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 June 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 0-23636
 HAWTHORN BANCSHARES, INC.
  Missouri
    
    43-1626350(State or other jurisdiction of
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 300 Southwest Longview Boulevard, Lees Summit, Missouri 64081
 (816) 347-8100
 N/A
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Item 1. Financial Statements
 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSLoans
    
    $
    944,652,333
    
    
    $
    991,614,007Allowances for loan losses
    
    
    (12,231,596
    )
    
    
    (14,796,549
    )Net loans
    
    
    932,420,737
    
    
    
    976,817,458Investment in available-for-sale securities, at fair value
    
    
    167,970,334
    
    
    
    152,926,685Federal funds sold and securities purchased under agreements to resell
    
    
    178,202
    
    
    
    89,752Cash and due from banks
    
    
    55,849,897
    
    
    
    24,575,943Premises and equipment  net
    
    
    37,634,200
    
    
    
    38,623,293Other real estate owned and repossessed assets
    
    
    14,203,849
    
    
    
    8,490,914Accrued interest receivable
    
    
    5,933,185
    
    
    
    6,625,557Mortgage servicing rights
    
    
    2,005,639
    
    
    
    2,020,964Intangible assets  net
    
    
    1,213,561
    
    
    
    1,503,986Cash surrender value  life insurance
    
    
    1,960,066
    
    
    
    1,929,910Other assets
    
    
    20,173,664
    
    
    
    22,866,092Total assets
    
    $
    1,239,543,334
    
    
    $
    1,236,470,554LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing demand
    
    $
    131,505,268
    
    
    $
    135,017,639Savings, interest checking and money market
    
    
    392,324,418
    
    
    
    354,284,004Time deposits $100,000 and over
    
    
    129,039,802
    
    
    
    137,860,435Other time deposits
    
    
    318,488,783
    
    
    
    329,160,719Total deposits
    
    
    971,358,271
    
    
    
    956,322,797Federal funds purchased and securities sold
under agreements to repurchase
    
    
    35,168,837
    
    
    
    36,645,434Subordinated notes
    
    
    49,486,000
    
    
    
    49,486,000Other borrowed money
    
    
    67,349,774
    
    
    
    79,317,302Accrued interest payable
    
    
    2,296,948
    
    
    
    2,438,121Other liabilities
    
    
    5,062,882
    
    
    
    4,489,617Total liabilities
    
    
    1,130,722,712
    
    
    
    1,128,699,271Stockholders equity:Preferred stock, $1,000 par value
Authorized and issued 30,255 shares
    
    
    28,603,005
    
    
    
    28,364,768Common stock, $1 par value
Authorized 15,000,000 shares; issued 4,635,891 and
4,463,813 shares, respectively
    
    
    4,463,813
    
    
    
    4,463,813Surplus
    
    
    29,061,855
    
    
    
    26,970,745Retained earnings
    
    
    48,127,292
    
    
    
    50,576,551Accumulated other comprehensive income, net of tax
    
    
    2,081,475
    
    
    
    912,224Treasury stock; 161,858 shares, at cost
    
    
    (3,516,818
    )
    
    
    (3,516,818
    )Total stockholders equity
    
    
    108,820,622
    
    
    
    107,771,283Total liabilities and stockholders equity
    
    $
    1,239,543,334
    
    
    $
    1,236,470,554
  2




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##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009INTEREST INCOMEInterest and fees on loans
    
    $
    13,633,597
    
    
    $
    14,547,559
    
    
    $
    27,052,073
    
    
    $
    28,991,585Interest on debt securities:Taxable
    
    
    1,118,098
    
    
    
    1,114,711
    
    
    
    2,182,077
    
    
    
    2,277,218Nontaxable
    
    
    294,553
    
    
    
    344,106
    
    
    
    620,755
    
    
    
    737,722Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    47
    
    
    
    43
    
    
    
    83
    
    
    
    193Interest on interest-bearing deposits
    
    
    21,891
    
    
    
    17,617
    
    
    
    35,522
    
    
    
    32,009Dividends on other securities
    
    
    34,750
    
    
    
    36,709
    
    
    
    85,447
    
    
    
    56,268Total interest income
    
    
    15,102,936
    
    
    
    16,060,745
    
    
    
    29,975,957
    
    
    
    32,094,995INTEREST EXPENSEInterest on deposits:Savings, interest checking and money market
    
    
    554,453
    
    
    
    746,897
    
    
    
    1,185,206
    
    
    
    1,696,847Time deposit accounts $100,000 and over
    
    
    651,252
    
    
    
    1,027,274
    
    
    
    1,362,634
    
    
    
    2,107,520Other time deposit accounts
    
    
    1,850,082
    
    
    
    2,839,268
    
    
    
    3,848,733
    
    
    
    5,779,149Interest on federal funds purchased and securities sold
under agreements to repurchase
    
    
    19,123
    
    
    
    18,083
    
    
    
    39,663
    
    
    
    40,570Interest on subordinated notes
    
    
    323,246
    
    
    
    628,057
    
    
    
    847,546
    
    
    
    1,290,103Interest on other borrowed money
    
    
    590,653
    
    
    
    783,763
    
    
    
    1,267,014
    
    
    
    1,632,946Total interest expense
    
    
    3,988,809
    
    
    
    6,043,342
    
    
    
    8,550,796
    
    
    
    12,547,135Net interest income
    
    
    11,114,127
    
    
    
    10,017,403
    
    
    
    21,425,161
    
    
    
    19,547,860Provision for loan losses
    
    
    2,150,000
    
    
    
    1,404,000
    
    
    
    4,655,000
    
    
    
    3,154,000Net interest income after provision for loan losses
    
    
    8,964,127
    
    
    
    8,613,403
    
    
    
    16,770,161
    
    
    
    16,393,860NON-INTEREST INCOMEService charges on deposit accounts
    
    
    1,427,202
    
    
    
    1,455,411
    
    
    
    2,723,290
    
    
    
    2,833,210Trust department income
    
    
    200,644
    
    
    
    183,672
    
    
    
    379,506
    
    
    
    385,319Gain on sale of mortgage loans, net
    
    
    297,201
    
    
    
    927,129
    
    
    
    521,774
    
    
    
    1,948,100Other
    
    
    524,973
    
    
    
    241,278
    
    
    
    830,906
    
    
    
    405,629Total non-interest income
    
    
    2,450,020
    
    
    
    2,807,490
    
    
    
    4,455,476
    
    
    
    5,572,258NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,550,320
    
    
    
    4,587,388
    
    
    
    9,207,441
    
    
    
    8,949,670Occupancy expense, net
    
    
    604,734
    
    
    
    555,158
    
    
    
    1,226,406
    
    
    
    1,163,435Furniture and equipment expense
    
    
    534,611
    
    
    
    724,273
    
    
    
    1,026,650
    
    
    
    1,287,931FDIC insurance assessment
    
    
    435,020
    
    
    
    983,001
    
    
    
    845,198
    
    
    
    1,663,782Legal, examination, and professional fees
    
    
    336,033
    
    
    
    312,624
    
    
    
    583,323
    
    
    
    673,494Advertising and promotion
    
    
    296,834
    
    
    
    318,447
    
    
    
    575,023
    
    
    
    599,718Postage, printing, and supplies
    
    
    286,190
    
    
    
    277,942
    
    
    
    574,356
    
    
    
    562,412Processing expense
    
    
    856,495
    
    
    
    838,031
    
    
    
    1,706,860
    
    
    
    1,692,779Other real estate expense
    
    
    1,506,291
    
    
    
    170,944
    
    
    
    2,012,746
    
    
    
    335,261Other
    
    
    913,110
    
    
    
    893,669
    
    
    
    1,692,381
    
    
    
    1,727,727Total non-interest expense
    
    
    10,319,638
    
    
    
    9,661,477
    
    
    
    19,450,384
    
    
    
    18,656,209Income before income taxes
    
    
    1,094,509
    
    
    
    1,759,416
    
    
    
    1,775,253
    
    
    
    3,309,909Less income taxes
    
    
    312,043
    
    
    
    555,128
    
    
    
    499,019
    
    
    
    1,048,990Net income
    
    
    782,466
    
    
    
    1,204,288
    
    
    
    1,276,234
    
    
    
    2,260,919Preferred stock dividends
    
    
    382,390
    
    
    
    382,389
    
    
    
    752,173
    
    
    
    756,375Accretion of discount on preferred stock
    
    
    119,118
    
    
    
    119,119
    
    
    
    238,237
    
    
    
    238,237Net income available to common shareholders
    
    $
    280,958
    
    
    $
    702,780
    
    
    $
    285,824
    
    
    $
    1,266,307Basic earnings per share
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.28Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.28
  3




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##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity (Unaudited)
 Accumulated
    
    
    
    
    
    
    Totalother
    
    
    
    
    
    
    Stock -Preferred
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    holdersStock
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, December 31, 2009
    
    $
    28,364,768
    
    
    $
    4,463,813
    
    
    $
    26,970,745
    
    
    $
    50,576,551
    
    
    $
    912,224
    
    
    $
    (3,516,818
    )
    
    $
    107,771,283Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,276,234
    
    
    
    
    
    
    
    
    
    
    
    1,276,234Change in unrealized gain (loss) on securities:Unrealized gain on debt and equity securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,145,269
    
    
    
    
    
    
    
    1,145,269Defined benefit pension plans:Amortization of prior service cost included
in net periodic pension cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,982
    
    
    
    
    
    
    
    23,982Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,169,251Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,445,485Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    48,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,542Accretion of preferred stock discount
    
    
    238,237
    
    
    
    
    
    
    
    
    
    
    
    (238,237
    )
    
    
    
    
    
    
    
    
    
    
    Stock dividend
    
    
    
    
    
    
    
    
    
    
    2,042,568
    
    
    
    (2,042,568
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (756,375
    )
    
    
    
    
    
    
    
    
    
    
    (756,375
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (688,313
    )
    
    
    
    
    
    
    
    
    
