
 The fair value estimates provided are made at a point in time based on market
information and information about the financial instruments. Because no market exists for
a portion of our Companys financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the fair value estimates.
 26




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##### Table of Contents



HAWTHORN BANCSHARES, INC.
AND SUBSIDIARIES
  (Unaudited)
 
 (14)
    
    Pending Litigation
    27




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##### Table of Contents



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
   28




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Allowance for Loan Losses
 Lending and Credit
Management
 Other Real Estate Owned and Repossessed Assets
  Valuation of Investment Securities
 Investments  Debt and Equity Securities.
 29




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##### Table of Contents



Income Taxes
  30




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##### Table of Contents



SELECTED CONSOLIDATED FINANCIAL DATA
  Selected Financial Data
 Three MonthsEndedMarch 31,(In thousands, except per share data)
    
    2011
    
    
    2010Per Share DataBasic earnings per common share
    
    $
    0.10
    
    
    $
    Diluted earnings per common share
    
    
    0.10
    
    
    
    Dividends paid on preferred stock
    
    
    378
    
    
    
    378Amortization of discount on preferred stock
    
    
    119
    
    
    
    119Dividends paid on common stock
    
    
    224
    
    
    
    473Book value per common share
    
    
    16.31
    
    
    
    18.38Market price common stock
    
    
    9.03
    
    
    
    11.69Selected Ratios(Based on average balance sheets)Return on average total assets
    
    
    0.32
    %
    
    
    0.16
    %Return on average common stockholders equity
    
    
    2.56
    %
    
    
    0.02
    %Average common stockholders equity
to average total assets
    
    
    6.10
    %
    
    
    6.37
    %(Based on end-of-period data)Efficiency ratio (1)
    
    
    74.80
    %
    
    
    74.10
    %Period-end stockholders equity
to period-end assets
    
    
    8.46
    %
    
    
    8.53
    %Period-end common stockholders equity
to period-end assets
    
    
    6.06
    %
    
    
    6.27
    %Total risk-based capital ratio
    
    
    17.29
    
    
    
    16.68Tier 1 risk-based capital ratio
    
    
    14.51
    
    
    
    14.19Leverage ratio
    
    
    11.12
    
    
    
    11.20
 
 (1)
    
    Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total
revenue includes net interest and non-interest income. 31




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##### Table of Contents



RESULTS OF OPERATIONS ANALYSIS
  Three months ended March 31,
    
    
    $ Change
    
    
    % Change(Dollars in thousands)
    
    2011
    
    
    2010
    
    
    11-10
    
    
    11-10Net interest income
    
    $
    10,481
    
    
    $
    10,311
    
    
    $
    170
    
    
    
    1.6
    %Provision for loan losses
    
    
    1,750
    
    
    
    2,505
    
    
    
    (755
    )
    
    
    (30.1
    )Noninterest income
    
    
    2,052
    
    
    
    2,006
    
    
    
    46
    
    
    
    2.3Noninterest expense
    
    
    9,378
    
    
    
    9,131
    
    
    
    247
    
    
    
    2.7Income before income taxes
    
    
    1,405
    
    
    
    681
    
    
    
    724
    
    
    
    106.3Income tax expense
    
    
    451
    
    
    
    187
    
    
    
    264
    
    
    
    141.2Net income
    
    $
    954
    
    
    $
    494
    
    
    $
    460
    
    
    
    93.1
    %Less: preferred dividends
    
    
    370
    
    
    
    370
    
    
    
    
    
    
    
    and accretion of discount
    
    
    119
    
    
    
    119
    
    
    
    
    
    
    
    Net income available to
common shareholders
    
    $
    465
    
    
    $
    5
    
    
    $
    460
    
    
    
    9,200.0
    %
   32




---



##### Table of Contents



Average Balance Sheets
  The Three Months Ended March 31,(Dollars In thousands)
    
    2011
    
    
    2010Interest
    
    
    Rate
    
    
    
    
    
    
    Interest
    
    
    RateAverage
    
    
    Income/
    
    
    Earned/
    
    
    Average
    
    
    Income/
    
    
    Earned/Balance
    
    
    Expense(1)
    
