UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2009
 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 þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



Item 1.
    
    Financial Statements
 HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
 September 30,
    
    December 31,2009
    
    2008ASSETSLoans
    
    $
    993,452,421
    
    
    $
    1,009,103,532Allowances for loan losses
    
    
    (13,927,534
    )
    
    
    (12,666,546
    )Net loans
    
    
    979,524,887
    
    
    
    996,436,986Investment in available-for-sale securities, at fair value
    
    
    159,013,809
    
    
    
    149,400,929Investment in equity securities, at cost
    
    
    8,875,250
    
    
    
    8,875,250Total investment securities
    
    
    167,889,059
    
    
    
    158,276,179Federal funds sold and securities purchased under agreements to resell
    
    
    106,226
    
    
    
    104,393Cash and due from banks
    
    
    21,834,033
    
    
    
    53,723,075Premises and equipment  net
    
    
    37,222,310
    
    
    
    39,260,220Other real estate owned and repossessed assets
    
    
    11,578,503
    
    
    
    7,828,278Accrued interest receivable
    
    
    6,878,022
    
    
    
    7,476,093Mortgage servicing rights
    
    
    1,881,355
    
    
    
    1,171,225Intangible assets  net
    
    
    1,654,505
    
    
    
    2,130,097Cash surrender value  life insurance
    
    
    1,910,652
    
    
    
    1,852,902Other assets
    
    
    9,748,122
    
    
    
    11,439,419Total assets
    
    $
    1,240,227,674
    
    
    $
    1,279,698,867LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest bearing demand
    
    $
    126,116,754
    
    
    $
    125,245,200Savings, interest checking and money market
    
    
    357,905,369
    
    
    
    342,626,702Time deposits $100,000 and over
    
    
    144,097,466
    
    
    
    142,972,489Other time deposits
    
    
    340,015,283
    
    
    
    344,451,998Total deposits
    
    
    968,134,872
    
    
    
    955,296,389Federal funds purchased and securities sold
under agreements to repurchase
    
    
    32,374,577
    
    
    
    29,138,623Subordinated notes
    
    
    49,486,000
    
    
    
    49,486,000Other borrowed money
    
    
    71,481,166
    
    
    
    129,057,483Accrued interest payable
    
    
    2,391,949
    
    
    
    3,847,415Other liabilities
    
    
    7,867,557
    
    
    
    6,454,574Total liabilities
    
    
    1,131,736,121
    
    
    
    1,173,280,484Stockholders equity:Preferred stock, $1,000 par valueAuthorized and issued 30,255 shares
    
    
    28,245,649
    
    
    
    27,888,294Common stock, $1 par valueAuthorized 15,000,000 shares;
issued 4,463,813 and
4,298,353 shares respectively
    
    
    4,463,813
    
    
    
    4,298,353Surplus
    
    
    26,939,983
    
    
    
    25,144,323Retained earnings
    
    
    50,759,013
    
    
    
    51,598,678Accumulated other comprehensive income, net of tax
    
    
    1,599,913
    
    
    
    1,005,553Treasury stock; 161,858 shares, at cost
    
    
    (3,516,818
    )
    
    
    (3,516,818
    )Total stockholders equity
    
    
    108,491,553
    
    
    
    106,418,383Total liabilities and stockholders equity
    
    $
    1,240,227,674
    
    
    $
    1,279,698,867
  2




---



##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
 For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008INTEREST INCOMEInterest and fees on loans
    
    $
    14,340,996
    
    
    $
    15,757,925
    
    
    $
    43,332,581
    
    
    $
    47,531,888Interest on debt securities:Taxable
    
    
    1,152,935
    
    
    
    1,140,427
    
    
    
    3,430,153
    
    
    
    3,864,716Nontaxable
    
    
    350,839
    
    
    
    406,598
    
    
    
    1,088,561
    
    
    
    1,288,395Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    60
    
    
    
    14,238
    
    
    
    253
    
    
    
    58,464Interest on interest-bearing deposits
    
    
    11,556
    
    
    
    12
    
    
    
    43,565
    
    
    
    301Dividends on equity securities
    
    
    53,742
    
    
    
    110,627
    
    
    
    110,010
    
    
    
    233,035Total interest income
    
    
    15,910,128
    
    
    
    17,429,827
    
    
    
    48,005,123
    
    
    
    52,976,799INTEREST EXPENSEInterest on deposits:Savings, interest checking and money market
    
    
    693,242
    
    
    
    1,100,575
    
    
    
    2,390,089
    
    
    
    3,673,278Time deposit accounts $100,000 and over
    
    
    949,273
    
    
    
    1,333,732
    
    
    
    3,056,793
    
    
    
    4,419,749Other time deposit accounts
    
    
    2,532,085
    
    
    
    2,975,430
    
    
    
    8,311,234
    
    
    
    9,721,086Interest on federal funds purchased and securities sold
under agreements to repurchase
    
    
    23,458
    
    
    
    170,386
    
    
    
    64,028
    
    
    
    823,425Interest on subordinated notes
    
    
    588,554
    
    
    
    736,663
    
    
    
    1,878,657
    
    
    
    2,319,585Interest on other borrowed money
    
    
    687,535
    
    
    
    1,258,578
    
    
    
    2,320,481
    
    
    
    3,104,659Total interest expense
    
    
    5,474,147
    
    
    
    7,575,364
    
    
    
    18,021,282
    
    
    
    24,061,782Net interest income
    
    
    10,435,981
    
    
    
    9,854,463
    
    
    
    29,983,841
    
    
    
    28,915,017Provision for loan losses
    
    
    1,250,000
    
    
    
    1,000,000
    
    
    
    4,404,000
    
    
    
    3,950,000Net interest income after provision for loan losses
    
    
    9,185,981
    
    
    
    8,854,463
    
    
    
    25,579,841
    
    
    
    24,965,017NON-INTEREST INCOMEService charges on deposit accounts
    
    
    1,547,038
    
    
    
    1,636,165
    
    
    
    4,380,248
    
    
    
    4,636,065Trust department income
    
    
    237,939
    
    
    
    198,743
    
    
    
    623,258
    
    
    
    604,617Gain on sale of mortgage loans, net
    
    
    489,069
    
    
    
    132,988
    
    
    
    2,437,169
    
    
    
    685,782Other
    
    
    326,560
    
    
    
    353,429
    
    
    
    732,189
    
    
    
    1,082,040Total non-interest income
    
    
    2,600,606
    
    
    
    2,321,325
    
    
    
    8,172,864
    
    
    
    7,008,504INVESTMENT SECURITIES GAINS (LOSSES), NET
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,773NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,454,183
    
    
    
    4,483,943
    
    
    
    13,403,853
    
    
    
    13,662,257Occupancy expense, net
    
    
    599,555
    
    
    
    601,435
    
    
    
    1,762,990
    
    
    
    1,802,215Furniture and equipment expense
    
    
    506,469
    
    
    
    536,786
    
    
    
    1,794,400
    
    
    
    1,805,304FDIC insurance assessment
    
    
    421,690
    
    
    
    39,264
    
    
    
    2,085,472
    
    
    
    165,284Legal, examination, and professional fees
    
    
    311,780
    
    
    
    312,485
    
    
    
    985,274
    
    
    
    838,482Advertising and promotion
    
    
    301,348
    
    
    
    328,696
    
    
    
    901,066
    
    
    
    839,831Postage, printing, and supplies
    
    
    271,434
    
    
    
    259,538
    
    
    
    833,846
    
    
    
    894,188Processing expense
    
    
    845,288
    
    
    
    774,314
    
    
    
    2,538,067
    
    
    
    2,327,224Other real estate expense
    
    
    239,747
    
    
    
    85,686
    
    
    
    575,008
    
    
    
    430,303Other
    
    
    1,088,245
    
    
    
    959,696
    
    
    
    2,815,972
    
    
    
    2,887,285Total non-interest expense
    
    
    9,039,739
    
    
    
    8,381,843
    
    
    
    27,695,948
    
    
    
    25,652,373Income before income taxes
    
    
    2,746,848
    
    
    
    2,793,945
    
    
    
    6,056,757
    
    
    
    6,323,921Less income taxes
    
    
    840,070
    
    
    
    779,745
    
    
    
    1,889,060
    
    
    
    1,905,386Net income
    
    
    1,906,778
    
    
    
