10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

OR

¨ 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.

(Exact name of registrant as specified in its charter)

Missouri	43-1626350
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

132 East High Street, Box 688, Jefferson City, Missouri 65102

(Address of principal executive offices)                                (Zip Code)

(573) 761-6100

(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class	Name of Each Exchange on Which Registered
None	N/A

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $1.00 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "larger accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b 2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  x  (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the 4,058,183 shares of voting and non-voting common equity of the registrant held by non-affiliates computed by reference to the $14.32 closing price of such common equity on June 30, 2015, the last business day of the registrant's most recently completed second fiscal quarter, was $58,113,180. Aggregate market value excludes an aggregate of 1,385,161 shares of common stock held by officers and directors and by each person known by the registrant to own 5% or more of the outstanding common stock on such date. Exclusion of shares held by any of these persons should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant. As of March 30, 2015, the registrant had 5,605,203 shares of common stock, par value $1.00 per share, issued and 5,441,190 shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into the indicated parts of this report: (1) 2015 Annual Report to Shareholders - Part II and (2) definitive Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A - Part III.

PART I

Item 1. Business.

This report and the documents incorporated by reference herein contain forward-looking statements, which are inherently subject to risks and uncertainties. See "Forward Looking Statements" under Item 7 of this report.

General

The Company, Hawthorn Bancshares, Inc., is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Hawthorn Bancshares, Inc. was incorporated under the laws of the State of Missouri on October 23, 1992 as Exchange National Bancshares, Inc. and changed its name to Hawthorn Bancshares, Inc. in August 2007. The Company owns all of the issued and outstanding capital stock of Union State Bancshares, Inc., which in turn owns all of the issued and outstanding capital stock of Hawthorn Bank. The Company and Union State Bancshares each received approval from the Federal Reserve and elected to become a financial holding company on October 21, 2001.

The Company acquired Hawthorn Bank and its constituent predecessor banks, as well as Union State Bancshares, in a series of transactions that are summarized as follows:

· On April 7, 1993 the Company acquired all of the issued and outstanding capital stock of The Exchange National Bank of Jefferson City, a national banking association, pursuant to a corporate reorganization involving an exchange of shares;

· On November 3, 1997, the Company acquired Union State Bancshares, Inc., and Union's wholly-owned subsidiary, Union State Bank and Trust of Clinton;

· On January 3, 2000, the Company acquired Osage Valley Bank;

· Following the May 4, 2000 acquisition of Citizens State Bank of Calhoun by Union State Bank, Citizens State Bank merged into Union State Bank to form Citizens Union State Bank & Trust;

· On June 16, 2000, the Company acquired City National Savings Bank, FSB, which was then merged into Exchange National Bank; and

· On May 2, 2005, the Company acquired all of the issued and outstanding capital stock of Bank 10, a Missouri state bank.

On December 1, 2006, the Company announced its development of a strategic plan in which, among other things, Exchange National Bank, Citizens Union State Bank, Osage Valley Bank and Bank 10 would be consolidated into a single bank under a Missouri state trust charter. This consolidation was completed in October 2007, and the subsidiary bank is now known as Hawthorn Bank.

Except as otherwise provided herein, references herein to the "Company" or "Hawthorn" include Hawthorn Bancshares, Inc. and its consolidated subsidiaries, and references herein to the "Bank" refers to Hawthorn Bank and its constituent predecessors.

Description of Business

Company. The Company is a bank holding company registered under the Bank Holding Company Act that has elected to become a financial holding company. The Company's activities currently are limited to ownership, indirectly through its subsidiary (Union State Bancshares, Inc.), of the outstanding capital stock of Hawthorn Bank. In addition to ownership of its subsidiaries, the Company may seek expansion through acquisition and may engage in those activities (such as investments in banks or operations that are financial in nature) in which it is permitted to engage under applicable law. It is not currently anticipated that the Company will engage in any business other than that directly related to its ownership of its banking subsidiary or other financial institutions.

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Union. Union State Bancshares, Inc. is a bank holding company registered under the Bank Holding Company Act that has elected to become a financial holding company. Union's activities currently are limited to ownership of the outstanding capital stock of Hawthorn Bank. It is not currently anticipated that Union will engage in any business other than that directly related to its ownership of Hawthorn Bank.

Hawthorn Bank. Hawthorn Bank was founded in 1932 as a Missouri bank and converted to a Missouri trust company on August 16, 1989. However, its predecessors trace their lineage back to the founding of Exchange National Bank in 1865. Hawthorn Bank has 24 banking offices, including its principal office at 132 East High Street in Jefferson City's central business district. See "Item 2. Properties".

Hawthorn Bank is a full service bank conducting a general banking and trust business, offering its customers checking and savings accounts, internet banking, debit cards, certificates of deposit, trust services, brokerage services, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, single payment personal loans, installment loans and commercial and residential real estate loans.

Hawthorn Bank's deposit accounts are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the extent provided by law. Hawthorn Bank's operations are supervised and regulated by the FDIC and the Missouri Division of Finance. Periodic examinations of Hawthorn 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 the holders of Hawthorn Bank's common stock. See "Regulation Applicable to Bank Holding Companies" and "Regulation Applicable to the Bank".

Hawthorn Real Estate. Hawthorn Real Estate, LLC, a non-bank subsidiary of the Company, was formed in December 2008 in order to purchase and hold various nonperforming assets of Hawthorn Bank. The purpose for holding these nonperforming assets in Hawthorn Real Estate is to allow for the orderly disposition of these assets and strengthen Hawthorn Bank's financial position.

Real Estate Holdings of Missouri, LLC. Real Estate Holdings of Missouri, LLC, a non-bank subsidiary of the Company, was formed in March 2010 in order to purchase from Hawthorn Bank and hold parcels of foreclosed real property located in and around Kansas City, Missouri. The purpose for acquiring this foreclosed real estate in Real Estate Holdings of Missouri, LLC is to allow for the orderly, and potentially more expeditious, disposition of these assets and strengthen Hawthorn Bank's financial position.

Employees

As of December 31, 2015, Hawthorn and its subsidiaries had approximately 313 full-time and 58 part-time employees. None of its employees is presently represented by any union or collective bargaining group, and the Company considers its employee relations to be satisfactory.

Competition

Bank holding companies and their subsidiaries and affiliates encounter intense competition from nonbanking as well as banking sources in all of their activities. The Bank's competitors include other commercial banks, thrifts, savings banks, credit unions, and money market mutual funds. Thrifts and credit unions now have the authority to offer checking accounts and to make corporate and agricultural loans and were granted expanded investment authority by recent federal regulations. In addition, large national and multinational corporations have in recent years become increasingly visible in offering a broad range of financial services to all types of commercial and consumer customers. In the Bank's service areas, new competitors, as well as the expanding operations of existing competitors, have had, and are expected to continue to have, an adverse impact on the Bank's market share of deposits and loans in such service areas.

The Bank experiences substantial competition for deposits and loans within both its primary service areas of Jefferson City, Columbia, Clinton, Lee's Summit, Warsaw, Springfield, and Branson, Missouri and its secondary service area of the nearby communities in Cole, Boone, Henry, Cass, Benton, and Greene counties of Missouri. Hawthorn Bank's principal competition for deposits and loans comes from other banks within its primary service areas and, to an increasing extent, other banks in nearby communities. Based on publicly available information, management believes that Hawthorn Bank is the third largest (in terms of deposits) of the thirteen banks within Cole county, the twelfth largest (in terms of deposits) of thirty-two banks within Boone county, the largest

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(in terms of deposits) of the seven banks within Henry county, the fourth largest (in terms of deposits) of the seventeen banks within Cass county, and the third largest (in terms of deposits) of the five banks within Benton county. The main competition for Hawthorn Bank's trust services is from other commercial banks, including those of the Kansas City metropolitan area.

Regulation Applicable to Bank Holding Companies

General. As a registered bank holding company and a financial holding company under the Bank Holding Company Act (the "BHC Act") and the Gramm-Leach-Bliley Act (the "GLB Act"), Hawthorn is subject to supervision and examination by the Board of Governors of the Federal Reserve System (the "FRB"). The FRB has authority to issue cease and desist orders against bank holding companies if it determines that their actions represent unsafe and unsound practices or violations of law. In addition, the FRB is empowered to impose civil money penalties for violations of banking statutes and regulations. Regulation by the FRB is intended to protect depositors of the Bank, not the shareholders of Hawthorn. Hawthorn also is subject to a number of restrictions and requirements imposed by the Sarbanes-Oxley Act of 2002 relating to internal controls over financial reporting, disclosure controls and procedures, loans to directors or executive officers of the Hawthorn and its subsidiaries, the preparation and certification of the Hawthorn's consolidated financial statements, the duties of Hawthorn's audit committee, relations with and functions performed by Hawthorn's independent auditors, and various accounting and corporate governance matters.

Limitation on Activities. The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the GLB Act, a bank holding company, all of whose controlled depository institutions are "well capitalized" and "well managed" (as defined in federal banking regulations) with "satisfactory" Community Reinvestment Act ratings, may declare itself to be a "financial holding company" and engage in a broader range of activities. As noted above, Hawthorn is registered as a financial holding company.

A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. "Financial in nature" activities include:

· securities underwriting, dealing and market making;

· sponsoring mutual funds and investment companies;

· insurance underwriting and insurance agency activities;

· merchant banking; and

· activities that the FRB determines to be financial in nature or incidental to a financial activity or which is complementary to a financial activity and does not pose a safety and soundness risk.

A financial holding company that desires to engage in activities that are financial in nature or incidental to a financial activity but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. Also, a financial holding company may seek FRB approval to engage in an activity that is complementary to a financial activity, if it shows, among other things, that the activity does not pose a substantial risk to the safety and soundness of its insured depository institutions or the financial system.

A financial holding company generally may acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature without prior approval from the FRB. Prior FRB approval is required, however, before the financial holding company may acquire control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association. In addition, under the FRB's merchant banking regulations, a financial holding company is authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the duration of the investment, does not manage the company on a day-to-day basis, and the company does not cross-market its products or services with any of the financial holding company's controlled depository institutions.

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If any subsidiary bank of a financial holding company ceases to be "well-capitalized" or "well-managed" and fails to correct its condition within the time period that the FRB specifies, the FRB has authority to order the financial holding company to divest its subsidiary banks. Alternatively, the financial holding company may elect to limit its activities and the activities of its subsidiaries to those permissible for a bank holding company that is not a financial holding company. If any subsidiary bank of a financial holding company receives a rating under the Community Reinvestment Act (the "CRA") of less than "satisfactory", then the financial holding company is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations until the rating is raised to "satisfactory" or better.

Limitation on Acquisitions. The BHC Act requires a bank holding company to obtain prior approval of the FRB before:

· taking any action that causes a bank to become a controlled subsidiary of the bank holding company;

· acquiring direct or indirect ownership or control of voting shares of any bank or bank holding company, if the acquisition results in the acquiring bank holding company having control of more than 5% of the outstanding shares of any class of voting securities of such bank or bank holding company, and such bank or bank holding company is not majority-owned by the acquiring bank holding company prior to the acquisition;

· acquiring substantially all of the assets of a bank; or

· merging or consolidating with another bank holding company.

Regulatory Capital Requirements. The FRB has issued risk-based and leverage capital guidelines applicable to United States banking organizations. If a bank holding company's capital falls below minimum required levels, then the bank holding company must implement a plan to increase its capital, and its ability to pay dividends and make acquisitions of new bank subsidiaries may be restricted or prohibited. The risk-based capital guidelines that applied to us and our subsidiary bank prior to January 1, 2015 were based on the 1988 capital accord, referred to as Basel I, of the International Basel Committee on Banking Supervision (which we refer to as the "Basel Committee"), a committee of central banks and bank supervisors, as implemented by federal bank regulators. In 2008, the bank regulatory agencies began to phase-in capital standards based on a second capital accord issued by the Basel Committee, referred to as Basel II, for large or "core" international banks (generally defined for U.S. purposes as having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Because we do not anticipate controlling any large or "core" international bank in the foreseeable future, Basel II presently does not apply to us. On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, announced agreement on the calibration and phase-in arrangements for a strengthened set of capital requirements, known as Basel III. In July 2013, the federal banking agencies announced new risk-based capital and leverage ratios to conform to the Basel III framework and address provisions of the Dodd-Frank Act. With respect to the Company and the Bank, these requirements become effective on January 1, 2015.

The FRB's risk-based guidelines generally define a three-tier capital framework. Common Equity Tier 1 Capital generally includes common stock instruments and related surplus (net of treasury stock), retained earnings, and, subject to certain adjustments, minority common equity interests in subsidiaries, less goodwill and certain other adjustments. The rules require accumulated other comprehensive income to flow through to regulatory capital unless a one-time, irrevocable opt-out election is made.  [We do not anticipate making such an opt-out election.] Banking organizations are required to deduct goodwill and other intangible assets (other than certain mortgage servicing assets), net of associated deferred tax liabilities, from Common Equity Tier 1 Capital.  Deferred tax assets arising from temporary timing differences that cannot be realized through net operating loss (NOL) carrybacks are also deducted.  Deferred tax assets that can be realized through NOL carrybacks are not deducted but are subject to 100% risk weighting.  Defined benefit pension fund assets, net of any associated deferred tax liability, are deducted from Common Equity Tier 1 Capital unless the banking organization has unrestricted and unfettered access to such assets.  Reciprocal cross-holdings of capital instruments in any other financial institutions are deducted from capital, not just holdings in other depository institutions.  For this purpose, financial institutions are broadly defined to include securities and commodities firms, hedge and private equity funds and non-depository lenders.  Banking organizations are required to deduct non-significant investments (less than 10% of outstanding stock) in the capital of other financial institutions (including investments in trust preferred securities) to the extent these exceed 10% of Common Equity Tier 1 Capital subject to a 15% of Common Equity Tier 1 Capital cap.  Greater than 10% investments must be deducted if they exceed

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10% of Common Equity Tier 1 Capital.  If the aggregate amount of certain items excluded from capital deduction due to a 10% threshold exceeds 17.65% of Common Equity Tier 1 Capital, the excess must be deducted. The federal banking agencies did not adopt a proposed rule as part of the new regulations that would have significantly changed the risk-weighting for residential mortgages.  Instead, the amended regulations continue to follow the capital rules that historically have applied to us, which assign a 50% risk-weighting to "qualifying mortgage loans" which generally consist of residential first mortgages with an 80% loan-to-value ratio (or which carry mortgage insurance that reduces the bank's exposure to 80%) that are not more than 90 days past due.  All other mortgage loans have a 100% risk weight.  The revised regulations apply a 250% risk-weighting to mortgage servicing rights, deferred tax assets that cannot be realized through NOL carrybacks and investments in the capital instruments of other financial institutions that are not deducted from capital.  The revised regulations also create a new 150% risk-weighting category for "high volatility commercial real estate loans" which are credit facilities for the acquisition, construction or development of real property other than for certain community development projects, agricultural land and one- to four-family residential properties or commercial real projects where: (i) the loan-to-value ratio is not in excess of interagency real estate lending standards; and (ii) the borrower has contributed capital equal to not less than 15% of the real estate's "as completed" value before the loan is made.

Tier 1 Capital generally includes Common Equity Tier 1 Capital plus Additional Tier 1 Capital elements, such as non-cumulative perpetual preferred stock and similar instruments meeting specified criteria and minority interests in subsidiaries that do not satisfy the requirements for Common Equity Tier 1 Capital treatment. Cumulative preferred stock (other than cumulative preferred stock issued to the U.S. Treasury under the Capital Purchase Program or the Small Business Lending Fund) does not qualify as Additional Tier 1 Capital.  Trust preferred securities and other non-qualifying capital instruments issued prior to May 19, 2010 by bank and savings and loan holding companies with less than $15 billion in assets as of December 31, 2009 or by mutual holding companies may continue to be included in Tier 1 Capital but will be phased out over 10 years beginning in 2016 for all other banking organizations.  These non-qualifying capital instruments, however, may be included in Tier 2 Capital. Tier 2 Capital may also include certain qualifying debt and the allowance for credit losses up to 1.25% of risk-weighted assets and other adjustments.

The sum of the three tiers of capital less investments in unconsolidated subsidiaries represents the total capital. The risk-based capital ratios are calculated by dividing Common Equity Tier 1, Tier 1 and total capital by risk-weighted assets (including certain off-balance sheet activities). The FRB's capital adequacy guidelines require that bank holding companies maintain a Common Equity Tier 1 risk-based capital ratio equal to at least 4.5% of its risk-weighted assets, a Tier 1 risk-based capital ratio equal to at least 6% of its risk-weighted assets and a total risk-based capital ratio equal to at least 8% of its risk-weighted assets. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%.

On December 31, 2015, Hawthorn was in compliance with the FRB's capital adequacy guidelines. Hawthorn's capital ratios on December 31, 2015 and the minimum requirements as of that date are shown below:

Tier I leverage Ratio (4% minimum requirement)	Common Equity Tier 1 Risk- Based Capital Ratio (4.5% minimum requirement)	Tier 1 Risk-Based Capital Ratio (6% minimum requirement)	Total Risk-Based Capital Ratio (8%)
9.84%	9.84%	12.03%	14.78%

In addition to higher capital requirements, bank holding companies are required to maintain a common equity Tier 1 capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements.  Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.  The capital conservation buffer requirement will be phased in over four years beginning in 2016.  The capital conservation buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), a bank holding company is permitted to acquire the stock or substantially all of the assets of banks located in any state regardless of whether such transaction is prohibited under the laws of any state. The FRB will not approve an interstate acquisition if, as a result of the acquisition, the bank holding company would control more than 10% of the total amount of insured deposits in the United States or would control

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more than 30% of the insured deposits in the home state of the acquired bank. The 30% of insured deposits state limit does not apply if the acquisition is the initial entry into a state by a bank holding company or if the home state waives such limit. The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. The Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010, a subset of the Dodd-Frank Act discussed below, permits banks to acquire and establish de novo branches in other states if a state bank in that other state would be permitted to establish the branch.

Under the Riegle-Neal Act, individual states may restrict interstate acquisitions in two ways. A state may prohibit an out-of-state bank holding company from acquiring a bank located in the state unless the target bank has been in existence for a specified minimum period of time (not to exceed five years). A state may also establish limits on the total amount of insured deposits within the state which are controlled by a single bank holding company, provided that such deposit limit does not discriminate against out-of-state bank holding companies.

Source of Strength. Bank holding companies, such as the Company, are required by statute to serve as a source of financial strength for their subsidiary depository institutions, by providing financial assistance to their insured depository institution subsidiaries in the event of financial distress. Under the source of strength requirement, the Company could be required to provide financial assistance to the Bank should it experience financial distress. Furthermore, the FRB has the right to order a bank holding company to terminate any activity that the FRB believes is a serious risk to the financial safety, soundness or stability of any subsidiary bank. The regulators may require these and other actions in support of controlled banks even if such action is not in the best interests of the bank holding company or its stockholders.

Liability of Commonly Controlled Institutions. Under cross-guaranty provisions of the Federal Deposit Insurance Act (the "FDIA"), bank subsidiaries of a bank holding company are liable for any loss incurred by the Deposit Insurance Fund (the "DIF"), the federal deposit insurance fund for banks, in connection with the failure of any other bank subsidiary of the bank holding company.