    
    Paid(1)
    
    
    Balance
    
    
    Expense(
    
    
    Paid(1)ASSETSLoans: (2) (4)Commercial
    
    $
    128,986
    
    
    $
    1,737
    
    
    
    5.46
    %
    
    $
    148,251
    
    
    $
    1,994
    
    
    
    5.45
    %Real estate construction  residential
    
    
    32,317
    
    
    
    417
    
    
    
    5.23
    
    
    
    38,744
    
    
    
    508
    
    
    
    5.32Real estate construction  commercial
    
    
    55,288
    
    
    
    604
    
    
    
    4.43
    
    
    
    77,268
    
    
    
    657
    
    
    
    3.45Real estate mortgage  residential
    
    
    205,345
    
    
    
    2,915
    
    
    
    5.76
    
    
    
    231,757
    
    
    
    3,250
    
    
    
    5.69Real estate mortgage  commercial
    
    
    432,766
    
    
    
    5,908
    
    
    
    5.54
    
    
    
    448,632
    
    
    
    6,344
    
    
    
    5.73Consumer
    
    
    30,767
    
    
    
    535
    
    
    
    7.05
    
    
    
    36,397
    
    
    
    696
    
    
    
    7.76Investment in securities: (3)U.S. treasury
    
    
    1,028
    
    
    
    5
    
    
    
    1.97
    
    
    
    77
    
    
    
    
    
    
    
    Government sponsored enterprises
    
    
    62,845
    
    
    
    349
    
    
    
    2.25
    
    
    
    46,137
    
    
    
    333
    
    
    
    2.93Asset backed securities
    
    
    100,830
    
    
    
    790
    
    
    
    3.18
    
    
    
    77,423
    
    
    
    718
    
    
    
    3.76State and municipal
    
    
    33,600
    
    
    
    418
    
    
    
    5.08
    
    
    
    36,733
    
    
    
    493
    
    
    
    5.44Restricted Investments
    
    
    5,827
    
    
    
    44
    
    
    
    3.06
    
    
    
    6,728
    
    
    
    51
    
    
    
    3.07Federal funds sold
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    34,035
    
    
    
    20
    
    
    
    0.24
    
    
    
    30,941
    
    
    
    14
    
    
    
    0.18Total interest earning assets
    
    
    1,123,767
    
    
    
    13,742
    
    
    
    4.96
    
    
    
    1,179,282
    
    
    
    15,058
    
    
    
    5.18All other assets
    
    
    98,967
    
    
    
    
    
    
    
    
    
    
    
    93,855Allowance for loan losses
    
    
    (14,577
    )
    
    
    
    
    
    
    
    
    
    
    (14,925
    )Total assets
    
    $
    1,208,157
    
    
    
    
    
    
    
    
    
    
    $
    1,258,212LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    189,883
    
    
    $
    275
    
    
    
    0.59
    %
    
    $
    176,736
    
    
    $
    276
    
    
    
    0.63
    %Savings
    
    
    57,155
    
    
    
    34
    
    
    
    0.24
    
    
    
    49,286
    
    
    
    32
    
    
    
    0.26Money market
    
    
    157,871
    
    
    
    174
    
    
    
    0.45
    
    
    
    169,496
    
    
    
    323
    
    
    
    0.77Time deposits of
$100,000 and over
    
    
    123,428
    
    
    
    463
    
    
    
    1.52
    
    
    
    136,170
    
    
    
    711
    
    
    
    2.12Other time deposits
    
    
    302,249
    
    
    
    1,424
    
    
    
    1.91
    
    
    
    326,958
    
    
    
    1,999
    
    
    
    2.48Total time deposits
    
    
    830,586
    
    
    
    2,370
    
    
    
    1.16
    
    
    
    858,646
    
    
    
    3,341
    
    
    
    1.58Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    29,993
    
    
    
    13
    
    
    
    0.18
    
    
    
    33,734
    
    
    
    21
    
    
    
    0.25Subordinated notes
    
    
    49,486
    
    
    
    399
    
    
    