    2,014,200
    
    
    
    4,167,697
    
    
    
    4,418,535Preferred stock dividends
    
    
    497,306
    
    
    
    
    
    
    
    1,491,918
    
    
    
    Net income available to common shareholders
    
    $
    1,409,472
    
    
    $
    2,014,200
    
    
    $
    2,675,779
    
    
    $
    4,418,535Basic earnings per share
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.62
    
    
    $
    1.02Diluted earnings per share
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.62
    
    
    $
    1.02
  3




---



##### 



HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
 Nine months ended September 30,2009
    
    2008Cash flows from operating activities:Net income
    
    $
    4,167,697
    
    
    $
    4,418,535Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    4,404,000
    
    
    
    3,950,000Depreciation expense
    
    
    1,540,942
    
    
    
    1,619,146Net amortization (accretion) of debt securities, premiums, and discounts
    
    
    366,383
    
    
    
    (49,056
    )Amortization of intangible assets
    
    
    475,592
    
    
    
    532,901Stock based compensation expense
    
    
    99,697
    
    
    
    190,107Decrease in accrued interest receivable
    
    
    598,071
    
    
    
    1,113,112Increase in cash surrender value -life insurance
    
    
    (57,750
    )
    
    
    (34,000
    )Decrease (increase) in other assets
    
    
    93,894
    
    
    
    (153,536
    )Decrease in accrued interest payable
    
    
    (1,455,466
    )
    
    
    (619,265
    )Increase (decrease) in other liabilities
    
    
    1,808,432
    
    
    
    (426,773
    )Gain on sales of debt securities
    
    
    
    
    
    
    (2,773
    )Origination of mortgage loans for sale
    
    
    (125,186,177
    )
    
    
    (39,900,081
    )Proceeds from the sale of mortgage loans
    
    
    127,623,346
    
    
    
    40,585,863Gain on sale of mortgage loans, net
    
    
    (2,437,169
    )
    
    
    (685,782
    )Loss on sales and dispositions of premises and equipment
    
    
    147,166
    
    
    
    74,932Other real estate owned impairment charges
    
    
    62,535
    
    
    
    153,500(Decrease) increase in deferred tax asset
    
    
    380,001
    
    
    
    (258,438
    )Other, net
    
    
    371,107
    
    
    
    11,780Net cash provided by operating activities
    
    
    13,002,301
    
    
    
    10,520,172Cash flows from investing activities:Net (decrease) increase in loans
    
    
    6,768,359
    
    
    
    (93,628,211
    )Purchase of available-for-sale debt securities
    
    
    (110,865,517
    )
    
    
    (258,120,019
    )Proceeds from maturities of available-for-sale debt securities
    
    
    83,996,365
    
    
    
    186,799,283Proceeds from calls of available-for-sale debt securities
    
    
    17,805,000
    
    
    
    39,132,640Proceeds from sales of available-for-sale debt securities
    
    
    
    
    
    
    30,920,778Purchase of equity securities
    
    
    
    
    
    
    (5,040,800
    )Proceeds from sales of equity securities
    
    
    
    
    
    
    494,800Purchases of premises and equipment
    
    
    (420,575
    )
    
    
    (884,886
    )Proceeds from sales of premises and equipment
    
    
    582,816
    
    
    
    29,900Proceeds from sales of other real estate owned and repossessions
    
    
    1,929,955
    
    
    
    1,486,453Net cash used in investing activities
    
    
    (203,597
    )
    
    
    (98,810,062
    )Cash flows from financing activities:Net increase (decrease) in demand deposits
    
    
    871,554
    
    
    
    (13,395,525
    )Net increase in interest-bearing transaction accounts
    
    
    15,278,667
    
    
    
    2,069,084Net (decrease) increase in time deposits
    
    
    (3,311,738
    )
    
    
    18,722,934Net increase in federal funds purchased and securities sold
under agreements to repurchase
    
    
    3,235,954
    
    
    
    1,043,214Proceeds from Federal Home Loan Bank advances
    
    
    
    
    
    
    257,300,000Repayment of Federal Home Loan Bank advances
    
    
    (57,576,317
    )
    
    
    (175,954,819
    )Cash dividends paid  preferred stock
    
    
    (991,691
    )
    
    
    Cash dividends paid  common stock
    
    
    (2,192,342
    )
    
    
    (2,625,731
    )Purchase of treasury stock
    
    
    
    
    
    
    (802,445
    )Net cash (used) in provided by financing activities
    
    
    (44,685,913
    )
    
    
    86,356,712Net decrease in cash and cash equivalents
    
    
    (31,887,209
    )
    
    
    (1,933,178
    )Cash and cash equivalents, beginning of year
    
    
    53,827,468
    
    
    
    35,873,385Cash and cash equivalents, end of period
    
    $
    21,940,259
    
    
    $
    33,940,207Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    19,476,748
    
    
    $
    24,681,047Income taxes
    
    $
    390,000
    
    
    $
    2,240,000Supplemental schedule of noncash investing and financing activities:Other real estate and repossessions acquired in settlement of loans
    
    $
    6,807,763
    
    
    $
    6,471,593
  4




---



##### 



(Unaudited)
 Basis of Presentation
     Loans and Allowance for Loan Losses
  September 30,
    
    December 31,2009
    
    2008Amount
    
    AmountCommercial, financial, and agricultural
    
    $
    145,553,629
    
    
    $
    153,386,062Real estate Construction
    
    
    114,438,639
    
    
    
    129,638,759Real estate Mortgage
    
    
    697,187,716
    
    
    
    692,530,252Installment loans to individuals
    
    
    36,272,437
    
    
    
    33,548,459Total loans
    
    $
    993,452,421
    
    
    $
    1,009,103,532
  5




---



##### 



September 30,
    
    December 31,2009
    
    2008Loans classified as impaired:Impaired loans with reserves
    
    $
    27,372,066
    
    
    $
    18,482,148Impaired loans without reserves
    
    
    10,487,546
    
    
    
    11,451,625Total impaired loans
    
    $
    37,859,612
    
    
    $
    29,933,773Reserves for impaired loans
    
    $
    5,250,757
    
    
    $
    3,837,419Average balance of impaired loans during the period
    
    $
    33,344,450
    
    
    $
    20,645,519
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008Amount
    
    Amount
    
    Amount
    
    AmountBalance at beginning of period
    
    $
    13,704,736
    
    
    $
    11,131,032
    
    
    $
    12,666,546
    
    
    $
    9,281,848Additions:Provision for loan losses
    
    
    1,250,000
    
    
    
    1,000,000
    
    
    
    4,404,000
    
    
    
    3,950,000Total additions
    
    
    1,250,000
    
    
    
    1,000,000
    
    
    
    4,404,000
    
    
    
    3,950,000Deductions:Loans charged off
    
    
    1,198,165
    
    
    
    2,937,682
    
    
    
    3,549,572
    
    
    
    4,331,793Less recoveries on loans
    
    
    (170,963
    )
    
    
    (162,867
    )
    
    
    (406,560
    )
    
    
    (456,162
    )Net loans charged off
    
    
    1,027,202
    
    
    
    2,774,815
    
    
    
    3,143,012
    
    
    
    3,875,631Balance at end of period
    
    $
    13,927,534
    
    
    $
    9,356,217
    
    
    $
    13,927,534
    
    
    $
    9,356,217
 6




---



##### 



Investment Securities
  Gross
    
    GrossAmortized
    
    unrealized
    
    unrealizedcost
    
    gains
    
    losses
    
    Fair valueSeptember 30, 2009Government sponsored enterprises
    
    $
    46,670,668
    
    
    $
    695,110
    
    
    $
    
    
    
    $
    47,365,778Asset-backed securities
    
    
    68,076,303
    
    
    
    2,591,350
    
    
    
    36,590
    
    
    
    70,631,063Obligations
of states and political subdivisions
    
    
    39,972,384
    
    
    
    1,051,630
    
    
    
    7,046
    
    
    
    41,016,968Total debt securities
    
    
    154,719,355
    
    
    
    4,338,090
    
    
    
    43,636
    
    
    
    159,013,809Equity securities
    
    
    8,875,250
    
    
    
    
    
    
    
    
    
    
    