    
    (688,313
    )Balance, June 30, 2010
    
    $
    28,603,005
    
    
    $
    4,463,813
    
    
    $
    29,061,855
    
    
    $
    48,127,292
    
    
    $
    2,081,475
    
    
    $
    (3,516,818
    )
    
    $
    108,820,622Balance, December 31, 2008
    
    $
    27,888,294
    
    
    $
    4,298,353
    
    
    $
    25,144,323
    
    
    $
    51,598,678
    
    
    $
    1,005,553
    
    
    $
    (3,516,818
    )
    
    $
    106,418,383Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,260,919
    
    
    
    
    
    
    
    
    
    
    
    2,260,919Change in unrealized gain (loss) on securities:Unrealized loss on debt and equity securities
available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (249,861
    )
    
    
    
    
    
    
    (249,861
    )Defined benefit pension plans:Amortization of prior service cost included
in net periodic pension cost, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,090
    
    
    
    
    
    
    
    24,090Total other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225,771
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,035,148Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    68,537
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,537Accretion of preferred stock discount
    
    
    238,236
    
    
    
    
    
    
    
    
    
    
    
    (238,236
    )
    
    
    
    
    
    
    
    
    
    
    Stock dividend
    
    
    
    
    
    
    
    
    
    
    1,861,423
    
    
    
    (1,861,423
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends declared, preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,323,679
    )
    
    
    
    
    
    
    
    
    
    
    (1,323,679
    )Cash dividends declared, common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (613,504
    )
    
    
    
    
    
    
    
    
    
    
    (613,504
    )Balance, June 30, 2009
    
    $
    28,126,530
    
    
    $
    4,298,353
    
    
    $
    27,074,283
    
    
    $
    49,822,755
    
    
    $
    779,782
    
    
    $
    (3,516,818
    )
    
    $
    106,584,885
  4




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##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
 Six months Ended June 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,276,234
    
    
    $
    2,260,919Adjustments to reconcile
net income to net cash provided by operating activities:Provision for loan losses
    
    
    4,655,000
    
    
    
    3,154,000Depreciation expense
    
    
    1,005,026
    
    
    
    1,052,040Net amortization of debt securities, premiums, and discounts
    
    
    283,997
    
    
    
    233,688Amortization of intangible assets
    
    
    290,425
    
    
    
    325,073Stock based compensation expense
    
    
    48,542
    
    
    
    68,537Loss on sales and dispositions of premises and equipment
    
    
    59,621
    
    
    
    153,859Other real estate owned impairment charges
    
    
    1,234,995
    
    
    
    62,535Decrease (increase) in deferred tax asset, net
    
    
    1,346,832
    
    
    
    (144,340
    )Decrease in accrued interest receivable
    
    
    692,372
    
    
    
    429,627Increase in cash surrender value -life insurance
    
    
    (30,156
    )
    
    
    (36,437
    )Decrease in other assets
    
    
    162,531
    
    
    
    446,833(Decrease) increase in accrued interest payable
    
    
    (141,173
    )
    
    
    456,117Increase in other liabilities
    
    
    831,382
    
    
    
    1,907,262Origination of mortgage loans held for sale
    
    
    (29,524,264
    )
    
    
    (102,485,000
    )Proceeds from the sale of mortgage loans held for sale
    
    
    30,046,038
    
    
    
    104,433,100Gain on sale of mortgage loans, net
    
    
    (521,774
    )
    
    
    (1,948,100
    )Other, net
    
    
    23,982
    
    
    
    276,060Net cash provided by operating activities
    
    
    11,739,610
    
    
    
    10,645,773Cash flows from investing activities:Net decrease (increase) in loans
    
    
    27,991,681
    
    
    
    (4,323,339
    )Purchase of available-for-sale debt securities
    
    
    (140,268,118
    )
    
    
    (71,446,366
    )Proceeds from maturities of available-for-sale debt securities
    
    
    98,037,862
    
    
    
    54,907,262Proceeds from calls of available-for-sale debt securities
    
    
    28,780,100
    
    
    
    13,130,000Proceeds from sales of FHLB stock
    
    
    595,200
    
    
    
    Purchases of premises and equipment
    
    
    (239,112
    )
    
    
    (365,831
    )Proceeds from sales of premises and equipment
    
    
    34,528
    
    
    
    574,815Proceeds from sales of other real estate owned and repossessions
    
    
    4,802,109
    
    
    
    1,514,552Net cash provided (used) by investing activities
    
    
    19,734,250
    
    
    
    (6,008,907
    )Cash flows from financing activities:Net (decrease) increase in non-interest-bearing demand deposits
    
    
    (3,512,371
    )
    
    
    4,569,698Net increase in savings, interest checking, and money market
accounts
    
    
    38,040,414
    
    
    
    6,030,766Net (decrease) increase in time deposits
    
    
    (19,492,569
    )
    
    
    18,246,802Net (decrease) increase in federal funds purchased and securities sold
under agreements to repurchase
    
    
    (1,476,597
    )
    
    
    4,063,197Repayment of other borrowed money
    
    
    (11,967,528
    )
    
    
    (57,387,805
    )Cash dividends paid  preferred stock
    
    
    (756,375
    )
    
    
    (613,504
    )Cash dividends paid  common stock
    
    
    (946,430
    )
    
    
    (1,737,329
    )Net cash used by financing activities
    
    
    (111,456
    )
    
    
    (26,828,175
    )Net increase (decrease) in cash and cash equivalents
    
    
    31,362,404
    
    
    
    (22,191,309
    )Cash and cash equivalents, beginning of year
    
    
    24,665,695
    
    
    
    53,827,468Cash and cash equivalents, end of period
    
    $
    56,028,099
    
    
    $
    31,636,159Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    8,691,969
    
    
    $
    12,091,018Income taxes
    
    
    200,000
    
    
    
    Supplemental schedule of noncash investing and financing activities:Other real estate and repossessions acquired in settlement of
loans
    
    $
    11,750,040
    
    
    $
    1,222,578Dividends declared  common stock
    
    
    215,098
    
    
    
    455,014Stock dividend declared
    
    
    2,042,568
    
    
    
    1,861,423
  5




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##### 



(Unaudited)
 Basis of Presentation
  Consolidated Financial Statements
   Loans and Allowance for Loan Losses
  June 30,
    
    
    December 31,2010
    
    
    2009Commercial, financial, and agricultural
    
    $
    140,226,749
    
    
    $
    151,399,300Real estate construction  residential
    
    
    37,709,566
    
    
    
    38,840,664Real estate construction  commercial
    
    
    76,867,712
    
    
    
    77,936,569Real estate mortgage  residential
    
    
    221,225,906
    
    
    
    232,332,124Real estate mortgage  commercial
    
    
    433,733,196
    
    
    
    453,975,271Installment loans to individuals
    
    
    34,700,584
    
    
    
    36,966,018Unamortized loan origination fees and costs, net
    
    
    188,620
    
    
    
    164,061Total loans
    
    $
    944,652,333
    
    
    $
    991,614,007
  6




---



##### 



June 30, 2010
    
    
    December 31, 2009Loans classified as impaired:Non-accrual loans
    
    $
    45,825,414
    
    
    $
    34,153,731Impaired loans continuing to accrue interest
    
    
    17,236,149
    
    
    
    39,713,014Total impaired loans
    
    $
    63,061,563
    
    
    $
    73,866,745Balance of impaired loans with reserves
    
    $
    30,819,214
    
    
    $
    26,294,560Balance of impaired loans without reserves
    
    
    32,242,349
    
    
    
    47,572,185Total impaired loans
    
    $
    63,061,563
    
    
    $
    73,866,745Reserves for impaired loans
    
    $
    5,779,603
    
    
    $
    6,414,729Average balance of impaired loans during the period
    
    
    65,626,401
    
    
    
    39,048,298Balance of trouble debt restructured loans included
in impaired loans
    
    
    19,448,526
    
    
    
    11,233,326
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    14,657,622
    
    
    $
    13,159,425
    
    
    $
    14,796,549
    
    
    $
    12,666,546Additions:Provision for loan losses
    
    
    2,150,000
    
    
    
    1,404,000
    
    
    
    4,655,000
    
    
    
    3,154,000Total additions
    
    
    2,150,000
    
    
    
    1,404,000
    
    
    
    4,655,000
    
    
    
    3,154,000Deductions:Loans charged off
    
    
    4,760,386
    
    
    
    970,049
    
    
    
    7,566,661
    
    
    
    2,351,407Less recoveries on loans
    
    
    (184,360
    )
    
    
    (111,360
    )
    
    
    (346,708
    )
    
    
    (235,597
    )Net loans charged off
    
    
    4,576,026
    
    
    
    858,689
    
    
    
    7,219,953
    
    
    
    2,115,810Balance at end of period
    
    $
    12,231,596
    
    
    $
    13,704,736
    
    
    $
    12,231,596
    
    
    $
    13,704,736
 7




---



##### 



Investment Securities
  June 30,
    
    
    December 31,2010
    
    
    2009U.S. treasury
    
    $
    1,027,266
    
    
    $
    Government sponsored enterprises
    
    
    51,856,056
    
    
    
    44,380,798Asset-backed securities
    
    
    82,786,092
    
    
    
    69,434,650Obligations of states and political subdivisions
    
    
    32,300,920
    
    
    
    39,111,237Total available for sale securities
    
    $
    167,970,334
    
    
    $
    152,926,685
   Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueJune 30, 2010U.S. treasury
    
    $
    999,793
    
    
    $
    27,473
    
    
    $
    
    
    
    $
    1,027,266Government sponsored enterprises
    
    
    51,209,517
    
    
    
    646,892
    
    
    
    353
    
    
    
    51,856,056Asset-backed securities
    
    
    80,006,638
    
    
    
    2,883,131
    
    
    
    103,677
    
    
    
    82,786,092Obligations of states and political
subdivisions
    
    
    31,558,849
    
    
    
    759,555
    
    
    
    17,484
    
    
    