    3.27
    
    
    
    49,486
    
    
    
    524
    
    
    
    4.29Other borrowed money
    
    
    56,929
    
    
    
    320
    
    
    
    2.28
    
    
    
    77,638
    
    
    
    676
    
    
    
    3.53Total interest bearing liabilities
    
    
    966,994
    
    
    
    3,102
    
    
    
    1.30
    
    
    
    1,019,504
    
    
    
    4,562
    
    
    
    1.81Demand deposits
    
    
    134,203
    
    
    
    
    
    
    
    
    
    
    
    123,096Other liabilities
    
    
    4,430
    
    
    
    
    
    
    
    
    
    
    
    7,071Total liabilities
    
    
    1,105,627
    
    
    
    
    
    
    
    
    
    
    
    1,149,671Stockholders equity
    
    
    102,530
    
    
    
    
    
    
    
    
    
    
    
    108,541Total liabilities and
stockholders equity
    
    $
    1,208,157
    
    
    
    
    
    
    
    
    
    
    $
    1,258,212Net interest income (FTE)
    
    
    
    
    
    $
    10,640
    
    
    
    
    
    
    
    
    
    
    $
    10,496Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.37
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.84
    %
    
    
    
    
    
    
    
    
    
    
    3.61
    %
 
 (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 $160,000 and $185,000 for the three
months ended March 31, 2011and 2010, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding. 33




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##### Table of Contents



(3)
    
    Average balances based on amortized cost.(4)
    
    Fees and costs on loans are included in interest income. Comparison of the three months ended March 31, 2011 and 2010
    Three Months Ended
    
    $
    
    %March 31,
    
    Change
    
    Change(Dollars in thousands)
    
    2011
    
    2010
    
    11-10
    
    11-10Average loans:Commercial
    
    $
    128,986
    
    
    $
    148,251
    
    
    $
    (19,265
    )
    
    
    (13.0)
    %Real estate construction  residential
    
    
    32,317
    
    
    
    38,744
    
    
    
    (6,427
    )
    
    
    (16.6
    )Real estate construction  commercial
    
    
    55,288
    
    
    
    77,268
    
    
    
    (21,980
    )
    
    
    (28.4
    )Real estate mortgage  residential
    
    
    205,345
    
    
    
    231,757
    
    
    
    (26,412
    )
    
    
    (11.4
    )Real estate mortgage  commercial
    
    
    432,766
    
    
    
    448,632
    
    
    
    (15,866
    )
    
    
    (3.5
    )Consumer
    
    
    30,767
    
    
    
    36,397
    
    
    
    (5,630
    )
    
    
    (15.5
    )Total
    
    $
    885,469
    
    
    $
    981,049
    
    
    $
    (95,580
    )
    
    
    (9.7)
    %
 Liquidity Management
  Rate and volume analysis
  34




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##### Table of Contents



Three Monthes Ended March 31,2011 vs. 2010Change due toTotal
    
    Average
    
    Average(Dollars In thousands)
    
    Change
    
    Volume
    
    RateInterest income on a fully
taxable equivalent basis:Loans: (1) (3)Commercial
    
    $
    (257
    )
    
    $
    (259
    )
    
    $
    2Real estate construction  residential
    
    
    (91
    )
    
    
    (83
    )
    
    
    (8
    )Real estate construction  commercial
    
    
    (53
    )
    
    
    (214
    )
    
    
    161Real estate mortgage  residential
    
    
    (335
    )
    
    
    (374
    )
    
    
    39Real estate mortgage  commercial
    
    
    (436
    )
    
    
    (220
    )
    
    
    (216
    )Consumer
    
    
    (161
    )
    
    
    (102
    )
    
    
    (59
    )Investment securities:U.S. treasury
    
    
    5
    
    
    
    
    
    
    
    5Government sponsored entities
    
    
    16
    
    
    
    104
    
    
    
    (88
    )Asset backed securities
    
    
    72
    
    
    
    195
    
    
    
    (123
    )State and municipal(2)
    
    
    (75
    )
    
    
    (40
    )
    