    8,875,250Total investment securities
    
    $
    163,594,605
    
    
    $
    4,338,090
    
    
    $
    43,636
    
    
    $
    167,889,059December 31, 2008Government sponsored enterprises
    
    $
    54,018,436
    
    
    $
    1,526,240
    
    
    $
    
    
    
    $
    55,544,676Asset-backed securities
    
    
    48,801,151
    
    
    
    1,292,982
    
    
    
    3,148
    
    
    
    50,090,985Obligations
of states and political subdivisions
    
    
    43,201,999
    
    
    
    755,091
    
    
    
    191,822
    
    
    
    43,765,268Total debt securities
    
    
    146,021,586
    
    
    
    3,574,313
    
    
    
    194,970
    
    
    
    149,400,929Equity securities
    
    
    8,875,250
    
    
    
    
    
    
    
    
    
    
    
    8,875,250Total investment securities
    
    $
    154,896,836
    
    
    $
    3,574,313
    
    
    $
    194,970
    
    
    $
    158,276,179
   Amortized
    
    Faircost
    
    valueDue in one year or less
    
    $
    14,576,193
    
    
    $
    14,770,578Due after one year through five years
    
    
    45,887,667
    
    
    
    46,702,223Due after five years through ten years
    
    
    21,916,619
    
    
    
    22,487,280Due after ten years
    
    
    4,262,573
    
    
    
    4,422,66586,643,052
    
    
    
    88,382,746Asset-backed securities
    
    
    68,076,303
    
    
    
    70,631,063Total debt securities
    
    
    154,719,355
    
    
    
    159,013,809Equity securities
    
    
    8,875,250
    
    
    
    8,875,250Total available for sale investment securities
    
    $
    163,594,605
    
    
    $
    167,889,059
 7




---



##### 



The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments. ,
  For the three months
    
    For the nine monthsended September 30,
    
    ended September 30,2009
    
    2008
    
    2009
    
    2008Proceeds from sales of available for sale securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,920,778Available for sale:Gains realized on sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,773Losses realized on sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other-than-temporary impairment recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment securities gains (losses), net
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,773
   Less than 12 months
    
    12 months or more
    
    
    
    
    
    TotalNumber ofFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Investment
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Positions
    
    Value
    
    LossesAt September 30, 2009Government sponsored
enterprises
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    Asset-backed securities
    
    
    7,033,374
    
    
    
    (36,589
    )
    
    
    43,310
    
    
    
    (1
    )
    
    
    9
    
    
    
    7,076,684
    
    
    
    (36,590
    )Obligations of states and
political subdivisions
    
    
    773,287
    
    
    
    (7,046
    )
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    773,287
    
    
    
    (7,046
    )$
    7,806,661
    
    
    $
    (43,635
    )
    
    $
    43,310
    
    
    $
    (1
    )
    
    
    14
    
    
    $
    7,849,971
    
    
    $
    (43,636
    )
 Less than 12 months
    
    12 months or more
    
    
    
    
    
    TotalNumber ofFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Investment
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Positions
    
    Value
    
    LossesAt December 31, 2008Government sponsored
enterprises
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    Asset-backed securities
    
    
    890,039
    
    
    
    (1,904
    )
    
    
    210,667
    
    
    
    (1,244
    )
    
    
    11
    
    
    
    1,100,706
    
    
    
    (3,148
    )Obligations of states and
political subdivisions
    
    
    7,674,965
    
    
    
    (191,822
    )
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    7,674,965
    
    
    
    (191,822
    )$
    8,565,004
    
    
    $
    (193,726
    )
    
    $
    210,667
    
    
    $
    (1,244
    )
    
    
    38
    
    
    $
    8,775,671
    
    
    $
    (194,970
    )
 8




---



##### 



Fair Value Measurements
 Fair Value Measurement,
     Fair Value Measurement
 Valuation methods for instruments measured at fair value on a recurring basis
  Available-for-sale securities
  Fair Value MeasurementsAt September 30, 2009 UsingQuoted Pricesin ActiveMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableFair Value
    
    Assets
    
    Inputs
    
    InputsDescription
    
    September 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-Sale Securities
    
    $
    159,013,809
    
    
    $
    
    
    
    $
    159,013,809
    
    
    $
    
 9




---



##### 



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
  Fair Value MeasurementsAt September 30, 2009 UsingQuoted Pricesin Active
    
    
    
    
    
    
    
    
    
    Nine MonthsMarkets for
    
    Other
    
    Significant
    
    EndedIdentical
    
    Observable
    
    Unobservable
    
    Sept. 30, 2009Fair Value
    
    Assets
    
    Inputs
    
    Inputs
    
    Total GainsDescription
    
    September 30, 2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    (Losses)Impaired loans
    
    $
    22,121,309
    
    
    $
    
    
    
    $
    
    
    
    $
    22,121,309
    
    
    $
    (1,805,526
    )Other real estate owned and repossessed assets
    
    $
    11,578,503
    
    
    $
    
    
    
    $
    
    
    
    $
    11,578,503
    
    
    $
    (1,099,383
    )
 10




---



##### 



Earnings per Share
   For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income, basic and diluted
    
    $
    1,906,778
    
    
    $
    2,014,200
    
    
    $
    4,167,697
    
    
    $
    4,418,535Less: preferred stock dividends
    
    
    497,306
    
    
    
    
    
    
    
    1,491,918
    
    
    
    Net income available to
common shareholders
    
    
    1,409,472
    
    
    
    2,014,200
    
    
    
    2,675,779
    
    
    
    4,418,535Average shares outstanding
    
    
    4,301,955
    
    
    
    4,316,662
    
    
    
    4,301,955
    
    
    
    4,328,702Effect of dilutive stock options
    
    
    
    
    
    
    13,799
    
    
    
    
    
    
    
    20,162Average shares outstanding including
dilutive stock options
    
    $
    4,301,955
    
    
    $
    4,330,461
    
    
    $
    4,301,955
    
    
    $
    4,348,864Net income per share, basic
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.62
    
    
    $
    1.02Net income per share, diluted
    
    
    0.33
    
    
    
    0.47
    
    
    
    0.62
    
    
    
    1.02
   Anti-dilutive shares
    
    2009
    
    2008Three months ended September 30,
    
    
    531,226
    
    
    
    267,086Nine months ended September 30,
    
    
    531,226
    
    
    
    212,595
 11




---



##### 



Stock-Based Compensation
   WeightedWeighted
    
    Aggregate
    
    AverageAverage
    
    Intrinsic
    
    ContractualExercise
    
    Value
    
    TermOptions
    
    Price
    
    (000)
    
    (in years)Outstanding at January 1, 2009 - adjusted *
    
    
    277,454
    
    
    $
    25.10Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (1,488
    )
    
    
    30.22Canceled
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    275,966
    
    
    $
    25.07
    
    
    $
    
    
    
    
    5.2Exercisable at September 30, 2009
    
    
    215,711
    
    
    $
    24.70
    
    
    $
    
    
    
    
    4.5
 *
    
    On July 1, 2009 a 4% stock dividend was issued.
  Comprehensive Income
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income
    
    $
    1,906,778
    
    
    $
    2,014,200
    
    
    $
    4,167,697
    
    
    $
    4,418,535Other comprehensive income:Unrealized loss on securities:Unrealized gain (loss) on debt and equity
securities available-for-sale, net of tax
    
    
    808,079
    
    
    
    250,158
    
    
    
    558,218
    
    
    
    (458,592
    )Adjustment on sales and calls of
debt and equity securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,692
    )Defined benefit pension plan:Amortization of prior service cost included in
net periodic pension cost, net of tax
    
    
    12,052
    
    
    
    3,928
    
    
    
    36,142
    
    
    
    11,780Total other comprehensive income (loss)
    
    
    820,131
    
    
    
    254,086
    
    
    
    594,360
    
    
    
    (448,504
    )Comprehensive income
    
    $
    2,726,909
    
    
    $
    2,268,286
    
    
    $
    4,762,057
    
    
    $
    3,970,031
 12




---



##### 



Goodwill and Intangible Assets
   September 30, 2009
    
    December 31, 2008Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Net
    
    Carrying
    
    Accumulated
    
    NetAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortizable intangible assets:Core deposit intangible
    
    $
    7,060,224
    
    
    $
    (5,405,719
    )
    
    $
    1,654,505
    
    
    $
    7,060,224
    
    
    $
    (4,930,127
    )
    