Bank Secrecy Act and USA PATRIOT Act. The Company and the Bank must comply with the requirements of the Bank Secrecy Act (the "BSA"). The BSA was enacted to prevent banks and other financial service providers from being used as intermediaries for, or to hide the transfer or deposit of money derived from, drug trafficking, money laundering, and other crimes. Since its passage, the BSA has been amended several times. These amendments include the Money Laundering Control Act of 1986, which made money laundering a criminal act, as well as the Money Laundering Suppression Act of 1994, which required regulators to develop enhanced examination procedures and increased examiner training to improve the identification of money laundering schemes in financial institutions. The USA PATRIOT Act, established in 2001, substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing. The regulations include significant penalties for non-compliance.

Missouri Bank Holding Company Regulation. Missouri prohibits any bank holding company from acquiring ownership or control of any bank or Missouri depository trust company that has Missouri deposits if, after such acquisition, the bank holding company would hold or control more than 13% of total Missouri deposits. Because of this restriction, among others, a bank holding company, prior to acquiring control of a bank or depository trust company that has deposits in Missouri, must receive the approval of the Missouri Division of Finance.

Regulation Applicable to the Bank

General. Hawthorn Bank, a Missouri state non-member depository trust company, is subject to the regulation of the Missouri Division of Finance and the FDIC. The FDIC is empowered to issue cease and desist orders against the Bank if it determines that any activities of the Bank represent unsafe and unsound banking practices or violations of law. In addition, the FDIC has the power to impose civil money penalties for violations of banking statutes and regulations. Regulation by these agencies is designed to protect the depositors of the Bank; not shareholders of Hawthorn.

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Bank Regulatory Capital Requirements. The FDIC has adopted minimum capital requirements applicable to state non-member banks, which are similar to the capital adequacy guidelines established by the FRB for bank holding companies. Federal banking laws classified an insured financial institution in one of the following five categories, depending upon the amount of its regulatory capital:

· "well-capitalized" if it has a total Tier 1 leverage ratio of 5% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8% or greater and a total risk-based capital ratio of 10% or greater (and is not subject to any order or written directive requiring the bank to adhere to a higher capital ratio);

· "adequately capitalized" if it has a total Tier 1 leverage ratio of 4% or greater, a Common Equity Tier 1 risk-based capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a total risk-based capital ratio of 8% or greater;

· "undercapitalized" if it has a total Tier 1 leverage ratio that is less than 4%, a Common Equity Tier 1 risk-based capital ratio that is less than 4.5%, a Tier 1 risk-based capital ratio that is less than 6% or a total risk-based capital ratio that is less than 8%;

· "significantly undercapitalized" if it has a total Tier 1 leverage ratio that is less than 3%, a Common Equity Tier 1 risk-based capital ratio that is less than 3%, a Tier 1 risk-based capital ratio that is less than 4% or a total risk-based ratio that is less than 6%; and

· "critically undercapitalized" if it has a Tier 1 leverage ratio that is equal to or less than 2%.

Federal regulatory agencies are required to take prompt corrective action against undercapitalized financial institutions. On December 31, 2015, the Bank was classified as "well-capitalized," which is required for Hawthorn to remain a financial holding company. The capital ratios and classifications of the Bank as of December 31, 2015 and the minimum requirements as of such date are shown on the following chart.

Leverage Ratio (5% minimum requirement)	Common Equity Tier 1 Risk-Based Capital Ratio (6.5% minimum requirement)	Tier 1 Risk-Based Capital Ratio (8% minimum requirement)	Total Risk-Based Capital Ratio (10%)
10.73%	13.09%	13.09%	13.98%

Limitations on Interest Rates and Loans to One Borrower. The rate of interest a bank may charge on certain classes of loans is limited by state and federal law. At certain times in the past, these limitations have resulted in reductions of net interest margins on certain classes of loans. Federal and state laws impose additional restrictions on the lending activities of banks. The maximum amount that a Missouri state-chartered bank may lend to any one person or entity is generally limited to 15% of the unimpaired capital of the bank located in a city having a population of 100,000 or more, 20% of the unimpaired capital of the bank located in a city having a population of less than 100,000 and over 7,000, and 25% of the unimpaired capital of the bank if located elsewhere in the state. In the case of Missouri state-chartered banks with a composite rating of 1 or 2 under the Capital, Assets, Management, Earnings, Liquidity and Sensitivity (CAMELS) rating system, the maximum amount is the greater of (i) the limits listed in the foregoing sentence or (ii) 25% of the unimpaired capital of the bank.

Payment of Dividends. The Company's primary source of funds is dividends from the Bank, and the Bank is subject to federal and state laws limiting the payment of dividends. Under the FDIA, an FDIC-insured institution may not pay dividends while it is undercapitalized or if payment would cause it to become undercapitalized. The National Bank Act and Missouri banking law also prohibit the declaration of a dividend out of the capital and surplus of the bank.

Community Reinvestment Act. The Bank is subject to the CRA and implementing regulations. The CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution's record of helping to meet the credit needs of its community, including low- and moderate-income neighborhoods. CRA ratings are taken into account by regulators in reviewing certain applications made by Hawthorn and its banking subsidiary.

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Limitations on Transactions with Affiliates. Hawthorn and its non-bank subsidiaries are "affiliates" within the meaning of the Federal Reserve Act. The amount of loans or extensions of credit which the Bank may make to non-bank affiliates, or to third parties secured by securities or obligations of the non-bank affiliates, are substantially limited by the Federal Reserve Act and the FDIA. Such acts further restrict the range of permissible transactions between a bank and an affiliated company. A bank and its subsidiaries may engage in certain transactions, including loans and purchases of assets, with an affiliated company only if the terms and conditions of the transaction, including credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered to non-affiliated companies.

Other Banking Activities. The investments and activities of the Bank are also subject to regulation by federal and state banking agencies regarding, among other things, investments in subsidiaries, investments for their own account (including limitations on investments in junk bonds and equity securities), loans to officers, directors and their affiliates, security requirements, anti-tying limitations, anti-money laundering, financial privacy and customer identity verification requirements, truth-in-lending, the types of interest bearing deposit accounts which it can offer, trust department operations, brokered deposits, audit requirements, issuance of securities, branching and mergers and acquisitions.

Changes in Laws and Monetary Policies

Recent Legislation. Various pieces of legislation, including proposals to change substantially the financial institution regulatory system, are from time to time introduced and considered by the Missouri state legislature and the United States Congress. In July 2010, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which enacted substantial changes to the legal framework of the entire financial services industry. The Dodd-Frank Act mandates the passage of numerous rules and regulations by various regulatory agencies over the next few years. It also creates the Consumer Financial Protection Bureau, which will overtake supervision of most providers of consumer financial products and services, and will be empowered to declare acts or practices related to the delivery of a consumer financial product or service to be "unfair, deceptive or abusive." This law will continue to change banking regulation and the operating environment of Hawthorn in substantial and unpredictable ways. These changes could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. Hawthorn cannot predict the impact that the Dodd-Frank Act, and the various regulations issued thereunder will have on its business.

Fiscal Monetary Policies. Hawthorn's business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. Hawthorn is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the FRB are:

· conducting open market operations in United States government securities;

· changing the discount rates of borrowings of depository institutions;

· imposing or changing reserve requirements against depository institutions' deposits; and

· imposing or changing reserve requirements against certain borrowings by bank and their affiliates.

These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB have a material effect on Hawthorn's business, results of operations and financial condition.

The references in the foregoing discussion to various aspects of statutes and regulation are merely summaries, which do not purport to be complete and which are qualified in their entirety by reference to the actual statutes and regulations.

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Available Information

The address of the Company's principal executive offices is 132 East High Street, Jefferson City, Missouri 65102 and the telephone number at this location is (573)761-6100. The Company's common stock trades on the Nasdaq Global Select Market under the symbol "HWBK".

We electronically file certain documents with the Securities and Exchange Commission (SEC). We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K (as appropriate), along with any related amendments and supplements. From time-to-time, we also may file registration and related statements pertaining to equity or debt offerings. You may read and download the Company's SEC filings over the internet from several commercial document retrieval services as well as at the SEC's internet website (www.sec.gov). You may also read and copy the Company's SEC filings at the SEC's public reference room located at 100 F Street, NE., Washington, DC 20549. Please call the SEC 1-800-SEC-0330 for further information concerning the public reference room and any applicable copy charges.

The Company's internet website address is www.hawthornbancshares.com. Under the "Documents" menu tab of the Company's website (www.hawthornbancshares.com), we make available, without charge, the Company's public filings with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or any amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934. Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such internet addresses is intended or deemed to be incorporated by reference herein.

Item 1A. Risk Factors.

Risk Factors

We are identifying important risks and uncertainties that could affect the Company's results of operations, financial condition or business and that could cause them to differ materially from the Company's historical results of operations, financial condition or business, or those contemplated by forward-looking statements made herein or elsewhere, by, or on behalf of, the Company. Factors that could cause or contribute to such differences include, but are not limited to, those factors described below. The risk factors highlighted below are not necessarily the only ones that the Company faces.

Because We Primarily Serve Central And West Central Missouri, A Decline In The Local Economic Conditions Could Lower The Company's Profitability. The profitability of Hawthorn is dependent on the profitability of its banking subsidiary, which operates out of central and west central Missouri. The financial condition of this bank is affected by fluctuations in the economic conditions prevailing in the portion of Missouri in which its operations are located. Accordingly, the financial conditions of both Hawthorn and its banking subsidiary would be adversely affected by deterioration in the general economic and real estate climate in Missouri.

An increase in unemployment, a decrease in profitability of regional businesses or real estate values or an increase in interest rates are among the factors that could weaken the local economy. With a weaker local economy:

• customers may not want or need the products and services of the Bank,

• borrowers may be unable to repay their loans,

• the value of the collateral security of the Bank's loans to borrowers may decline,

• the number of loan delinquencies and foreclosures may increase, and

• the overall quality of the Bank's loan portfolio may decline.

Originating mortgage loans and consumer loans is a significant source of profits for Hawthorn's banking subsidiary. If individual customers in the local area do not want or need these loans, profits may decrease. Although the Bank could make other investments, the Bank may earn less revenue on these investments than on loans. Also, the Bank's losses on loans may increase if borrowers are unable to make payments on their loans.

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Interest Rate Changes May Reduce The Profitability Of The Company And Of The Bank. The primary source of earnings for Hawthorn's banking subsidiary is net interest income. To be profitable, the Bank has to earn more money in interest and fees on loans and other interest-earning assets than it pays as interest on deposits and other interest-bearing liabilities and as other expenses. If prevailing interest rates decrease, the amount of interest the Bank earn on loans and investment securities may decrease more rapidly than the amount of interest the Bank has to pay on deposits and other interest-bearing liabilities. This would result in a decrease in the profitability of Hawthorn and its banking subsidiary.

Changes in the level or structure of interest rates also affect:

• the Bank's ability to originate loans,

• the value of the Bank's loan and securities portfolios,

• the Bank's ability to realize gains from the sale of loans and securities,

• the average life of the Bank's deposits, and

• the Bank's ability to obtain deposits.

Fluctuations in interest rates will ultimately affect both the level of income and expense recorded on a large portion of the Bank's assets and liabilities, and the fair value of all interest-earning assets, other than interest-earning assets that mature in the short term. The Bank's interest rate management strategy is designed to stabilize net interest income and preserve capital over a broad range of interest rate movements by matching the interest rate sensitivity of assets and liabilities. Although Hawthorn believes that its Bank's current mix of loans, mortgage-backed securities, investment securities and deposits is reasonable, significant fluctuations in interest rates may have a negative effect on the profitability of the Bank.

Our Business Depends On Our Ability To Successfully Manage Credit Risk. The operation of our business requires us to manage credit risk. As a lender, our banking subsidiary is exposed to the risk that borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment. In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. In order to successfully manage credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our loan officers follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations.

The Company's Profitability Depends On The Bank's Asset Quality And Lending Risks. Success in the banking industry largely depends on the quality of loans and other assets. The loan officers of Hawthorn's banking subsidiary are actively encouraged to identify deteriorating loans. Loans are also monitored and categorized through an analysis of their payment status. The Bank's failure to timely and accurately monitor the quality of its loans and other assets could have a materially adverse effect on the operations and financial condition of Hawthorn and its banking subsidiary. There is a degree of credit risk associated with any lending activity. The Bank attempts to minimize its credit risk through loan diversification. Although the Bank's loan portfolio is varied, with no undue concentration in any one industry, substantially all of the loans in the portfolio have been made to borrowers in central, west central, and southwest Missouri. Therefore, the loan portfolio is susceptible to factors affecting the central, west central, and southwest Missouri area and the level of non-performing assets is heavily dependent upon local conditions. There can be no assurance that the level of the Bank's non-performing assets will not increase above current levels. High levels of non-performing assets could have a materially adverse effect on the operations and financial condition of Hawthorn and its banking subsidiary.

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The Provision For Probable Loan Losses May Need To Be Increased. Hawthorn's banking subsidiary makes a provision for loan losses based upon management's estimate of probable losses in the loan portfolio and its consideration of prevailing economic and environmental conditions. The amount of future loan losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond the Company's control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the loss allowance will be adequate in the future. The Bank may need to increase the provision for loan losses through additional provisions in the future if, among other things, the financial condition of any of its borrowers deteriorates, if its borrower fails to perform its obligations to it, or if real estate values decline. Furthermore, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's loan portfolio, provision for loan losses, and real estate acquired by foreclosure. Such agencies may require the Bank to recognize additions to the provision for loan losses based on their judgments of information available to them at the time of the examination. Any additional provision for probable loan losses, whether required as a result of regulatory review or initiated by Hawthorn itself, may materially alter the financial outlook of Hawthorn and its banking subsidiary and may have a material adverse effect on the Company's financial condition and results of operations.

Adverse Market Conditions In The U.S. Economy And The Markets In Which We Operate Could Adversely Impact The Company's Business. General downward economic trends, reduced availability of commercial credit, and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. Competition among depository institutions for deposits has increased significantly. Financial institutions have experienced decreased access to deposits or borrowings.

Although there has been a modest recovery in the domestic economy, the recovery is weak and there can be no assurance that the economy will not enter into another recession, whether in the near or long term future. Furthermore, real estate values and the demand for commercial real estate loans have not fully recovered, and reduced availability of commercial credit and continuing unemployment have negatively impacted the credit performance of commercial and consumer credit. Additional market developments such as a relapse or worsening of economic conditions in other parts of the world would likely exacerbate the lingering effects of the difficult market conditions experienced by us and others in the financial services industry and could further slow, stall or reverse the slow recovery in the U.S. A further deterioration of overall market conditions, a continuation of the economic downturn or prolonged economic stagnation in the Company's markets may have a negative impact on its business, financial condition, results of operations and the trading price of its common stock. If the strength of the U.S. economy in general and the strength of the economy in areas where we lend were to stagnate or decline, this could result in, among other things, a deterioration in credit quality or a reduced demand for credit, including a resultant adverse effect on the Company's loan portfolio and provision for losses on loans. This may exacerbate the Company's exposure to credit risk, impair the Company's ability to assess the creditworthiness of its customers or to estimate the values of its assets and adversely affect the ability of borrowers to perform under the terms of their lending arrangements with us. Negative conditions in the real estate markets where we operate could adversely affect borrowers' ability to repay their loans and the value of the underlying collateral. Real estate values are affected by various factors, including general economic conditions, governmental rules or policies and natural disasters. These factors may adversely impact borrowers' ability to make required payments, which in turn, may negatively impact the Company's financial results. As a result of the difficult market and economic conditions referred to above, there is a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and for bank regulatory agencies to be very aggressive in responding to concerns and trends identified in examinations. This increased government action may increase costs and limit the Company's ability to pursue certain business opportunities.

We cannot predict whether the difficult market and economic conditions will improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult conditions on the Company, its customers and the other financial institutions in its market. As a result, we may experience increases in foreclosures, delinquencies and customer bankruptcies, as well as more restricted access to funds, and the Company's business, financial condition, results of operations and stock price may be adversely affected.

The Soundness Of Other Financial Institutions Could Adversely Affect Us. The Company's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other

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financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of a counterparty or client. In addition, the Company's credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect the Company's results of operations.

Deterioration In The Housing Market Could Cause Further Increases In Delinquencies And Non-Performing Assets, Including Loan Charge-Offs, And Depress The Company's Income And Growth. The volume of one-to-four family residential mortgages and home equity lines of credit may decrease during economic downturns as a result of, among other things, a decrease in real estate values, an increase in unemployment, a slowdown in housing price appreciation or increases in interest rates. These factors could reduce earnings and consequently the Company's financial condition because:

• borrowers may not be able to repay their loans;

• the value of the collateral securing loans may decline further;

• the quality of the Company's loan portfolio may decline further; and

• customers may not want or need the Company's products and services.

Any of these scenarios could cause an increase in delinquencies and non-performing assets, require us to charge-off a higher percentage of loans, increase substantially the provision for losses on loans, or make fewer loans, which would reduce income.

The FDIC's Changes in the Calculation of Deposit Insurance Premiums and Ability to Levy Special Assessments Could Increase The Company's Non-Interest Expense And May Reduce Its Profitability. The range of base assessment rates currently varies from 12 to 45 basis points depending on an institution's risk category, with newly added financial measures resulting in increased assessment rates for institutions heavily relying on brokered deposits to support rapid asset growth. However, the Dodd-Frank Act requires the FDIC to amend its regulations to redefine the assessment base used for calculating deposit insurance assessments. On February 9, 2011, the FDIC adopted a final rule that defines the assessment base as the average consolidated total assets during the assessment period minus the average tangible equity of the insured depository institution during the assessment period. The FDIC also imposed a new assessment rate scale. Under the new system, banks will pay assessments at a rate between 5 and 35 basis points per assets minus tangible equity, depending upon an institution's risk category (the final rule also includes progressively lower assessment rate schedules when the FDIC's reserve ratio reaches certain levels). The rulemaking changes the current assessment rate schedule so the schedule will result in the collection of assessment revenue that is approximately the same as generated under the current rate schedule and current assessment base. Nearly all banks with assets less than $10 billion will pay smaller deposit insurance assessments as a result of the new rule. The majority of the changes in the FDIC's final rule became effective on April 1, 2011. The FDIC has the statutory authority to impose special assessments on insured depository institutions in an amount, and for such purposes, as the FDIC may deem necessary. The change in the calculation methodology for deposit insurance premiums and the possible emergency special assessments could increase non-interest expense and may adversely affect the Company's profitability.

We May Elect Or Be Compelled To Seek Additional Capital In The Future, But That Capital May Not Be Available When It Is Needed. We are required by regulatory authorities to maintain adequate levels of capital to support operations. In addition, we may elect to raise additional capital to support the growth of the Company's business or to finance acquisitions, if any, or we may elect to raise additional capital for other reasons. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of a deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors. Should we elect or be required by regulatory authorities to raise additional capital, we may seek to do so through the issuance of, among other things, common stock or securities convertible into common stock, which could dilute your ownership interest in the Company. Although we remain "well-capitalized" and have not had a deterioration in liquidity, the future cost and availability of capital may be adversely

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affected by illiquid credit markets, economic conditions and a number of other factors, many of which are outside of the Company's control. Accordingly, we cannot assure you of the ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed or on terms acceptable to us, it may have a material adverse effect on the Company's financial condition and results of operations.

If We Are Unable To Successfully Compete For Customers In The Company's Market Area, The Company's Financial Condition And Results Of Operations Could Be Adversely Affected. Hawthorn's banking subsidiary faces substantial competition in making loans, attracting deposits and providing other financial products and services. The Bank has numerous competitors for customers in its market area.