    
    (35
    )Restricted Investments
    
    
    (7
    )
    
    
    (7
    )
    
    
    Federal funds sold
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    6
    
    
    
    1
    
    
    
    5Total interest income
    
    
    (1,316
    )
    
    
    (999
    )
    
    
    (317
    )Interest expense:NOW accounts
    
    
    (1
    )
    
    
    20
    
    
    
    (21
    )Savings
    
    
    2
    
    
    
    5
    
    
    
    (3
    )Money market
    
    
    (149
    )
    
    
    (21
    )
    
    
    (128
    )Time deposits of 100,000 and over
    
    
    (248
    )
    
    
    (62
    )
    
    
    (186
    )Other time deposits
    
    
    (575
    )
    
    
    (142
    )
    
    
    (433
    )Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    (8
    )
    
    
    (2
    )
    
    
    (6
    )Subordinated notes
    
    
    (125
    )
    
    
    
    
    
    
    (125
    )Other borrowed money
    
    
    (356
    )
    
    
    (153
    )
    
    
    (203
    )Total interest expense
    
    
    (1,460
    )
    
    
    (355
    )
    
    
    (1,105
    )Net interest income on a fully
taxable equivalent basis
    
    $
    144
    
    
    $
    (644
    )
    
    $
    788
 
 (1)
    
    Interest income and yields are presented on a fully taxable equivalent basis using
the Federal statutory income tax rate of 35%, net ofnondeductible interest expense. Such adjustments totaled $160,000 and $185,000 for the three
months ended March 31, 2011 and 2010, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Fees and costs on loans are included in interest income.   35




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##### Table of Contents



Non-interest Income and Expense
 Non-interest income for the three months ended March 31, 2011 and 2010 were as follows:
 Three Months Ended
    
    $
    
    %March 31,
    
    Change
    
    Change(Dollars in thousands)
    
    2011
    
    2010
    
    11-10
    
    11-10Non-interest IncomeService charges on deposit accounts
    
    $
    1,311
    
    
    $
    1,296
    
    
    $
    15
    
    
    
    1.2
    %Trust department income
    
    
    195
    
    
    
    179
    
    
    
    16
    
    
    
    8.9Gain on sales of mortgage loans, net
    
    
    246
    
    
    
    225
    
    
    
    21
    
    
    
    9.3Other
    
    
    300
    
    
    
    306
    
    
    
    (6
    )
    
    
    (2.0
    )Total non-interest income
    
    $
    2,052
    
    
    $
    2,006
    
    
    $
    46
    
    
    
    2.3
    %Non-interest income as a
% of total revenue *
    
    
    16.4
    %
    
    
    16.3
    %Total revenue per full time
equivalent employee
    
    $
    37.0
    
    
    $
    35.8
 
 *
    
    Total revenue is calculated as
net interest income plus
non-interest income  Non-interest expense for the three months ended March 31, 2011 and 2010 were as follows:
 Three Months Ended
    
    $
    
    %March 31,
    
    Change
    
    Change(Dollars in thousands)
    
    2011
    
    2010
    
    11-10
    
    11-10Non-interest ExpenseSalaries
    
    $
    3,560
    
    
    $
    3,520
    
    
    $
    40
    
    
    
    1.1
    %Employee benefits
    
    
    1,117
    
    
    
    1,137
    
    
    
    (20
    )
    
    
    (1.8
    )Occupancy expense, net
    
    
    638
    
    
    
    622
    
    
    
    16
    
    
    
    2.6Furniture and equipment expense
    
    
    507
    
    
    
    492
    
    
    
    15
    
    
    
    3.0FDIC insurance assessment
    
    
    479
    
    
    
    410
    
    
    
    69
    
    
    
    16.8Legal, examination, and professional fees
    
    
    491
    
    
    
    247
    
    
    
    244
    
    
    
    98.8Advertising and promotion
    
    
    232
    
    
    
    278
    
    
    
    (46
    )
    
    
    (16.5
    )Postage, printing, and supplies
    
    
    269
    
    
    
    288
    
    
    
    (19
    )
    
