HAWTHORN BANCSHARES, INC.

Previous wording

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, strategy, future performance and business of Hawthorn Bancshares, Inc., and its subsidiaries (collectively, the "Company", "we", "our", or "us"), including, without limitation:

Current wording

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, strategy, future performance and business of Hawthorn Bancshares, Inc., and its subsidiaries (collectively, the "Company", "we", "our", or "us"), including, without limitation 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, plans, hopes or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, such possible events or factors such as: changes in economic conditions generally or in the Company's market area, changes in policies by regulatory agencies, governmental legislation and regulation, tariffs and trade disruptions, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, and cybersecurity threats and such other factors as described in described in the forward-looking statements under the caption Risk Factors in Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K"), and in other reports filed by us with the Securities and Exchange Commission ("SEC") from time to time. Other factors that have not been identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speak only as of the date they were made. Except as required by law, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in its business, results of operations or financial condition over time. During the quarter ended March 31, 2025, there were no material changes to the Risk Factors disclosed in the Company's 2024 Annual Report on Form 10-K.

Previous wording

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the "Bank"), the Company, with $1.8 billion in assets at September 30, 2024, provides a broad range of commercial and personal banking services. The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration loans, a comprehensive suite of cash management services, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.

Current wording

Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services. Through the branch network of its subsidiary bank, Hawthorn Bank (the "Bank"), the Company, with $1.9 billion in assets at March 31, 2025, provides a broad range of commercial and personal banking services. The Bank's specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration ("SBA") loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts. The Company also provides other financial services through its Wealth Management business, including trust services, estate planning, investment and asset management services and a comprehensive suite of cash management services. Beginning with the first quarter of 2025, the Company's Wealth Management business is now reported as a separate reporting segment, and the Company now operates two reporting segments, consisting of the Bank and the Wealth Management business. The geographic areas in which the Company provides products and services include the Missouri communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, and the greater Kansas City metropolitan area.

Previous wording

The success of the Company’s growth strategy depends primarily on the ability of the Bank to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company’s financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company’s growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.

Current wording

The success of the Company's growth strategy depends primarily on the ability of its banking subsidiary to generate an increasing level of loans and deposits at acceptable risk levels and on acceptable terms without significant increases in non-interest expenses relative to revenues generated. The Company's financial performance also depends, in part, on its ability to manage various portfolios and to successfully introduce additional financial products and services by expanding new and existing customer relationships, utilizing improved technology, and enhancing customer satisfaction. Furthermore, the success of the Company's growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.

Previous wording

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The Bank is supervised and regulated by the FDIC and the Missouri Division of Finance. Regular examinations are conducted by representatives of these regulatory bodies. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is also subject to supervision and examination by the Board of Governors of the Federal Reserve System.

Current wording

The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. The operations of the Bank are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of the Bank are conducted by representatives of the FDIC and the Missouri Division of Finance. Such regulations, supervision and examinations are principally for the benefit of depositors, rather than for the benefit of shareholders. The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.

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(2)Book value per share is calculated using weighted average shares

Current wording

(1)Book value per share is calculated using weighted average shares

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(1)Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue is calculated as net interest income plus non-interest income.

Current wording

(2)Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue is calculated as net interest income plus non-interest income.

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(1)Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets

Current wording

(3)Tier 1 leverage ratio is calculated by dividing Tier 1 capital by average total consolidated assets

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Consolidated net incomeof $4.6 million, or $0.66 per diluted share, for the third quarter ended September 30, 2024 increased $2.0 million, or 77.4%, compared to $2.6 million, or $0.36 per diluted share, for the third quarter ended September 30, 2023. For the third quarter 2024, the return on average assets was 1.00%, the return on average stockholders’ equity was 12.87%, and the efficiency ratio was 66.2%.

Current wording

Consolidated net incomeof $5.4 million, or $0.77 per diluted share, for the first quarter ended March 31, 2025 increased $0.9 million, or 20.8%, compared to $4.5 million, or $0.63 per diluted share, for the first quarter ended March 31, 2024. For the first quarter 2025, the return on average assets was 1.20%, the return on average stockholders’ equity was 14.29%, and the efficiency ratio was 66.6%.