Such competition for loans comes principally from:

•	other commercial banks	•	mortgage banking companies
•	savings banks	•	finance companies
•	savings and loan associations	•	credit unions

Competition for deposits comes principally from:

•	other commercial banks	•	brokerage firms
•	savings banks	•	insurance companies
•	savings and loan associations	•	money market mutual funds
•	credit unions	•	mutual funds (such as corporate and government securities funds)

Many of these competitors have greater financial resources and name recognition, more locations, more advanced technology and more financial products to offer than the Bank. Competition from larger institutions may increase due to an acceleration of bank mergers and consolidations in Missouri and the rest of the nation. In addition, the Gramm-Leach-Bliley Act removes many of the remaining restrictions in federal banking law against cross-ownership between banks and other financial institutions, such as insurance companies and securities firms. The law will likely increase the number and financial strength of companies that compete directly with the Bank. The profitability of the Bank depends of its continued ability to attract new customers and compete in Missouri. New competitors, as well as the expanding operations of existing competitors, have had, and are expected to continue to have, an adverse impact on the Bank's market share of deposits and loans in the Bank's service areas. If the Bank is unable to successfully compete, its financial condition and results of operations will be adversely affected.

We May Experience Difficulties In Managing Growth And In Effectively Integrating Newly Acquired Companies. As part of the Company's general strategy, it may continue to acquire banks and businesses that it believes provide a strategic fit with its business. To the extent that the Company does grow, there can be no assurances that we will be able to adequately and profitably manage such growth. Acquiring other banks and businesses will involve risks commonly associated with acquisitions, including:

• potential exposure to liabilities of the banks and businesses acquired;

• difficulty and expense of integrating the operations and personnel of the banks and businesses acquired;

• difficulty and expense of instituting the necessary systems and procedures, including accounting and financial reporting systems, to manage the combined enterprises on a profitable basis;

• potential disruption to existing business and operations;

• potential diversion of the time and attention of management; and

• impairment of relationships with and the possible loss of key employees and customers of the banks and businesses acquired.

The success of the Company's internal growth strategy will depend 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. There is no assurance that we will be successful in implementing the Company's internal growth strategy.

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We May Be Adversely Affected By Changes In Laws And Regulations Affecting The Financial Services Industry. Banks and bank holding companies such as Hawthorn are subject to regulation by both federal and state bank regulatory agencies. The regulations, which are designed to protect borrowers and promote certain social policies, include limitations on the operations of banks and bank holding companies, such as minimum capital requirements and restrictions on dividend payments. The regulatory authorities have extensive discretion in connection with their supervision and enforcement activities and their examination policies, including the imposition of restrictions on the operation of a bank, the classification of assets by an institution and requiring an increase in a bank's allowance for loan losses. These regulations are not necessarily designed to maximize the profitability of banking institutions.

In July 2010, President Barack Obama signed into law the Dodd-Frank Act, which enacted substantial changes to the legal framework of the entire financial services industry. The Dodd-Frank Act mandates the passage of numerous rules and regulations by various regulatory agencies over the next few years. This legislation will change banking regulation and the operating environment of Hawthorn in substantial and unpredictable ways. It could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. Hawthorn cannot predict the impact that the Dodd-Frank Act, and the various regulations issued thereunder will have on its business.

These, and other future changes in the banking laws and regulations, could have a material adverse effect on the operations and financial condition of Hawthorn and its banking subsidiary.

The Short-Term And Long-Term Impact Of The Changing Regulatory Capital Requirements And New Capital Rules Is Uncertain. The federal banking agencies have substantially amended the regulatory capital rules applicable to us and the Bank. The amendments implement the "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Act.  The amended rules include new minimum risk-based capital and leverage ratios, which became effective in January 2015, with certain requirements to be phased in beginning in 2016, and refined the definition of what constitutes "capital" for purposes of calculating those ratios.

The application of more stringent capital requirements to us and the Bank could, among other things, result in lower returns on invested capital, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.  Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could further limit the Company's ability to make distributions, including paying out dividends or buying back shares.

The Bank Is A Community Bank And Our Ability To Maintain The Bank's Reputation Is Critical To The Success Of Our Business And The Failure To Do So Could Materially Adversely Affect Our Performance. The Bank is a community bank, and its reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results could be materially adversely affected.

The Company's Success Largely Depends On The Efforts Of Its Executive Officers. The success of Hawthorn and its banking subsidiary has been largely dependent on the efforts of David Turner, Chairman, CEO, and President and the other executive officers. These individuals are expected to continue to perform their services. However, the loss of the services of Mr. Turner, or any of the other key executive officers could have a materially adverse effect on Hawthorn and its subsidiary bank.

If We Fail To Maintain An Effective System Of Internal Control Over Financial Reporting, We May Not Be Able To Accurately Report Our Financial Results Or Prevent Fraud, And, As A Result, Investors And Depositors Could Lose Confidence In Our Financial Reporting, Which Could Adversely Affect Our Business, The Trading Price Of Our Stock, And Our Ability To Attract Additional Deposits. We are required to include in our annual reports filed with the SEC a report from our management regarding internal control over financial reporting. As a result, we documented and evaluated our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act and SEC rules and regulations, which require an annual management report on

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our internal control over financial reporting, including, among other matters, management's assessment of the effectiveness of internal control over financial reporting. Failure or circumvention of our system of internal control could have an adverse effect on our business, profitability, and financial condition, and could result in regulatory actions and loss of investor confidence. Additionally, if we fail to identify and correct any significant deficiencies or material weaknesses in the design or operating effectiveness of our internal control over financial reporting or fail to prevent fraud, current and potential stockholders and depositors could lose confidence in our financial reporting, which could adversely affect our business, financial condition and results of operations, the trading price of our stock and our ability to attract additional deposits.

We Are Subject To Security And Operational Risks Relating To Our Use Of Technology That Could Damage Our Reputation And Our Business. We rely heavily on communications and information systems to conduct our business. Furthermore, we have access to large amounts of confidential financial information and control substantial financial assets, including those belonging to our customers, to whom we offer remote access, and we regularly transfer substantial financial assets by electronic means. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any failure, interruption or breach in security of our systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations. Although we intend to continue to implement security technology and establish operational procedures to prevent such damage, our security measures may not be successful.

In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations. We also face the risk of operational disruption, failure, termination or capacity constraints caused by third parties that facilitate our business activities by providing technology such as software applications, as well as financial intermediaries. Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure.

We also face the potential risk of loss due to fraud, including commercial checking account fraud, automated teller machine ("ATM") skimming and trapping, write-offs necessitated by debit card fraud, and other forms of online banking fraud, which are becoming more sophisticated and present new challenges as mobile banking increases, as well as employee fraud. Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. Should our internal controls fail to prevent or detect an occurrence, and if any resulting loss is not insured or exceeds applicable insurance limits, such failure could have a material adverse effect on our business, financial condition and results of operations.

The Operation Of Our Business, Including Our Interaction With Customers, Are Increasingly Done Via Electronic Means, And This Has Increased Our Risks Related To Cybersecurity. We are exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as by causing denial-of-service attacks on websites. Cyber-attacks may be carried out by third parties or insiders using techniques that range from highly sophisticated efforts to electronically circumvent network security or overwhelm websites to more traditional intelligence gathering and social engineering aimed at obtaining information necessary to gain access. The objectives of cyber-attacks vary widely and can include theft of financial assets, intellectual property, or other sensitive information, including the information belonging to our banking customers. Cyber-attacks may also be directed at disrupting our operations.

We may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks. Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; increased cybersecurity protection costs that may include organizational changes, deploying additional personnel and protection technologies, training employees, and

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engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence.

We Continually Encounter Technological Change, And We Cannot Predict How Changes In Technology Will Affect Our Business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by products and services, which include developments in:

•	telecommunications	•	internet-based banking
•	data processing	•	telebanking
•	automation	•	debit cards and so-called "smart cards"

The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

We Rely On Others To Provide Key Components Of Our Business Infrastructure. Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.

The Price Of Our Common Stock Could Fluctuate Significantly, And This Could Make It Difficult For You To Resell Shares Of Our Common Stock At Times Or At Prices You Find Attractive. The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility during the recent economic downturn. In some cases, the markets have produced downward pressure on stock prices for certain issuers without regard to those issuers' underlying financial strength. As a result, the trading volume in our common stock could fluctuate more than usual and cause significant price variations to occur. This could make it difficult for you to resell shares of our common stock at times or at prices you find attractive.

The trading price of the shares of our common stock will depend on many factors that could change from time to time and could be beyond our control. Among the factors that could affect our stock price are those identified under the heading "Forward-Looking Statements" in Item 7 of this report and as follows:

· actual or anticipated quarterly fluctuations in our operating results and financial condition;

· changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our common stock or those of other financial institutions;

· failure to meet analysts' revenue or earnings estimates;

· speculation in the press or investment community generally or relating to our reputation, our market area, our competitors or the financial services industry in general;

· strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;

· actions by our current stockholders, including sales of common stock by existing stockholders and/or directors and executive officers;

· fluctuations in the stock price and operating results of our competitors;

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· future sales of our equity, equity-related or debt securities;

· changes in the frequency or amount of dividends or share repurchases;

· proposed or adopted regulatory changes or developments;

· investigations, proceedings or litigation that involve or affect us;

· trading activities in our common stock, including short-selling;

· domestic and local economic factors unrelated to our performance; and

· general market conditions and, in particular, developments related to market conditions for the financial services industry.

A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.

The Trading Volume In Our Common Stock Has Been Low, And The Sale Of A Substantial Number Of Shares Of Our Common Stock In The Public Market Could Depress The Price Of Our Common Stock And Make It Difficult For You To Sell Your Shares. Our common stock is listed to trade on the NASDAQ Global Select Market, but is thinly traded. As a result, you may not be able to sell your shares of common stock on short notice. Additionally, thinly traded stock can be more volatile than stock trading in an active public market. The sale of a substantial number of shares of our common stock at one time could temporarily depress the market price of our common stock, making it difficult for you to sell your shares and impairing our ability to raise capital.

Our Common Stock Is Not Insured By Any Governmental Entity. Our common stock is not a deposit account or other obligation of any bank and is not insured by the FDIC or any other governmental entity.

Additional Factors. Additional risks and uncertainties that may affect the future results of operations, financial condition or business of the Company and its banking subsidiary include, but are not limited to: (i) adverse publicity, news coverage by the media, or negative reports by brokerage firms, industry and financial analysts regarding the Bank or the Company; and (ii) changes in accounting policies and practices.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Neither the Company nor Union State Bancshares owns or leases any property. The Company's principal offices are located at 132 East High Street, Jefferson City, Missouri 65102. The table below provides a list of the Bank's facilities.

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						Net Book
						Value at
	Approximate			Owned or		12/31/2015
Location	Square Footage			Leased		(in thousands)
8127 East 171st Street, Belton, MO		13,000		Owned		$	1,786
4675 Gretna Road, Branson, MO		11,000	(1)	Owned		$	1,394
1000 West Buchanan Street, California, MO		2,270		Owned		$	366
102 North Second Street, Clinton, MO		11,524		Owned		$	1,431
1400 East Ohio Street, Clinton, MO		13,551		Owned		$	2,933
1712 East Ohio Street, Clinton, MO
(inside a Wal-Mart store)		600		Leased	(2)		N/A
1101 North Highway 13,Collins, MO		1,500		Owned		$	18
1110 Club Village Drive, Columbia, MO		5,000		Owned		$	1,476
18 S. Ninth St., Suites 208-209, Columbia, MO		1,500		Leased	(3)		N/A
115 South 2nd Street, Drexel, MO		4,000		Owned		$	172
100 Plaza Drive, Harrisonville, MO		4,000		Owned		$	518
17430 East 39th Street, Independence, MO		4,070		Owned		$	630
220 West White Oak, Independence, MO		1,800		Owned		$	63
132 East High Street, Jefferson City, MO		34,800		Owned		$	3,037
3701 West Truman Blvd, Jefferson City, MO		21,000		Owned		$	340
211 West Dunklin Street, Jefferson City, MO		2,500		Owned		$	1,580
800 Eastland Drive, Jefferson City, MO		4,100		Owned		$	636
3600 Amazonas Drive, Jefferson City, MO		26,000		Owned		$	2,515
300 S.W. Longview Blvd, Lee's Summit, MO		11,700		Owned		$	1,994
5 Victory lane, Suite 203, Liberty, MO		1075		Leased	(4)		N/A
335 Chestnut, Osceola, MO		1,580		Owned		$	46
595 VFW Memorial Drive, St. Robert, MO		2,236		Owned		$	65
321 West Battlefield, Springfield, MO		12,500	(5)	Owned		$	579
200 West Main Street, Warsaw, MO		8,900		Owned		$	126
1891 Commercial Drive, Warsaw, MO		11,000		Owned		$	1,586
125 South Main, Windsor, MO		3,600		Owned		$	221

(1) Of the 11,000 square feet of space, 2,384 square feet of space is leased to a non-affiliate.

(2) The term of this lease began in January 1999 and ends in January 2019.

(3) The term of this lease began on April 2015 and ends in March 2018.

(4) The term of this lease began in May 2014 and ends in April 2016.

(5) Of the 12,500 square feet of space, 5,873 square feet of space is leased to a non-affiliate.

Management believes that the condition of each of the Bank's facilities presently is adequate for its business and that such facilities are adequately covered by insurance.

Item 3. Legal Proceedings.

The information required by this Item is set forth in Note 18, Commitments and Contingencies, in the Company's consolidated financial statements.

Item 4. Mine Safety Disclosures.

Not applicable

19

EXECUTIVE OFFICERS OF THE REGISTRANT

Executive officers of the Company are appointed by the board of directors and serve at the discretion of the board. The following table sets forth certain information with respect to all executive officers of the Company.

Name	Age	Position
David T. Turner	59	Chairman, Chief Executive Officer, President and Director
W. Bruce Phelps	65	Senior Vice President and Chief Financial Officer
Kathleen L. Bruegenhemke	50	Senior Vice President and Secretary

The business experience of the executive officers of the Company for the last five years is as follows:

David T. Turner has served as a director of the Company and of Hawthorn Bank (or of its constituent predecessors) since January 1997. He has served as president of the Company since March 2002 and as chairman and chief executive officer of the Company since January 2011. He also currently serves as chairman, chief executive officer and president of Hawthorn Bank. Mr. Turner has served as vice chairman of the Company from June 1998 through March 2002 and as senior vice president of the Company from 1993 until June 1998. He served as president of a predecessor to Hawthorn Bank from January 1997 through March 2002 when he assumed the position of chairman, chief executive officer and president. He served as senior vice president of that same predecessor from June 1992 through December 1996 and as its vice president from 1985 until June 1992.

W. Bruce Phelps has served as Senior Vice President and Chief Financial Officer of the Company since January 2012 and Senior Vice President and Chief Financial Officer of Hawthorn Bank since January 2012. Prior to joining the Company, he served as Controller of Pulaski Bank from 2009 until January 2012. Previously Mr. Phelps served as Principal of WBP Consulting in providing financial consulting and support services for clients in the St. Louis area, and as Chief Financial Officer for Champion Bank, St. Louis, Missouri.

Kathleen L. Bruegenhemke has served as Senior Vice President and Secretary of the Company since November 1997. Since October 2014, she also has served as Columbia Market President. From January 1992 until November 1997, she served as Internal Auditor of Hawthorn Bank (or of one of its constituent predecessors). Prior to joining the Bank, Ms. Bruegenhemke served as a Commissioned Bank Examiner for the Federal Deposit Insurance Corporation.

There is no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was selected as an officer.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item, other than that referred to below, is incorporated herein by reference to the information under the caption "Market Price of and Dividends on Equity Securities and Related Matters" in the Company's 2015 Annual Report to Shareholders.

We refer you to Item 12 of this report under the caption "Securities Authorized For Issuance Under Equity Compensation Plans" for certain equity plan information.

20

The Company's Purchases of Equity Securities

The following table summarizes the purchases made by or on behalf of the Company or certain affiliated purchasers of shares of the Company's common stock during the fourth quarter of the year ended December 31, 2015:

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs *
October 1-31, 2015		—		—		—	$	2,000,000
November 1-30, 2015		—		—		—	$	2,000,000
December 1-31, 2015		2,155	$	15.39		2,155	$	1,966,828
Total		2,155	$	15.39		2,155	$	1,966,828

* On August 6, 2015, the Company announced that its Board of Directors authorized the purchase, through open market transactions, of up to $2,000,000 market value of the Company's common stock. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as, the timing of any such purchases.

Recent Issuance of Securities

None.

Item 6. Selected Financial Data.

Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the information under the caption "Selected Consolidated Financial Data" in the Company's 2015 Annual Report to Shareholders.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2015 Annual Report to Shareholders.

Forward-Looking Statements

This report, including information included or incorporated by reference in this report, contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, strategy, future performance and business of the Company and its subsidiaries, 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" 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, the following factors:

· competitive pressures among financial services companies may increase significantly,

· changes in the interest rate environment may reduce interest margins,

21

· general economic conditions, either nationally or in Missouri, may be less favorable than expected and may adversely affect the quality of the Company's loans and other assets,

· increases in non-performing assets in the Company's loan portfolios and adverse economic conditions may necessitate increases to the 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.

We have described additional factors that could cause actual results to be materially different from those described in the forward-looking statements, which factors are identified in Item 1A of this report under the heading "Risk Factors." Other factors that we have not 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 such statement is made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company's exposure to market risk is reviewed on a regular basis by our Bank's asset/liability committee and board of directors. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent and that the goal is to identify and minimize those risks. Tools used by the Bank's management include the standard GAP report subject to different rate shock scenarios. At December 31, 2015, the rate shock scenario models indicated that annual net interest income could change by as much as -16.8% to +21.4% should interest rates rise or fall within 400 basis points from their current level over a one year period. However there are no assurances that the change will not be more or less than this estimate.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item, other than that provided above, is incorporated herein by reference to:

(i) the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations — Interest Sensitivity and Liquidity" in the Company's 2015 Annual Report to Shareholders; and

(ii) the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risk" in the Company's 2015 Annual Report to Shareholders.

Item 8. Financial Statements and Supplementary Data.

Pursuant to General Instruction G(2) to Form 10-K, the information required by this Item is incorporated herein by reference to the report of the independent auditors and the information under the caption "Consolidated Financial Statements" in the Company's 2015 Annual Report to Shareholders.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

22

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2015. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2015, the Company’s disclosure controls and procedures were effective.

Internal Controls Over Financial Reporting.

Management's Report on Internal Control Over Financial Reporting.

The Company's management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company's management, including the Company's principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company's internal control over financial reporting, as of December 31, 2015, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based upon its assessment, management has concluded that, as of December 31, 2015, the Company's internal control over financial reporting, is effective based on the criteria established in Internal Control-Integrated Framework (2013).

Management's assessment of the effectiveness of internal control over financial reporting, as of December 31, 2015, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Changes in Internal Controls.

There has been no change in the Company's internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Hawthorn Bancshares, Inc.:

We have audited Hawthorn Bancshares, Inc.'s (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

23

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hawthorn Bancshares, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hawthorn Bancshares, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and the report dated March 30, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s / KPMG LLP

St. Louis, Missouri

March 30, 2016

Item 9B. Other Information.