    
    (6.6
    )Processing expense
    
    
    822
    
    
    
    850
    
    
    
    (28
    )
    
    
    (3.3
    )Other real estate expense
    
    
    492
    
    
    
    507
    
    
    
    (15
    )
    
    
    (3.0
    )Other
    
    
    771
    
    
    
    780
    
    
    
    (9
    )
    
    
    (1.2
    )Total non-interest expense
    
    $
    9,378
    
    
    $
    9,131
    
    
    $
    247
    
    
    
    2.7
    %Efficiency ratio*
    
    
    74.8
    %
    
    
    74.1
    %Salaries and benefits as a % of total
non-interest expense *
    
    
    49.9
    %
    
    
    51.0
    %Number of full-time equivalent employees
    
    
    339
    
    
    
    344
  36




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##### Table of Contents



Income taxes
  Lending and Credit Management
    March 31,
    
    December 31,(In thousands)
    
    2011
    
    2010Amount
    
    %
    
    Amount
    
    %Commercial, financial, and agricultural
    
    $
    126,365
    
    
    
    14.5
    %
    
    $
    131,382
    
    
    
    14.6
    %Real estate construction  residential
    
    
    29,543
    
    
    
    3.4
    
    
    
    31,834
    
    
    
    3.5Real estate construction  commercial
    
    
    52,274
    
    
    
    6.0
    
    
    
    56,053
    
    
    
    6.2Real estate mortgage  residential
    
    
    203,590
    
    
    
    23.3
    
    
    
    207,835
    
    
    
    23.1Real estate mortgage  commercial
    
    
    430,998
    
    
    
    49.2
    
    
    
    439,069
    
    
    
    48.9Installment loans to individuals
    
    
    31,534
    
    
    
    3.6
    
    
    
    32,132
    
    
    
    3.6Deferred fees and costs, net
    
    
    177
    
    
    
    
    
    
    
    167
    
    
    
    Total loans
    
    $
    874,481
    
    
    
    100.0
    %
    
    $
    898,472
    
    
    
    100
    %
     37




---



##### Table of Contents



Accounting by Creditors for Impairment of a
Loan,
 Provision and Allowance for Loan Losses
    38




---



##### Table of Contents



Three Months EndedMarch 31,(Dollars in thousands)
    
    2011
    
    2010Analysis of allowance for loan losses:Balance beginning of year
    
    $
    14,565
    
    
    $
    14,797Net loan charge-offs:Commercial, financial, and agricultural
    
    
    767
    
    
    
    491Real estate construction  residential
    
    
    1,486
    
    
    
    281Real estate construction  commercial
    
    
    
    
    
    
    80Real estate mortgage  residential
    
    
    1,031
    
    
    
    1,728Real estate mortgage  commercial
    
    
    576
    
    
    
    18Installment loans to individuals
    
    
    53
    
    
    
    46Total net charge-offs
    
    
    3,913
    
    
    
    2,644Provision for loan losses
    
    
    1,750
    
    
    
    2,505Balance at March 31,
    
    $
    12,402
    
    
    $
    14,658
   39




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##### Table of Contents



March 31,
    
    December 31,(Dollars in thousands)
    
    2011
    
    2010Nonaccrual loans:Commercial, financial, and agricultural
    
    $
    3,708
    
    
    $
    3,532Real estate construction  residential
    
    
    1,940
    
    
    
    3,586Real estate construction  commercial
    
    
    10,030
    
    
    
    10,067Real estate mortgage  residential
    
    
    4,637
    
    
    
    5,672Real estate mortgage  commercial
    
    
    26,989
    
    
    
    27,604Installment loans to individuals
    
    
    220
    
    
    
    126Total nonaccrual loans
    
    
    47,524
    
    
    
    50,587Loans contractually past  due 90 days
or more and still accruing:Commercial, financial, and agricultural
    
    
    383
    
    
    
    8Real estate construction  residential
    
    
    
    
    
    
    Real estate construction  commercial
    
    
    
    
    
    
    Real estate mortgage  residential
    
    
    
    
    
    
    Real estate mortgage  commercial
    
    
    7
    
    
    
