Financial Analysis

Commitments and Contingencies The Company issues financial instruments with off-balance sheet risk in the normal course of business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Companys extent of involvement and maximum potential exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. The allowance for credit losses associated with unfunded commitments and letters of credit is recorded within other liabilities on the consolidated balance sheets. At September 30, 2025 and December 31, 2024, the allowance for credit losses for unfunded commitments was $1.0 million and $0.9 million, respectively. The contractual amounts of off-balance sheet financial instruments were as follows as of the dates indicated: (dollars in thousands) September 30, 2025 December 31, 2024 Commitments to extend credit $ 329,189 $ 305,811 Standby letters of credit 55,692 141,807 Total $ 384,881 $ 447,6 …

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Share-Based Compensation Equity-Based Compensation Plan At the 2023 Annual Meeting of Shareholders, the Company's shareholders approved the Hawthorn Bancshares, Inc. Equity Incentive Plan (the Equity Plan), which was previously approved by the Company's Board of Directors. The purpose of the Equity Plan is to allow eligible participants of the Company and its subsidiaries to acquire or increase a proprietary and vested interest in the growth and performance of the Company. The Equity Plan is designed to assist the Company with attracting and retaining selected service providers by providing them with the opportunity to participate in the success and profitability of the Company. The terms of the Equity Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, other equity-based awards and cash awards. Subject to certain adjustments, the maximum number of shares of the Company's common stock that may be delivered pursuant to awards under the Equity Plan is 203,000 shares. Eligible participants under the Equity Plan include all employees, non-employee directors and consultants of the Company or its subsidiaries. The Equity Plan is currently administered by the Compensation Committee of the Board of Directors The Compensation Committee adopted a form of restricted stock unit award agreement (service-based vesting). The Company issues restricted share units (RSUs) to provide additional incentives to key o …

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Fair Value Measurements Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under U.S. GAAP uses a hierarchy intended to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: Level 1 Inputs are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value. Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Companys best information and assumptions that a market pa …

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Leases The Company's leases primarily consist of office space and bank branches with remaining lease terms of generally 1 to 10 years. As of September 30, 2025, operating right of use (ROU) assets and liabilities were $2.6 million and $2.8 million, respectively. As of September 30, 2025, the weighted-average remaining lease term on these operating leases was approximately 5.6 years and the weighted-average discount rate used to measure the lease liabilities was approximately 4.4%. Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities. Currently, the Company does not have any finance leases. The ROU assets are included in premises and equipment, net on the consolidated balance sheets. Operating lease ROU assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in net occupancy expense in the consolidated s …

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Recent Accounting Pronouncements Impact of Recently Issued Accounting Standards But Not Yet Adopted Income Taxes. In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The ASU requires that all entities disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal or greater than 5 percent of total income taxes paid. The ASU also requires that all entities disclose (1) income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign. The ASU addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for public business entities for annual periods beginning after December 15, 2024. The Company does not expect adoption …

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Retirement Plans Profit-sharing Plan The Company's profit-sharing plan includes a matching 401(k) portion, in which the Company matches the first 3% of eligible employee contributions. The Company made annual contributions for the discretionary portion in an amount up to 6% of income before income taxes and before contributions to the profit-sharing and pension plans for all participants, limited to the maximum amount deductible for federal income tax purposes, for each of the periods shown. In addition, employees were able to make additional tax-deferred contributions. Total expense recorded for the Company match was $0.1 million and $0.4 million in each of the three and nine months ended September 30, 2025 and September 30, 2024, respectively. The employer discretionary profit-sharing contribution made to the 401(k) plan was $0.8 million and $0.6 million for plan years 2024 and 2023, respectively. Other Plans On November 7, 2018, the Board of Directors of the Company adopted a supplemental executive retirement plan (SERP), effective as of January 1, 2018. The SERP provides select employees who satisfy certain eligibility requirements with certain benefits upon retirement, termination of employment or death. The accrued liability relating to the SERP was $1.7 million as of September 30, 2025, and the expense for the three and nine months ended September 30, 2025 was $0.02 million and $0.06 million, respectively, compared to $0.02 million and $0.07 million for the three and n …

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Segment Information The Company determines its operating segments based on how the chief operating decision maker (CODM) views and analyzes each segments operations, performance and allocates resources. The Chief Executive Officer (CEO) is the CODM. The CODM reviews the actual net income compared to budgeted net income on a monthly basis to evaluate segment performance, make decisions, and determine where to deploy capital. This analysis is also used for benchmarking performance against the Company's peers. The Company previously reported under one segment. During 2025, the Company identified its Wealth Management business as a strategic opportunity and hired additional management resources to provide the structure for products and processes for this business. As a result, beginning in the first quarter of 2025, the Company identified its Wealth Management Business as its own separate reporting segment and now reports two aggregated reporting segments, consisting of the Bank and its Wealth Management business, and the CEO is the CODM for both segments. The Bank segment is composed of operations providing a broad range of banking products and services located within the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area. The Wealth Management segment includes a broad range of financial and investment planning services for individuals and business owners as well as the Company's existing …

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Stockholders Equity and Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) The following table summarizes the change in the components of the Companys accumulated other comprehensive income (loss) for the nine months ended September 30, 2025 and 2024: Nine Months Ended September 30, 2025 (dollars in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement (Income) Costs (2) Accumulated Other Comprehensive Income (Loss) Balance at beginning of period $ (24,416) $ 11,973 $ (12,443) Other comprehensive income (loss), before reclassifications 6,179 (957) 5,222 Amounts reclassified from accumulated other comprehensive income (loss) Current period other comprehensive income (loss), before tax 6,179 (957) 5,222 Income tax (expense) benefit (1,298) 201 (1,097) Current period other comprehensive income (loss), net of tax 4,881 (756) 4,125 Balance at end of period $ (19,535) $ 11,217 $ (8,318) Nine Months Ended September 30, 2024 (dollars in thousands) Unrealized Gains (Losses) on Securities (1) Unrecognized Net Pension and Postretirement (Income) Costs (2) Accumulated Other Comprehensive Income (Loss) Balance at beginning of period $ (21,461) $ 7,699 $ (13,762) Other comprehensive income (loss), before reclassifications 2,501 (518) 1,983 Amounts reclassified from accumulated other comprehensive income (loss) Current period other comprehensive income (loss), before tax 2,501 (518) 1,983 Income tax benefi …

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Subsequent Events The Company has evaluated subsequent events that may require recognition or disclosure through the filing date of this Quarterly Report on Form 10-Q.

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