    $
    2,130,097Mortgage servicing rights
    
    
    3,425,091
    
    
    
    (1,543,736
    )
    
    
    1,881,355
    
    
    
    2,767,180
    
    
    
    (1,595,955
    )
    
    
    1,171,225Total amortizable intangible
assets
    
    $
    10,485,315
    
    
    $
    (6,949,455
    )
    
    $
    3,535,860
    
    
    $
    9,827,404
    
    
    $
    (6,526,082
    )
    
    $
    3,301,322
  Core Deposit
    
    MortgageIntangible
    
    ServicingAsset
    
    RightsBalance at December 31, 2008
    
    $
    2,130,097
    
    
    $
    1,171,225Additions
    
    
    
    
    
    
    1,456,812Amortization
    
    
    (475,592
    )
    
    
    (746,682
    )Balance at September 30, 2009
    
    $
    1,654,505
    
    
    $
    1,881,355
   Core Deposit
    
    MortgageIntangible
    
    ServicingAsset
    
    Rights2009
    
    $
    150,519
    
    
    $
    254,0002010
    
    
    526,477
    
    
    
    405,0002011
    
    
    434,763
    
    
    
    308,0002012
    
    
    408,062
    
    
    
    234,0002013
    
    
    134,684
    
    
    
    179,0002014
    
    
    
    
    
    
    137,000
 13




---



##### 



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Aggregate amortization expense
    
    2009
    
    2008
    
    2009
    
    2008Core deposit intangible asset
    
    $
    150,519
    
    
    $
    168,543
    
    
    $
    475,592
    
    
    $
    532,900Mortgage servicing rights
    
    
    156,365
    
    
    
    123,153
    
    
    
    746,682
    
    
    
    470,677
 Income Taxes
   Employee Benefit Plans
  For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Payroll taxes
    
    $
    246,232
    
    
    $
    193,391
    
    
    $
    855,229
    
    
    $
    869,491Medical plans
    
    
    370,113
    
    
    
    354,704
    
    
    
    1,127,477
    
    
    
    1,093,697401k match
    
    
    81,045
    
    
    
    79,120
    
    
    
    227,902
    
    
    
    229,888Pension plan
    
    
    229,000
    
    
    
    218,337
    
    
    
    687,000
    
    
    
    655,010Profit-sharing
    
    
    99,000
    
    
    
    87,600
    
    
    
    233,350
    
    
    
    191,415Other
    
    
    28,906
    
    
    
    48,777
    
    
    
    81,539
    
    
    
    150,359Total employee benefits
    
    $
    1,054,296
    
    
    $
    981,929
    
    
    $
    3,212,497
    
    
    $
    3,189,860
 14




---



##### 



Estimated
    
    Actual2009
    
    2008Service cost  benefits earned during the year
    
    $
    851,000
    
    
    $
    820,401Interest cost on projected benefit obligations
    
    
    509,000
    
    
    
    452,524Expected return on plan assets
    
    
    (523,000
    )
    
    
    (454,344
    )Amortization of prior service cost
    
    
    79,000
    
    
    
    78,628Amortization of net gains
    
    
    
    
    
    
    (42,802
    )Net periodic pension expense  Annual
    
    $
    916,000
    
    
    $
    854,407Pension expense  three months
ended September 30 (actual)
    
    $
    229,000
    
    
    $
    218,337Pension expense  nine months
ended September 30 (actual)
    
    $
    687,000
    
    
    $
    655,010
  Preferred Stock
     15




---



##### 



Disclosures about Fair Value of Financial Instruments
  Loans
    Investment in Debt and Equity Securities
  Federal Funds Sold, Cash, and Due from Banks
  Mortgage Servicing Rights
  Accrued Interest Receivable and Payable
  Deposits
  Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury
  Other Borrowings
  16




---



##### 



September 30,
    
    December 31,2009
    
    2008Carrying
    
    Fair
    
    Carrying
    
    Fairamount
    
    value
    
    amount
    
    valueAssets:Loans
    
    $
    979,524,887
    
    
    $
    987,863,000
    
    
    $
    996,436,986
    
    
    $
    1,000,594,000Investment in debt and
equity securities
    
    
    167,889,059
    
    
    
    167,889,059
    
    
    
    158,276,179
    
    
    
    158,276,179Federal fund sold and
securities purchased under
agreements to resell
    
    
    106,226
    
    
    
    106,226
    
    
    
    104,393
    
    
    
    104,393Cash and due from banks
    
    
    21,834,033
    
    
    
    21,834,033
    
    
    
    53,723,075
    
    
    
    53,723,075Mortgage servicing rights
    
    
    1,881,355
    
    
    
    3,020,000
    
    
    
    1,171,225
    
    
    
    2,455,000Accrued interest receivable
    
    
    6,878,022
    
    
    
    6,878,022
    
    
    
    7,476,093
    
    
    
    7,476,093$
    1,178,113,582
    
    
    $
    1,187,590,340
    
    
    $
    1,217,187,951
    
    
    $
    1,222,628,740Liabilities:Deposits:Demand
    
    $
    126,116,754
    
    
    $
    126,116,754
    
    
    $
    125,245,200
    
    
    $
    125,245,200NOW
    
    
    133,142,824
    
    
    
    133,142,824
    
    
    
    123,288,896
    
    
    
    123,288,896Savings
    
    
    47,430,953
    
    
    
    47,430,953
    
    
    
    43,370,172
    
    
    
    43,370,172Money market
    
    
    177,331,592
    
    
    
    177,331,592
    
    
    
    175,967,634
    
    
    
    175,967,634Time
    
    
    484,112,749
    
    
    
    495,854,000
    
    
    
    487,424,487
    
    
    
    494,427,000Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    32,374,577
    
    
    
    32,374,577
    
    
    
    29,138,623
    
    
    
    29,138,623Subordinated notes
    
    
    49,486,000
    
    
    
    18,909,000
    
    
    
    49,486,000
    
    
    
    35,180,000Other borrowings
    
    
    71,481,166
    
    
    
    76,303,000
    
    
    
    129,057,483
    
    
    
    130,454,000Accrued interest payable
    
    
    2,391,949
    
    
    
    2,391,949
    
    
    
    3,847,415
    
    
    
    3,847,415$
    1,123,868,564
    
    
    $
    1,109,854,649
    
    
    $
    1,166,825,910
    
    
    $
    1,160,918,940
 17




---



##### 



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 Hawthorn and its
acquisition targets may be greater than expected,
    
    legislative or regulatory changes may adversely affect the business in which Hawthorn and
its subsidiaries are engaged, and
    
    changes may occur in the securities markets.
  Overview
   18




---



##### 



Critical Accounting Policies
  Allowance for Loan Losses
  Income Taxes
  Goodwill and Other Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets
  19




---



##### 



SELECTED CONSOLIDATED FINANCIAL DATA
  Selected Financial Data
 Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,(In thousands, except per share data)
    
    2009
    
    2008
    
    2009
    
    2008Per Share DataBasic earnings per common share
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.62
    
    
    $
    1.02Diluted earnings per common share
    
    
    0.33
    
    
    
    0.47
    
    
    
    0.62
    
    
    
    1.02Dividends paid on preferred stock
    
    
    378
    
    
    
    
    
    
    
    992
    
    
    
    Amortization of discount on preferred stock
    
    
    119
    
    
    
    
    
    
    
    357
    
    
    
    Dividends paid on common stock
    
    
    455
    
    
    
    873
    
    
    
    2,192
    
    
    
    2,626Book value per common share
    
    
    
    
    
    
    
    
    
    
    18.65
    
    
    
    27.06Market price common stock
    
    
    
    
    
    
    
    
    
    
    9.75
    
    
    
    23.95Selected Ratios(Based on average balance sheets)Return on average total assets
    
    
    0.60
    %
    
    
    0.63
    %
    
    
    0.44
    %
    
    
    0.48
    %%Return on average common stockholders
equity
    
    
    7.03
    %
    
    
    7.17
    %
    
    
    4.51
    %
    
    
    5.25
    %Average common stockholders equity to
average total assets
    
    
    6.33
    %
    
    
    8.85
    %
    
    
    6.28
    %
    
    
    9.07
    %(Based on end-of-period data)Efficiency ratio (1)
    
    
    69.34
    %
    
    
    68.85
    %
    
    
    72.58
    %
    
    
    71.40
    %Period-end stockholders equity to
period-end assets
    
    
    