    32,300,920Total available for sale securities
    
    $
    163,774,797
    
    
    $
    4,317,051
    
    
    $
    121,514
    
    
    $
    167,970,334December 31, 2009Government sponsored enterprises
    
    $
    44,059,540
    
    
    $
    371,258
    
    
    $
    50,000
    
    
    $
    44,380,798Asset-backed securities
    
    
    68,092,852
    
    
    
    1,585,774
    
    
    
    243,976
    
    
    
    69,434,650Obligations of states and political
subdivisions
    
    
    38,456,246
    
    
    
    708,196
    
    
    
    53,205
    
    
    
    39,111,237Total available for sale securities
    
    $
    150,608,638
    
    
    $
    2,665,228
    
    
    $
    347,181
    
    
    $
    152,926,685
  8




---



##### 



Amortized
    
    
    Faircost
    
    
    valueDue in one year or less
    
    $
    7,254,405
    
    
    $
    7,342,844Due after one year through five years
    
    
    57,985,369
    
    
    
    58,897,225Due after five years through ten years
    
    
    14,900,448
    
    
    
    15,262,361Due after ten years
    
    
    3,627,937
    
    
    
    3,681,81283,768,159
    
    
    
    85,184,242Asset-backed securities
    
    
    80,006,638
    
    
    
    82,786,092Total available for sale investment securities
    
    $
    163,774,797
    
    
    $
    167,970,334
   Less than 12 months
    
    
    12 months or more
    
    
    
     
    
    

    TotalNumber ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Investment
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    LossesAt June 30, 2010Government sponsored
enterprises
    
    $
    1,253,906
    
    
    $
    (353
    )
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    1,253,906
    
    
    $
    (353
    )Asset-backed securities
    
    
    9,273,630
    
    
    
    (103,677
    )
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    9,273,630
    
    
    
    (103,677
    )Obligations of
states and
political subdivisions
    
    
    1,060,656
    
    
    
    (13,725
    )
    
    
    236,241
    
    
    
    (3,759
    )
    
    
    6
    
    
    
    1,296,897
    
    
    
    (17,484
    )$
    11,588,192
    
    
    $
    (117,755
    )
    
    $
    236,241
    
    
    $
    (3,759
    )
    
    
    17
    
    
    $
    11,824,433
    
    
    $
    (121,514
    )
 Less than 12 months
    
    
    12 months or more
    
    
    
    
    
    
    TotalNumber ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Investment
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    LossesAt December 31, 2009Government sponsored
enterprises
    
    $
    5,943,819
    
    
    $
    (50,000
    )
    
    $
    
    
    
    $
    
    
    
    
    6
    
    
    $
    5,943,819
    
    
    
    (50,000
    )Asset-backed securities
    
    
    14,600,160
    
    
    
    (243,904
    )
    
    
    20,551
    
    
    
    (72
    )
    
    
    15
    
    
    
    14,620,711
    
    
    $
    (243,976
    )Obligations of states
and
political subdivisions
    
    
    3,576,780
    
    
    
    (53,205
    )
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    3,576,780
    
    
    
    (53,205
    )$
    24,120,759
    
    
    $
    (347,109
    )
    
    $
    20,551
    
    
    $
    (72
    )
    
    
    35
    
    
    $
    24,141,310
    
    
    $
    (347,181
    )
   9




---



##### 



Intangible Assets
  June 30, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortizable intangible assets:Core deposit intangible
    
    $
    7,060,224
    
    
    $
    (5,846,663
    )
    
    $
    1,213,561
    
    
    $
    7,060,224
    
    
    $
    (5,556,238
    )
    
    $
    1,503,986Mortgage servicing rights
    
    
    2,786,755
    
    
    
    (781,116
    )
    
    
    2,005,639
    
    
    
    2,945,019
    
    
    
    (924,055
    )
    
    
    2,020,964Total amortizable intangible assets
    
    $
    9,846,979
    
    
    $
    (6,627,779
    )
    
    $
    3,219,200
    
    
    $
    10,005,243
    
    
    $
    (6,480,293
    )
    
    $
    3,524,950
  Core Deposit
    
    
    Mortgage ServicingIntangible Asset
    
    
    RightsBalance at December 31, 2009
    
    $
    1,503,986
    
    
    $
    2,020,964Additions
    
    
    
    
    
    
    271,651Amortization
    
    
    (290,425
    )
    
    
    (286,976
    )Balance at June 30, 2010
    
    $
    1,213,561
    
    
    $
    2,005,639Mortgage servicing rights (MSRs) are amortized over the shorter of 7 years or the life of the
loan. They are periodically reviewed for impairment and if impairment is indicated, recorded at
fair value. At June 30, 2010 and December 31, 2009, no temporary impairment was recognized. The
fair value of MSRs is based on the present value of expected cash flows, as further discussed in
Fair Value of Financial Instruments.Mortgage loans serviced for others totaled approximately
$273,237,000 and $269,475,000 at June 30, 2010 and December 31, 2009, respectively. Included in
other noninterest income were real estate servicing fees for the six months ended June 30, 2010 and
2009 of $397,000 and $444,000, respectively.Our Companys amortization expense on intangible assets in any given period may be different
from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage
interest rates, prepayment rates and other market conditions. The following table shows the
estimated future amortization expense based on existing asset balances and the interest rate
environment as of June 30, 2010 and for the next five years:Core Deposit
    
    
    Mortgage ServicingIntangible Asset


Rights2010
    
    $
    236,052
    
    
    $
    292,0242011
    
    
    434,763
    
    
    
    440,0002012
    
    
    408,062
    
    
    
    336,0002013
    
    
    134,684
    
    
    
    257,0002014
    
    
    
    
    
    
    197,0002015
    
    
    
    
    
    
    151,000
 10




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Aggregate amortization expense
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Core deposit intangible asset
    
    $
    139,906
    
    
    $
    156,530
    
    
    $
    290,425
    
    
    $
    325,073Mortgage servicing rights
    
    
    152,102
    
    
    
    271,690
    
    
    
    286,976
    
    
    
    590,316
 Income Taxes
   Employee Benefit Plans
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Payroll taxes
    
    $
    283,673
    
    
    $
    279,697
    
    
    $
    605,640
    
    
    $
    608,998Medical plans
    
    
    393,503
    
    
    
    386,819
    
    
    
    798,355
    
    
    
    757,364401k match
    
    
    73,776
    
    
    
    69,127
    
    
    
    153,788
    
    
    
    146,857Pension plan
    
    
    216,298
    
    
    
    229,001
    
    
    
    432,597
    
    
    
    458,000Profit-sharing
    
    
    
    
    
    
    67,175
    
    
    
    72,470
    
    
    
    134,350Other
    
    
    32,688
    
    
    
    31,493
    
    
    
    74,016
    
    
    
    52,628Total employee benefits
    
    $
    999,938
    
    
    $
    1,063,312
    
    
    $
    2,136,866
    
    
    $
    2,158,197
  Estimated
    
    
    Actual2010
    
    
    2009Service cost  benefits earned during the year
    
    $
    844,178
    
    
    $
    850,940Interest cost on projected benefit obligations
    
    
    556,047
    
    
    
    509,482Expected return on plan assets
    
    
    (613,659
    )
    
    
    (539,283
    )Amortization of prior service cost
    
    
    78,628
    
    
    
    78,628Amortization of net gains
    
    
    
    
    
    
    (9,075
    )Net periodic pension expense  Annual
    
    $
    865,194
    
    
    $
    890,692Pension expense  three months
ended June 30, (actual)
    
    $
    216,298
    
    
    $
    229,001Pension expense  six months
ended June 30, (actual)
    
    $
    432,597
    
    
    $
    458,000
  11




---



##### 



Stock-Based Compensation
   WeightedWeighted
    
    
    Aggregate
    
    
    AverageAverage
    
    
    Intrinsic
    
    
    ContractualExercise
    
    
    Value
    
    
    TermOptions
    
    
    Price
    
    
    (000)
    
    
    (in years)Outstanding at January 1, 2010*
    
    
    286,948
    
    
    $
    24.11Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    Outstanding at June 30, 2010
    
    
    286,948
    
    
    $
    24.11
    
    
    $
    
    
    
    
    4.4Exercisable at June 30, 2010
    
    
    239,780
    
    
    $
    24.07
    
    
    $
    
    
    
    
    3.9
 
 *
    
    Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2010.  Comprehensive Income
  Three Months Ended June 30,

    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    782,466
    
    
    $
    1,204,288
    
    
    $
    1,276,234
    
    
    $
    2,260,919Other comprehensive income:Unrealized gain (loss) on securities:Unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax
    
    
    1,049,068
    
    
    
    (150,276
    )
    
    
    1,145,269
    
    
    
    (249,861
    )Defined benefit pension plan:Amortization of prior service cost included in
net periodic pension cost, net of tax
    
    
    11,991
    
    
    
    12,045
    
    
    
    23,982
    
    
    
    24,090Total other comprehensive income (loss)
    
    
    1,061,059
    
    
    
    (138,231
    )
    
    
    1,169,251
    
    
    
    (225,771
    )Comprehensive income
    
    $
    1,843,525
    
    
    $
    1,066,057
    
    
    $
    2,445,485
    
    
    $
    2,035,148
 Preferred Stock
   12




---



##### 



Earnings per Share
   For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income, basic and diluted
    
    $
    782,466
    
    
    $
    1,204,288
    
    
    $
    1,276,234
    
    
    $
    2,260,919Less:Preferred stock dividends
    
    
    382,390
    
    
    
    382,389
    
    
    
    752,173
    
    
    
    756,375Accretion of discount on preferred stock
    
    
    119,118
    
    
    
    119,119
    
    
    
    238,237
    
    
    
    238,237Net income available to
common shareholders
    
    
    280,958
    
    
    
    702,780
    
    
    
    285,824
    
    
    
    1,266,307Average shares outstanding
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033
    
    
    
    4,474,033Average shares outstanding including
dilutive stock options
    
    $
    4,474,033
    
    
    $
    4,474,033
    
    
    $
    4,474,033
    
    
    $
    4,474,033Net income per share, basic
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.28Net income per share, diluted
    
    
    0.06
    
    
    
    0.16
    
    
    
    0.06
    
    
    