Previous wording

Net interest incomewas $43.2 million for the nine months ended September 30, 2024 decreased $0.1 million compared to $43.3 million for the nine months ended September 30, 2023. Net interest margin, on a FTE basis, was 3.36% for the nine months ended September 30, 2024, an increase from 3.23% for the nine months ended September 30, 2023. The change to net interest margin on a fully taxable equivalent basis is discussed in greater detail under the Average Balance Sheet Dataand Rate and Volume Analysis sections.

Current wording

Net interest incomeof $15.3 million for the first quarter ended March 31, 2025 increased $0.5 million compared to $14.7 million for the first quarter ended March 31, 2024. Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.67% for the first quarter 2025, an increase from 3.39% for the first quarter 2024. The change to net interest margin on a fully taxable equivalent basis is discussed in greater detail under the Average Balance Sheet Dataand Rate and Volume Analysis sections.

Previous wording

Non-interest incomewas $3.8 million and $10.8 million for the three and nine months ended September 30, 2024, respectively, compared to $0.6 million and $5.4 million for the three and nine months ended September 30, 2023, respectively. The increases were primarily due to earnings on bank-owned life insurance and the gain on sale of other real estate. These changes are discussed in greater detail under the Non-interest Income and Expense section.

Current wording

Non-interest incomewas $3.5 million for the three months ended March 31, 2025 compared to $3.0 million for the three months ended March 31, 2024. These changes are discussed in greater detail under the Non-interest Income and Expense section.

Previous wording

Non-interest expense was $12.0 million and $36.6 million for the three and nine months ended September 30, 2024, respectively, compared to $12.6 million and $37.8 million for the three and nine months ended September 30, 2023, respectively. The decreases are primarily due to operating within a unified company culture, focusing on core business lines and improving operational efficiencies. These changes are discussed in greater detail under the Non-interest Income and Expense section.

Current wording

Non-interest expense was $12.5 million for the three months ended March 31, 2025 compared to $12.6 million for the three months ended March 31, 2024. These changes are discussed in greater detail under the Non-interest Income and Expense section.

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Cash and cash equivalents – Cash and cash equivalents decreased $39.2 million to $54.2 million as of September 30, 2024 compared to $93.4 million as of December 31, 2023 and increased $26.4 million compared to $27.9 million as of September 30, 2023. The Company purchased $32.9 million securities and $35.0 million in bank-owned life insurance during the nine months ended September 30, 2024. See the Liquidity Management sectionfor further discussion.

Current wording

Cash and cash equivalents – Cash and cash equivalents increased $51.3 million to $102.3 million as of March 31, 2025 compared to $51.0 million as of December 31, 2024 and increased $58.8 million compared to $43.5 million as of March 31, 2024. See the Liquidity Management sectionfor further discussion.

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Loans – Loans held for investment decreased $72.4 million to $1.47 billion as of September 30, 2024 compared to $1.54 billion as of December 31, 2023 and decreased $90.2 million compared to $1.56 billion as of September 30, 2023. Normal amortizing payments, unscheduled payoffs and a weaker demand for loans have contributed to the variance.

Current wording

Loans – Loans held for investment increased $4.2 million to $1.47 billion as of March 31, 2025 compared to $1.47 billion as of December 31, 2024 and decreased $48.5 million compared to $1.52 billion as of March 31, 2024.

Previous wording

In the third quarter 2024, the Company had net loan charge-offs of $0.6 million, or 0.04% of average loans, compared to net loan charge-offs $0.1 million, or 0.00% of average loans, in the prior year quarter. The charge-offs in the current quarter primarily related to one commercial real estate loan and one commercial loan relationship that were adequately reserved for in the prior quarter.

Current wording

In the first quarter 2025, the Company had net loan recoveries of $0.02 million, or 0%, of average loans, compared to net loan charge-offs $0.07 million, or 0.02% of average loans, in the prior year quarter.