    
    
    
    
    
    
    
    6.47
    %
    
    
    8.71
    %Period-end common stockholders equity to
period-end assets
    
    
    
    
    
    
    
    
    
    
    8.75
    %
    
    
    8.71
    %Total risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    16.50
    
    
    
    12.47Tier 1 risk-based capital ratio
    
    
    
    
    
    
    
    
    
    
    14.01
    
    
    
    10.48Leverage ratio
    
    
    
    
    
    
    
    
    
    
    11.24
    
    
    
    8.67
 (1)
    
    Efficiency ratio is calculated as non-interest expense as a percent of revenue. Total
revenue includes net interest and non-interest income. 20




---



##### 



Results of Operations
 Summary
 Three Months
    
    
    
    
    
    
    
    
    
    Nine MonthsEnded September 30,
    
    Ended September 30,(Dollars in thousands)
    
    2009
    
    2008
    
    $ Change
    
    % Change
    
    2009
    
    2008
    
    $ Change
    
    % ChangeNet interest income
    
    $
    10,436
    
    
    $
    9,855
    
    
    $
    581
    
    
    
    5.9
    %
    
    $
    29,984
    
    
    $
    28,915
    
    
    $
    1,069
    
    
    
    3.7
    %Provision for loan losses
    
    
    1,250
    
    
    
    1,000
    
    
    
    250
    
    
    
    25.0
    
    
    
    4,404
    
    
    
    3,950
    
    
    
    454
    
    
    
    11.5Noninterest income
    
    
    2,600
    
    
    
    2,321
    
    
    
    279
    
    
    
    12.0
    
    
    
    8,173
    
    
    
    7,008
    
    
    
    1,165
    
    
    
    16.6Investment securities
gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    (100.0
    )Noninterest expense
    
    
    9,040
    
    
    
    8,382
    
    
    
    658
    
    
    
    7.9
    
    
    
    27,696
    
    
    
    25,652
    
    
    
    2,044
    
    
    
    8.0Income before
income taxes
    
    
    2,746
    
    
    
    2,794
    
    
    
    (48
    )
    
    
    (1.7
    )
    
    
    6,057
    
    
    
    6,324
    
    
    
    (267
    )
    
    
    (4.2
    )Income taxes
    
    
    840
    
    
    
    780
    
    
    
    60
    
    
    
    7.7
    
    
    
    1,889
    
    
    
    1,905
    
    
    
    (16
    )
    
    
    (0.8
    )Net income
    
    $
    1,906
    
    
    $
    2,014
    
    
    $
    (108
    )
    
    
    (5.4
    )%
    
    $
    4,168
    
    
    $
    4,419
    
    
    $
    (251
    )
    
    
    (5.7
    )%Less: preferred dividends
    
    
    497
    
    
    
    
    
    
    
    497
    
    
    
    
    
    
    
    1,492
    
    
    
    
    
    
    
    1,492
    
    
    
    Net income available
to common shareholders
    
    $
    1,409
    
    
    $
    2,014
    
    
    $
    (605
    )
    
    
    (30.0
    )%
    
    $
    2,676
    
    
    $
    4,419
    
    
    $
    (1,743
    )
    
    
    (39.4
    )%
   21




---



##### 



Net Interest Income
  Average Balance Sheets
  Three Months Ended September 30,2009
    
    2008Interest
    
    Rate
    
    
    
    
    
    Interest
    
    RateAverage
    
    Income/
    
    Earned/
    
    Average
    
    Income/
    
    Earned/(dollars in thousands)
    
    Balance
    
    Expense(1)
    
    Paid(1)
    
    Balance
    
    Expense(1)
    
    Paid(1)ASSETSLoans: (2) (4)
    
    $
    1,002,252
    
    
    $
    14,367
    
    
    
    5.69
    %
    
    $
    986,139
    
    
    $
    15,793
    
    
    
    6.35
    %Investment in securities: (3)Government sponsored enterprises
    
    
    114,773
    
    
    
    1,131
    
    
    
    3.91
    
    
    
    101,630
    
    
    
    1,122
    
    
    
    4.38State and municipal
    
    
    39,527
    
    
    
    536
    
    
    
    5.38
    
    
    
    44,191
    
    
    
    606
    
    
    
    5.44Other
    
    
    8,875
    
    
    
    54
    
    
    
    2.41
    
    
    
    9,851
    
    
    
    111
    
    
    
    4.47Federal funds sold
    
    
    262
    
    
    
    
    
    
    
    
    
    
    
    3,118
    
    
    
    14
    
    
    
    1.78Interest bearing deposits
in other financial institutions
    
    
    14,288
    
    
    
    11
    
    
    
    0.31
    
    
    
    125
    
    
    
    
    
    
    
    Total interest earning assets
    
    
    1,179,977
    
    
    
    16,099
    
    
    
    5.41
    
    
    
    1,145,054
    
    
    
    17,646
    
    
    
    6.11All other assets
    
    
    89,610
    
    
    
    
    
    
    
    
    
    
    
    128,237Allowance for loan losses
    
    
    (13,857
    )
    
    
    
    
    
    
    
    
    
    
    (11,216
    )Total assets
    
    $
    1,255,730
    
    
    
    
    
    
    
    
    
    
    $
    1,262,075LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    138,149
    
    
    $
    268
    
    
    
    0.77
    %
    
    $
    118,360
    
    
    $
    343
    
    
    
    1.15
    %Savings
    
    
    47,199
    
    
    
    35
    
    
    
    0.29
    
    
    
    44,894
    
    
    
    58
    
    
    
    0.51Money market
    
    
    178,719
    
    
    
    389
    
    
    
    0.86
    
    
    
    162,322
    
    
    
    699
    
    
    
    1.71Time
deposits of $100,000 and over
    
    
    141,791
    
    
    
    950
    
    
    
    2.66
    
    
    
    141,917
    
    
    
    1,334
    
    
    
    3.73Other time deposits
    
    
    347,783
    
    
    
    2,532
    
    
    
    2.89
    
    
    
    313,824
    
    
    
    2,976
    
    
    
    3.76Total time deposits
    
    
    853,641
    
    
    
    4,174
    
    
    
    1.94
    
    
    
    781,317
    
    
    
    5,410
    
    
    
    2.75Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    36,416
    
    
    
    23
    
    
    
    0.25
    
    
    
    36,358
    
    
    
    170
    
    
    
    1.86Subordinated notes
    
    
    49,486
    
    
    
    589
    
    
    
    4.72
    
    
    
    49,486
    
    
    
    737
    
    
    
    5.91Other borrowed money
    
    
    71,603
    
    
    
    688
    
    
    
    3.81
    
    
    
    152,158
    
    
    
    1,258
    
    
    
    3.28Total interest bearing liabilities
    
    
    1,011,146
    
    
    
    5,474
    
    
    
    2.15
    
    
    
    1,019,319
    
    
    
    7,575
    
    
    
    2.95Demand deposits
    
    
    125,092
    
    
    
    
    
    
    
    
    
    
    
    122,421Other liabilities
    
    
    11,794
    
    
    
    
    
    
    
    
    
    
    
    8,588Total liabilities
    
    
    1,148,032
    
    
    
    
    
    
    
    
    
    
    
    1,150,328Stockholders equity
    
    
    107,698
    
    
    
    
    
    
    
    
    
    
    
    111,747Total liabilities and
stockholders equity
    
    $
    1,255,730
    
    
    
    
    
    
    
    
    
    
    $
    1,262,075Net interest income (FTE)
    
    
    
    
    
    $
    10,625
    
    
    
    
    
    
    
    
    
    
    $
    10,071Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    
    
    
    3.16
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.49
    %
 (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 $189,000 and $217,000 for the three months
ended September 30, 2009 and 2008, 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.
 22




---



##### 



Nine Months Ended September 30,2009
    
    2008Interest
    
    Rate
    
    
    
    
    
    Interest
    
    RateAverage
    
    Income/
    
    Earned/
    
    Average
    
    Income/
    
    Earned/(dollars in thousands)
    
    Balance
    
    Expense(1)
    
    Paid(1)
    
    Balance
    
    Expense(1)
    
    Paid(1)ASSETSLoans: (2) (4)
    
    $
    1,006,892
    
    
    $
    43,404
    
    
    
    5.76
    %
    
    $
    950,454
    
    
    $
    47,632
    
    
    