    0.28
  13




---



##### 



Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Anti-dilutive shares  option shares
    
    
    286,948
    
    
    
    286,948
    
    
    
    286,948
    
    
    
    286,948Anti-dilutive shares  warrant shares
    
    
    265,471
    
    
    
    265,471
    
    
    
    265,471
    
    
    
    265,471
 Fair Value Measurements
 Fair Value Measurements and Disclosures,
        Valuation methods for instruments measured at fair value on a recurring basis
  Available-for-sale securities
  14




---



##### 



Fair Value MeasurementsAt June 30, 2010 UsingQuoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. treasury
    
    $
    1,027,266
    
    
    $
    
    
    
    $
    1,027,266
    
    
    $
    Government sponsored enterprises
    
    
    51,856,056
    
    
    
    
    
    
    
    51,856,056
    
    
    
    Asset-backed securities
    
    
    82,786,092
    
    
    
    
    
    
    
    82,786,092
    
    
    
    Obligations of states and political subdivisions
    
    
    32,300,920
    
    
    
    
    
    
    
    32,300,920
    
    
    
    Total
    
    $
    167,970,334
    
    
    $
    
    
    
    $
    167,970,334
    
    
    $
    
 Fair Value MeasurementsAt December 31, 2009 UsingQuoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    December 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Government sponsored enterprises
    
    $
    44,380,798
    
    
    $
    
    
    
    $
    44,380,798
    
    
    $
    Asset-backed securities
    
    
    69,434,650
    
    
    
    
    
    
    
    69,434,650
    
    
    
    Obligations of states and political
subdivisions
    
    
    39,111,237
    
    
    
    
    
    
    
    39,111,237
    
    
    
    Total
    
    $
    152,926,685
    
    
    $
    
    
    
    $
    152,926,685
    
    
    $
    
 Valuation methods for instruments measured at fair value on a nonrecurring basis
  Impaired Loans
 Accounting by Creditors for Impairment of a
Loan
 Other Real Estate Owned and Repossessed Assets
  15




---



##### 



Fair Value MeasurementsAt June 30, 2010UsingQuoted Pricesin Active
    
    
    
    
    
    
    
    
    
    
    Six MonthsMarkets for
    
    
    Other
    
    
    Significant
    
    
    EndedIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    June 30, 2010Fair Value
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    June 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)| | | | |Impaired loans:Commercial
    
    $
    727,504
    
    
    $
    
    
    
    $
    
    
    
    $
    727,504
    
    
    $
    (1,009,093
    )Construction  residential
    
    
    2,342,161
    
    
    
    
    
    
    
    
    
    
    
    2,342,161
    
    
    
    (324,742
    )Construction  commercial
    
    
    13,878,815
    
    
    
    
    
    
    
    
    
    
    
    13,878,815
    
    
    
    (64,000
    )Real estate  residential
    
    
    4,497,015
    
    
    
    
    
    
    
    
    
    
    
    4,497,015
    
    
    
    (2,897,329
    )Real estate  commercial
    
    
    3,594,116
    
    
    
    
    
    
    
    
    
    
    
    3,594,116
    
    
    
    (2,170,885
    )Total
    
    $
    25,039,611
    
    
    $
    
    
    
    $
    
    
    
    
    25,039,611
    
    
    $
    (6,466,049
    )Other real estate owned
and repossessed assets
    
    $
    14,203,849
    
    
    $
    
    
    
    $
    
    
    
    $
    14,203,849
    
    
    $
    (1,398,405
    )
 Fair Value MeasurementsAt December 31, 2009 UsingQuoted Pricesin Active
    
    
    
    
    
    
    
    
    
    
    YearMarkets for
    
    
    Other
    
    
    Significant
    
    
    EndedIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    December 31, 2009Fair Value
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total GainsDescription
    
    December 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Impaired loans:Commercial
    
    $
    970,937
    
    
    $
    
    
    
    $
    
    
    
    $
    970,937
    
    
    $
    (1,043,465
    )Construction  residential
    
    
    1,776,267
    
    
    
    
    
    
    
    
    
    
    
    1,776,267
    
    
    
    (778,041
    )Construction  commercial
    
    
    272,106
    
    
    
    
    
    
    
    
    
    
    
    272,106
    
    
    
    (160,727
    )Real estate  residential
    
    
    7,104,961
    
    
    
    
    
    
    
    
    
    
    
    7,104,961
    
    
    
    (1,914,530
    )Real estate  commercial
    
    
    9,755,560
    
    
    
    
    
    
    
    
    
    
    
    9,755,560
    
    
    
    (323,522
    )Total
    
    $
    19,879,831
    
    
    $
    
    
    
    $
    
    
    
    
    19,879,831
    
    
    $
    (4,220,285
    )Other real estate owned
and repossessed assets
    
    $
    8,490,914
    
    
    $
    
    
    
    $
    
    
    
    $
    8,490,914
    
    
    $
    (1,367,207
    )
  Fair Value of Financial Instruments
  Loans
  Investment Securities
 Fair Value Measurement Investment Securities.
 Federal Funds Sold, Cash, and Due from Banks
  16




---



##### 



Mortgage Servicing Rights
  Accrued Interest Receivable and Payable
  Deposits
  Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury
  Other Borrowings
  17




---



##### 



June 30,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueAssets:Loans
    
    $
    932,420,737
    
    
    $
    939,313,000
    
    
    $
    976,817,458
    
    
    $
    984,305,000Investment in debt securities
    
    
    167,970,334
    
    
    
    167,970,334
    
    
    
    152,926,685
    
    
    
    152,926,685Federal fund sold and securities
purchased under agreements to resell
    
    
    178,202
    
    
    
    178,202
    
    
    
    89,752
    
    
    
    89,752Cash and due from banks
    
    
    55,849,897
    
    
    
    55,849,897
    
    
    
    24,575,943
    
    
    
    24,575,943Mortgage servicing rights
    
    
    2,005,639
    
    
    
    2,888,000
    
    
    
    2,020,964
    
    
    
    2,904,000Accrued interest receivable
    
    
    5,933,185
    
    
    
    5,933,185
    
    
    
    6,625,557
    
    
    
    6,625,557$
    1,164,357,994
    
    
    $
    1,172,132,618
    
    
    $
    1,163,056,359
    
    
    $
    1,171,426,937Liabilities:Deposits:Demand
    
    $
    131,505,268
    
    
    $
    131,505,268
    
    
    $
    135,017,639
    
    
    $
    135,017,639NOW
    
    
    173,056,049
    
    
    
    173,056,049
    
    
    
    139,623,577
    
    
    
    139,623,577Savings
    
    
    52,399,604
    
    
    
    52,399,604
    
    
    
    47,637,148
    
    
    
    47,637,148Money market
    
    
    166,868,765
    
    
    
    166,868,765
    
    
    
    167,023,279
    
    
    
    167,023,279Time
    
    
    447,528,585
    
    
    
    457,034,000
    
    
    
    467,021,154
    
    
    
    478,011,000Federal funds purchased and securities
sold under agreements to repurchase
    
    
    35,168,837
    
    
    
    35,168,837
    
    
    
    36,645,434
    
    
    
    36,645,434Subordinated notes
    
    
    49,486,000
    
    
    
    21,638,000
    
    
    
    49,486,000
    
    
    
    18,329,000Other borrowings
    
    
    67,349,774
    
    
    
    68,105,000
    
    
    
    79,317,302
    
    
    
    80,557,000Accrued interest payable
    
    
    2,296,948
    
    
    
    2,296,948
    
    
    
    2,438,121
    
    
    
    2,438,121$
    1,125,659,830
    
    
    $
    1,108,072,471
    
    
    $
    1,124,209,654
    
    
    $
    1,105,282,198
 18




---



##### 



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.
 The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act,
was enacted on July 21, 2010. Provisions of the Act address many issues including, but not limited
to, capital, interchange fees, compliance and risk management, debit card overdraft fees, the
establishment of a new consumer regulator, healthcare, incentive compensation, expanded disclosures
and corporate governance. While many of the new regulations are for financial institutions with
assets greater than $10 billion, our Company expects the new regulations to reduce our revenues and
increase our expenses in the future. Management is currently assessing the impact of this new
regulation.
  Overview
  19




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses
  Income Taxes
  20




---



##### 



SELECTED CONSOLIDATED FINANCIAL DATA
  Selected Financial Data
 Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,(In thousands, except per share data)
    
    2010
    
    2009
    
    2010
    
    2009Per Share DataBasic earnings per common share
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.28Diluted earnings per common share
    
    
    0.06
    
    
    
    0.16
    
    
    
    0.06
    
    
    
    0.28Dividends paid on preferred stock
    
    
    378
    
    
    
    378
    
    
    
    756
    
    
    
    613Amortization of discount on preferred stock
    
    
    119
    
    
    
    119
    
    
    
    238
    
    
    
    238Dividends paid on common stock
    
    
    473
    
    
    
    868
    
    
    
    946
    
    
    
    1,737Book value per common share
    
    
    
    
    
    
    
    
    
    
    17.93
    
    
    
    17.54Market price common stock
    
    
    
    
    
    
    
    
    
    
    12.05
    
    
    
    9.52Selected Ratios(Based on average balance sheets)Return on average total assets
    
    
    0.25
    %
    
    
    0.38
    %
    
    
    0.21
    %
    
    
    0.36
    %Return on average common stockholders equity
    
    
    1.41
    %
    
    
    3.56
    %
    
    
    0.72
    %
    
    
    3.22
    %Average common stockholders equity
to average total assets
    
    
    6.39
    %
    
    
    6.26
    %
    
    
    6.38
    %
    
    
    6.25
    %(Based on end-of-period data)Efficiency ratio (1)
    
    
    76.08
    %
    
    
    75.34
    %
    
    
    75.15
    %
    
    
    74.27
    %Period-end stockholders equity to period-end assets
    
    
    
    
    
    
    
    
    
    
    6.47
    %
    
    
    6.24
    %Period-end common stockholders equity to period-end assets
    
    
    
    
    
    
    
    
    