   None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item, other than that referred to below, is incorporated herein by reference to:

(i) the information under the caption "Item 1: Election of Directors—What is the structure of our board and how often are directors elected?" in the Company's definitive Proxy Statement for its 2015 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

(ii) the information under the caption "Item 1: Election of Directors—Who are this year's nominees?" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

(iii) the information under the caption "Item 1: Election of Directors—What is the business experience of the nominees and of our continuing board members?" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

24

(iv) the information under the caption "Executive Officers of the Registrant" in Part I of this report;

(v) the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

(vi) the information under the caption "Corporate Governance and Board Matters—Consideration of Director Nominees" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and

(vii) the information under the caption "Corporate Governance and Board Matters—Committees of the Board—Audit Committee" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics for directors, officers and employees including, the its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions. This Code of Business Conduct and Ethics is posted on the Company's internet website (www.hawthornbancshares.com) under the "Governance Documents" menu tab and is available for your examination. A copy of this Code will be furnished without charge upon written request to Corporate Secretary, Hawthorn Bancshares, Inc., 132 East High Street, Jefferson City, Missouri 65101. Any substantive amendment to, or waiver from, a provision of this Code that applies to the Company's principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions will be disclosed in a report on Form 8-K.

Item 11.  Executive Compensation.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to:

(i) the information under the caption "Executive Compensation and Related Matters" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

(ii) the information under the caption "Corporate Governance and Board Matters—Director Compensation" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and

(iii) the information under the caption "Corporate Governance and Board Matters—Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item, other than that presented below, is incorporated herein by reference to the information under the caption "Ownership of Common Stock" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

Securities Authorized For Issuance Under Equity Compensation Plans

The Company has two equity compensation plans for its employees pursuant to which options, rights or warrants may be granted. The following is a summary of the shares reserved for issuance pursuant to outstanding options, rights or warrants granted under equity compensation plans as of December 31, 2016:

25

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)			(b)		(c)
Equity compensation plans approved by security holders		62,745	*	$	21.50		1,038,455	**
Equity compensation plans not approved by security holders		-0-			-0-		-0-
Total		62,745	*	$	21.50		1,038,455	**

* Consists of shares reserved for issuance pursuant to outstanding stock option grants under the Company's incentive stock option plan.

** Consists of 512,082 shares available for future issuance under the Company's incentive stock option plan and 526,373 shares available for future issuance under the Company's 2007 omnibus incentive plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to:

(i) the information under the caption "Related Party Transactions" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A;

(ii) the information under the caption "Item 1: Election of Directors—What is the structure of our board and how often are directors elected?" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A; and

(iii) the information under the caption "Corporate Governance and Board Matters—Committees of the Board" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

Item 14. Principal Accounting Fees and Services.

Pursuant to General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to the information under the caption "Independent Auditor Fees and Services" in the Company's definitive Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) Exhibits, Financial Statements and Financial Statement Schedules:

1. Financial Statements:

The following consolidated financial statements of the Company and reports of the Company's independent auditors, included in the Company's Annual Report to Shareholders for the year ended December 31, 2015 under the caption "Consolidated Financial Statements", are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2015 and 2014.

26

Consolidated Statements of Income for the years ended December 31, 2015, 2014, and 2013.

Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014, and 2013.

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015, 2014, and 2013.

Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013.

Notes to the Consolidated Financial Statements.

2. Financial Statement Schedules:

Financial statement schedules have been omitted because they either are not required or are not applicable or because equivalent information has been included in the financial statements, the notes thereto or elsewhere herein.

3. Exhibits:

Exhibit No.	Description
3.1	Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's current report on Form 8-K on August 9, 2007 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of the Company (filed as Exhibit 3.2 to the Company's current report on Form 8-K on November 1, 2007 and incorporated herein by reference).
4.1	Specimen certificate representing shares of the Company's $1.00 par value Common Stock (filed as Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
10.1	Exchange National Bancshares, Inc. Incentive Stock Option Plan (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).*
10.2	Form of Change of Control Agreement and schedule of parties thereto (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period March 31, 2005 and incorporated herein by reference).*
13	The Company's 2015 Annual Report to Shareholders (only those portions of this Annual Report to Shareholders which are specifically incorporated by reference into this Annual Report on Form 10-K shall be deemed to be filed with the Commission).
14	Code of Business Conduct and Ethics of the Company (filed as Exhibit 14 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference).
21	List of Subsidiaries (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
23	Consent of Independent Registered Public Accounting Firm.
24	Power of Attorney (included on the signature page to this Annual Report on Form 10-K).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

27

101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL)

* Management contracts or compensatory plans or arrangements required to be identified by Item 15(a).

(b) Exhibits.

See exhibits identified above under Item 15(a)3.

(c) Financial Statement Schedules.

See financial statement schedules identified above under Item 15(a)2, if any.

28

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HAWTHORN BANCSHARES, INC.
Dated:  March 30, 2016	By	/s/	David T. Turner
			David T. Turner, Chairman of the Board,
			President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David T. Turner and W. Bruce Phelps, or either of them, his attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date	Signature and Title
March 30, 2016	/s/ David T. Turner
	David T. Turner, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
March 30, 2016	/s/ W. Bruce Phelps
	W. Bruce Phelps, Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
March 30, 2016	/s/ Frank E. Burkhead
	Frank E. Burkhead, Director
March 30, 2016	/s/ Philip D. Freeman
	Philip D. Freeman, Director
March 30, 2016	/s/ Kevin L. Riley
	Kevin L. Riley, Director
March 30, 2016	/s/ James E. Smith
	James E. Smith, Director
March 30, 2016	/s/ Gus S. Wetzel, II
	Gus S. Wetzel, II, Director

29

EXHIBIT INDEX

Exhibit No.	Description	Page No.
13	The Company's 2015 Annual Report to Shareholders (only those portions of this Annual Report to Shareholders which are specifically incorporated by reference into this Annual Report on Form 10-K shall be deemed to be filed with the Commission).
23	Consent of Independent Registered Public Accounting Firm
24	Power of Attorney (included on the signature page to this Annual Report on Form 10-K).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).*

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.

30

EX-13

 Exhibit 13​

2015

ANNUAL REPORT

TO

SHAREHOLDERS

HAWTHORN BANCSHARES, INC.

Jefferson City, Missouri

March 30, 2016

Dear Shareholders:

I am pleased to report that net income for 2015 increased 12% over 2014 and reached its highest level since 2006. For 2015, Hawthorn reported a net profit of  $8.6 million compared to $7.7 million for 2014. On a per share basis, 2015 diluted earnings per share were $1.58 compared to $1.41 for 2014.

Earnings improvement was primarily attributed to recoveries of nonaccrual interest and a $9.5 million average increase in our highest earning asset category – loans. This growth was achieved organically, in our existing markets.

Net interest income for 2015 was $40.8 million compared to $39.5 million for 2014. On a tax equivalent basis, Hawthorn’s net interest margin remained strong for 2015 at 3.69% compared to 3.72% for 2014 despite continuation of an historic low rate environment and competition for quality loans.

Non-interest income for 2015 was $9.2 million compared to $8.7 million for 2014. The increase is primarily the result of higher combined real estate servicing fees and mortgage loan sales income resulting from increased financing activity in the housing market. Non-interest expenses remained unchanged from 2014 at $36.5 million. Real estate foreclosure expenses decreased $1.1 million during 2015 primarily due to net gains on sales of foreclosed properties. Partially offsetting the decrease was a modest increase of  $0.4 million in salaries and benefits and smaller increases in various other non-interest expense categories.

Non-performing loans improved significantly during 2015 to 1.19% of total loans at December 31, 2015, compared to 4.18% at December 31, 2014. During the year ended December 31, 2015, net charge-offs were $0.7 million compared to $4.6 million for 2014. As we evaluate our loan portfolio, we are seeing many positive trends including fewer problem credits. The allowance for loan losses at December 31, 2015 was $8.6 million, or 0.99% of outstanding loans, and 83.75% of non-performing loans compared to December 31, 2014, when the allowance for loan losses was $9.1 million, or 1.06% of outstanding loans, and 25.26% of non-performing loans.

Our Capital levels at December 31, 2015 continue to exceed regulatory well capitalized thresholds with 9.84% of leverage capital and 14.78% of total risk-based capital.

Profitability, asset quality and growth trends are all on positive trends; however, as I have stated in previous communications with you, we must continue to improve upon our 0.72% return on average assets and 10.14% return on average common equity for 2015. As an investor, director and executive officer, I am committed to maintaining strong asset quality; further improving earnings performance, sustaining sound and proper capital levels and paying regular dividends.

Hawthorn Bancshares’ future is bright and you should feel confident about your investment. Your bankers are highly professional and I respect their talents immensely. On behalf of your board and management team, thank you for your continued trust and confidence.

Sincerely,

David T. Turner,
Chairman & Chief Executive Officer

A WORD CONCERNING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company, Hawthorn Bancshares, Inc., and its subsidiaries, 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 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, the following factors:

•

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 the Company’s 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 the Company and its acquisition targets may be greater than expected,

•

legislative or regulatory changes may adversely affect the business in which the Company and its subsidiaries are engaged, and

•

changes may occur in the securities markets.

We have described under the caption Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and in other reports filed with the SEC from time to time, additional factors that could cause actual results to be materially different from those described in the forward-looking statements. 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.

2

HAWTHORN BANCSHARES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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 $1.2 billion in assets at December 31, 2015, 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 (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. Other financial services that the Company provides include trust services that include estate planning, investment and asset management services and a comprehensive suite of cash management services. The geographic areas in which the Company provides products and services include the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area.

The Company’s primary source of revenue is net interest income derived primarily from lending and deposit taking activities. Much of the Company’s business is commercial, commercial real estate development, and mortgage lending. The Company has experienced soft loan demand in the communities within which we operate during the current economic slowdown. The Company’s income from mortgage brokerage activities is directly dependent on mortgage rates and the level of home purchases and refinancings.

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.

The Company’s subsidiary bank is a full-service bank conducting a general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts. In addition, the Bank provides trust services.

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.

3

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial information for the Company as of and for each of the years in the five-years ended December 31, 2015. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, including the related notes, presented elsewhere herein.

Income Statement Data

(In thousands, except per share data)

2015

2014

2013

2012

2011

Interest income

​

$

45,756

​

$

44,498

​

$

45,665

​

$

49,114

​

$

53,469

Interest expense

​

​

4,999

​

​

5,044

​

​

6,342

​

​

7,905

​

​

10,853

Net interest income

​

​

40,757

​

​

39,454

​

​

39,323

​

​

41,209

​

​

42,616

Provision for loan losses

​

​

250

​

​

0

​

​

2,030

​

​

8,900

​

​

11,523

Net interest income after provision for loan losses

​

​

40,507

​

​

39,454

​

​

37,293

​

​

32,309

​

​

31,093

Non-interest income

​

​

9,166

​

​

8,749

​

​

10,866

​

​

9,726

​

​

9,200

Non-interest expense

​

​

36,494

​

​

36,507

​

​

40,763

​

​

38,667

​

​

36,845

Income before income taxes

​

​

13,179

​

​

11,696

​

​

7,396

​

​

3,368

​

​

3,448

Income tax expense

​

​

4,580

​

​

4,042

​

​

2,422

​

​

546

​

​

591

Net income

​

​

8,599

​

​

7,654

​

​

4,974

​

​

2,822

​

​

2,857

Preferred stock dividends and accretion of discount

​

​

0

​

​

0

​

​

615

​

​

1,784

​

​

1,989

Net income available to common shareholders

​

$

8,599

​

$

7,654

​

$

4,359

​

$

1,038

​

$

868

Per Share Data

Basic earnings per common share

​

$

1.58

​

$

1.41

​

$

0.80

​

$

0.19

​

$

0.16

Diluted earnings per common share

​

​

1.58

​

​

1.41

​

​

0.80

​

​

0.19

​

​

0.16

Dividends paid per share on common stock

​

​

0.20

​

​

0.20

​

​

0.20

​

​

0.20

​

​

0.20

Book value per share

​

​

16.04

​

​

14.80

​

​

13.66

​

​

13.64

​

​

13.46

Market price per share

​

​

15.75

​

​

13.70

​

​

11.23

​

​

6.67

​

​

5.17

Basic weighted average shares of common stock outstanding

​

​

5,443,284

​

​

5,443,344

​

​

5,443,344

​

​

5,443,344

​

​

5,443,344

Diluted weighted average shares of common stock outstanding

​

​

5,443,284

​

​

5,443,344

​

​

5,443,344

​

​

5,443,344

​

​

5,443,344

4

(In thousands)

2015

2014

2013

2012

2011

Balance Sheet Data (at year end)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total assets

​

$

1,200,921

​

$

1,169,731

​

$

1,140,122

​

$

1,181,606

​

$

1,171,161

Net loans

​

​

856,476

​

​

852,114

​

​

825,828

​

​

832,142

​

​

829,121

Investment securities

​

​

243,091

​

​

203,720

​

​

209,986

​

​

204,171

​

​

218,191

Total deposits

​

​

947,197

​

​

969,514

​

​

956,471

​

​

991,275

​

​

958,224

Subordinated notes

​

​

49,486

​

​

49,486

​

​

49,486

​

​

49,486

​

​

49,486

Federal Home Loan Bank advances

​

​

50,000

​

​

43,000

​

​

24,000

​

​

20,126

​

​

28,410

Stockholders’ equity

​

​

87,286

​

​

80,568

​

​

74,380

​

​

74,243

​

​

73,258

Total stockholders’ equity

​

​

87,286

​

​

80,568

​

​

74,380

​

​

92,220

​

​

102,576

Balance Sheet Data (average balances)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total assets

​

$

1,199,061

​

$

1,156,911

​

$

1,159,127

​

$

1,176,384

​

$

1,187,410

Net loans

​

​

852,514

​

​

839,957

​

​

818,525

​

​

827,881

​

​

851,664

Investment securities

​

​

242,740

​

​

212,697

​

​

224,551

​

​

225,119

​

​

214,168

Total deposits

​

​

975,036

​

​

971,777

​

​

978,063

​

​

971,767

​

​

957,965

Subordinated notes

​

​

49,486

​

​

49,486

​

​

49,486

​

​

49,486

​

​

49,486

Federal Home Loan Bank advances

​

​

48,474

​

​

29,964

​

​

23,256

​

​

27,961

​

​

42,230

Stockholders’ equity

​

​

84,818

​

​

78,953

​

​

73,259

​

​

74,245

​

​

75,390

Total stockholders’ equity

​

​

84,818

​

​

78,953

​

​

79,875

​

​

96,176

​

​

104,455

Key Ratios

Earnings Ratios

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Return on average total assets

​

​

0.72%

​

​

0.66%

​

​

0.43%

​

​

0.24%

​

​

0.24%

Return on average common stockholders’ equity

​

​

10.14

​

​

9.69

​

​

5.95

​

​

1.40

​

​

1.15

Efficiency ratio (3)

​

​

73.10

​

​

75.74

​

​

81.22

​

​

75.91

​

​

71.11

Asset Quality Ratios

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for loan losses to loans

​

​

0.99%

​

​

1.06%

​

​

1.63%

​

​

1.75%

​

​

1.64%

Nonperforming loans to loans (1)

​

​

1.19

​

​

4.18

​

​

4.21

​

​

4.65

​

​

6.37

Allowance for loan losses to nonperforming loans (1)

​

​

83.75

​

​

25.26

​

​

38.84

​

​

37.70

​

​

25.73

Allowance for loan losses to nonperforming loans excluding TDRs

​

​

194.48

​

​

49.72

​

​

57.35

​

​

47.74

​

​

29.72

Nonperforming assets to loans and foreclosed assets (2)

​

​

2.98

​

​

5.49

​

​

5.87

​

​

7.23

​

​

8.11

Net loan charge-offs to average loans

​

​

0.09

​

​

0.54

​

​

0.38

​

​

0.93

​

​

1.42

Capital Ratios

​

​

​

​

​

Average stockholders’ equity to average total assets

​

​

7.07%

​

​

6.82%

​

​

6.89%

​

​

8.18%

​

​

8.80%

Period-end common stockholders’ equity to period-end assets

​

​

7.27

​

​

6.89

​

​

6.52

​

​

6.28

​

​

6.26

Period-end stockholders’ equity to period-end assets

​

​

7.27

​

​

6.89

​

​

6.52

​

​

7.80

​

​

8.76

Total risk-based capital ratio

​

​

14.78

​

​

15.78

​

​

15.33

​

​

16.83

​

​

18.03

Tier 1 risk-based capital ratio

​

​

12.03

​

​

12.38

​

​

11.40

​

​

13.58

​

​

15.16

Common equity Tier 1 capital

​

​

9.04

​

​

NA

​

​

NA

​

​

NA

​

​

NA

Tier 1 leverage ratio

​

​

9.84

​

​

9.42

​

​

8.80

​

​

10.37

​

​

11.52

(1)

Nonperforming loans consist of nonaccrual loans, troubled debt restructurings, and loans contractually past due 90 days or more and still accruing interest.

(2)

Nonperforming assets consist of nonperforming loans and other real estate owned and repossessed assets.

(3)

Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue includes net interest income and non-interest income.

5

CRITICAL ACCOUNTING POLICIES

The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they may change over time or prove to be inaccurate based on actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to the Company’s critical accounting policies on its business operations are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, where such policies affect the reported and expected financial results.

Allowance for Loan Losses

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company’s results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Further discussion of the methodology used in establishing the allowance and the impact of any associated risks related to these policies on the Company’s business operations is provided in Note 1 to the Company’s consolidated financial statements and is also discussed in the Lending and Credit Management section below. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense, net. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

6

RESULTS OF OPERATIONS ANALYSIS

The Company has prepared all of the consolidated financial information in this report in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurances that actual results will not differ from those estimates.

​	​	​	​	​	​	​	​	​	​	$ Change						% Change
(In thousands)	2015			2014			2013			’15-’14			’14-’13			’15-’14		’14-’13
Net interest income	​	$	40,757	​	$	39,454	​	$	39,323	​	$	1,303	​	$	131	​	3.3%	​	0.3%
Provision for loan losses	​	​	250	​	​	0	​	​	2,030	​	​	250	​	​	(2,030)	​	100.0	​	(100.0)
Noninterest income	​	​	9,166	​	​	8,749	​	​	10,866	​	​	417	​	​	(2,117)	​	4.8	​	(19.5)
Noninterest expense	​	​	36,494	​	​	36,507	​	​	40,763	​	​	(13)	​	​	(4,256)	​	(0.04)	​	(10.4)
Income before income taxes	​	​	13,179	​	​	11,696	​	​	7,396	​	​	1,483	​	​	4,300	​	(12.7)	​	58.1
Income tax expense	​	​	4,580	​	​	4,042	​	​	2,422	​	​	538	​	​	1,620	​	(13.3)	​	66.9
Net income	​	$	8,599	​	$	7,654	​	$	4,974	​	$	945	​	$	2,680	​	12.3%	​	53.9%
Preferred stock dividends and accretion of discount	​	​	0	​	​	0	​	​	615	​	​	0	​	​	(615)	​	0.0	​	(100.0)
Net income available to common shareholders	​	$	8,599	​	$	7,654	​	$	4,359	​	$	945	​	$	3,295	​	12.3%	​	(75.6)%

Consolidated net income increased $945,000 to $8.6 million, or $1.58 per diluted share, for the year ended December 31, 2015 compared to $7.7 million, or $1.41 per diluted per share, for the year ended December 31, 2014. For the year ended December 31, 2015, the return on average assets was 0.72%, the return on average common stockholders’ equity was 10.14%, and the efficiency ratio was 73.10%.

Consolidated net income increased $3.3 million to $7.7 million, or $1.41 per diluted share, for the year ended December 31, 2014 compared to $4.4 million, or $0.80 per diluted per share, for the year ended December 31, 2013. For the year ended December 31, 2014, the return on average assets was 0.66%, the return on average common stockholders’ equity was 9.69%, and the efficiency ratio was 75.74%.