    6.68
    %Investment in securities: (3)Government sponsored enterprises
    
    
    111,210
    
    
    
    3,366
    
    
    
    4.05
    
    
    
    113,724
    
    
    
    3,810
    
    
    
    4.46State and municipal
    
    
    39,725
    
    
    
    1,646
    
    
    
    5.54
    
    
    
    46,966
    
    
    
    1,905
    
    
    
    5.40Other
    
    
    8,875
    
    
    
    110
    
    
    
    1.66
    
    
    
    7,997
    
    
    
    233
    
    
    
    3.88Federal funds sold
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    3,257
    
    
    
    59
    
    
    
    2.41Interest bearing deposits
in other financial institutions
    
    
    20,551
    
    
    
    44
    
    
    
    0.29
    
    
    
    160
    
    
    
    
    
    
    
    Total interest earning assets
    
    
    1,187,561
    
    
    
    48,570
    
    
    
    5.47
    
    
    
    1,122,558
    
    
    
    53,639
    
    
    
    6.37All other assets
    
    
    89,073
    
    
    
    
    
    
    
    
    
    
    
    127,076Allowance for loan losses
    
    
    (13,303
    )
    
    
    
    
    
    
    
    
    
    
    (10,274
    )Total assets
    
    $
    1,263,331
    
    
    
    
    
    
    
    
    
    
    $
    1,239,360LIABILITIES AND STOCKHOLDERS EQUITYNOW accounts
    
    $
    139,765
    
    
    $
    902
    
    
    
    0.86
    %
    
    $
    116,695
    
    
    $
    970
    
    
    
    1.11
    %Savings
    
    
    45,912
    
    
    
    106
    
    
    
    0.31
    
    
    
    44,328
    
    
    
    173
    
    
    
    0.52Money market
    
    
    176,562
    
    
    
    1,382
    
    
    
    1.05
    
    
    
    167,395
    
    
    
    2,531
    
    
    
    2.01Time deposits of
$100,000 and over
    
    
    140,658
    
    
    
    3,057
    
    
    
    2.91
    
    
    
    142,231
    
    
    
    4,419
    
    
    
    4.14Other time deposits
    
    
    357,403
    
    
    
    8,311
    
    
    
    3.11
    
    
    
    313,000
    
    
    
    9,721
    
    
    
    4.14Total time deposits
    
    
    860,300
    
    
    
    13,758
    
    
    
    2.14
    
    
    
    783,649
    
    
    
    17,814
    
    
    
    3.03Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    32,483
    
    
    
    64
    
    
    
    0.26
    
    
    
    45,860
    
    
    
    823
    
    
    
    2.39Subordinated notes
    
    
    49,486
    
    
    
    1,879
    
    
    
    5.08
    
    
    
    49,486
    
    
    
    2,320
    
    
    
    6.25Other borrowed money
    
    
    79,874
    
    
    
    2,320
    
    
    
    3.88
    
    
    
    117,718
    
    
    
    3,105
    
    
    
    3.51Total interest bearing liabilities
    
    
    1,022,143
    
    
    
    18,021
    
    
    
    2.36
    
    
    
    996,713
    
    
    
    24,062
    
    
    
    3.22Demand deposits
    
    
    123,206
    
    
    
    
    
    
    
    
    
    
    
    121,435Other liabilities
    
    
    10,606
    
    
    
    
    
    
    
    
    
    
    
    8,773Total liabilities
    
    
    1,155,955
    
    
    
    
    
    
    
    
    
    
    
    1,126,921Stockholders equity
    
    
    107,376
    
    
    
    
    
    
    
    
    
    
    
    112,439Total liabilities and
stockholders equity
    
    $
    1,263,331
    
    
    
    
    
    
    
    
    
    
    $
    1,239,360Net interest income (FTE)
    
    
    
    
    
    $
    30,549
    
    
    
    
    
    
    
    
    
    
    $
    29,577Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %
 (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 $565,000 and $662,000 for the nine
months ended September 30, 2009 and 2008, 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.
 Comparison of the three and nine-month periods ended September 30, 2009 and 2008
 Three months ended September 30, 2009 and 2008
  23          Nine months ended September 30, 2009 and 2008
      24




---



##### 



Rate and volume analysis
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2009 vs. 2008
    
    2009 vs. 2008Change 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)
    
    $
    (1,426
    )
    
    $
    254
    
    
    $
    (1,680
    )
    
    $
    (4,228
    )
    
    $
    2,712
    
    
    $
    (6,940
    )Investment securities:Government sponsored entities
    
    
    9
    
    
    
    136
    
    
    
    (127
    )
    
    
    (444
    )
    
    
    (83
    )
    
    
    (361
    )State and municipal(2)
    
    
    (70
    )
    
    
    (63
    )
    
    
    (7
    )
    
    
    (259
    )
    
    
    (299
    )
    
    
    40Other
    
    
    (57
    )
    
    
    (10
    )
    
    
    (47
    )
    
    
    (123
    )
    
    
    24
    
    
    
    (147
    )Federal funds sold
    
    
    (14
    )
    
    
    (7
    )
    
    
    (7
    )
    
    
    (59
    )
    
    
    (28
    )
    
    
    (31
    )Interest bearing deposits
in other financial institutions
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    44
    
    
    
    
    
    
    
    44Total interest income
    
    
    (1,547
    )
    
    
    310
    
    
    
    (1,857
    )
    
    
    (5,069
    )
    
    
    2,326
    
    
    
    (7,395
    )Interest expense:NOW accounts
    
    
    (75
    )
    
    
    51
    
    
    
    (126
    )
    
    
    (68
    )
    
    
    172
    
    
    
    (240
    )Savings
    
    
    (23
    )
    
    
    3
    
    
    
    (26
    )
    
    
    (67
    )
    
    
    6
    
    
    
    (73
    )Money market
    
    
    (310
    )
    
    
    65
    
    
    
    (375
    )
    
    
    (1,149
    )
    
    
    132
    
    
    
    (1,281
    )Time deposits of 100,000 and over
    
    
    (384
    )
    
    
    (1
    )
    
    
    (383
    )
    
    
    (1,362
    )
    
    
    (48
    )
    
    
    (1,314
    )Other time deposits
    
    
    (444
    )
    
    
    298
    
    
    
    (742
    )
    
    
    (1,410
    )
    
    
    1,254
    
    
    
    (2,664
    )Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    (147
    )
    
    
    
    
    
    
    (147
    )
    
    
    (759
    )
    
    
    (187
    )
    
    
    (572
    )Subordinated notes
    
    
    (148
    )
    
    
    
    
    
    
    (148
    )
    
    
    (441
    )
    
    
    
    
    
    
    (441
    )Other borrowed money
    
    
    (570
    )
    
    
    (749
    )
    
    
    179
    
    
    
    (785
    )
    
    
    (1,075
    )
    
    
    290Total interest expense
    
    
    (2,101
    )
    
    
    (333
    )
    
    
    (1,768
    )
    
    
    (6,041
    )
    
    
    254
    
    
    
    (6,295
    )Net interest income on a fully
taxable equivalent basis
    
    $
    554
    
    
    $
    643
    
    
    $
    (89
    )
    
    $
    972
    
    
    $
    2,072
    
    
    $
    (1,100
    )
 (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 $189,000 and $217,000 for the third
quarter and $565,000 and $662,000 for the nine months ended September 30, 2009 and 2008,
respectively.(2)
    
    Non-accruing loans are included in the average amounts outstanding.(3)
    
    Fees and costs on loans are included in interest income.
  25




---



##### 



Provision for loan losses
    Non-interest
Income and Expense
 Non-interest income
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,(Dollars in thousands)
    
    2009
    
    2008
    
    $ Change
    
    % Change
    
    2009
    
    2008
    
    $ Change
    
    % ChangeNon-interest IncomeService charges on deposit accounts
    
    $
    1,547
    
    
    $
    1,636
    
    
    $
    (89
    )
    
    
    (5.4
    )%
    
    $
    4,380
    
    
    $
    4,636
    
    
    $
    (256
    )
    
    
    (5.5
    )%Trust department income
    
    
    238
    
    
    
    199
    
    
    
    39
    
    
    
    19.6
    
    
    
    624
    
    
    
    605
    
    
    
    19
    
    
    