    
    8.78
    %
    
    
    8.48
    %Total risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    17.07
    
    
    
    16.18Tier 1 risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    14.54
    
    
    
    13.68Leverage ratio
    
    
    
    
    
    
    
    
    
    
    11.31
    
    
    
    10.98
 (1)
    
    Efficiency ratio is calculated as non-interest expense as a percent of revenue.
Total revenue includes
net interest and non-interest income.
 21




---



##### 



Results of Operations
 Summary
 Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,(Dollars in thousands)
    
    2010
    
    2009
    
    $ Change
    
    % Change
    
    2010
    
    2009
    
    $ Change
    
    % ChangeNet interest income
    
    $
    11,114
    
    
    $
    10,017
    
    
    $
    1,097
    
    
    
    11.0
    %
    
    $
    21,425
    
    
    $
    19,548
    
    
    $
    1,877
    
    
    
    9.6
    %Provision for loan losses
    
    
    2,150
    
    
    
    1,404
    
    
    
    746
    
    
    
    53.1
    
    
    
    4,655
    
    
    
    3,154
    
    
    
    1,501
    
    
    
    47.6Noninterest income
    
    
    2,450
    
    
    
    2,807
    
    
    
    (357
    )
    
    
    (12.7
    )
    
    
    4,455
    
    
    
    5,572
    
    
    
    (1,117
    )
    
    
    (20.0
    )Noninterest expense
    
    
    10,320
    
    
    
    9,661
    
    
    
    659
    
    
    
    6.8
    
    
    
    19,450
    
    
    
    18,656
    
    
    
    794
    
    
    
    4.3Income before
income taxes
    
    
    1,094
    
    
    
    1,759
    
    
    
    (665
    )
    
    
    (37.8
    )
    
    
    1,775
    
    
    
    3,310
    
    
    
    (1,535
    )
    
    
    (46.4
    )Income taxes
    
    
    312
    
    
    
    555
    
    
    
    (243
    )
    
    
    (43.8
    )
    
    
    499
    
    
    
    1,049
    
    
    
    (550
    )
    
    
    (52.4
    )Net income
    
    $
    782
    
    
    $
    1,204
    
    
    $
    (422
    )
    
    
    (35.0
    )%
    
    $
    1,276
    
    
    $
    2,261
    
    
    $
    (985
    )
    
    
    (43.6
    )%Less: preferred dividends
    
    
    382
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    752
    
    
    
    757Less: accretion of discount
on preferred stock
    
    
    119
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    238
    
    
    
    238
    
    
    
    
    
    
    
    Net income available
to common shareholders
    
    $
    281
    
    
    $
    703
    
    
    $
    (422
    )
    
    
    (60.0
    )%
    
    $
    286
    
    
    $
    1,266
    
    
    $
    (980
    )
    
    
    (77.4
    )%
   Net Interest Income
  22




---



##### 



Average Balance Sheets
  Three Months Ended June 30,2010
    
    2009Interest
    
    Rate
    
    
    
    
    
    Interest
    
    RateAverage
    
    Income/
    
    Earned/
    
    Average
    
    Income/
    
    Earned/(dollars in thousands)
    
    Balance
    
    Expense(1)
    
    Paid(1)
    
    Balance
    
    Expense(1)
    
    Paid(1)ASSETSLoans (2)(4)Commercial
    
    $
    144,193
    
    
    $
    2,016
    
    
    
    5.61
    %
    
    $
    153,172
    
    
    $
    2,075
    
    
    
    5.43
    %Real estate construction  residential
    
    
    39,211
    
    
    
    506
    
    
    
    5.18
    
    
    
    46,939
    
    
    
    526
    
    
    
    4.49Real estate construction  commercial
    
    
    77,201
    
    
    
    774
    
    
    
    4.02
    
    
    
    73,581
    
    
    
    859
    
    
    
    4.68Real estate mortgage  residential
    
    
    229,888
    
    
    
    3,223
    
    
    
    5.62
    
    
    
    285,192
    
    
    
    3,546
    
    
    
    4.99Real estate mortgage  commercial
    
    
    435,181
    
    
    
    6,422
    
    
    
    5.92
    
    
    
    417,074
    
    
    
    6,908
    
    
    
    6.64Consumer
    
    
    35,876
    
    
    
    723
    
    
    
    8.08
    
    
    
    32,386
    
    
    
    657
    
    
    
    8.14Investment in securities: (3)U.S. Treasury
    
    
    1,000
    
    
    
    5
    
    
    
    2.01
    
    
    
    
    
    
    
    
    
    
    
    Government sponsored enterprises
    
    
    45,209
    
    
    
    312
    
    
    
    2.77
    
    
    
    46,860
    
    
    
    436
    
    
    
    3.73Asset backed securities
    
    
    84,481
    
    
    
    786
    
    
    
    3.73
    
    
    
    63,137
    
    
    
    656
    
    
    
    4.17State and municipal
    
    
    31,882
    
    
    
    441
    
    
    
    5.55
    
    
    
    37,844
    
    
    
    523
    
    
    
    5.54Restricted investments
    
    
    6,247
    
    
    
    35
    
    
    
    2.25
    
    
    
    8,875
    
    
    
    37
    
    
    
    1.67Federal funds sold
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    35,876
    
    
    
    22
    
    
    
    0.25
    
    
    
    29,797
    
    
    
    37
    
    
    
    0.50Total interest earning assets
    
    
    1,166,390
    
    
    
    15,265
    
    
    
    5.25
    
    
    
    1,195,070
    
    
    
    16,260
    
    
    
    5.46All other assets
    
    
    96,857
    
    
    
    
    
    
    
    
    
    
    
    88,850Allowance for loan losses
    
    
    (13,835
    )
    
    
    
    
    
    
    
    
    
    
    (13,311
    )Total assets
    
    $
    1,249,412
    
    
    
    
    
    
    
    
    
    
    $
    1,270,609LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    179,887
    
    
    $
    257
    
    
    
    0.57
    %
    
    $
    137,531
    
    
    $
    298
    
    
    
    0.87
    %Savings
    
    
    52,789
    
    
    
    32
    
    
    
    0.24
    
    
    
    46,116
    
    
    
    35
    
    
    
    0.30Money market
    
    
    168,671
    
    
    
    265
    
    
    
    0.63
    
    
    
    173,652
    
    
    
    434
    
    
    
    1.00Time deposits of
$100,000 and over
    
    
    131,508
    
    
    
    651
    
    
    
    1.99
    
    
    
    141,610
    
    
    
    1,027
    
    
    
    2.91Other time deposits
    
    
    320,546
    
    
    
    1,851
    
    
    
    2.32
    
    
    
    367,712
    
    
    
    2,839
    
    
    
    3.10Total time deposits
    
    
    853,401
    
    
    
    3,056
    
    
    
    1.44
    
    
    
    866,621
    
    
    
    4,633
    
    
    
    2.14Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    33,023
    
    
    
    19
    
    
    
    0.23
    
    
    
    31,612
    
    
    
    18
    
    
    
    0.23Subordinated notes
    
    
    49,486
    
    
    
    323
    
    
    
    2.62
    
    
    
    49,486
    
    
    
    628
    
    
    
    5.09Other borrowed money
    
    
    68,575
    
    
    
    591
    
    
    
    3.46
    
    
    
    79,174
    
    
    
    784
    
    
    
    3.97Total interest bearing liabilities
    
    
    1,004,485
    
    
    
    3,989
    
    
    
    1.59
    
    
    
    1,026,893
    
    
    
    6,063
    
    
    
    2.37Demand deposits
    
    
    129,448
    
    
    
    
    
    
    
    
    
    
    
    125,834Other liabilities
    
    
    7,145
    
    
    
    
    
    
    
    
    
    
    
    10,727Total liabilities
    
    
    1,141,078
    
    
    
    
    
    
    
    
    
    
    
    1,163,454Stockholders equity
    
    
    108,334
    
    
    
    
    
    
    
    
    
    
    
    107,155Total liabilities and
stockholders equity
    
    $
    1,249,412
    
    
    
    
    
    
    
    
    
    
    $
    1,270,609Net interest income (FTE)
    
    
    
    
    
    $
    11,276
    
    
    
    
    
    
    
    
    
    
    $
    10,197Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.09
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.88
    %
    
    
    
    
    
    
    
    
    
    
    3.42
    %
 (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 $162,000 and $179,000 for the three
months ended June 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Average balances based on amortized cost.(4)
    
    Fees and costs on loans are included in interest income.
 23




---



##### 



Six Months Ended June 30,2010
    
    2009Interest
    
    Rate
    
    
    
    
    
    Interest
    
    RateAverage
    
    Income/
    
    Earned/
    
    Average
    
    Income/
    
    Earned/(dollars in thousands)
    
    Balance
    
    Expense(1)
    
    Paid(1)
    
    Balance
    
    Expense(1)
    
    Paid(1)ASSETSLoans (2)(4)Commercial
    
    $
    146,211
    
    
    $
    4,010
    
    
    
    5.53
    %
    
    $
    151,854
    
    
    $
    4,077
    
    
    
    5.41
    %Real estate construction  residential
    
    
    38,979
    
    
    
    1,015
    
    
    
    5.25
    
    
    
    31,826
    
    
    
    1,129
    
    
    
    7.15Real estate construction  commercial
    
    
    77,234
    
    
    
    1,431
    
    
    
    3.74
    
    
    
    50,061
    
    
    
    1,865
    
    
    
    7.51Real estate mortgage  residential
    
    
    230,817
    
    
    
    6,473
    
    
    
    5.66
    
    
    
    207,024
    
    
    
    7,200
    
    
    
    7.01Real estate mortgage  commercial
    
    
    441,870
    
    
    
    12,766
    
    
    
    5.83
    
    
    
    535,724
    
    
    
    13,489
    
    
    
    5.08Consumer
    
    
    36,135
    
    
    
    1,418
    
    
    
    7.91
    
    
    
    32,762
    
    
    
    1,278
    
    
    
    7.87Investment in securities: (3)U.S. Treasury
    
    
    542
    
    
    