Net interest income was $40.8 million for the year ended December 31, 2015 compared to $39.5 million and $39.3 million for the years ended December 31, 2014 and 2013, respectively. The net interest margin was 3.69% for the year ended December 31, 2015 compared to 3.72% for both the years ended December 31, 2014 and 2013.

A $250,000 provision for loan losses was required for the year ended December 31, 2015 compared to no provision and $2.0 million for the years ended December 31, 2014 and 2013, respectively. The increase over 2014 was primarily due an increase in specific reserves primarily related to two loan relationships and the decrease over 2013 was primarily related to a decrease in the Company’s historical loss rates based on the Company’s charge-off experience.

Net charge-offs for the year ended December 31, 2015, were $745,000, or 0.09% of average loans compared to $4.6 million, or 0.54% of average loans for the year ended December 31, 2014, and $3.2 million, or 0.38% of average loans for the year ended December 31, 2013. Non-performing assets were 2.19% of total assets at December 31, 2015 compared to 4.10% at December 31, 2014, and 4.40% at December 31, 2013.

Non-interest income increased $417,000, or 4.8%, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $2.1 million, or 19.5%, for the year ended December 31, 2014 compared to the year ended December 31, 2013. These changes are discussed in greater detail below under Non-interest Income.

7

Non-interest expense decreased $13,000, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $4.3 million, or 10.4%, for the year ended December 31, 2014, compared to the year ended December 31, 2013. These increases are discussed in greater detail below under Non-interest Expense.

Average Balance Sheets

Net interest income is the largest source of revenue resulting from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected by both 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 sheets, net interest income, average yields of earning assets, average costs of interest bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the years in the three year periods ended December 31, 2015, 2014, and 2013, respectively.

(In thousands)

2015

2014

2013

​

Average Balance

Interest Income/​ Expense (1)

Rate Earned/​ Paid (1)

Average Balance

Interest Income/​ Expense (1)

Rate Earned/​ Paid (1)

Average Balance

Interest Income/​ Expense (1)

Rate Earned/​ Paid (1)

ASSETS

​

​

​

​

​

​

​

​

​

Loans: (2) (3)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial

​

$

155,127

​

$

7,316

​

4.72%

​

$

144,847

​

$

6,862

​

4.74%

​

$

136,588

​

$

6,676

​

4.89%

Real estate construction - residential

​

​

15,215

​

​

968

​

6.36

​

​

22,047

​

​

956

​

4.34

​

​

23,856

​

​

1,062

​

4.45

Real estate construction - commercial

​

​

42,919

​

​

2,169

​

5.05

​

​

58,785

​

​

2,539

​

4.32

​

​

47,490

​

​

2,217

​

4.67

Real estate mortgage - residential

​

​

248,335

​

​

11,612

​

4.68

​

​

232,785

​

​

11,124

​

4.78

​

​

219,402

​

​

11,037

​

5.03

Real estate mortgage - commercial

​

​

379,538

​

​

18,333

​

4.83

​

​

375,177

​

​

17,894

​

4.77

​

​

383,942

​

​

18,912

​

4.93

Consumer

​

​

20,952

​

​

1,076

​

5.14

​

​

18,938

​

​

1,054

​

5.57

​

​

22,244

​

​

1,303

​

5.86

Total loans

​

$

862,086

​

$

41,474

​

4.81%

​

$

852,579

​

$

40,429

​

4.74%

​

$

833,522

​

$

41,207

​

4.94%

Investment securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

U.S. Treasury

​

$

0

​

$

0

​

0.00%

​

$

286

​

$

4

​

1.40%

​

$

1,378

​

$

20

​

1.45%

Government sponsored enterprises

​

​

74,820

​

​

999

​

1.34

​

​

64,997

​

​

918

​

1.41

​

​

66,771

​

​

814

​

1.22

Asset backed securities

​

​

126,810

​

​

2,497

​

1.97

​

​

109,550

​

​

2,415

​

2.20

​

​

117,496

​

​

2,714

​

2.31

State and municipal

​

​

34,408

​

​

1,077

​

3.13

​

​

33,655

​

​

1,138

​

3.38

​

​

34,879

​

​

1,303

​

3.74

Total investment in Available-for-sale securities

​

$

236,038

​

$

4,573

​

1.94%

​

$

208,488

​

$

4,475

​

2.15%

​

$

220,524

​

$

4,851

​

2.20%

Other investments & securities

​

​

6,702

​

​

216

​

3.22

​

​

4,209

​

​

80

​

1.90

​

​

4,027

​

​

82

​

2.04

Federal funds sold and interest bearing deposits in other financial institutions

​

​

14,022

​

​

38

​

0.27

​

​

10,350

​

​

28

​

0.27

​

​

13,975

​

​

37

​

0.26

Total interest earning assets

​

$

1,118,848

​

$

46,301

​

4.14%

​

$

1,075,626

​

$

45,012

​

4.18%

​

$

1,072,048

​

$

46,177

​

4.31%

All other assets

​

​

89,785

​

​

​

​

​

​

​

93,906

​

​

​

​

​

​

​

102,076

​

​

​

​

​

Allowance for loan losses

​

​

(9,572)

​

​

​

​

​

​

​

(12,621)

​

​

​

​

​

​

​

(14,997)

​

​

​

​

​

Total assets

​

$

1,199,061

​

​

​

​

​

​

$

1,156,911

​

​

​

​

​

​

$

1,159,127

​

​

​

​

​

LIABILITIES AND STOCKHOLDERS’ EQUITY

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

NOW accounts

​

$

198,288

​

$

479

​

0.24%

​

$

197,785

​

$

507

​

0.26%

​

$

189,610

​

$

504

​

0.27%

Savings

​

​

89,367

​

​

49

​

0.05

​

​

82,676

​

​

57

​

0.07

​

​

75,374

​

​

80

​

0.11

Money market

​

​

174,146

​

​

443

​

0.25

​

​

163,844

​

​

404

​

0.25

​

​

159,834

​

​

390

​

0.24

Time deposits of  $100,000 and over

​

​

137,295

​

​

867

​

0.63

​

​

141,868

​

​

940

​

0.66

​

​

152,376

​

​

906

​

0.75

Other time deposits

​

​

175,092

​

​

1,090

​

0.62

​

​

196,153

​

​

1,384

​

0.71

​

​

220,956

​

​

2,734

​

1.13

Total time deposits

​

$

774,188

​

$

2,928

​

0.38%

​

$

782,326

​

$

3,292

​

0.42%

​

$

798,150

​

$

4,614

​

0.58%

Federal funds purchased and securities sold under agreements to repurchase

​

​

30,925

​

​

55

​

0.18

​

​

20,223

​

​

21

​

0.10

​

​

20,548

​

​

24

​

0.12

Subordinated notes

​

​

49,486

​

​

1,293

​

2.61

​

​

49,486

​

​

1,264

​

2.55

​

​

49,486

​

​

1,284

​

2.59

Federal Home Loan Bank Advances

​

​

48,474

​

​

723

​

1.49

​

​

29,964

​

​

467

​

1.56

​

​

23,256

​

​

420

​

1.81

Total borrowings

​

$

128,885

​

$

2,071

​

1.61%

​

$

99,673

​

$

1,752

​

1.76%

​

$

93,290

​

$

1,728

​

1.85%

Total interest bearing liabilities

​

$

903,073

​

$

4,999

​

0.55%

​

$

881,999

​

$

5,044

​

0.57%

​

$

891,440

​

$

6,342

​

0.71%

Demand deposits

​

​

200,848

​

​

​

​

​

​

​

189,451

​

​

​

​

​

​

​

179,913

​

​

​

​

​

Other liabilities

​

​

10,322

​

​

​

​

​

​

​

6,508

​

​

​

​

​

​

​

7,899

​

​

​

​

​

Total liabilities

​

​

1,114,243

​

​

​

​

​

​

​

1,077,958

​

​

​

​

​

​

​

1,079,252

​

​

​

​

​

Stockholders’ equity

​

​

84,818

​

​

​

​

​

​

​

78,953

​

​

​

​

​

​

​

79,875

​

​

​

​

​

Total liabilities and stockholders’ equity

​

$

1,199,061

​

​

​

​

​

​

$

1,156,911

​

​

​

​

​

​

$

1,159,127

​

​

​

​

​

Net interest income (FTE)

​

​

​

​

​

41,302

​

​

​

​

​

​

​

39,968

​

​

​

​

​

​

​

39,835

​

​

Net interest spread

​

​

​

​

​

​

​

3.59%

​

​

​

​

​

​

​

3.61%

​

​

​

​

​

​

​

3.60%

Net interest margin

​

​

​

​

​

​

​

3.69%

​

​

​

​

​

​

​

3.72%

​

​

​

​

​

​

​

3.72%

(1)

Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $545,000, $514,000 and $512,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

8

(2)

Non-accruing loans are included in the average amounts outstanding.

(3)

Fees and costs on loans are included in interest income.

Rate and volume analysis

The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates for the years ended December 31, 2015, compared to December 31, 2014, and for the years ended December 31, 2014 compared to December 31, 2013. 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.

​

2015

2014

​

​

​

​

Change due to

​

​

​

Change due to

(In thousands)

Total Change

Average Volume

Average Rate

Total Change

Average Volume

Average Rate

Interest income on a fully taxable equivalent basis: (1)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Loans: (2) (3)

​

​

​

​

​

​

Commercial

​

$

454

​

$

485

​

$

(31)

​

$

186

​

$

396

​

$

(210)

Real estate construction - residential

​

​

12

​

​

(351)

​

​

363

​

​

(106)

​

​

(79)

​

​

(27)

Real estate construction - commercial

​

​

(370)

​

​

(756)

​

​

386

​

​

322

​

​

497

​

​

(175)

Real estate mortgage - residential

​

​

488

​

​

731

​

​

(243)

​

​

87

​

​

654

​

​

(567)

Real estate mortgage - commercial

​

​

439

​

​

209

​

​

230

​

​

(1,018)

​

​

(426)

​

​

(592)

Consumer

​

​

22

​

​

107

​

​

(85)

​

​

(249)

​

​

(187)

​

​

(62)

Investment securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

U.S. Treasury

​

​

(4)

​

​

(2)

​

​

(2)

​

​

(16)

​

​

(15)

​

​

(1)

Government sponsored entities

​

​

81

​

​

133

​

​

(52)

​

​

104

​

​

(22)

​

​

126

Asset backed securities

​

​

82

​

​

356

​

​

(274)

​

​

(299)

​

​

(179)

​

​

(120)

State and municipal

​

​

(61)

​

​

25

​

​

(86)

​

​

(165)

​

​

(45)

​

​

(120)

Other investments & securities, at cost

​

​

136

​

​

62

​

​

74

​

​

(2)

​

​

4

​

​

(6)

Federal funds sold and interest bearing deposits in other financial institutions

​

​

10

​

​

10

​

​

-

​

​

(9)

​

​

(10)

​

​

1

Total interest income

​

​

1,289

​

​

1,009

​

​

280

​

​

(1,165)

​

​

588

​

​

(1,753)

Interest expense:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

NOW accounts

​

​

(28)

​

​

1

​

​

(29)

​

​

3

​

​

22

​

​

(19)

Savings

​

​

(8)

​

​

4

​

​

(12)

​

​

(23)

​

​

7

​

​

(30)

Money market

​

​

39

​

​

26

​

​

13

​

​

14

​

​

10

​

​

4

Time deposits of  $100,000 and over

​

​

(73)

​

​

(29)

​

​

(44)

​

​

(202)

​

​

(76)

​

​

(126)

Other time deposits

​

​

(294)

​

​

(139)

​

​

(155)

​

​

(1,114)

​

​

(256)

​

​

(858)

Federal funds purchased and securities sold under agreements to repurchase

​

​

34

​

​

14

​

​

20

​

​

(3)

​

​

-

​

​

(3)

Subordinated notes

​

​

29

​

​

-

​

​

29

​

​

(20)

​

​

-

​

​

(20)

Federal Home Loan Bank advances

​

​

256

​

​

276

​

​

(20)

​

​

47

​

​

110

​

​

(63)

Total interest expense

​

​

(45)

​

​

153

​

​

(198)

​

​

(1,298)

​

​

(183)

​

​

(1,115)

Net interest income on a fully taxable equivalent basis

​

$

1,334

​

$

856

​

$

478

​

$

133

​

$

771

​

$

(638)

(1)

Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 34%, net of nondeductible interest expense. Such adjustments totaled $545,000, $514,000 and $512,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

(2)

Non-accruing loans are included in the average amounts outstanding.

(3)

Fees and costs on loans are included in interest income.

9

Financial results for the year ended December 31, 2015 compared to the year ended December 31, 2014 reflected an increase in net interest income, on a tax equivalent basis, of  $1.3 million, or 3.34%, and financial results for the year ended December 31, 2014 compared to the year ended December 31, 2013.

Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) was 3.69% for the year ended December 31, 2015, compared to 3.72% for both the years ended December 31, 2014 and 2013 reflected an increase of  $133,000, or 0.33%.

The increase in net interest income for both 2015 over 2014, and 2014 over 2013, was primarily due to an increase in average earning assets. The decrease in the net interest margin in 2015 over 2014 was primarily due to a decrease in the rates earned on investment securities.

Average interest-earning assets increased $43.2 million, or 4.02%, to $1.12 billion for the year ended December 31, 2015 compared to $1.08 billion for the year ended December 31, 2014, and average interest bearing liabilities increased $21.1 million, or 2.39%, to $903.1 million for the year ended December 31, 2015 compared to $882.0 million for the year ended December 31, 2014.

Average interest-earning assets increased $3.6 million, or 0.33%, to $1.08 billion for the year ended December 31, 2014 compared to $1.07 billion for the year ended December 31, 2013, and average interest bearing liabilities decreased $9.4 million, or 1.1%, to $882.0 million for the year ended December 31, 2014 compared to $891.4 million for the year ended December 31, 2013.

Total interest income (expressed on a fully taxable equivalent basis) increased to $46.3 million for the year ended December 31, 2015 compared to $45.0 million and $46.2 million for the years ended December 31, 2014 and 2013, respectively. The Company’s rates earned on interest earning assets were 4.14% for the year ended December 31, 2015 compared to 4.18% and 4.31% for the years ended December 31, 2014 and 2013, respectively.

Interest income on loans increased to $41.5 million for the year ended December 31, 2015 compared to $40.4 million and $41.2 million for the years ended December 31, 2014 and 2013, respectively.

Average loans outstanding increased $9.5 million, or 1.1%, to $862.1 million for the year ended December 31, 2015 compared to $852.6 million for the year ended December 31, 2014. The average yield on loans receivable increased to 4.81% during the year ended December 31, 2015 compared to 4.74% for the year ended December 31, 2014.

Average loans outstanding increased $19.1 million, or 2.3%, to $852.6 million for the year ended December 31, 2014 compared to $833.5 million for the year ended December 31, 2013. The average yield on loans receivable decreased to 4.74% during the year ended December 31, 2014 compared to 4.94% for the year ended December 31, 2013 primarily as a result of decreasing market interest rates. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.

Total interest expense was $5.0 million for both the years ended December 31, 2015 and 2014 compared to $6.3 million for the year ended December 31, 2013. The Company’s rates paid on interest bearing liabilities was 0.55% for the year ended December 31, 2015 compared to 0.57% and 0.71% for the years ended December 31, 2014 and 2013, respectively. See the Liquidity Management section for further discussion.

Interest expense on deposits decreased to $2.9 million for the year ended December 31, 2015 compared to $3.3 million and $4.6 million for the years ended December 31, 2014 and 2013, respectively.

Average time deposits decreased $8.1 million, or 1.0%, to $774.2 million for the year ended December 31, 2015 compared to $782.3 million for the year ended December 31, 2014. The average cost of deposits decreased to 0.38% during the year ended December 31, 2015 compared to 0.42% for the year ended December 31, 2014.

Average time deposits decreased $15.8 million, or 2.0%, to $782.3 million for the year ended December 31, 2014 compared to $798.2 million for the year ended December 31, 2013. The average cost of deposits decreased to 0.42% during the year ended December 31, 2014 compared to 0.58% for the year ended December 31, 2013.

10

Interest expense on borrowings was $2.1 million for year ended December 31, 2015 compared to $1.7 million for both the years ended December 31, 2014 and 2013, respectively. Average borrowings were $128.9 million for the year ended December 31, 2015 compared to $99.7 million and $93.3 million for the years ended December 31, 2014 and 2013, respectively. See the Liquidity Management section for further discussion.

Non-interest Income and Expense

Non-interest income for the years ended December 31, 2015, 2014, and 2013 was as follows:

​

​

​

​

​

​

​

​

​

​

$ Change

% Change

(In thousands)

2015

2014

2013

’15-’14

’14-’13

’15-’14

’14-’13

Non-interest Income

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Service charges and other fees

​

$

3,477

​

$

3,743

​

$

4,165

​

$

(266)

​

$

(422)

​

(7.1)%

​

(10.1)%

Bank card income and fees

​

​

2,455

​

​

2,368

​

​

2,200

​

​

87

​

​

168

​

3.7

​

7.6

Trust department income

​

​

929

​

​

844

​

​

796

​

​

85

​

​

48

​

10.1

​

6.0

Real estate servicing fees, net

​

​

573

​

​

319

​

​

876

​

​

254

​

​

(557)

​

79.6

​

(63.6)

Gain on sales of mortgage loans, net

​

​

1,386

​

​

1,093

​

​

1,944

​

​

293

​

​

(851)

​

26.8

​

(43.8)

Gain on sale of investment securities

​

​

8

​

​

20

​

​

778

​

​

(12)

​

​

(758)

​

(60.0)

​

(97.4)

Other

​

​

338

​

​

362

​

​

107

​

​

(24)

​

​

255

​

(6.6)

​

238.3

Total non-interest income

​

$

9,166

​

$

8,749

​

$

10,866

​

$

417

​

$

(2,117)

​

4.8%

​

(19.5)%

Non-interest income as a % of total revenue *

​

​

18.4%

​

​

18.2%

​

​

21.7%

​

​

​

​

​

​

​

​

​

​

Total revenue per full time equivalent employee

​

$

146.0

​

$

144.8

​

$

145.1

​

​

​

​

​

​

​

​

​

​

*

Total revenue is calculated as net interest income plus non-interest income.

Total non-interest income increased $417,000, or 4.8%, to $9.2 million for the year ended December 31, 2015 compared to $8.7 million for the year ended December 31, 2014, and decreased $2.1 million, or 19.5%, to $8.7 million for the year ended December 31, 2014 compared to $10.8 million for the year ended December 31, 2013.

Service charges and other fees decreased $266,000, or 7.1%, to $3.5 million for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $422,000, or 10.1% to $3.7 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The decrease was primarily due to a decrease in nonsufficient service charge fees collected for both periods.

Real estate servicing fees, net of the change in valuation of mortgage serving rights increased $254,000 to $573,000 for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $557,000 to $319,000 for the year ended December 31, 2014 compared to the year ended December 31, 2013.

Mortgage loan servicing fees earned on loans sold were $873,000 for the year ended December 31, 2015 compared to $895,000 and $901,000 for the years ended 2014 and 2013, respectively. Total realized losses included in earnings attributable to the change in unrealized gains or losses related to assets still held were $301,000 for the year ended December 31, 2015 compared to $576,000 and $25,000 for the years ended December 31, 2014 and 2013, respectively. The Company was servicing $312.1 million of mortgage loans at December 31, 2015 compared to $313.9 million and $322.5 million at December 31, 2014 and 2013, respectively.