    3.1Gains on sales of mortgage loans, net
    
    
    489
    
    
    
    133
    
    
    
    356
    
    
    
    267.7
    
    
    
    2,437
    
    
    
    686
    
    
    
    1,751
    
    
    
    255.2Other
    
    
    327
    
    
    
    353
    
    
    
    (26
    )
    
    
    (7.4
    )
    
    
    732
    
    
    
    1,082
    
    
    
    (350
    )
    
    
    (32.3
    )Total non-interest income
    
    $
    2,601
    
    
    $
    2,321
    
    
    $
    280
    
    
    
    12.1
    %
    
    $
    8,173
    
    
    $
    7,009
    
    
    $
    1,164
    
    
    
    16.6
    %Investment securities
gains (losses), net
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    3
    
    
    $
    (3
    )
    
    
    (100.0
    )%Non-interest income as a
% of total revenue *
    
    
    20.0
    %
    
    
    19.1
    %
    
    
    
    
    
    
    
    
    
    
    21.4
    %
    
    
    19.5
    %Total revenue per full time
equivalent employee
    
    $
    37.9
    
    
    $
    35.4
    
    
    
    
    
    
    
    
    
    
    $
    110.9
    
    
    $
    104.4
 
 *
    
    Total revenue is calculated as net interest income plus non-interest income 26




---



##### 



Three Months Ended September 30, 2009 and 2008
  Nine months Ended September 30, 2009 and 2008
  Non-interest expense
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,(Dollars in thousands)
    
    2009
    
    2008
    
    $ Change
    
    % Change
    
    2009
    
    2008
    
    $ Change
    
    % ChangeNon-interest ExpenseSalary expense
    
    $
    3,400
    
    
    $
    3,502
    
    
    $
    (102
    )
    
    
    (2.9
    )%
    
    $
    10,192
    
    
    $
    10,472
    
    
    $
    (280
    )
    
    
    (2.7
    )%Employee benefits
    
    
    1,054
    
    
    
    982
    
    
    
    72
    
    
    
    7.3
    
    
    
    3,212
    
    
    
    3,190
    
    
    
    22
    
    
    
    0.7Occupancy expense, net
    
    
    600
    
    
    
    601
    
    
    
    (1
    )
    
    
    (0.2
    )
    
    
    1,763
    
    
    
    1,802
    
    
    
    (39
    )
    
    
    (2.2
    )Furniture and equipment expense
    
    
    507
    
    
    
    537
    
    
    
    (30
    )
    
    
    (5.6
    )
    
    
    1,794
    
    
    
    1,805
    
    
    
    (11
    )
    
    
    (0.6
    )FDIC insurance assessment
    
    
    422
    
    
    
    39
    
    
    
    383
    
    
    NM
    
    
    2,086
    
    
    
    165
    
    
    
    1,921
    
    
    NMLegal, examination, and
professional fees
    
    
    312
    
    
    
    312
    
    
    
    0
    
    
    
    0.0
    
    
    
    985
    
    
    
    839
    
    
    
    146
    
    
    
    17.4Advertising and promotion
    
    
    301
    
    
    
    329
    
    
    
    (28
    )
    
    
    (8.5
    )
    
    
    901
    
    
    
    840
    
    
    
    61
    
    
    
    7.3Postage, printing, and supplies
    
    
    271
    
    
    
    260
    
    
    
    11
    
    
    
    4.2
    
    
    
    834
    
    
    
    894
    
    
    
    (60
    )
    
    
    (6.7
    )Processing expense
    
    
    845
    
    
    
    774
    
    
    
    71
    
    
    
    9.2
    
    
    
    2,538
    
    
    
    2,327
    
    
    
    211
    
    
    
    9.1Other real estate expense
    
    
    240
    
    
    
    86
    
    
    
    154
    
    
    
    179.1
    
    
    
    575
    
    
    
    430
    
    
    
    145
    
    
    
    33.7Other
    
    
    1,088
    
    
    
    960
    
    
    
    128
    
    
    
    13.3
    
    
    
    2,816
    
    
    
    2,888
    
    
    
    (72
    )
    
    
    (2.5
    )Total non-interest expense
    
    $
    9,040
    
    
    $
    8,382
    
    
    $
    658
    
    
    
    7.9
    %
    
    $
    27,696
    
    
    $
    25,652
    
    
    $
    2,044
    
    
    
    8.0
    %Efficiency ratio
    
    
    69.3
    %
    
    
    68.9
    %
    
    
    
    
    
    
    
    
    
    
    72.6
    %
    
    
    71.4
    %Salaries and benefits as a %
of total non-interest expense
    
    
    49.3
    %
    
    
    53.5
    %
    
    
    
    
    
    
    
    
    
    
    48.4
    %
    
    
    53.3
    %Number of full-time equivalent
employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    344
 Three Months Ended September 30, 2009 and 2008
  27




---



##### 



Nine months Ended September 30, 2009 and 2008
  Income Taxes
  Lending and Credit Management
    September 30,
    
    December 31,(In thousands)
    
    2009
    
    2008Amount
    
    %
    
    Amount
    
    %Commercial, financial, and agricultural
    
    $
    145,554
    
    
    
    14.7
    %
    
    $
    153,386
    
    
    
    15.2
    %Real estate Construction
    
    
    114,439
    
    
    
    12.9
    
    
    
    129,639
    
    
    
    12.8Real estate Mortgage
    
    
    697,187
    
    
    
    70.2
    
    
    
    692,530
    
    
    
    68.6Installment loans to individuals
    
    
    36,272
    
    
    
    3.7
    
    
    
    33,548
    
    
    
    3.3Total loans
    
    $
    993,452
    
    
    
    100.0
    %
    
    $
    1,009,103
    
    
    
    100.0
    %
  28




---



##### 



Accounting by
Creditors for Impairment of a Loan,
 Allowance for Loan Losses
  29




---



##### 



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Dollars in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Provision for loan losses
    
    $
    1,250
    
    
    $
    1,000
    
    
    $
    4,404
    
    
    $
    3,950Net loan charge-offs:Commercial, financial, and agricultural
    
    
    157
    
    
    
    2,351
    
    
    
    417
    
    
    
    3,141Real estate  construction
    
    
    427
    
    
    
    23
    
    
    
    1,277
    
    
    
    115Real estate  mortgage
    
    
    371
    
    
    
    335
    
    
    
    1,269
    
    
    
    398Installment loans to individuals
    
    
    72
    
    
    
    66
    
    
    
    180
    
    
    
    222Total net loan charge-offs
    
    $
    1,027
    
    
    $
    2,775
    
    
    $
    3,143
    
    
    $
    3,876
   September 30,
    
    December 31,(Dollars in thousands)
    
    2009
    
    2008Nonaccrual loans:Commercial, financial, and agricultural
    
    $
    2,259
    
    
    $
    2,071Real estate  construction
    
    
    11,745
    
    
    
    10,347Real estate  mortgage
    
    
    15,724
    
    
    
    7,850Installment loans to individuals
    
    
    139
    
    
    
    119Total nonaccrual loans
    
    
    29,867
    
    
    
    20,387Loans contractually past  due 90 days
or more and still accruing:Commercial, financial, and agricultural
    
    
    
    
    
    
    140Real estate  construction
    
    
    
    
    
    
    52Real estate  mortgage
    
    
    193
    
    
    
    547Installment loans to individuals
    
    
    
    
    
    
    4Total loans contractually past -due
90 days or more and still accruing
    
    
    193
    
    
    
    743Troubled debt restructured loans
    
    
    3,816
    
    
    
    3,736Total nonperforming loans
    
    
    33,876
    
    
    
    24,866Other real estate and repossessions
    
    
    11,578
    
    
    
    7,828Total nonperforming assets
    
    $
    45,454
    
    
    $
    32,694Loans
    
    $
    993,453
    
    
    $
    1,009,103Allowance for loan losses to loans
    
    
    1.40
    %
    
    
    1.26
    %Nonperforming loans to loans
    
    
    3.41
    %
    
    
    2.46
    %Allowance for loan losses to nonperforming loans
    
    
    41.11
    %
    
    
    50.94
    %Nonperforming assets to loans and foreclosed assets
    
    
    4.52
    %
    
    
    3.21
    %
  30




---



##### 



September 30,
    
    December 31,(Dollars in thousands)
    