    5
    
    
    
    1.86
    
    
    
    
    
    
    
    
    
    
    
    Government sponsored enterprises
    
    
    45,670
    
    
    
    645
    
    
    
    2.85
    
    
    
    49,244
    
    
    
    951
    
    
    
    3.89Asset backed securities
    
    
    80,971
    
    
    
    1,505
    
    
    
    3.75
    
    
    
    60,155
    
    
    
    1,284
    
    
    
    4.30State and municipal
    
    
    34,294
    
    
    
    934
    
    
    
    5.49
    
    
    
    39,825
    
    
    
    1,110
    
    
    
    5.62Restricted investments
    
    
    6,486
    
    
    
    85
    
    
    
    2.64
    
    
    
    8,875
    
    
    
    56
    
    
    
    1.27Federal funds sold
    
    
    169
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    33,422
    
    
    
    36
    
    
    
    0.22
    
    
    
    23,734
    
    
    
    32
    
    
    
    0.27Total interest earning assets
    
    
    1,172,800
    
    
    
    30,323
    
    
    
    5.21
    
    
    
    1,191,415
    
    
    
    32,471
    
    
    
    5.50All other assets
    
    
    95,365
    
    
    
    
    
    
    
    
    
    
    
    88,800Allowance for loan losses
    
    
    (14,377
    )
    
    
    
    
    
    
    
    
    
    
    (13,021
    )Total assets
    
    $
    1,253,788
    
    
    
    
    
    
    
    
    
    
    $
    1,267,194LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    178,321
    
    
    $
    533
    
    
    
    0.60
    %
    
    $
    140,585
    
    
    $
    634
    
    
    
    0.91
    %Savings
    
    
    51,047
    
    
    
    64
    
    
    
    0.25
    
    
    
    45,258
    
    
    
    71
    
    
    
    0.32Money market
    
    
    169,081
    
    
    
    588
    
    
    
    0.70
    
    
    
    175,466
    
    
    
    992
    
    
    
    1.14Time deposits of$100,000 and over
    
    
    133,827
    
    
    
    1,720
    
    
    
    2.59
    
    
    
    140,083
    
    
    
    2,108
    
    
    
    3.03Other time deposits
    
    
    323,733
    
    
    
    3,491
    
    
    
    2.17
    
    
    
    362,293
    
    
    
    5,779
    
    
    
    3.22Total time deposits
    
    
    856,009
    
    
    
    6,396
    
    
    
    1.51
    
    
    
    863,685
    
    
    
    9,584
    
    
    
    2.24Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    33,377
    
    
    
    40
    
    
    
    0.24
    
    
    
    30,485
    
    
    
    40
    
    
    
    0.26Subordinated notes
    
    
    49,486
    
    
    
    848
    
    
    
    3.46
    
    
    
    49,486
    
    
    
    1,290
    
    
    
    5.26Other borrowed money
    
    
    73,081
    
    
    
    1,267
    
    
    
    3.50
    
    
    
    84,078
    
    
    
    1,633
    
    
    
    3.92Total interest bearing liabilities
    
    
    1,011,953
    
    
    
    8,551
    
    
    
    1.70
    
    
    
    1,027,734
    
    
    
    12,547
    
    
    
    2.46Demand deposits
    
    
    126,290
    
    
    
    
    
    
    
    
    
    
    
    122,247Other liabilities
    
    
    7,108
    
    
    
    
    
    
    
    
    
    
    
    10,001Total liabilities
    
    
    1,145,351
    
    
    
    
    
    
    
    
    
    
    
    1,159,982Stockholders equity
    
    
    108,437
    
    
    
    
    
    
    
    
    
    
    
    107,212Total liabilities and
stockholders equity
    
    $
    1,253,788
    
    
    
    
    
    
    
    
    
    
    $
    1,267,194Net interest income (FTE)
    
    
    
    
    
    $
    21,772
    
    
    
    
    
    
    
    
    
    
    $
    19,924Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    3.04
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.37
    %
 (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 $347,000 and $376,000 for the three
months ended June 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Average balances based on amortized cost.(4)
    
    Fees and costs on loans are included in interest income.
 24




---



##### 



Comparison of the three months ended June 30, 2010 and 2009
  Lending and
Credit Management
 Three Months Ended June 30,(Dollars in thousands)
    
    2010
    
    2009
    
    $ Change
    
    % ChangeAverage loans:Commercial
    
    $
    144,193
    
    
    $
    153,172
    
    
    $
    (8,979
    )
    
    
    (5.9
    )%Real estate construction  residential
    
    
    39,211
    
    
    
    46,939
    
    
    
    (7,728
    )
    
    
    (16.5
    )Real estate construction  commercial
    
    
    77,201
    
    
    
    73,581
    
    
    
    3,620
    
    
    
    4.9Real estate mortgage  residential
    
    
    229,888
    
    
    
    285,192
    
    
    
    (55,304
    )
    
    
    (19.4
    )Real estate mortgage  commercial
    
    
    435,181
    
    
    
    417,074
    
    
    
    18,107
    
    
    
    4.3Consumer
    
    
    35,876
    
    
    
    32,386
    
    
    
    3,490
    
    
    
    10.8Total
    
    $
    961,550
    
    
    $
    1,008,344
    
    
    $
    (46,794
    )
    
    
    (4.6
    )%
 Liquidity Management
  Comparison of the six months ended June 30, 2010 and 2009
  Lending and
Credit Management
 Six Months Ended June 30,(Dollars in thousands)
    
    2010
    
    2009
    
    $ Change
    
    % ChangeAverage loans:Commercial
    
    $
    146,211
    
    
    $
    151,854
    
    
    $
    (5,643
    )
    
    
    (3.7
    )%Real estate construction  residential
    
    
    38,979
    
    
    
    31,826
    
    
    
    7,153
    
    
    
    22.5Real estate construction  commercial
    
    
    77,234
    
    
    
    50,061
    
    
    
    27,173
    
    
    
    54.3Real estate mortgage  residential
    
    
    230,817
    
    
    
    207,024
    
    
    
    23,793
    
    
    
    11.5Real estate mortgage  commercial
    
    
    441,870
    
    
    
    535,724
    
    
    
    (93,854
    )
    
    
    (17.5
    )Consumer
    
    
    36,135
    
    
    
    32,762
    
    
    
    3,373
    
    
    
    10.3Total
    
    $
    971,246
    
    
    $
    1,009,251
    
    
    $
    (38,005
    )
    
    
    (3.8
    )%
 25




---



##### 



Liquidity Management
  26




---



##### 



Rate and volume analysis
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010 vs. 2009
    
    
    2010 vs. 2009Change due to
    
    
    
    
    
    
    Change due toTotal
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average(Dollars In thousands)
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    RateInterest income on a fully
taxable equivalent basis:Loans: (1) (3)Commercial
    
    $
    (59
    )
    
    $
    (122
    )
    
    $
    63
    
    
    $
    (67
    )
    
    $
    (151
    )
    
    $
    84Real estate construction  residential
    
    
    (20
    )
    
    
    (94
    )
    
    
    74
    
    
    
    (114
    )
    
    
    223
    
    
    
    (337
    )Real estate construction   commercial
    
    
    (85
    )
    
    
    40
    
    
    
    (125
    )
    
    
    (434
    )
    
    
    748
    
    
    
    (1,182
    )Real estate mortgage  residential
    
    
    (323
    )
    
    
    (741
    )
    
    
    418
    
    
    
    (727
    )
    
    
    767
    
    
    
    (1,494
    )Real estate mortgage  commercial
    
    
    (486
    )
    
    
    291
    
    
    
    (777
    )
    
    
    (723
    )
    
    
    (2,552
    )
    
    
    1,829Consumer
    
    
    66
    
    
    
    71
    
    
    
    (5
    )
    
    
    140
    
    
    
    133
    
    
    
    7Investment securities:U.S. Treasury
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    5Government sponsored entities
    
    
    (124
    )
    
    
    (15
    )
    
    
    (109
    )
    
    
    (306
    )
    
    
    (65
    )
    
    
    (241
    )Asset backed securities
    
    
    130
    
    
    
    204
    
    
    
    (74
    )
    
    
    221
    
    
    
    402
    
    
    
    (181
    )State and municipal(2)
    
    
    (82
    )
    
    
    (82
    )
    
    
    
    
    
    
    (176
    )
    
    
    (151
    )
    
    
    (25
    )Restricted investments
    
    
    (2
    )
    
    
    (13
    )
    
    
    11
    
    
    
    29
    
    
    
    (18
    )
    
    
    47Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits
in other financial institutions
    
    
    (15
    )
    
    
    7
    
    
    
    (22
    )
    
    
    4
    
    
    
    11
    
    
    
    (7
    )Total interest income
    
    
    (995
    )
    
    
    (454
    )
    
    
    (541
    )
    
    
    (2,148
    )
    
    
    (653
    )
    
    
    (1,495
    )Interest expense:NOW accounts
    
    
    (41
    )
    
    
    77
    
    
    
    (118
    )
    
    
    (101
    )
    
    
    145
    
    
    
    (246
    )Savings
    
    
    (3
    )
    
    
    5
    
    
    
    (8
    )
    
    
    (7
    )
    
    
    8
    
    
    
    (15
    )Money market
    
    
    (169
    )
    
    
    (12
    )
    
    
    (157
    )
    
    
    (404
    )
    
    
    (35
    )
    
    
    (369
    )Time deposits of 100,000 and over
    
    
    (376
    )
    
    
    (69
    )
    
    
    (307
    )
    
    
    (388
    )
    
    
    (91
    )
    
    
    (297
    )Other time deposits
    
    
    (988
    )
    
    
    (333
    )
    
    
    (655
    )
    
    
    (2,288
    )
    
    
    (566
    )
    
    
    (1,722
    )Federal funds purchased and securities sold under agreements to repurchase
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (4
    )Subordinated notes
    
    
    (305
    )
    
    
    
    
    
    
    (305
    )
    
    
    (442
    )
    
    
    
    
    
    
    (442
    )Other borrowed money
    
    
    (193
    )
    