Gain on sales of mortgage loans increased $293,000 to $1.4 million for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $851,000 to $1.1 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The Company sold loans of $51.5 million for the year ended December 31, 2015 compared to $36.6 million and $76.2 million for the years ended December 31, 2014 and 2013, respectively. Refinancing activity impacting both the volume of loans sold and gains recognized began to slow down during 2013 due to rising interest rates that carried into 2014 and then picked up again in 2015.

11

Gain on sale of investment securities During the year ended December 31, 2015, the Company received $720,000 from proceeds on sales of available-for-sale debt securities and recognized gains of  $8,000, compared to $5.3 million from proceeds on sales of available-for-sale debt securities and recognized net gains of  $20,000 during the year ended December 31, 2014, and $32.6 million from proceeds on sales of available-for-sale debt securities and recognized gains of  $778,000 for the year ended December 31, 2013. These transactions were the result of bond sales and purchases to replace several smaller holdings with fewer, larger investments without materially changing the duration or yield of the investment portfolio.

Non-interest expense for the years ended December 31, 2015, 2014, and 2013 was as follows:

​

​

​

​

​

​

​

​

​

​

$ Change

% Change

(In thousands)

2015

2014

2013

’15-’14

’14-’13

’15-’14

’14-’13

Non-interest Expense

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Salaries

​

$

15,319

​

$

15,729

​

$

14,702

​

$

(410)

​

$

1,027

​

(2.6)%

​

7.0%

Employee benefits

​

​

5,473

​

​

4,648

​

​

4,840

​

​

825

​

​

(192)

​

17.7

​

(4.0)

Occupancy expense, net

​

​

2,792

​

​

2,660

​

​

2,630

​

​

132

​

​

30

​

5.0

​

1.1

Furniture and equipment expense

​

​

1,844

​

​

1,823

​

​

2,007

​

​

21

​

​

(184)

​

1.2

​

(9.2)

Processing expense, network and bank card expense

​

​

3,363

​

​

3,203

​

​

3,668

​

​

160

​

​

(465)

​

5.0

​

(12.7)

Legal, examination, and professional fees

​

​

1,321

​

​

1,159

​

​

982

​

​

162

​

​

177

​

14.0

​

18.0

FDIC insurance assessment

​

​

867

​

​

933

​

​

992

​

​

(66)

​

​

(59)

​

(7.1)

​

(5.9)

Advertising and promotion

​

​

1,111

​

​

1,274

​

​

1,301

​

​

(163)

​

​

(27)

​

(12.8)

​

(2.1)

Postage, printing, and supplies

​

​

1,120

​

​

1,117

​

​

1,210

​

​

3

​

​

(93)

​

0.3

​

(7.7)

Real estate foreclosure (gains) expense, net

​

​

(223)

​

​

845

​

​

4,924

​

​

(1,068)

​

​

(4,079)

​

(126.4)

​

(82.8)

Other

​

​

3,507

​

​

3,116

​

​

3,507

​

​

391

​

​

(391)

​

12.5

​

(11.1)

Total non-interest expense

​

$

36,494

​

$

36,507

​

$

40,763

​

$

(13)

​

$

(4,256)

​

(0.04)%

​

(10.4)%

Efficiency ratio *

​

​

73.1%

​

​

75.7%

​

​

81.2%

​

​

​

​

​

​

​

​

​

​

Efficiency ratio **

​

​

73.6%

​

​

74.3%

​

​

71.7%

​

​

​

​

​

​

​

​

​

​

Salaries and benefits as a % of total non-interest expense

​

​

57.0%

​

​

55.8%

​

​

47.9%

​

​

​

​

​

​

​

​

​

​

Number of full-time equivalent employees

​

​

342

​

​

333

​

​

346

​

​

​

​

​

​

​

​

​

​

*

Efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total revenue includes net interest income and non-interest income.

**

Does not include other real estate expense, gain on sale of investments, or a one time consulting fee.

Total non-interest expense was $36.5 million for both the years ended December 31, 2015 and 2014, and decreased $4.3 million, or 10.4%, to $36.5 million for the year ended December 31, 2014 compared to the year ended December 31, 2013.

Salaries decreased $410,000, or 2.6%, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and increased $1.0 million, or 7.0%, for the year ended December 31, 2014 compared to the year ended December 31, 2013. The decrease for the year ended 2015 over 2014 was primarily due to a decrease in the accrual estimate for the 2015 incentive program to be paid in 2016 and an increase in deferred loan costs. The increase for the year ended 2014 over 2013 was primarily due to the accrual for a 2014 incentive program approved by the Board of Directors in the third quarter of 2014.

Employee benefits increased $825,000, or 17.7%, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $192,000, or 4.0%, for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase for the year ended 2015 over 2014 was primarily due to an increase in 401(k) profit-sharing and pension expenses, and the decrease for the year ended 2014 over 2013 was primarily due to a decrease in the pension expense.

12

Legal, examination, and professional fees increased $162,000, or 14.0%, for the year ended December 31, 2015 compared to December 31, 2014, and increased $177,000, or 18.0%, for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in 2015 over 2014 primarily related to an increase in legal fees related a class action lawsuit that concluded in 2016 in favor of the Company, legal fees related to foreclosed property, and additional consulting fees incurred for outsourcing control and compliance testing. The increase in 2014 over 2013 primarily consisted of an increase in legal fees related to impaired loans, an increase in audit fees primarily related to additional services required, an increase in additional tax consultation services, and an increase in consulting fees related to strategic planning.

Real estate foreclosure expense and (gains), net decreased $1.1 million, or 126.4%, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $4.1 million, or 82.8%, for the year ended December 31, 2014 compared to the year ended December 31, 2013.

Net gains recognized on other real estate owned were $671,000 for the year ended December 31, 2015, compared to net losses of  $371,000 and $3.5 million for the years ended December 31, 2014 and 2013, respectively. Expenses to maintain these foreclosed properties were $448,000 for the year ended December 31, 2015, compared to $474,000 and $1.5 million for the years ended December 31, 2014 and 2013, respectively. During 2015, gains were recognized on two properties sold during the first quarter and one new foreclosure in the third quarter resulting in a net gain. The significant decrease in net losses and expenses during 2015 and 2014 compared to 2013, primarily related to two hotels located in the Branson area that were sold at auction during the second quarter of 2013.

Other non-interest expense increased $391,000, or 12.5%, for the year ended December 31, 2015 compared to the year ended December 31, 2014, and decreased $391,000, or 11.1%, for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in 2015 over 2014 was primarily due to an impairment write-down on a building held for sale partially offset by the loss recorded due to employee fraud that management discovered during the third quarter of 2014. The decrease in 2014 over 2013 primarily related to a decrease in core deposit intangible (CDI) asset amortization which became fully amortized in the second quarter of 2013, reduced levels of credit card dispute charge-offs, and a decrease in consumer loan expense primarily related to a write-down on repossessed mining equipment during the second quarter of 2013. This decrease was partially offset by a loss recorded due to employee fraud that management discovered during the third quarter of 2014.

Comparing fourth quarter 2015 to third quarter 2015

Consolidated net income available to shareholders’ decreased to $2.0 million for the fourth quarter 2015 compared to $2.5 million for the third quarter 2015. Net interest income decreased to $10.2 million for the fourth quarter 2015 compared to $10.6 for the third quarter of 2015 with $1.1 billion in average interest earning assets for both periods.

No provision for loan losses was required for both the fourth and third quarter of 2015. Net charge-offs for the fourth quarter 2015 were $642,000, or 0.07% of average loans, compared to $740,000, or 0.08% of average loans for the third quarter 2015.

Non-interest income increased to $2.4 million for the fourth quarter 2015 compared to $2.3 million for the third quarter of 2015. The increase primarily resulted from a legal settlement on a foreclosed property and an increase in real estate servicing fees. This increase was partially offset by a decrease in service charges and other fees, bank card income and fees, trust department income, and gain on sale of mortgage loans. Net real estate servicing fees include mortgage loan servicing fees and the gains or losses due to the change in fair value of MSRs arising from inputs and assumptions. Mortgage loan servicing fees earned on loans sold were $225,000 for the fourth quarter 2015 compared to $206,000 for the third quarter 2015. Total net losses recognized due to the change in fair value of MSRs arising from inputs and assumptions were $9,000 for the fourth quarter 2015 compared to $29,000 for the third quarter 2015. The Company’s loans sold were $11.4 million for the fourth 2015 compared to $11.2 million for the third quarter of 2015.

Non-interest expense increased to $9.5 million for the fourth quarter 2015 compared to $9.0 million for the third quarter 2015. This increase primarily resulted from an increase in real estate foreclosure expense and an increase in processing, network, and bank card expense, partially offset by a decrease in salaries and

13

employee benefits. Net losses recognized on other real estate owned were $18,000 for the fourth quarter 2015 compared to net gains of  $435,000 for the third quarter 2015, and expenses to maintain these foreclosed properties were $111,000 for the fourth quarter 2015 compared to $107,000 for the third quarter 2015. The decrease in salary expense for the fourth quarter of 2015 over the third quarter of 2015 primarily related to adjusting the accrual estimate based on year-end results for the 2015 incentive program, and the decrease in employee benefits for the fourth quarter of 2015 over the third quarter of 2015 primarily related to a decrease in the annual accrual for profit-sharing. The increases in processing, network, and bank card expenses were primarily due to expenses incurred to increase debit card security.

Comparing fourth quarter 2015 to fourth quarter 2014

Consolidated net income available to shareholders remained unchanged at $2.0 million for both the fourth quarter 2015 and 2014. Net interest income increased to $10.2 million for the fourth quarter 2015 compared to $10.0 million for the fourth quarter 2014 with $1.1 billion in average interest earning assets for both periods.

No provision for loan losses was required for both the fourth quarters of 2015 and 2014. Net charge-offs for the fourth quarter 2015 were $642,000, or 0.07% of average loans, compared to $2.9 million, or 0.34% of average loans for the fourth quarter 2014.

Non-interest income increased to $2.4 million for fourth quarter 2015 compared to $2.2 million for fourth quarter of 2014. This increase primarily resulted from an increase in net real estate servicing fees and an increase in other income primarily due to a legal settlement received on a foreclosed property. Net real estate servicing fees include mortgage loan servicing fees and the gains or losses due to the change in fair value of MSRs arising from inputs and assumptions. Mortgage loan servicing fees earned on loans sold were $225,000 for the fourth quarter 2015 compared to $224,000 for the fourth quarter 2014. Total net losses recognized due to the change in fair value of MSRs arising from inputs and assumptions were $9,000 for the fourth quarter 2015 compared to $190,000 for the fourth quarter 2014. The Company’s loans sold were $11.4 million for the fourth 2015 compared to $11.1 million for the fourth quarter of 2014.

Non-interest expense increased to $9.5 million for the fourth quarter 2015 compared to $9.1 million for the fourth quarter 2014. This increase primarily resulted from an increase in employee benefits, processing, network, and bank card expense, legal, examination, and professional fees, and other non-interest expense. These increases were partially offset by a decrease in salary expense and real estate foreclosure expense. The increase in employee benefits for the fourth quarter of 2015 over the fourth quarter of 2014 primarily related to an increase in 401(k) profit-sharing and pension expense. The increase in processing, network, and bank card expenses were primarily due to expenses incurred to increase debit card security. The increase in legal fees primarily resulted from a class action lawsuit, and additional consulting fees incurred for outsourcing control and compliance testing. The increase in other non-interest expenses for the fourth quarter of 2015 over the fourth quarter of 2014 primarily related to an increase in telephone and internet expenses as well as an increase in year-end donations.

The decrease in total salary expense for the fourth quarter of 2015 over the fourth quarter of 2014 was primarily due to a decrease in the accrual estimate for the 2015 incentive program to be paid in 2016 and an increase in deferred loan costs partially offset by an increase in the number employees quarter over quarter. The decrease in real estate foreclosure expenses resulted from a decrease in the net losses recognized on other real estate owned of  $18,000 for the fourth quarter 2015 compared to net losses of  $76,000 for the fourth quarter 2014. Expenses to maintain these foreclosed properties were $111,000 for the fourth quarter 2015 compared to $112,000 for the fourth quarter 2014.

Income taxes

Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 34.8% for the year ended December 31, 2015 compared to 34.6% and 32.8% for the years ended December 31, 2014 and 2013, respectively. The increase in the effective tax rate in 2015 and 2014 is primarily due to an increase in earnings before income taxes.

14

Lending and Credit Management

Interest earned on the loan portfolio is a primary source of interest income for the Company. Net loans represented 71.3% of total assets as of December 31, 2015 compared to 72.9% as of December 31, 2014.

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, 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.

A summary of loans, by major class within the Company’s loan portfolio as of the dates indicated is as follows:

(In thousands)

2015

2014

2013

2012

2011

Commercial, financial, and agricultural

​

$

149,091

​

$

154,834

​

$

141,845

​

$

134,275

​

$

133,345

Real estate construction - residential

​

​

16,895

​

​

18,103

​

​

21,008

​

​

22,177

​

​

30,201

Real estate construction - commercial

​

​

33,943

​

​

48,822

​

​

55,076

​

​

43,486

​

​

47,697

Real estate mortgage - residential

​

​

256,086

​

​

247,117

​

​

225,630

​

​

221,310

​

​

203,536

Real estate mortgage - commercial

​

​

385,869

​

​

372,321

​

​

375,686

​

​

400,536

​

​

398,915

Installment loans to individuals

​

​

23,196

​

​

20,016

​

​

20,302

​

​

25,200

​

​

29,236

Total loans

​

$

865,080

​

$

861,213

​

$

839,547

​

$

846,984

​

$

842,930

Percent of categories to total loans:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial, financial, and agricultural

​

​

17.2%

​

​

18.0%

​

​

16.9%

​

​

15.9%

​

​

15.8%

Real estate construction - residential

​

​

2.0

​

​

2.1

​

​

2.5

​

​

2.6

​

​

3.6

Real estate construction - commercial

​

​

3.9

​

​

5.7

​

​

6.6

​

​

5.1

​

​

5.7

Real estate mortgage - residential

​

​

29.6

​

​

28.7

​

​

26.9

​

​

26.1

​

​

24.1

Real estate mortgage - commercial

​

​

44.6

​

​

43.2

​

​

44.7

​

​

47.3

​

​

47.3

Installment loans to individuals

​

​

2.7

​

​

2.3

​

​

2.4

​

​

3.0

​

​

3.5

Total

​

​

100.0%

​

​

100.0%

​

​

100.0%

​

​

100.0%

​

​

100.0%

The Company extends credit to its local community market through traditional real estate mortgage products. The Company does not participate in extending credit to sub-prime residential real estate markets. The Company does not lend funds for the type of transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loans that are not otherwise disclosed in the loan portfolio composition table. The Company does not have any interest-earning assets that would have been included in nonaccrual, past due, or restructured loans if such assets were loans.

15

The contractual maturities of loan categories at December 31, 2015, and the composition of those loans between fixed rate and floating rate loans are as follows:

​

Principal Payments Due

​

​

​

(In thousands)

One Year Or Less

Over One Year Through Five Years

Over Five Years

Total

Commercial, financial, and agricultural

​

$

67,508

​

$

63,883

​

$

17,700

​

$

149,091

Real estate construction - residential

​

​

16,786

​

​

62

​

​

47

​

​

16,895

Real estate construction - commercial

​

​

16,799

​

​

14,424

​

​

2,720

​

​

33,943

Real estate mortgage - residential

​

​

34,203

​

​

99,564

​

​

122,319

​

​

256,086

Real estate mortgage - commercial

​

​

84,783

​

​

244,898

​

​

56,188

​

​

385,869

Installment loans to individuals

​

​

7,337

​

​

14,568

​

​

1,291

​

​

23,196

Total loans net of unearned income

​

$

227,416

​

$

437,399

​

$

200,265

​

$

865,080

Loans with fixed rates

​

​

182,225

​

​

378,917

​

​

43,753

​

​

604,895

Loans with floating rates

​

​

45,191

​

​

58,482

​

​

156,512

​

​

260,185

Total loans net of unearned income

​

$

227,416

​

$

437,399

​

$

200,265

​

$

865,080

The Company generally does not retain long-term fixed rate residential mortgage loans in its portfolio. Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers, but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price. For the year ended December 31, 2015, the Company sold approximately $51.5 million of loans to investors compared to $36.6 million and $76.2 million for the years ended December 31, 2014 and 2013, respectively. At December 31, 2015, the Company was servicing approximately $312.1 million of loans sold to the secondary market compared to $313.9 million at December 31, 2014, and $322.5 million at December 31, 2013.

Risk Elements of the Loan Portfolio

Management, the senior loan committee, and internal loan review, formally review all loans in excess of certain dollar amounts (periodically established) at least annually. Currently, loans in excess of  $2.0 million in aggregate and all adversely classified credits identified by management are reviewed. In addition, all other loans are reviewed on a sample basis. The senior loan committee reviews and reports to the board of directors, on a monthly basis, past due, classified, and watch list loans in order to classify or reclassify loans as loans requiring attention, substandard, doubtful, or loss. During this review, management also determines which loans should be considered impaired. Management follows the guidance provided in the FASB’s ASC Topic 310-10-35 in identifying and measuring loan impairment. 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 considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. Management believes, but there can be no assurance, that these procedures keep management informed of potential problem loans. Based upon these procedures, both the allowance and provision for loan losses are adjusted to maintain the allowance at a level considered necessary by management to provide for probable losses inherent in the loan portfolio.

16

Nonperforming Assets

The following table summarizes nonperforming assets at the dates indicated:

(In thousands)

2015

2014

2013

2012

2011

Nonaccrual loans:

​

​

​

​

​

Commercial, financial, and agricultural

​

$

308

​

$

5,279

​

$

1,684

​

$

1,335

​

$

2,068

Real estate construction - residential

​

​

0

​

​

1,751

​

​

2,204

​

​

2,497

​

​

1,147

Real estate construction - commercial

​

​

102

​

​

2,096

​

​

6,251

​

​

7,762

​

​

7,867

Real estate mortgage - residential

​

​

2,322

​

​

4,419

​

​

4,165

​

​

5,330

​

​

4,153

Real estate mortgage - commercial

​

​

1,542

​

​

4,465

​

​

9,074

​

​

13,938

​

​

31,000

Installment loans to individuals

​

​

144

​

​

233

​

​

302

​

​

219

​

​

168

Total

​

$

4,418

​

$

18,243

​

$

23,680

​

$

31,081

​

$

46,403

Loans contractually past - due 90 days or more and still accruing:

​

​

​

​

​

Commercial, financial, and agricultural

​

$

1

​

$

0

​

$

0

​

$

0

​

$

0

Real estate construction - residential

​

​

0

​

​

0

​

​

0

​

​

0

​

​

0

Real estate construction - commercial

​

​

0

​

​

56

​

​

0

​

​

0

​

​

8

Real estate mortgage - residential

​

​

0

​

​

0

​

​

129

​

​

0

​

​

9

Real estate mortgage - commercial

​

​

0

​

​

0

​

​

100

​

​

0

​

​

36

Installment loans to individuals

​

​

5

​

​

2

​

​

14

​

​

6

​

​

1

Total

​

$

6

​

$

58

​

$

243

​

$

6

​

$

54

Performing troubled debt restructurings

​

​

5,850

​

​

17,720

​

​

11,395

​

​

8,282

​

​

7,217

Total nonperforming loans

​

​

10,274

​

​

36,021

​

​

35,318

​

​

39,369

​

​

53,674

Other real estate owned and repossessed assets - net

​

​

15,992

​

​

11,885

​

​

14,867

​

​

23,592

​

​

16,020

Total nonperforming assets

​

$

26,266

​

$

47,906

​

$

50,185

​

$

62,961

​

$

69,694

Loans

​

$

865,080

​

$

861,213

​

$

839,547

​

$

846,984

​

$

842,930

Allowance for loan losses to loans

​

​

0.99%

​

​

1.06%

​

​

1.63%

​

​

1.75%

​

​

1.64%

Nonperforming loans to loans

​

​

1.19%

​

​

4.18%

​

​

4.21%

​

​

4.65%

​

​

6.37%

Allowance for loan losses to nonperforming loans

​

​

83.75%

​

​

25.26%

​

​

38.84%

​

​

37.70%

​

​

25.73%

Allowance for loan losses to nonperforming loans, excluding performing TDR’s

​

​

194.48%

​

​

49.72%

​

​

57.35%

​

​

47.74%

​

​

29.72%

Nonperforming assets to loans, real estate owned and repossessed assets

​

​

2.98%

​

​

5.49%

​

​

5.87%

​

​

7.23%

​

​

8.11%

Total nonperforming assets totaled $26.3 million at December 31, 2015 compared to $47.9 million at December 31, 2014. Nonperforming loans, defined as loans on non-accrual status, loans 90 days or more past due and still accruing, and TDRs totaled $10.3 million, or 1.19%, of total loans at December 31, 2015 compared to $36.0 million, or 4.18%, of total loans at December 31, 2014. Non-accrual loans included $527,000 and $1.6 million of loans classified as TDRs at December 31, 2015 and 2014, respectively.