Previous wording

The allowance for credit losses was $21.9 million, or 1.50%, of loans outstanding at September 30, 2024 compared to $23.7 million, or 1.54%, of loans outstanding at December 31, 2023, and $22.5 million, or 1.44%, of loans outstanding at September 30, 2023. These changes are discussed in greater detail under the Lending and Credit Management section.

Current wording

The allowance for credit losses was $21.8 million, or 1.48%, of loans outstanding at March 31, 2025 compared to $22.0 million, or 1.50%, of loans outstanding at December 31, 2024, and $23.7 million, or 1.56% of loans outstanding at March 31, 2024. These changes are discussed in greater detail under the Lending and Credit Management section.

Previous wording

Federal Home Loan Bank ("FHLB") advances and other borrowings– Total FHLB advances and other borrowings decreased $10.5 million to $96.5 million as of September 30, 2024 compared to $107.0 million as of December 31, 2023, and decreased $15.5 million compared to $112.0 million as of September 30, 2023

Current wording

Federal Home Loan Bank ("FHLB") advances and other borrowings– Total FHLB advances and other borrowings increased $42.6 million to $124.1 million as of March 31, 2025, compared to $81.5 million as of December 31, 2024, and increased $15.1 million compared to $109.0 million as of March 31, 2024.

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Capital – The Company maintains its “well capitalized” regulatory capital position. At September 30, 2024, capital ratios were as follows: total risk-based capital to risk-weighted assets 14.91%; tier 1 capital to risk-weighted assets 13.66%; tier 1 leverage 11.33%; and common equity to assets 8.09%.

Current wording

Capital – The Company maintains its “well capitalized” regulatory capital position. At March 31, 2025, capital ratios were as follows: total risk-based capital to risk-weighted assets 14.94%; tier 1 capital to risk-weighted assets 13.69%; tier 1 leverage 11.64%; and common equity to assets 8.15%.

Previous wording

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest-earning assets and interest-bearing liabilities. The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a FTE basis for each of the three and nine month periods ended September 30, 2024 and 2023, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.

Current wording

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest-earning assets and interest-bearing liabilities. The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a FTE basis for each of the three month periods ended March 31, 2025 and 2024, respectively. The average balances used in this table and other statistical data were calculated using average daily balances.

Previous wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three months ended September 30, 2024 and 2023. Such adjustments totaled $0.19 million and $0.24 million for the three months ended September 30, 2024 and 2023, respectively.

Current wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for both the three months ended March 31, 2025 and 2024. Such adjustments totaled $0.24 million and $0.20 million for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

The following table summarizes the changes in net interest income on a FTE basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three and nine months ended September 30, 2024 compared to the three and nine months ending ended September 30, 2023, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

Current wording

The following table summarizes the changes in net interest income on a FTE basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three months ended March 31, 2025 compared to the three months ending ended March 31, 2024, respectively. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.

Previous wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three and nine months ended September 30, 2024 and 2023, respectively. Such adjustments totaled $0.2 million and $0.6 million for the three and nine months ended September 30, 2024, respectively, compared to $0.2 million and $0.9 million for the three and nine months ended September 30, 2023, respectively.

Current wording

(1)Interest income and yields are presented on a FTE basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three months ended March 31, 2025 and 2024, respectively. Such adjustments totaled $0.24 million for the three months ended March 31, 2025 compared to $0.20 million for the three months ended March 31, 2024.

Previous wording

Financial results for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 reflected a decrease in net interest income, on a FTE basis, of $0.9 million, or 5.7%, and financial results for the the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 reflected a decrease of $0.3 million, or 0.8%. Measured as a percentage of average earning assets, the net interest margin (expressed on a FTE basis) increased to 3.36% for the quarter ended September 30, 2024 compared to 3.35% for the quarter ended September 30, 2023, and increased to 3.36% for the nine months ended September 30, 2024 compared to 3.23% for the nine months ended September 30, 2023.