    2009
    
    2008Loans classified as impaired:Impaired loans with reserves
    
    $
    27,372
    
    
    $
    18,482Impaired loans without reserves
    
    
    10,488
    
    
    
    11,452Total impaired loans *
    
    $
    37,860
    
    
    $
    29,934Reserves for impaired loans
    
    $
    5,251
    
    
    $
    3,837Average balance of impaired loans during the period
    
    $
    33,344
    
    
    $
    20,646
 
 *
    
    Total impaired loans includes $31,798,000 of nonperforming loans      31




---



##### 



Financial Condition
      32




---



##### 



Liquidity and Capital Resources
 Liquidity Management
    September 30,
    
    December 31,(dollars in thousands)
    
    2009
    
    2008Liquid assets:Federal funds sold
    
    $
    106
    
    
    $
    104Federal Reserve  excess reserves
    
    
    4,702
    
    
    
    31,099Available for sale investments securities
    
    
    159,014
    
    
    
    149,401Total
    
    $
    163,822
    
    
    $
    180,604
  33




---



##### 



September 30,(dollars in thousands)
    
    2009Investment securities pledged for the purpose of securing:Federal Reserve Bank borrowings
    
    $
    3,575Repurchase agreements
    
    
    38,427Other Deposits
    
    
    103,666Total pledged, at fair value
    
    $
    145,668
   September 30,
    
    December 31,(dollars in thousands)
    
    2009
    
    2008Core deposit base:Non-interest bearing demand
    
    $
    126,117
    
    
    $
    125,245Interest checking
    
    
    133,143
    
    
    
    123,289Savings and money market
    
    
    224,762
    
    
    
    219,338Total
    
    $
    484,022
    
    
    $
    467,872
  September 30,
    
    December 31,(dollars in thousands)
    
    2009
    
    2008Borrowings:Securities sold under agreements to repurchase
    
    $
    32,375
    
    
    $
    29,139FHLB advances
    
    
    71,481
    
    
    
    129,057Subordinated notes
    
    
    49,486
    
    
    
    49,486Total
    
    $
    153,342
    
    
    $
    207,682
  34




---



##### 



September 30, 2009Federal(dollars in thousands)
    
    FHLB
    
    Reserve
    
    OtherCollateral value pledged
    
    $
    310,106
    
    
    $
    3,435
    
    
    $
    12,055Advances outstanding
    
    
    (71,481
    )
    
    
    
    
    
    
    Letters of credit issued
    
    
    (100
    )
    
    
    
    
    
    
    Total
    
    $
    238,525
    
    
    $
    3,435
    
    
    $
    12,055
 Sources and Uses of Funds
  Regulatory Capital
   35




---



##### 



Minimum
    
    Well-CapitalizedActual
    
    Capital requirements
    
    Capital RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioSeptember 30, 2009Total capital (to risk-weighted assets):Company
    
    $
    165,829
    
    
    
    16.50
    %
    
    $
    80,420
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    132,908
    
    
    
    13.46
    
    
    
    79,024
    
    
    
    8.00
    
    
    $
    98,780
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets):Company
    
    $
    140,867
    
    
    
    14.01
    
    
    $
    40,210
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    120,547
    
    
    
    12.20
    
    
    
    39,512
    
    
    
    4.00
    
    
    $
    59,268
    
    
    
    6.00
    %Tier I capital (to adjusted average assets):Company
    
    $
    140,867
    
    
    
    11.24
    
    
    $
    37,601
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    120,547
    
    
    
    9.79
    
    
    
    36,948
    
    
    
    3.00
    
    
    $
    61,579
    
    
    
    5.00
    %
 Minimum
    
    Well-CapitalizedActual
    
    Capital requirements
    
    Capital RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioDecember 31, 2008Total capital (to risk-weighted assets):Company
    
    $
    163,949
    
    
    
    16.01
    %
    
    $
    81,912
    
    
    
    8.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    125,510
    
    
    
    12.35
    
    
    
    81,310
    
    
    
    8.00
    
    
    $
    101,638
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets):Company
    
    $
    138,756
    
    
    
    13.55
    
    
    $
    40,956
    
    
    
    4.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    113,158
    
    
    
    11.13
    
    
    
    40,655
    
    
    
    4.00
    
    
    $
    60,983
    
    
    
    6.00
    %Tier I capital (to adjusted average assets):Company
    
    $
    138,756
    
    
    
    10.80
    
    
    $
    38,543
    
    
    
    3.00
    %
    
    
    
    
    
    
    Hawthorn Bank
    
    
    113,158
    
    
    
    8.82
    
    
    
    38,497
    
    
    
    3.00
    
    
    $
    64,162
    
    
    
    5.00
    %
 36




---



##### 



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
    
    $
    37,957
    
    
    $
    6,886
    
    
    $
    9,004
    
    
    $
    17,282
    
    
    $
    12,982
    
    
    $
    83,778
    
    
    $
    167,889Interest-bearing deposits
    
    
    4,726
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,726Federal funds sold and securities
purchased under agreements to resell
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106Loans
    
    
    527,964
    
    
    
    148,264
    
    
    
    131,008
    
    
    
    103,899
    
    
    
    45,616
    
    
    
    36,701
    
    
    
    993,452Total
    
    $
    570,753
    
    
    $
    155,150
    
    
    $
    140,012
    
    
    $
    121,181
    
    
    $
    58,598
    
    
    $
    120,479
    
    
    $
    1,166,173LIABILITIESSavings, Now deposits
    
    $
    
    
    
    $
    
    
    
    $
    124,768
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    124,768Rewards checking, Super Now,
money market deposits
    
    
    233,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    233,580Time deposits
    
    
    349,414
    
    
    
    76,707
    
    
    
    27,210
    
    
    
    28,236
    
    
    
    2,097
    
    
    
    6
    
    
    
    483,670Federal funds purchased and securities
sold under agreements to repurchase
    
    
    32,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,375Subordinated notes
    
    
    49,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,486Other borrowed money
    
    
    27,352
    
    
    
    43,689
    
    
    
    305
    
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    71,481Total
    
    $
    692,207
    
    
    $
    120,396
    
    
    $
    152,283
    
    
    $
    28,371
    
    
    $
    2,097
    
    
    $
    6
    
    
    $
    995,360Interest-sensitivity GAPPeriodic GAP
    
    $
    (121,454
    )
    
    $
    34,754
    
    
    $
    (12,271
    )
    
    $
    92,810
    
    
    $
    56,501
    
    
    $
    120,473
    
    
    $
    170,813Cumulative GAP
    
    $
    (121,454
    )
    
    $
    (86,700
    )
    
    $
    (98,971
    )
    
    $
    (6,161
    )
    
    $
    50,340
    
    
    $
    170,813
    
    
    $
    170,813Ratio of interest-earnings
assets to interest-bearing liabilitiesPeriodic GAP
    
    
    0.82
    
    
    
    1.29
    
    
    
    0.92
    
    
    
    4.27
    
    
    
    27.94
    
    
    NM
    
    
    1.17Cumulative GAP
    
    
    0.82
    
    
    
    0.89
    
    
    
    0.90
    
    
    
    0.99
    
    
    
    1.05
    
    
    
    1.17
    
    
    
    1.17
 37




---



##### 



Item 4. Controls and Procedures
   Impact of New Accounting Standards
 The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles. TM
    38




---



##### 



, .
 Fair Value
Measurements and Disclosures
 Impact of New Accounting Standards not yet Adopted
   39




---



##### 



40




---



##### 



PART II  OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
    
    None
 Item 1A.
    
    Risk Factors
    
    None
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    None
 Item 3.
    
    Defaults Upon Senior Securities
    
    None
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    None
 Item 5.
    
    Other Information
    
    None
 Item 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
 41




---



##### 



SIGNATURES
  Date
    HAWTHORN BANCSHARES, INC./s/ James E. SmithNovember 9, 2009
    James E. Smith, Chairman of the Boardand Chief Executive Officer (Principal Executive Officer)/s/ Richard G. RoseNovember 9, 2009
    Richard G. Rose, Chief Financial Officer (Principal FinancialOfficer and Principal Accounting Officer) 42




---



##### 



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
    
    4431.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    4532.1
    
    Certificate of the Chief Executive Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    4632.2
    
    Certificate of the Chief Financial Officer of
our Company pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    47
 
 **
    
    Incorporated by reference. 43