    
    (98
    )
    
    
    (95
    )
    
    
    (366
    )
    
    
    (201
    )
    
    
    (165
    )Total interest expense
    
    
    (2,074
    )
    
    
    (429
    )
    
    
    (1,645
    )
    
    
    (3,996
    )
    
    
    (736
    )
    
    
    (3,260
    )Net interest income on a fully
taxable equivalent basis
    
    $
    1,079
    
    
    $
    (25
    )
    
    $
    1,104
    
    
    $
    1,848
    
    
    $
    83
    
    
    $
    1,765
 
 (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 $162,000 and $347,000, and $179,000
and $376,000 for the three and six months ended June 30, 2010 and 2009, respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Fees and costs on loans are included in interest income.  27




---



##### 



Non-interest Income and Expense
 Non-interest income
 Three Months
    
    
    
    
    
    
    
    
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNon-interest IncomeService charges on deposit
    
    $
    1,427
    
    
    $
    1,455
    
    
    $
    (28
    )
    
    
    (1.9
    )%
    
    
    $2,723
    
    
    $
    2,833
    
    
    $
    (110
    )
    
    
    (3.9)
    %Trust department income
    
    
    201
    
    
    
    184
    
    
    
    17
    
    
    
    9.2
    
    
    
    380
    
    
    
    385
    
    
    
    (5
    )
    
    
    (1.3
    )Gain on sales of mortgage loans
    
    
    297
    
    
    
    927
    
    
    
    (630
    )
    
    
    (68.0
    )
    
    
    522
    
    
    
    1,948
    
    
    
    (1,426
    )
    
    
    (73.2
    )Other
    
    
    525
    
    
    
    241
    
    
    
    284
    
    
    
    117.8
    
    
    
    831
    
    
    
    406
    
    
    
    425
    
    
    
    104.7Total non-interest income
    
    $
    2,450
    
    
    $
    2,807
    
    
    $
    (357
    )
    
    
    (12.7
    )%
    
    
    $4,456
    
    
    $
    5,572
    
    
    $
    (1,116
    )
    
    
    (20.0)
    %Non-interest income as a
% of total revenue*
    
    
    18.1
    %
    
    
    21.9
    %
    
    
    
    
    
    
    
    
    
    
    17.2
    %
    
    
    22.2
    %Total revenue per full time
equivalent employee
    
    $
    38.6
    
    
    $
    36.0
    
    
    
    
    
    
    
    
    
    
    $
    73.7
    
    
    $
    70.6
 
 *
    
    Total revenue is calculated as net interest income plus non-interest income Three Months Ended June 30, 2010 and 2009
  Six Months Ended June 30, 2010 and 2009
  28




---



##### 



Non-interest expense
 Three Months
    
    
    
    
    
    
    
    
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeNon-interest ExpenseSalary expense
    
    $
    3,550
    
    
    $
    3,524
    
    
    $
    26
    
    
    
    0.7
    %
    
    $
    7,071
    
    
    $
    6,792
    
    
    $
    279
    
    
    
    4.1
    %Employee benefits
    
    
    1,000
    
    
    
    1,063
    
    
    
    (63
    )
    
    
    (5.9
    )
    
    
    2,137
    
    
    
    2,158
    
    
    
    (21
    )
    
    
    (1.0
    )Occupancy expense, net
    
    
    605
    
    
    
    555
    
    
    
    50
    
    
    
    9.0
    
    
    
    1,226
    
    
    
    1,163
    
    
    
    63
    
    
    
    5.4Furniture and equipment expense
    
    
    535
    
    
    
    724
    
    
    
    (189
    )
    
    
    (26.1
    )
    
    
    1,027
    
    
    
    1,288
    
    
    
    (261
    )
    
    
    (20.3
    )FDIC insurance assessment
    
    
    435
    
    
    
    983
    
    
    
    (548
    )
    
    
    (55.7
    )
    
    
    845
    
    
    
    1,664
    
    
    
    (819
    )
    
    
    (49.2
    )Legal, examination, and
professional fees
    
    
    336
    
    
    
    313
    
    
    
    23
    
    
    
    7.3
    
    
    
    583
    
    
    
    673
    
    
    
    (90
    )
    
    
    (13.4
    )Advertising and promotion
    
    
    297
    
    
    
    318
    
    
    
    (21
    )
    
    
    (6.6
    )
    
    
    575
    
    
    
    600
    
    
    
    (25
    )
    
    
    (4.2
    )Postage, printing, and supplies
    
    
    286
    
    
    
    278
    
    
    
    8
    
    
    
    2.9
    
    
    
    574
    
    
    
    562
    
    
    
    12
    
    
    
    2.1Processing expense
    
    
    857
    
    
    
    838
    
    
    
    19
    
    
    
    2.3
    
    
    
    1,707
    
    
    
    1,693
    
    
    
    14
    
    
    
    0.8Other real estate expense
    
    
    1,506
    
    
    
    171
    
    
    
    1,335
    
    
    
    780.7
    
    
    
    2,013
    
    
    
    335
    
    
    
    1,678
    
    
    
    500.9Other
    
    
    913
    
    
    
    894
    
    
    
    19
    
    
    
    2.1
    
    
    
    1,692
    
    
    
    1,728
    
    
    
    (36
    )
    
    
    (2.1
    )Total non-interest expense
    
    $
    10,320
    
    
    $
    9,661
    
    
    $
    659
    
    
    
    6.8
    %
    
    $
    19,450
    
    
    $
    18,656
    
    
    $
    794
    
    
    
    4.3
    %Efficiency ratio
    
    
    76.1
    %
    
    
    75.3
    %
    
    
    
    
    
    
    
    
    
    
    75.2
    %
    
    
    74.3
    %Salaries and benefits as a %
of total non-interest expense
    
    
    44.1
    %
    
    
    47.5
    %
    
    
    
    
    
    
    
    
    
    
    47.3
    %
    
    
    48.0
    %Number of full-time equivalent
employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351
    
    
    
    356
 Three Months Ended June 30, 2010 and 2009
  Six Months Ended June 30, 2010 and 2009
  Income Taxes
  29




---



##### 



Lending and Credit Management
    June 30,
    
    
    December 31,(In thousands)
    
    2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %Commercial, financial, and agricultural
    
    $
    140,227
    
    
    
    14.8
    %
    
    $
    151,399
    
    
    
    15.3
    %Real estate construction  residential
    
    
    37,710
    
    
    
    4.0
    
    
    
    38,841
    
    
    
    3.9Real estate construction  commercial
    
    
    76,868
    
    
    
    8.1
    
    
    
    77,937
    
    
    
    7.9Real estate mortgage  residential
    
    
    221,226
    
    
    
    23.4
    
    
    
    232,332
    
    
    
    23.4Real estate mortgage  commercial
    
    
    433,733
    
    
    
    45.9
    
    
    
    453,975
    
    
    
    45.8Installment loans to individuals
    
    
    34,700
    
    
    
    3.7
    
    
    
    36,966
    
    
    
    3.7Deferred fees
    
    
    188
    
    
    
    0.0
    
    
    
    164
    
    
    
    0.0Total loans
    
    $
    944,652
    
    
    
    100.0
    %
    
    $
    991,614
    
    
    
    100.0
    %
    30




---



##### 



Accounting by Creditors for Impairment of a
Loan,
 Provision and Allowance for Loan Losses
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009| | | |Provision for loan losses
    
    $
    2,150
    
    
    $
    1,404
    
    
    $
    4,655
    
    
    $
    3,154Net loan charge-offs:Commercial, financial, and agricultural
    
    
    612
    
    
    
    165
    
    
    
    1,104
    
    
    
    260Real estate construction  residential
    
    
    (22
    )
    
    
    374
    
    
    
    259
    
    
    
    561Real estate construction  commercial
    
    
    22
    
    
    
    
    
    
    
    101
    
    
    
    289Real estate mortgage  residential
    
    
    1,591
    
    
    
    86
    
    
    
    3,319
    
    
    
    692Real estate mortgage  commercial
    
    
    2,319
    
    
    
    166
    
    
    
    2,337
    
    
    
    206Installment loans to individuals
    
    
    54
    
    
    
    67
    
    
    
    100
    
    
    
    108Total net loan charge-offs
    
    $
    4,576
    
    
    $
    858
    
    
    $
    7,220
    
    
    $
    2,116
  31




---



##### 



June 30,
    
    
    December 31,(Dollars in thousands)
    
    2010
    
    
    2009Nonaccrual loans:Commercial, financial, and agricultural
    
    $
    1,369
    
    
    $
    2,067Real estate construction  residential
    
    
    3,187
    
    
    
    2,678Real estate construction  commercial
    
    
    20,435
    
    
    
    9,277Real estate mortgage  residential
    
    
    5,662
    
    
    
    6,692Real estate mortgage  commercial
    
    
    15,023
    
    
    
    13,161Installment loans to individuals
    
    
    149
    
    
    
    279Total nonaccrual loans
    
    
    45,825
    
    
    
    34,154Loans contractually past  due 90 days
or more and still accruing:Commercial, financial, and agricultural
    
    
    201
    
    
    
    2Real estate mortgage  residential
    
    
    83
    
    
    
    Real estate mortgage  commercial
    
    
    23
    
    
    
    Installment loans to individuals
    
    
    2
    
    
    
    Total loans contractually past -due
90 days or more and still accruing
    
    
    309
    
    
    
    2Troubled debt restructured loans
    
    
    15,998
    
    
    
    8,191Total nonperforming loans
    
    
    62,132
    
    
    
    42,347Other real estate and repossessions
    
    
    14,204
    
    
    
    8,491Total nonperforming assets
    
    $
    76,336
    
    
    $
    50,838Loans
    
    $
    944,652
    
    
    $
    991,614Allowance for loan losses to loans
    
    
    1.29
    %
    
    
    1.49%
    %Nonperforming loans to loans
    
    
    6.58
    %
    
    
    4.27%
    %Allowance for loan losses to nonperforming loans
    
    
    19.69
    %
    
    
    34.94%
    %Nonperforming assets to loans and foreclosed assets
    
    
    7.95
    %
    
    
    5.08%
    %
   32




---



##### 



33




---



##### 



June 30,
    
    
    December 31,(Dollars in thousands)
    