    25Installment loans to individuals
    
    
    
    
    
    
    Total loans contractually past -due
90 days or more and still accruing
    
    
    390
    
    
    
    33Troubled debt restructurings  accruing
    
    
    2,504
    
    
    
    5,683Total nonperforming loans
    
    
    50,418
    
    
    
    56,303Other real estate
    
    
    14,696
    
    
    
    13,393Repossessions
    
    
    730
    
    
    
    616Total nonperforming assets
    
    $
    65,844
    
    
    $
    70,312Loans
    
    $
    874,481
    
    
    $
    898,472Allowance for loan losses to loans
    
    
    1.42
    %
    
    
    1.62Nonperforming loans to loans
    
    
    5.77
    %
    
    
    6.27Allowance for loan losses to
nonperforming loans
    
    
    24.60
    %
    
    
    25.87Nonperforming assets to loans and
foreclosed assets
    
    
    7.40
    %
    
    
    7.71
    40




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##### Table of Contents



(Dollars in thousands)
    
    
    
    
    
    March 31, 2011
    
    
    
    
    
    
    
    
    
    December 31, 2010Number of
    
    Recorded
    
    Specific
    
    Number of
    
    Recorded
    
    Specificcontracts
    
    Investment
    
    Reserves
    
    contracts
    
    Investment
    
    ReservesAccruing TDRsCommercial, financial and
agricultural
    
    
    3
    
    
    $
    126
    
    
    $
    19
    
    
    
    3
    
    
    $
    128
    
    
    $
    20Real estate construction 
commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,716
    
    
    
    95Real estate
mortgage  residential
    
    
    19
    
    
    
    2,268
    
    
    
    32
    
    
    
    20
    
    
    
    2,364
    
    
    
    82Real estate mortgage  commercial
    
    
    1
    
    
    
    110
    
    
    
    
    
    
    
    4
    
    
    
    1,475
    
    
    
    14Total
    
    
    23
    
    
    $
    2,504
    
    
    $
    51
    
    
    
    28
    
    
    $
    5,683
    
    
    $
    211TDRs  Non-accrualsCommercial, financial and
agricultural
    
    
    4
    
    
    $
    789.00
    
    
    $
    18
    
    
    
    5
    
    
    $
    871.00
    
    
    $
    76Real estate
construction 
commercial
    
    
    2
    
    
    
    1,195
    
    
    
    
    
    
    
    2
    
    
    
    1,210
    
    
    
    Real estate
mortgage  residential
    
    
    7
    
    
    
    1,246
    
    
    
    76
    
    
    
    6
    
    
    
    1,092
    
    
    
    67Real estate mortgage  commercial
    
    
    7
    
    
    
    14,065
    
    
    
    1,273
    
    
    
    5
    
    
    
    13,224
    
    
    
    1,005Total
    
    
    20
    
    
    $
    17,295
    
    
    $
    1,367
    
    
    
    18
    
    
    $
    16,397
    
    
    $
    1,148Total TDRs
    
    
    43
    
    
    $
    19,799
    
    
    $
    1,418
    
    
    
    46
    
    
    $
    22,080
    
    
    $
    1,359
       41




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##### Table of Contents



March 31,
    
    December 31,(Dollars in thousands)
    
    2011
    
    2010Allocation of allowance for
loan losses at end of period:Commercial, financial, and agricultural
    
    $
    2,257
    
    
    $
    2,931Real estate construction  residential
    
    
    991
    
    
    
    2,067Real estate construction  commercial
    
    
    1,356
    
    
    
    1,339Real estate mortgage  residential
    
    
    3,118
    
    
    
    3,922Real estate mortgage  commercial
    
    
    3,709
    
    
    
    3,458Installment loans to individuals
    
    
    223
    
    
    
    231Unallocated
    
    
    748
    
    
    
    617Total
    
    $
    12,402
    
    
    $
    14,565
   March 31,
    
    December 31,(Dollars in thousands)
    
    2011
    
    2010Allocation of allowance for loan losses:Specific reserve allocation for impaired loans
    