Current wording

Financial results for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 reflected an increase in net interest income on a FTE basis, of $0.6 million, or 3.9%. Measured as a percentage of average earning assets, the net interest margin (expressed on a FTE basis) increased to 3.67% for the three months ended March 31, 2025 compared to 3.39% for the three months ended March 31, 2024.

Previous wording

Average interest-earning assets decreased $104.6 million, or 5.7%, to $1.72 billion for the quarter ended September 30, 2024 compared to $1.82 billion for the quarter ended September 30, 2023, and average interest-bearing liabilities decreased $48.3 million, or 3.6%, to $1.27 billion for the quarter ended September 30, 2024 compared to $1.32 billion for the quarter ended September 30, 2023.

Current wording

Average interest-earning assets decreased $58.6 million, or 3.3%, to $1.72 billion for the quarter ended March 31, 2025 compared to $1.77 billion for the quarter ended March 31, 2024, and average interest-bearing liabilities decreased $55.2 million, or 4.2%, to $1.26 billion for the quarter ended March 31, 2025 compared to $1.31 billion for the quarter ended March 31, 2024.

Previous wording

Total interest income (expressed on a FTE basis) was $24.0 million and $72.0 million for the three and nine months ended September 30, 2024, respectively, compared to $24.1 million and $67.6 million for the three and nine months ended September 30, 2023, respectively. The Company’s rates earned on interest earning assets were 5.56% and 5.52% for the three and nine months ended September 30, 2024, respectively, compared to 5.25% and 4.95% for the three and nine months ended September 30, 2023, respectively.

Current wording

Total interest income (expressed on a FTE basis) was $23.7 million for the three months ended March 31, 2025 compared to $24.3 million for the three months ended March 31, 2024. The Company’s rates earned on interest earning assets were 5.60% for the three months ended March 31, 2025 compared to 5.50% for the three months ended March 31, 2024.

Previous wording

Interest income on loans held for investment was $21.8 million and $65.2 million for the three and nine months ended September 30, 2024, respectively, compared to $22.2 million and $61.3 million for the three and nine months ended September 30, 2023, respectively.

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Interest income on loans held for investment was $21.3 million for the three months ended March 31, 2025 compared to $21.8 million for the three months ended March 31, 2024.

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Average loans outstanding decreased $36.4 million, or 2.4%, to $1.51 billion for the nine months ended September 30, 2024 compared to $1.54 billion for the nine months ended September 30, 2023. The average yield on loans increased to 5.78% for the nine months ended September 30, 2024 compared to 5.31% for the nine months ended September 30, 2023. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Current wording

Average loans outstanding decreased $59.3 million, or 3.9%, to $1.47 billion for the quarter ended March 31, 2025 compared to $1.52 billion for the quarter ended March 31, 2024. The average yield on loans increased to 5.89% for the quarter ended March 31, 2025 compared to 5.75% for the quarter ended March 31, 2024. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Previous wording

Interest income on available-for-sale securitieswas $1.6 million and $4.6 million for the three and nine months ended September 30, 2024, respectively, compared to $1.7 million and $5.1 million for the three and nine months ended September 30, 2023, respectively.

Current wording

Interest income on available-for-sale securitieswas $2.1 million for the three months ended March 31, 2025 compared to $1.5 million for the three months ended March 31, 2024.

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Average securities decreased $66.4 million, or 26.3%, to $186.3 million for the nine months ended September 30, 2024 compared to $252.7 million for the nine months ended September 30, 2023. The average yield on securities increased to 3.30% for the nine months ended September 30, 2024 compared to 2.70% for the nine months ended September 30, 2023. During the fourth quarter of 2023, the Company repositioned its balance sheet by selling $83.7 million in book value of investment securities, with an average yield of 1.57%. See the Liquidity Management section for further discussion.

Current wording

Average securities increased $37.8 million, or 20.5%, to $222.3 million for the quarter ended March 31, 2025 compared to $184.5 million for the quarter ended March 31, 2024. The average yield on securities increased to 3.76% for the quarter ended March 31, 2025 compared to 3.22% for the quarter ended March 31, 2024. See the Liquidity Management section for further discussion.