    2010
    
    
    2009| |Allocation of allowance for
loan losses at end of period:Commercial, financial, and agricultural
    
    $
    2,157
    
    
    $
    2,773Real estate construction  residential
    
    
    1,074
    
    
    
    348Real estate construction  commercial
    
    
    2,071
    
    
    
    1,740Real estate mortgage  residential
    
    
    2,929
    
    
    
    3,488Real estate mortgage  commercial
    
    
    3,083
    
    
    
    4,693Installment loans to individuals
    
    
    247
    
    
    
    380Unallocated
    
    
    671
    
    
    
    1,375Total
    
    $
    12,232
    
    
    $
    14,797
   Financial Condition
    34




---



##### 



Liquidity and Capital Resources
 Liquidity Management
    June 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Liquid assets:Federal funds sold
    
    $
    178
    
    
    $
    90Federal Reserve  excess reserves
    
    
    38,295
    
    
    
    2,216Available for sale investments securities
    
    
    167,970
    
    
    
    152,927Total
    
    $
    206,443
    
    
    $
    155,233
  35




---



##### 



June 30,(dollars in thousands)
    
    2010Investment securities pledged for the purpose of securing:Federal Reserve Bank borrowings
    
    $
    3,303Repurchase agreements
    
    
    50,168Other Deposits
    
    
    101,182Total pledged, at fair value
    
    $
    154,653
    June 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Core deposit base:Non-interest bearing demand
    
    $
    131,505
    
    
    $
    135,018Interest checking
    
    
    173,056
    
    
    
    139,624Savings and money market
    
    
    219,269
    
    
    
    214,660Total
    
    $
    523,830
    
    
    $
    489,302
  June 30,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Borrowings:Federal funds purchased
    
    $
    
    
    
    $
    4,980Securities sold under agreements to repurchase
    
    
    35,169
    
    
    
    31,665FHLB advances
    
    
    67,350
    
    
    
    79,317Subordinated notes
    
    
    49,486
    
    
    
    49,486Total
    
    $
    152,005
    
    
    $
    165,448
   36




---



##### 



June 30, 2010(dollars in thousands)
    
    FHLB
    
    
    Federal Reserve
    
    
    OtherCollateral value pledged
    
    $
    284,157
    
    
    $
    3,303
    
    
    $
    7,518Advances outstanding
    
    
    (67,350
    )
    
    
    
    
    
    
    Total
    
    $
    216,807
    
    
    $
    3,303
    
    
    $
    7,518
 Sources and Uses of Funds
     Regulatory Capital
  37




---



##### 



Minimum
    
    
    Well-CapitalizedActual
    
    
    Capital requirements
    
    
    Capital RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioJune 30, 2010Total capital (to
risk-weighted assets):Company
    
    $
    165,663
    
    
    
    17.07
    %
    
    $
    77,640
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    136,476
    
    
    
    14.33
    
    
    
    76,210
    
    
    
    8.00
    
    
    $
    95,263
    
    
    
    10.00
    %Tier I capital
(to risk-weighted assets):Company
    
    $
    141,101
    
    
    
    14.54
    
    
    $
    38,820
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    124,712
    
    
    
    13.09
    
    
    
    38,105
    
    
    
    4.00
    
    
    $
    57,158
    
    
    
    6.00
    %Tier I capital
(to adjusted average assets):Company
    
    $
    141,101
    
    
    
    11.31
    
    
    $
    37,435
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    124,712
    
    
    
    10.17
    
    
    
    36,781
    
    
    
    3.00
    
    
    $
    61,302
    
    
    
    5.00
    %
 Minimum
    
    
    Well-CapitalizedActual
    
    
    Capital requirements
    
    
    Capital RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2009Total capital
(to risk-weighted assets):Company
    
    $
    165,969
    
    
    
    16.49
    %
    
    $
    80,502
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    134,673
    
    
    
    13.62
    
    
    
    79,129
    
    
    
    8.00
    
    
    $
    98,911
    
    
    
    10.00
    %Tier I capital
(to risk-weighted assets):Company
    
    $
    140,974
    
    
    
    14.01
    
    
    $
    40,251
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    122,285
    
    
    
    12.36
    
    
    
    39,564
    
    
    
    4.00
    
    
    $
    59,347
    
    
    
    6.00
    %Tier I capital
(to adjusted average assets):Company
    
    $
    140,974
    
    
    
    11.35
    
    
    $
    37,254
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    122,285
    
    
    
    10.04
    
    
    
    36,556
    
    
    
    3.00
    
    
    $
    60,926
    
    
    
    5.00
    %
 38




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   Over5 years orno stated(Dollars in thousands)
    
    Year 1
    
    
    Year 2
    
    
    Year 3
    
    
    Year 4
    
    
    Year 5
    
    
    Maturity
    
    
    TotalASSETSInvestment securities
    
    $
    6,716
    
    
    $
    3,352
    
    
    $
    10,561
    
    
    $
    22,538
    
    
    $
    22,458
    
    
    $
    102,345
    
    
    $
    167,970Interest-bearing deposits
    
    
    38,295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,295Other restricted investments
    
    
    6,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,158Federal funds sold and securities
purchased under agreements to resell
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Loans
    
    
    484,161
    
    
    
    187,223
    
    
    
    159,826
    
    
    
    59,268
    
    
    
    22,661
    
    
    
    31,514
    
    
    
    944,653Total
    
    $
    535,508
    
    
    $
    190,575
    
    
    $
    170,387
    
    
    $
    81,806
    
    
    $
    45,119
    
    
    $
    133,859
    
    
    $
    1,157,254LIABILITIESSavings, Now deposits
    
    $
    
    
    
    $
    
    
    
    $
    165,331
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    165,331Rewards checking, Super Now,
money market deposits
    
    
    227,330
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,330Time deposits
    
    
    329,108
    
    
    
    64,969
    
    
    
    22,032
    
    
    
    26,734
    
    
    
    4,349
    
    
    
    
    
    
    
    447,192Federal funds purchased and securities
sold under agreements to repurchase
    
    
    35,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,169Subordinated notes
    
    
    49,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,486Other borrowed money
    
    
    43,704
    
    
    
    15,389
    
    
    
    8,242
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    67,350Total
    
    $
    684,797
    
    
    $
    80,358
    
    
    $
    195,605
    
    
    $
    26,749
    
    
    $
    4,349
    
    
    $
    
    
    
    $
    991,858Interest-sensitivity GAPPeriodic GAP
    
    $
    (149,289
    )
    
    $
    110,217
    
    
    $
    (25,218
    )
    
    $
    55,057
    
    
    $
    40,770
    
    
    $
    133,859
    
    
    $
    165,396Cumulative GAP
    
    $
    (149,289
    )
    
    $
    (39,072
    )
    
    $
    (64,290
    )
    
    $
    (9,233
    )
    
    $
    31,537
    
    
    $
    165,396
    
    
    $
    165,396Ratio of interest-earnings
assets to interest-bearing liabilitiesPeriodic GAP
    
    
    0.78
    
    
    
    2.37
    
    
    
    0.87
    
    
    
    3.06
    
    
    
    10.37
    
    
    NM
    
    
    1.17Cumulative GAP
    
    
    0.78
    
    
    
    0.95
    
    
    
    0.93
    
    
    
    0.99
    
    
    
    1.03
    
    
    
    1.17
    
    
    
    1.17
 39




---



##### 



Item 4. Controls and Procedures
   Impact of New Accounting Standards
 Fair Value Measurements and Disclosures.
 Consolidation.
 Receivables (ASC Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.
 Subsequent Events Subsequent Events Subsequent Events Subsequent Events Amendments to Certain Recognition and Disclosure Requirements
 40




---



##### 



Transfers and Servicing
 41




---



##### 



PART II  OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
    
    NoneItem 1A.
    
    Risk Factors
    
    NoneItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    NoneItem 3.
    
    Defaults Upon Senior Securities
    
    NoneItem 4.
    
    (Removed and Reserved)
    
    NoneItem 5.
    
    Other Information
    
    NoneItem 6.
    
    Exhibits
 Exhibit No.
    
    Description3.1
    
    Restated Articles of Incorporation of our Company (filed as
Exhibit 3.1 to our Companys current report on Form 8-K on
August 9, 2007 and incorporated herein by reference).3.1.1
    
    Certificate of Designations of Fixed Rate Cumulative Perpetual
Preferred Stock, Series 2008, dated December 17, 2008 (filed
as Exhibit 3.1.1 to our Companys current report on Form 8-K
on December 23, 2008 and incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of our Company (filed as Exhibit
3.1 to our Companys current report on Form 8-K on June 8,
2009 and incorporated herein by reference).4.1
    
    Specimen certificate representing shares of our
Companys $1.00 par value common stock (filed as Exhibit 4.1
to our Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (Commission file number 0-23636)
and incorporated herein by reference).4.2
    
    Specimen certificate representing shares of our Fixed Rate
Cumulative Perpetual Preferred Stock, Series 2008 (filed as
Exhibit 4.2 to our Companys current report on Form 8-K on
December 23, 2008 and incorporated herein by reference).4.3
    
    Warrant to purchase shares of our Companys $1.00 par value
Common Stock, dated December 19, 2008 (filed as Exhibit 4.3 to
our Companys current report on Form 8-K on December 23, 2008
and incorporated herein by reference).31.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certificate of the Chief Executive Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of the Chief Financial Officer of our Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 42




---



##### 



SIGNATURES
  HAWTHORN BANCSHARES, INC.Date/s/ James E. SmithAugust 13, 2010
    James E. Smith, Chairman of the Boardand Chief Executive Officer Principal Executive Officer) /s/ Richard G. RoseAugust 13, 2010
    Richard G. Rose, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 43




---



##### 



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
    
    
    4531.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    4632.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    4732.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    
    48
 
 **
    
    Incorporated by reference. 44