As of December 31, 2015, approximately $5.7 million compared to $9.6 million at December 31, 2014, of loans classified as substandard, not included in the nonperforming asset table, were identified as potential problem loans having more than normal risk which raised doubts as to the ability of the borrower

17

to comply with present loan repayment terms. Even though borrowers are experiencing moderate cash flow problems as well as some deterioration in collateral value, management believes the general allowance was sufficient to cover the risks and probable losses related to such loans at December 31, 2015 and December 31, 2014, respectively.

Total non-accrual loans at December 31, 2015 decreased $13.8 million to $4.4 million compared to $18.2 million at December 31, 2014. This decrease primarily consisted of a $5.0 million decrease in commercial, financial and agricultural loans, $1.8 million decrease in real estate construction – residential loans, $2.0 million decrease in real estate construction – commercial loans, $2.1 million decrease in real estate mortgage – residential loans, and a $2.9 million decrease in real estate mortgage – commercial loans. The decrease in non-accrual loans primarily resulted from the sale of a piece of collateral, transfers of impaired loans to other real estate owned and repossessed assets, and seven loan relationships that returned to performing status.

Loans past due 90 days and still accruing interest at December 31, 2015, were $6,000 compared to $58,000 at December 31, 2014. Other real estate owned and repossessed assets at December 31, 2015 of $16.0 million compared to $11.9 million at December 31, 2014. During the year ended December 31, 2015, $5.8 million of nonaccrual loans, net of charge-offs taken, moved to other real estate owned and repossessed assets compared to $2.0 million the year ended December 31, 2014.

The following table summarizes the Company’s TDRs at the dates indicated:

​

December 31, 2015

December 31, 2014

(In thousands)

Number of contracts

Recorded Investment

Specific Reserves

Number of contracts

Recorded Investment

Specific Reserves

Performing TDRs

​

​

​

​

​

​

Commercial, financial and agricultural

​

8

​

$

697

​

$

67

​

10

​

$

2,262

​

$

6

Real estate mortgage - residential

​

7

​

​

3,615

​

​

630

​

6

​

​

3,459

​

​

752

Real estate mortgage - commercial

​

3

​

​

1,538

​

​

0

​

8

​

​

11,999

​

​

0

Total performing TDRs

​

18

​

$

5,850

​

$

697

​

24

​

$

17,720

​

$

758

Nonperforming TDRs

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial, financial and agricultural

​

0

​

$

0

​

$

0

​

2

​

$

71

​

$

0

Real estate mortgage - residential

​

0

​

​

0

​

​

0

​

2

​

​

347

​

​

140

Real estate mortgage - commercial

​

4

​

​

527

​

​

213

​

3

​

​

1,167

​

​

10

Total nonperforming TDRs

​

4

​

$

527

​

$

213

​

7

​

$

1,585

​

$

150

Total TDRs

​

22

​

$

6,377

​

$

910

​

31

​

$

19,305

​

$

908

At December 31, 2015, loans classified as TDRs totaled $6.4 million, with $1.0 million of specific reserves, of which $527,000 were classified as nonperforming TDRs and $5.9 million were classified as performing TDRs. This is compared to $19.3 million of loans classified as TDRs, with $1.0 million of specific reserves, of which $1.6 million were classified as nonperforming TDRs and $17.7 million were classified as performing TDRs at December 31, 2014. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. The net decrease in total TDRs from December 31, 2014 to December 31, 2015 was primarily due to $2.0 million additions to TDRs that

18

were offset by $309,000 charged off, $180,000 moved to ORE, approximately $2.2 million of payments received, and $12.3 million from five loan relationships moved to performing loans due to subsequent restructuring at market rates and terms followed by satisfactory payment performance.

Allowance for Loan Losses and Provision

Allowance for Loan Losses

The following table is a summary of the allocation of the allowance for loan losses:

(In thousands)

2015

2014

2013

2012

2011

Allocation of allowance for loan losses at end of year:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial, financial, and agricultural

​

$

2,153

​

$

1,779

​

$

2,374

​

$

1,937

​

$

1,804

Real estate construction - residential

​

​

59

​

​

171

​

​

931

​

​

732

​

​

1,188

Real estate construction - commercial

​

​

644

​

​

466

​

​

631

​

​

1,711

​

​

1,562

Real estate mortgage - residential

​

​

2,439

​

​

2,527

​

​

2,959

​

​

3,387

​

​

3,251

Real estate mortgage - commercial

​

​

2,935

​

​

3,846

​

​

6,523

​

​

6,834

​

​

5,734

Installment loans to individuals

​

​

273

​

​

270

​

​

294

​

​

239

​

​

267

Unallocated

​

​

101

​

​

40

​

​

7

​

​

2

​

​

3

Total

​

$

8,604

​

$

9,099

​

$

13,719

​

$

14,842

​

$

13,809

The allowance for loan losses was $8.6 million, or 0.99%, of loans outstanding at December 31, 2015 compared to $9.1 million, or 1.06%, of loans outstanding at December 31, 2014. The ratio of the allowance for loan losses to nonperforming loans, excluding performing TDRs, was 194.48% at December 31, 2015, compared to 49.72% at December 31, 2014.

The following table is a summary of the general and specific allocations of the allowance for loan losses:

(In thousands)	2015			2014			2013			2012			2011
Allocation of allowance for loan losses:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Individually evaluated for impairment - specific reserves	​	$	1,540	​	$	1,749	​	$	4,796	​	$	4,020	​	$	3,748
Collectively evaluated for impairment - general reserves	​	​	7,064	​	​	7,350	​	​	8,923	​	​	10,822	​	​	10,061
Total	​	$	8,604	​	$	9,099	​	$	13,719	​	$	14,842	​	$	13,809

Specific reserves decreased to $1.5 million at December 31, 2015 compared to $1.7 million at December 31, 2014. The decrease in total reserves from December 31, 2014 primarily occurred in real estate mortgage loans, partially offset by an increase in the reserves for commercial, financial, and agricultural loans. The decrease in real estate mortgage - commercial reserves was primarily due to a decrease in historical loss rates over the three year look back period. The increase in commercial, financial, and agricultural reserves primarily related to one loan relationship due to increased exposure resulting from liquidation of collateral during the year.

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded. At December 31, 2015, $1.5 million of the Company’s allowance for loan losses was allocated to impaired loans totaling approximately $10.3 million compared to $1.7 million of the Company’s allowance for loan losses (ALL) allocated to impaired loans totaling approximately $36.0 million at December 31, 2014. Management determined that $4.5 million, or 44%, of total impaired loans required no reserve allocation at December 31, 2015 compared to $28.5 million, or 79%, at December 31, 2014 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

19

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Management determined that the previous twelve quarters were reflective of the loss characteristics of the Company’s loan portfolio during the recent economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices. The combined historical loan loss rates and qualitative factors are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

The specific and general reserve allocations represent management’s best estimate of probable losses inherent in the loan portfolio at the evaluation date. Although the allowance for loan losses is comprised of specific and general allocations, the entire allowance is available to absorb any credit losses.

Provision

A $250,000 provision was required for the year ended December 31, 2015 compared to no provision for the year ended December 31, 2014, and a $2.0 million provision for the year ended December 31, 2013.

The following table summarizes loan loss experience for the years ended as indicated:

(In thousands)

2015

2014

2013

2012

2011

Analysis of allowance for loan losses:

​

​

​

​

​

Balance beginning of year

​

$

9,099

​

$

13,719

​

$

14,842

​

$

13,809

​

$

14,565

Charge-offs:

​

​

​

​

​

Commercial, financial, and agricultural

​

​

1,131

​

​

1,285

​

​

895

​

​

1,760

​

​

2,157

Real estate construction - residential

​

​

-

​

​

349

​

​

119

​

​

-

​

​

1,858

Real estate construction - commercial

​

​

15

​

​

491

​

​

633

​

​

-

​

​

512

Real estate mortgage - residential

​

​

379

​

​

408

​

​

812

​

​

977

​

​

1,883

Real estate mortgage - commercial

​

​

363

​

​

2,890

​

​

1,301

​

​

5,466

​

​

6,420

Installment loans to individuals

​

​

302

​

​

405

​

​

420

​

​

586

​

​

376

Total charge-offs

​

​

2,190

​

​

5,828

​

​

4,180

​

​

8,789

​

​

13,206

Recoveries:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial, financial, and agricultural

​

​

672

​

​

319

​

​

340

​

​

161

​

​

193

Real estate construction - residential

​

​

322

​

​

181

​

​

-

​

​

67

​

​

65

Real estate construction - commercial

​

​

-

​

​

-

​

​

5

​

​

23

​

​

250

Real estate mortgage - residential

​

​

138

​

​

202

​

​

111

​

​

158

​

​

108

Real estate mortgage - commercial

​

​

165

​

​

320

​

​

368

​

​

248

​

​

103

Installment loans to individuals

​

​

148

​

​

186

​

​

203

​

​

265

​

​

208

Total recoveries

​

​

1,445

​

​

1,208

​

​

1,027

​

​

922

​

​

927

Net charge-offs

​

​

745

​

​

4,620

​

​

3,153

​

​

7,867

​

​

12,279

Provision for loan losses

​

​

250

​

​

-

​

​

2,030

​

​

8,900

​

​

11,523

Balance end of year

​

$

8,604

​

$

9,099

​

$

13,719

​

$

14,842

​

$

13,809

20

Net Loan Charge-offs

The Company’s net charge-offs were $745,000, or 0.09% of average loans, for the year ended December 31, 2015 compared to net charge-offs of  $4.6 million, or 0.54% of average loans, for the year ended December 31, 2014, and $3.2 million, or 0.38% of average loans for the year ended December 31, 2013. As detailed above, the Company’s recoveries increased for the year ended December 31, 2015 over the prior year primarily due to one loan relationship in commercial loans and one loan relationship in real estate construction loans. In addition to the increase in recoveries recorded during the year ended December 31, 2015, the Company also noted a decrease in charge-offs of  $3.6 million compared to the prior year.

Investment Portfolio

The Company classifies its debt and equity securities into one of the following two categories:

Held-to-Maturity includes investments in debt securities that the Company has the positive intent and ability to hold until maturity. Available-for-Sale - includes investments in debt and equity securities not classified as held to maturity or trading (i.e., investments that the Company has no present plans to sell in the near-term but may be sold in the future under different circumstances). The Company’s investment portfolio consists of available-for-sale securities.

Debt securities classified as held-to-maturity are carried at amortized cost, while debt and equity securities classified as available-for-sale are carried at estimated market value. Unrealized holding gains and losses from available-for-sale securities are excluded from earnings and reported, net of applicable taxes, as a separate component of stockholders’ equity until realized.

The Company does not engage in trading activities and accordingly does not have any debt or equity securities classified as trading securities. Historically the Company’s practice had been to purchase and hold debt instruments until maturity unless special circumstances exist. However, since the investment portfolio’s major function is to provide liquidity and to balance the Company’s interest rate sensitivity position, all debt securities are classified as available-for-sale.

At December 31, 2015, the investment portfolio classified as available-for-sale represented 19.6% of total consolidated assets. Future levels of held-to-maturity and available-for-sale investment securities can be expected to vary depending upon liquidity and interest sensitivity needs as well as other factors.

The following table presents the composition of the investment portfolio by major category:

(In thousands)	2015			2014
Government sponsored enterprises	​	$	73,497	​	$	57,099
Asset-backed securities	​	​	128,851	​	​	106,462
Obligations of states and political subdivisions	​	​	32,706	​	​	35,437
Total available for sale debt securities	​	$	235,054	​	$	198,998

As of December 31, 2015, the maturity of debt securities in the investment portfolio was as follows:

(In thousands)	One Year Or Less			Over One Through Five Years			Over Five Through Ten Years			Over Ten Years			Total			Weighted Average Yield
Government sponsored enterprises	​	$	23,057	​	$	50,440	​	$	-	​	$	-	​	$	73,497	​	1.19%
Asset-backed securities (1)	​	​	1,518	​	​	106,671	​	​	18,982	​	​	1,680	​	​	128,851	​	2.05
States and political subdivisions (2)	​	​	1,834	​	​	17,174	​	​	12,871	​	​	827	​	​	32,706	​	3.16
Total available-for-sale debt securities	​	$	26,409	​	$	174,285	​	$	31,853	​	$	2,507	​	$	235,054	​	1.93%
Weighted average yield	​	​	0.93%	​	​	1.91%	​	​	2.87%	​	​	2.52%	​	​	1.93%	​	​

21

1)

Asset-backed securities have been included using historic repayment speeds. Repayment speeds were determined from actual portfolio experience during the twelve months ended December 31, 2015 calculated separately for each mortgage-backed security. These repayment speeds are not necessarily indicative of future repayment speeds and are subject to change based on changing mortgage interest rates.

2)

Rates on obligations of states and political subdivisions have been adjusted to fully taxable equivalent rates using the statutory federal income tax rate of 34%.

At December 31, 2015 $8,134 of debt securities classified as available-for-sale in the table above had variable rate provisions with adjustment periods ranging from one week to twelve months.

The following non-marketable securities are restricted securities which, lacking a market, are carried at cost. These securities are reported in other assets. At December 31, 2015 $3.4 million of the total included Federal Home Loan Bank (Des Moines) stock held by the Bank in accordance with debt and regulatory requirements. Other non-marketable securities include a $1.5 million equity investment in the Company’s unconsolidated Exchange Statutory Trusts and $3.0 million in a subordinated debt equity security. See Note 8 to the Company’s consolidated financials for further explanation of the Exchange Statutory Trusts.

(In thousands)	2015			2014
Federal Home Loan Bank of Des Moines stock	​	$	3,390	​	$	3,075
Subordinated debt equity security	​	​	3,000	​	​	0
Midwest Independent Bank stock	​	​	151	​	​	151
Federal Agricultural Mortgage Corporation stock	​	​	10	​	​	10
Investment in unconsolidated trusts	​	​	1,486	​	​	1,486
Total non-marketable investment securities	​	$	8,037	​	$	4,722

Liquidity and Capital Resources

Liquidity Management

The role of liquidity management is to ensure funds are available to meet depositors’ withdrawal and borrowers’ credit demands while at the same time maximizing profitability. This is accomplished by balancing changes in demand for funds with changes in the supply of those funds. Liquidity to meet the demands is provided by maturing assets, short-term liquid assets that can be converted to cash and the ability to attract funds from external sources, principally depositors. Due to the nature of services offered by the Company, management prefers to focus on transaction accounts and full service relationships with customers.

The Company’s Asset/Liability Committee (ALCO), primarily made up of senior management, has direct oversight responsibility for the Company’s liquidity position and profile. A combination of daily, weekly, and monthly reports provided to management detail the following: internal liquidity metrics, composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, available pricing and market access to the financial markets for capital, and exposure to contingent draws on the Company’s liquidity.

The Company has a number of sources of funds to meet liquidity needs on a daily basis. The Company’s most liquid assets are comprised of available for sale investment securities, federal funds sold, and excess reserves held at the Federal Reserve Bank.

(In thousands)	2015			2014
Federal funds sold and other overnight interest-bearing deposits	​	$	7,893	​	$	20,445
Available for sale investment securities	​	​	235,054	​	​	198,998
Total	​	$	242,947	​	$	219,443

Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes. The fair value of the available for sale investment portfolio was $235.1 million at

22

December 31, 2015 and included an unrealized net loss of  $1.3 million. The portfolio includes projected maturities and mortgage backed securities pay-downs of approximately $26.4 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s deposit base.

The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes required by law. The Company’s unpledged securities in the available for sale portfolio totaled approximately $52.4 million and $53.4 million at December 31, 2015 and 2014, respectively.

Total investment securities pledged for these purposes were as follows:

(In thousands)	2015			2014
Investment securities pledged for the purpose of securing:	​	​	​	​	​	​
Federal Reserve Bank borrowings	​	$	3,481	​	$	3,504
Federal funds purchased and securities sold under agreements to repurchase	​	​	66,911	​	​	26,770
Other deposits	​	​	112,282	​	​	115,272
Total pledged, at fair value	​	$	182,674	​	$	145,546

Liquidity is available from the Company’s base of core customer deposits, defined as demand, interest checking, savings, and money market deposit accounts. At December 31, 2015, such deposits totaled $649.1 million and represented 68.5% of the Company’s total deposits. These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships. Time deposits and certificates of deposit of  $100,000 and over totaled $298.1 million at December 31, 2015. These accounts are normally considered more volatile and higher costing representing 31.5% of total deposits at December 31, 2015.

Core deposits at December 31, 2015 and 2014 were as follows:

(In thousands)	2015			2014
Core deposit base:	​			​
Non-interest bearing demand	​	$	208,035	​	$	207,700
Interest checking	​	​	176,124	​	​	191,902
Savings and money market	​	​	264,956	​	​	250,229
Total	​	$	649,115	​	$	649,831

Other components of liquidity are the level of borrowings from third party sources and the availability of future credit. The Company’s outside borrowings are comprised of securities sold under agreements to repurchase, Federal Home Loan Bank advances, and subordinated notes. Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines. As of December 31, 2015, under agreements with these unaffiliated banks, the Bank may borrow up to $40.0 million in federal funds on an unsecured basis and $8.6 million on a secured basis. There were no federal funds purchased outstanding at December 31, 2015. Securities sold under agreements to repurchase are generally borrowed overnight and are secured by a portion of the Company’s investment portfolio. At December 31, 2015, there was $56.8 million in repurchase agreements. The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window; although no such borrowings were outstanding at December 31, 2015.

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB). As a member of the FHLB, the Bank has access to credit products of the FHLB. As of December 31, 2015, the Bank had $50.0 million in outstanding borrowings with the FHLB. In addition, the Company has $49.5 million at December 31, 2015 in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.