Previous wording

Total interest expense was $9.5 million and $28.2 million for the three and nine months ended September 30, 2024, respectively, compared to $8.7 million and $23.5 million for the three and nine months ended September 30, 2023, respectively. The Company’s rates paid on interest bearing liabilities were 2.96% and 2.92% for the three and nine months ended September 30, 2024, respectively, compared to 2.62% and 2.36% for the three and nine months ended September 30, 2023, respectively. See the Liquidity Management section for further discussion.

Current wording

Total interest expense was $8.2 million for the three months ended March 31, 2025 compared to $9.3 million for the three months ended March 31, 2024. The Company’s rates paid on interest bearing liabilities were 2.64% for the three months ended March 31, 2025 compared to 2.85% for the three months ended March 31, 2024. See the Liquidity Management section for further discussion.

Previous wording

Interest expense on deposits was $7.7 million and $22.8 million for the three and nine months ended September 30, 2024, respectively, compared to $6.6 million and $18.2 million for the three and nine months ended September 30, 2023, respectively.

Current wording

Interest expense on deposits was $6.8 million for the three months ended March 31, 2025 compared to $7.5 million for the three months ended March 31, 2024.

Previous wording

Average interest-bearing deposits decreased $11.7 million, or 1.0%, to $1.13 billion for the quarter ended September 30, 2024 compared to $1.14 billion for the quarter ended September 30, 2023. The average cost of deposits increased to 2.74% for the quarter ended September 30, 2024 compared to 2.32% for the quarter ended September 30, 2023.

Current wording

Average interest-bearing deposits decreased $19.6 million, or 1.7%, to $1.13 billion for the quarter ended March 31, 2025 compared to $1.15 billion for the quarter ended March 31, 2024. The average cost of deposits decreased to 2.44% for the quarter ended March 31, 2025 compared to 2.61% for the quarter ended March 31, 2024.

Previous wording

Interest expense on borrowings was $1.7 million and $5.4 million for the three and nine months ended September 30, 2024, respectively, compared to $2.1 million and $5.3 million for the three and nine months ended September 30, 2023, respectively.

Current wording

Interest expense on borrowings was $1.4 million for the three months ended March 31, 2025 compared to $1.8 million for the three months ended March 31, 2024.

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Company purchased $35.0 million in bank-owned life insurance policies in the first quarter of 2024. The earnings generated from these polices are primarily derived from the investment returns on the cash value component.

Current wording

Earnings on bank-owned life insurance increased to $0.5 million for the three months ended March 31, 2025 compared to $0.1 million for the three months ended March 31, 2024. The Company purchased $35.0 million in bank-owned life insurance policies in the first quarter of 2024. The earnings generated from these polices are primarily derived from the investment returns on the cash value component.

Previous wording

Gain on sales of mortgage loans decreased to $0.1 million for the third quarter ended September 30, 2024 compared to $0.9 million for the third quarter ended September 30, 2023, and decreased to $0.8 million for the nine months ended September 30, 2024 compared to $2.0 million for the nine months ended September 30, 2023. The Company sold $7.4 million and $45.0 million of mortgage loans for the three and nine months ended September 30, 2024, respectively, compared to $37.2 million and $84.4 million for the three and nine months ended September 30, 2023, respectively.

Current wording

Gain on sales of mortgage loans decreased to $0.1 million for the three months ended March 31, 2025 compared to $0.3 million for the three months ended March 31, 2024. The Company sold mortgage loans totaling $1.2 million for the three months ended March 31, 2025 compared to $15.1 million for the three months ended March 31, 2024.

Previous wording

Total non-interest expense decreased $0.6 million, or 4.6%, to $12.0 million for the third quarter ended September 30, 2024 compared to $12.6 million for the third quarter ended September 30, 2023, and decreased $1.2 million, or 3.1%, to $36.6 million for the nine months ended September 30, 2024 compared to $37.8 million for the nine months ended September 30, 2023.

Current wording

Total non-interest expense decreased $0.1 million, or 0.6%, to $12.5 million for the three months ended March 31, 2025 compared to $12.6 million for the three months ended March 31, 2024.