    $
    3,737
    
    
    $
    6,376General reserve allocation for all other non-impaired loans
    
    
    8,665
    
    
    
    8,189Total
    
    $
    12,402
    
    
    $
    14,565
    42




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity Management
    March 31,
    
    December 31,(dollars in thousands)
    
    2011
    
    2010Federal funds sold
    
    $
    142
    
    
    $
    126Federal Reserve  excess reserves
    
    
    19,133
    
    
    
    29,286Available for sale investments securities
    
    
    217,542
    
    
    
    178,978Total
    
    $
    236,817
    
    
    $
    208,390
  43




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##### Table of Contents



March 31,
    
    December 31,(dollars in thousands)
    
    2011
    
    2010Investment securities pledged for the purpose
of securing:Federal Reserve Bank borrowings
    
    $
    2,561
    
    
    $
    3,262Repurchase agreements
    
    
    33,133
    
    
    
    45,929Other deposits
    
    
    121,699
    
    
    
    98,908Total pledged, at fair value
    
    $
    157,393
    
    
    $
    148,099
   March 31,
    
    December 31,(dollars in thousands)
    
    2011
    
    2010Core deposit base:Non-interest bearing demand
    
    $
    142,195
    
    
    $
    137,750Interest checking
    
    
    189,877
    
    
    
    160,225Savings and money market
    
    
    211,449
    
    
    
    218,912Total
    
    $
    543,521
    
    
    $
    516,887
  March 31,
    
    December 31,(dollars in thousands)
    
    2011
    
    2010Borrowings:Federal funds purchased
    
    $
    
    
    
    $
    Securities sold under agreements to repurchase
    
    
    29,046
    
    
    
    30,068FHLB advances
    
    
    51,821
    
    
    
    66,986Subordinated notes
    
    
    49,486
    
    
    
    49,486Total
    
    $
    130,353
    
    
    $
    146,540
  44




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##### Table of Contents



Federal(dollars in thousands)
    
    FHLB
    
    Reserve
    
    OtherCollateral value pledged
    
    $
    267,232
    
    
    $
    2,502
    
    
    $
    20,345Advances outstanding
    
    
    (51,821
    )
    
    
    
    
    
    
    Letters of credit issued
    
    
    (96
    )
    
    
    
    
    
    
    Total
    
    $
    215,315
    
    
    $
    2,502
    
    
    $
    20,345
 Sources and Uses of Funds
     Commitments, Contractual Obligations, and Off-Balance Sheet Arrangements,
  45




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##### Table of Contents



Capital Management
   Minimum
    
    Well-CapitalizedActual
    
    Capital requirements
    
    Capital RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioMarch 31, 2011Total capital (to
risk-weighted
assets):Company
    
    $
    159,836
    
    
    
    17.29
    %
    
    $
    73,959
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    131,900
    
    
    
    14.53
    
    
    
    72,631
    
    
    
    8.00
    
    
    $
    90,789
    
    
    
    10.00
    %Tier I capital (to
risk-weighted
assets):Company
    
    $
    134,187
    
    
    
    14.51
    
    
    $
    36,979
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    120,544
    
    
    
    13.28
    
    
    
    36,315
    
    
    
    4.00
    
    
    $
    54,473
    
    
    
    6.00
    %Tier I capital (to
adjusted average
assets):Company
    
    $
    134,187
    
    
    
    11.12
    
    
    $
    36,212
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    120,544
    
    
    
    10.16
    
    
    
    35,611
    
    
    
    3.00
    
    
    $
    59,352
    
    
    
    5.00
    %December 31, 2010Total capital (to
risk-weighted
assets):Company
    
    $
    159,510
    
    
    
    17.05
    %
    
    $
    74,863
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    130,361
    
    
    
    14.18
    
    
    
    73,548
    
    
    
    8.00
    
    
    $
    91,834
    
    
    
    10.00
    %Tier I capital (to
risk-weighted
assets):Company
    
    $
    133,349
    
    
    
    14.25
    
    
    $
    37,431
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    118,837
    
    
    
    12.93
    
    
    
    36,774
    
    
    