Previous wording

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 18.7% and 18.2% for the three and nine months ended September 30, 2024, respectively, compared to 16.2% and 17.1% for the three and nine months ended September 30, 2023, respectively. The effective tax rate for each of the three and nine months ended September 30, 2024 and 2023, respectively, is lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.

Current wording

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements was 18.4% for the three months ended March 31, 2025 compared to 17.8% for the three months ended March 31, 2024. The effective tax rate for each of the three months ended March 31, 2025 and 2024 was lower than the U.S. federal statutory rate of 21% primarily due to tax-free revenues.

Previous wording

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 79.8% of total assets as of September 30, 2024 compared to 80.8% as of December 31, 2023.

Current wording

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 76.9% of total assets as of March 31, 2025 compared to 79.1% as of December 31, 2024.

Previous wording

Lending activities are conducted pursuant to an established loan policy approved by the Bank’s Board of Directors. The Bank’s credit review process is overseen by market loan committees with established loan approval limits. In addition, a senior loan committee reviews all credit relationships in aggregate over an established dollar amount. The senior loan committee meets weekly and is comprised of senior managers of the Bank.

Current wording

Lending activities are conducted pursuant to an established loan policy approved by the Bank's Board of Directors. The Bank's credit review process is overseen by regional loan committees with established loan approval limits. In addition, the executive loan committee reviews all credit relationships in aggregate over an established dollar amount. The executive loan committee meets weekly and is comprised of senior managers of the Bank.

Previous wording

Management, internal loan review and the senior loan committee formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Loans in excess of $2.0 million in the aggregate and all adversely classified credits identified by management are reviewed by the senior loan committee. In addition, all other loans are reviewed on a risk weighted selection process. The senior loan committee reviews and reports to the Board of Directors, at scheduled meetings: past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, special mention, substandard, doubtful, or loss. During this review, management will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is individually analyzed and in conjunction with current economic conditions and loss experience, reserves are estimated as further discussed below.

Current wording

Management, internal loan review and the executive loan committee formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Loans in excess of $2.0 million in the aggregate and all adversely classified credits identified by management are reviewed by the executive loan committee. In addition, all other loans are reviewed on a risk weighted selection process. The executive loan committee reviews and reports to the Board of Directors, at scheduled meetings: past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, special mention, substandard, doubtful, or loss. During this review, management will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. If management determines that it is probable that all amounts due on a loan will not be collected under the original terms of the loan agreement, the loan is individually analyzed and in conjunction with current economic conditions and loss experience, reserves are estimated as further discussed below.

Previous wording

General reserves are recorded for collectively analyzed loans using a consistent methodology. Two different models are used for calculating the general reserve. The Discounted Cash Flow model considers quantitative peer group historic loss experience, forecasts over the estimated life of the loan pools, industry data, and qualitative or environmental factors, such as: lending policies and procedures; economic conditions; the nature, volume and terms of the portfolio; lending staff and management; past due loans; the loan review system; collateral values; concentrations of credit; and external factors. The Remaining Life model applies a long-term average loss rate calculated using peer data that is adjusted forqualitative or environmental factors such as those previously noted. The model used depends on the loan portfolio segment. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans.

Current wording

General reserves are recorded for collectively analyzed loans using a consistent methodology. Two different models are used for calculating the general reserve. The Discounted Cash Flow model considers quantitative peer group historic loss experience, forecasts over the estimated life of the loan pools, industry data, and qualitative or environmental factors, such as: lending policies and procedures; economic conditions; the nature, volume and terms of the portfolio; lending staff and management; past due loans; the loan review system; collateral values; concentrations of credit; and external factors. The Remaining Life model applies a long-term average loss rate calculated using peer data that is adjusted for qualitative or environmental factors such as those previously noted. The model used depends on the loan portfolio segment. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. At March 31, 2025 and December 31, 2024, the ACL on loans included a qualitative adjustment of approximately $10.9 million and $11.2 million, respectively.