    4.00
    
    
    $
    55,161
    
    
    
    6.00
    %Tier I capital (to
adjusted average
assets):Company
    
    $
    133,349
    
    
    
    11.00
    
    
    $
    36,360
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    118,837
    
    
    
    9.99
    
    
    
    35,685
    
    
    
    3.00
    
    
    $
    59,475
    
    
    
    5.00
    %
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Sensitivity
  46




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##### Table of Contents



Over5 years orno stated(Dollars in thousands)
    
    Year 1
    
    Year 2
    
    Year 3
    
    Year 4
    
    Year 5
    
    Maturity
    
    TotalASSETSInvestment securities
    
    $
    3,848
    
    
    $
    2,577
    
    
    $
    21,879
    
    
    $
    24,726
    
    
    $
    35,847
    
    
    $
    128,665
    
    
    $
    217,542Interest-bearing deposits
    
    
    19,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,133Other restricted investments
    
    
    5,467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,467Federal funds sold and
securities
purchased under agreements
to resell
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142Loans
    
    
    471,240
    
    
    
    171,251
    
    
    
    153,154
    
    
    
    32,831
    
    
    
    19,221
    
    
    
    26,784
    
    
    
    874,481Total
    
    $
    499,830
    
    
    $
    173,828
    
    
    $
    175,033
    
    
    $
    57,557
    
    
    $
    55,068
    
    
    $
    155,449
    
    
    $
    1,116,765LIABILITIESSavings, Now deposits
    
    $
    
    
    
    $
    
    
    
    $
    177,085
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    177,085Rewards checking, Super Now,
money market deposits
    
    
    224,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224,454Time deposits
    
    
    288,658
    
    
    
    62,681
    
    
    
    55,721
    
    
    
    6,731
    
    
    
    8,501
    
    
    
    
    
    
    
    422,292Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    29,046
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,046Subordinated notes
    
    
    49,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,486Other borrowed money
    
    
    33,481
    
    
    
    8,281
    
    
    
    10,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,821Total
    
    $
    625,125
    
    
    $
    70,962
    
    
    $
    242,865
    
    
    $
    6,731
    
    
    $
    8,501
    
    
    $
    
    
    
    $
    954,184Interest-sensitivity GAPPeriodic GAP
    
    $
    (125,295
    )
    
    $
    102,866
    
    
    $
    (67,832
    )
    
    $
    50,826
    
    
    $
    46,567
    
    
    $
    155,449
    
    
    $
    162,581Cumulative GAP
    
    $
    (125,295
    )
    
    $
    (22,429
    )
    
    $
    (90,261
    )
    
    $
    (39,435
    )
    
    $
    7,132
    
    
    $
    162,581
    
    
    $
    162,581Ratio of interest-earnings
assets to interest-bearing
liabilitiesPeriodic GAP
    
    
    0.80
    
    
    
    2.45
    
    
    
    0.72
    
    
    
    8.55
    
    
    
    6.48
    

    NM
    
    
    
    1.17Cumulative GAP
    
    
    0.80
    
    
    
    0.97
    
    
    
    0.90
    
    
    
    0.96
    
    
    
    1.01
    
    
    
    1.17
    
    
    
    1.17
 Effects of Inflation
   47




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##### Table of Contents



Item 4. Controls and Procedures
   Impact of New Accounting Standards
 A Creditors
Determination of Whether a Restructuring is a Troubled Debt Restructuring
  48




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##### Table of Contents



PART II  OTHER INFORMATION
 
   
   
   
   
   
   
  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
 49




---



##### Table of Contents



SIGNATURES
  HAWTHORN BANCSHARES, INC.Date/s/ David T. TurnerMay 16, 2011
    David T. Turner. Smith, Chairman of the Board andChief Executive Officer (Principal Executive Officer)/s/ Richard G. RoseMay 16, 2011
    Richard G. Rose, Chief Financial Officer (PrincipalFinancial Officer and Principal Accounting Officer) 50




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##### Table of Contents



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
    
    
    5231.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    5332.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    5432.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    55
 
 **
    
    Incorporated by reference. 51