23

Borrowings outstanding at December 31, 2015 and 2014 were as follows:

(In thousands)	2015			2014
Borrowings:	​			​
Securities sold under agreements to repurchase	​	$	56,834	​	$	17,970
Federal Home Loan Bank advances	​	​	50,000	​	​	43,000
Subordinated notes	​	​	49,486	​	​	49,486
Total	​	$	156,320	​	$	110,456

The Company pledges certain assets, including loans and investment securities to the Federal Reserve Bank, FHLB, and other correspondent banks as security to establish lines of credit and borrow from these entities. Based on the type and value of collateral pledged, the Company may draw advances against this collateral.

The following table reflects the advance equivalent of the assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company.

​	​	​	​	2015						​	​	​	​	​	​	2014						​	​	​
(In thousands)	FHLB			Federal Reserve Bank			Federal Funds Purchased Lines			Total			FHLB			Federal Reserve Bank			Federal Funds Purchased Lines			Total
Advance equivalent	​	$	257,513	​	$	3,412	​	$	45,175	​	$	306,100	​	$	273,613	​	$	3,433	​	$	44,340	​	$	321,386
Advances outstanding	​	​	(50,000)	​	​	0	​	​	0	​	​	(50,000)	​	​	(43,000)	​	​	0	​	​	0	​	​	(43,000)
Total available	​	$	207,513	​	$	3,412	​	$	45,175	​	$	256,100	​	$	230,613	​	$	3,433	​	$	44,340	​	$	278,386

At December 31, 2015, loans with a market value of  $350.5 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit. At December 31, 2015, investments with a market value of  $9.6 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.

Sources and Uses of Funds

Cash and cash equivalents were $28.4 million at December 31, 2015 compared to $42.8 million at December 31, 2014. The $14.4 million decrease resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the year ended December 31, 2015. Cash flow provided from operating activities consists mainly of net income adjusted for certain non-cash items. Operating activities provided cash flow of  $13.3 million for the year ended December 31, 2015.

Investing activities consisting mainly of purchases, sales and maturities of available for sale securities, and changes in the level of the loan portfolio, used total cash of  $50.2 million. The cash outflow primarily consisted of  $102.3 million purchases of investment securities and a $9.2 million increase in the loan portfolio, partially offset by $63.0 million in proceeds from investment maturities, calls, and pay-downs, $720,000 in proceeds from sales of investment securities, and $1.8 million in proceeds received from sales of other real estate owned and repossessed assets.

Financing activities provided cash of  $22.5 million, resulting primarily from a $38.9 million in federal funds purchased and securities sold under agreements to repurchase, and a $7.0 million net advance from Federal Home Loan Bank, partially offset by a $22.0 million decrease in interest-bearing transaction accounts and in time deposits. Future short-term liquidity needs arising from daily operations are not expected to vary significantly during 2016.

In the normal course of business, the Company enters into certain forms of off-balance-sheet transactions, including unfunded loan commitments and letters of credit. These transactions are managed through the Company’s various risk management processes. Management considers both on-balance sheet and off-balance-sheet transactions in its evaluation of the Company’s liquidity. The Company had $165.9

24

million in unused loan commitments and standby letters of credit as of December 31, 2015. Although the Company’s current liquidity resources are adequate to fund this commitment level, the nature of these commitments is such that the likelihood of such a funding demand is very low.

The Company is a legal entity, separate and distinct from the Bank, which must provide its own liquidity to meet its operating needs. The Company’s ongoing liquidity needs primarily include funding its operating expenses and paying cash dividends to its shareholders. The Company paid cash dividends to its common shareholders totaling approximately $1.0 million for both the years ended December 31, 2015 and 2014. A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends. The Bank declared and paid $1.0 million and $2.5 million in dividends to the Company during the years ended December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, the Company had cash and cash equivalents totaling $5.0 million and $1.0 million, respectively.

Capital Management

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for the Company began on January 1, 2015. The Federal Reserve System’s (FRB) capital adequacy guidelines require that bank holding companies maintain a Common Equity Tier 1 risk-based capital ratio equal to at least 4.5% of its risk-weighted assets, a Tier 1 risk-based capital ratio equal to at least 6% of its risk-weighted assets and a total risk-based capital ratio equal to at least 8% of its risk-weighted assets. In addition, bank holding companies generally are required to maintain a Tier 1 leverage ratio of at least 4%.

In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital conservation buffer requirement will be phased in over four years beginning in 2016. The capital conservation buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

Under the Basel III requirements, at December 31, 2015, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of December 31, for the years indicated:

​

2015

2014

2013

2012

2011

Minimum Ratios required for Capital Adequacy Guidelines *

Minimum Ratios for Well-Capitalized Under Prompt Corrective Action Banks

Risk-based capital ratios:

​

​

​

​

​

​

​

Total capital ratio

​

14.78%

​

15.78%

​

15.33%

​

16.83%

​

18.03%

​

8.0%

​

10.0%

Tier I capital ratio

​

12.03

​

12.38

​

11.40

​

13.58

​

15.16

​

6.0

​

8.0

Common Equity Tier I capital ratio

​

9.04

​

NA

​

NA

​

NA

​

NA

​

4.5

​

6.5

Tier I leverage ratio

​

9.84

​

9.42

​

8.79

​

10.37

​

11.52

​

4.0

​

5.0

*

effective January 1, 2015

25

Preferred Stock On December 19, 2008, the Company announced its participation in the U.S. Treasury Department’s Capital Purchase Program (CPP), a voluntary program that provides capital to financially healthy banks. Participation in this program included the Company’s issuance of 30,255 shares of senior preferred stock (with a par value of  $1,000 per share) and a ten year warrant to purchase approximately 287,133 shares of common stock. On May 9, 2012, the Company redeemed 12,000 of the 30,255 shares of preferred stock issued under the U.S. Treasury’s CPP program for a total purchase price of  $12.1 million, and on May 15, 2013, the remaining 18,255 shares were redeemed for a total purchase price of  $18.5 million.

On June 11, 2013, the common stock warrant issued under the U.S. Treasury Department’s CPP program was repurchased by the Company for a total purchase price of  $540,000, or $1.88 per warrant share. The purchase price was based on the fair value of the warrant as agreed upon by the Company and the Treasury. The repurchase of the warrant ended the Company’s participation in the U.S. Treasury Department’s CPP.

Stock Dividend For the seventh consecutive year, on July 1, 2015, the Company distributed a four percent stock dividend to common shareholders of record at the close of business on June 15, 2015. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect the stock dividend.

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. During 2015, the Company repurchased 2,155 shares of common stock pursuant to the plan at an average price of  $15.39 per share.

Commitments, Contractual Obligations, and Off-Balance-Sheet Arrangements

The required payments of time deposits and other borrowed money, not including interest, at December 31, 2015 are as follows:

​

​

​

​

Payments due by Period

​

​

​

(In thousands)

Total

Less than 1 Year

1-3 Years

3-5 Years

Over 5 Years

Time deposits

​

$

298,082

​

$

201,418

​

$

85,056

​

$

11,608

​

$

-

Other borrowed money

​

​

50,000

​

​

8,000

​

​

27,000

​

​

15,000

​

​

-

In the normal course of business, the Company is party to activities that contain credit, market and operational risk that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance-sheet credit related financial instruments.

The Company provides customers with off-balance-sheet credit support through loan commitments and standby letters of credit. Summarized credit-related financial instruments, including both commitments to extend credit and letters of credit at December 31, 2015 are as follows:

​	​	​	​	Amount of Commitment Expiration per Period
(In thousands)	Total			Less than 1 Year			1-3 Years			3-5 Years			Over 5 Years
Unused loan commitments	​	$	161,306	​	$	115,003	​	$	22,279	​	$	6,064	​	$	17,960
Commitments to originate residential first and second mortgage loans	​	​	3,175	​	​	3,175	​	​	-	​	​	-	​	​	-
Standby letters of credit	​	​	1,466	​	​	1,068	​	​	398	​	​	-	​	​	-
Total	​	$	165,947	​	$	119,246	​	$	22,677	​	$	6,064	​	$	17,960

Since many of the unused commitments are expected to expire or be only partially used, the total amount of commitments in the preceding table does not necessarily represent future cash requirements.

26

Quantitative and Qualitative Disclosures about Market Risk

Interest Sensitivity

Market risk arises from exposure to changes in interest rates and other relevant market rate or price risk. The Company faces market risk in the form of interest rate risk through transactions other than trading activities. The Company uses financial modeling techniques to measure interest rate risk. These techniques measure the sensitivity of future earnings due to changing interest rate environments. Guidelines established by the Company’s Asset/Liability Committee and approved by the board of directors are used to monitor exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Company feels it has no primary exposure to specific points on the yield curve. At December 31, 2015, the rate shock scenario models indicated that annual net interest income could change by as much as -16.8% to +21.4% should interest rates rise or fall, respectively, 400 basis points from their current level over a one year period. However, there are no assurances that the change will not be more or less than this estimate. Management believes this is an acceptable level of risk.

The following table represents estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of December 31, 2015. Significant assumptions used for this table included: loans will repay at historic repayment rates; certain interest-bearing demand accounts are interest sensitive due to immediate repricing, and fixed maturity deposits will not be withdrawn prior to maturity. A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the table.

(In thousands)

Year 1

Year 2

Year 3

Year 4

Year 5

Over 5 Years or No stated Maturity

Total

ASSETS

​

​

​

​

​

​

​

Investment securities

​

$

29,521

​

$

15,370

​

$

27,532

​

$

21,325

​

$

21,929

​

$

119,377

​

$

235,054

Federal funds sold and other over-night interest-bearing deposits

​

​

7,893

​

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

7,893

Other investments and securities, at cost

​

​

5,037

​

​

-

​

​

-

​

​

-

​

​

3,000

​

​

-

​

​

8,037

Loans

​

​

297,769

​

​

147,081

​

​

129,157

​

​

119,068

​

​

108,495

​

​

63,510

​

​

865,080

Total

​

$

340,220

​

$

162,451

​

$

156,689

​

$

140,393

​

$

133,424

​

$

182,887

​

$

1,116,064

LIABILITIES

​

​

​

​

​

​

​

Savings, interest checking, and money market deposits

​

$

259,360

​

$

-

​

$

181,720

​

$

-

​

$

-

​

$

-

​

$

441,080

Time deposits

​

​

201,418

​

​

56,026

​

​

29,030

​

​

6,022

​

​

5,586

​

​

-

​

​

298,082

Federal funds purchased and securities sold under agreements to repurchase

​

​

56,834

​

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

56,834

Subordinated notes

​

​

49,486

​

​

-

​

​

-

​

​

-

​

​

-

​

​

-

​

​

49,486

Federal Home Loan Bank advances

​

​

8,000

​

​

5,000

​

​

22,000

​

​

4,000

​

​

11,000

​

​

-

​

​

50,000

Total

​

$

575,098

​

$

61,026

​

$

232,750

​

$

10,022

​

$

16,586

​

$

-

​

$

895,482

Interest-sensitivity GAP

​

​

​

​

​

​

​

Periodic GAP

​

$

(234,878)

​

$

101,425

​

$

(76,061)

​

$

130,371

​

$

116,838

​

$

182,887

​

$

220,582

Cumulative GAP

​

$

(234,878)

​

$

(133,453)

​

$

(209,514)

​

$

(79,143)

​

$

37,695

​

$

220,582

​

$

220,582

Ratio of interest-earning assets to interest-bearing liabilities

​

​

​

​

​

​

​

Periodic GAP

​

​

0.59

​

​

2.66

​

​

0.67

​

​

14.01

​

​

8.04

​

​

NM

​

​

1.25

Cumulative GAP

​

​

0.59

​

​

0.79

​

​

0.76

​

​

0.91

​

​

1.04

​

​

1.25

​

​

1.25

Effects of Inflation

The effects of inflation on financial institutions are different from the effects on other commercial enterprises since financial institutions make few significant capital or inventory expenditures, which are directly affected by changing prices. Because bank assets and liabilities are virtually all monetary in nature, inflation does not affect a financial institution as much as do changes in interest rates. The general level of inflation does underlie the general level of most interest rates, but interest rates do not increase at the rate of inflation as do prices of goods and services. Rather, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

27

Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase capital at higher than normal rates to maintain an appropriate capital to asset ratio. In the opinion of management, inflation did not have a significant effect on the Company’s operations for the year ended December 31, 2015.

Impact of New Accounting Standards

Revenue from Contracts with Customers The FASB issued ASU 2014-09, Revenue from Contracts with Customers, in May 2014. The ASU supersedes revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance in the FASB Accounting Standards Codification. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies specific steps that entities should apply in order to achieve this principle. The amendments are effective for interim and annual periods beginning January 1, 2017 and must be applied retrospectively. The Company is in the process of evaluating the impact of the ASU’s adoption on the Company’s consolidated financial statements.

Transfers and Servicing The FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, in September 2014. The amendments require that repurchase-to-maturity transactions and repurchase agreements that are part of financing arrangements be accounted for as secured borrowings. The amendments also require additional disclosures for certain transfers accounted for as sales. The accounting changes and the disclosures on sales are required to be presented in interim and annual periods beginning January 1, 2015. This ASU also requires disclosures about types of collateral, contractual tenor and potential risks for transactions accounted for as secured borrowings. These disclosures are required in interim and annual periods beginning April 1, 2015. The adoption is not expected to have a significant effect on the Company’s consolidated financial statements.

Presentation of Financial Statements – Going Concern Uncertainties The FASB has issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern in August 2014. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for interim and annual periods ending after December 15, 2016. The adoption is not expected to have a significant effect on the Company’s consolidated financial statements.

Consolidation The FASB has issued ASU No. 2015-02, Amendments to the Consolidation Analysis. The amendment substantially changes the way reporting entities are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the new amendment. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, and affect the consolidation analysis of reporting entities that are involved with VIEs. The amendments in this update are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU 2015-02 will have on its consolidated financial statements and related disclosures. The adoption is not expected to have a significant effect on the Company’s consolidated financial statements.

28

Intangible Assets The FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, in April 2015. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. Arrangements containing a license should be recorded as consistent with the acquisition of software licenses, whereas arrangements that do not include a software license should be recorded as consistent with the accounting for service contracts. These amendments are effective for interim and annual periods beginning January 1, 2016. The adoption is not expected to have a significant effect on the Company’s consolidated financial statements.

Financial Instruments The FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in January 2016. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income, other than those accounted for under the equity method of accounting or those that result in the consolidation of the investee. Additionally, these amendments require presentation in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk for those liabilities measured at fair value. The amendments also require use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for interim and annual periods beginning January 1, 2018. The Company is in the process of evaluating the impact of the ASU’s adoption on the Company’s consolidated financial statements, including potential changes to the Company’s note disclosure of the fair value of its loan portfolio.

29

CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of the Company and report of the Company’s independent auditors appear on the pages indicated.

​	Page
Report of Independent Registered Public Accounting Firm	​	31
Consolidated Balance Sheets as of December 31, 2015 and 2014	​	32
Consolidated Statements of Income for each of the years ended December 31, 2015, 2014, and 2013	​	33
Consolidated Statements of Comprehensive Income for each of the years ended December 31, 2015, 2014, and 2013	​	34
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2015, 2014, and 2013	​	35
Consolidated Statements of Cash Flows for each of the years ended December 31, 2015, 2014, and 2013	​	36
Notes to the Consolidated Financial Statements	​	37

30

KPMG LLP
Suite 900
10 South Broadway
St. Louis, MO 63102-1761

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Hawthorn Bancshares, Inc.:

We have audited the accompanying consolidated balance sheets of Hawthorn Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hawthorn Bancshares, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hawthorn Bancshares, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 30, 2016 expressed an unqualified opinion on the effectiveness of Hawthorn Bancshares, Inc.’s internal control over financial reporting.

St. Louis, Missouri
March 30, 2016

KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.

31

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

​	December 31,
(In thousands, except per share data)	2015			2014
ASSETS	​			​
Cash and due from banks	​	$	20,484	​	$	22,364
Federal funds sold and other overnight interest-bearing deposits	​	​	7,893	​	​	20,445
Cash and cash equivalents	​	​	28,377	​	​	42,809
Investment in available-for-sale securities, at fair value	​	​	235,054	​	​	198,998
Other investments and securities, at cost	​	​	8,037	​	​	4,722
Total investment securities	​	​	243,091	​	​	203,720
Loans	​	​	865,080	​	​	861,213
Allowances for loan losses	​	​	(8,604)	​	​	(9,099)
Net loans	​	​	856,476	​	​	852,114
Premises and equipment - net	​	​	36,389	​	​	37,498
Mortgage servicing rights	​	​	2,847	​	​	2,762
Other real estate owned and repossessed assets - net	​	​	15,992	​	​	11,885
Accrued interest receivable	​	​	4,853	​	​	4,816
Cash surrender value - life insurance	​	​	2,348	​	​	2,284
Other assets	​	​	10,548	​	​	11,843
Total assets	​	$	1,200,921	​	$	1,169,731
LIABILITIES AND STOCKHOLDERS’ EQUITY	​			​
Deposits	​	​	​	​	​	​
Non-interest bearing demand	​	$	208,035	​	$	207,700
Savings, interest checking and money market	​	​	441,080	​	​	442,131
Time deposits $100,000 and over	​	​	132,244	​	​	134,945
Other time deposits	​	​	165,838	​	​	184,738
Total deposits	​	​	947,197	​	​	969,514
Federal funds purchased and securities sold under agreements to repurchase	​	​	56,834	​	​	17,970
Subordinated notes	​	​	49,486	​	​	49,486
Federal Home Loan Bank advances	​	​	50,000	​	​	43,000
Accrued interest payable	​	​	382	​	​	373
Other liabilities	​	​	9,736	​	​	8,820
Total liabilities	​	​	1,113,635	​	​	1,089,163
Stockholders’ equity:	​			​
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,605,203 and 5,395,844 shares, respectively	​	​	5,605	​	​	5,396
Surplus	​	​	38,549	​	​	35,901
Retained earnings	​	​	48,700	​	​	44,016
Accumulated other comprehensive loss, net of tax	​	​	(2,018)	​	​	(1,228)
Treasury stock; 164,013 and 161,858 shares, at cost, respectively	​	​	(3,550)	​	​	(3,517)
Total stockholders’ equity	​	​	87,286	​	​	80,568
Total liabilities and stockholders’ equity	​	$	1,200,921	​	$	1,169,731

See accompanying notes to the consolidated financial statements.

32

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income

​	Years Ended December 31,
(In thousands, except per share amounts)	2015			2014			2013
INTEREST INCOME	​			​			​
Interest and fees on loans	​	$	41,267	​	$	40,274	​	$	41,110
Interest on investment securities:	​			​			​
Taxable	​	​	3,554	​	​	3,394	​	​	3,592
Nontaxable	​	​	681	​	​	722	​	​	844
Federal funds sold and other overnight interest-bearing deposits	​	​	38	​	​	28	​	​	37
Dividends on other securities	​	​	216	​	​	80	​	​	82
Total interest income	​	​	45,756	​	​	44,498	​	​	45,665
INTEREST EXPENSE	​			​			​
Interest on deposits:	​			​			​
Savings, interest checking and money market	​	​	970	​	​	968	​	​	974
Time deposit accounts $100,000 and over	​	​	867	​	​	940	​	​	1,142
Other time deposits	​	​	1,090	​	​	1,384	​	​	2,498
Interest on federal funds purchased and securities sold under agreements to repurchase	​	​	56	​	​	21	​	​	24
Interest on subordinated notes	​	​	1,293	​	​	1,264	​	​	1,284
Interest on Federal Home Loan Bank advances	​	​	723	​	​	467	​	​	420
Total interest expense	​	​	4,999	​	​	5,044	​	​	6,342
Net interest income	​	​	40,757	​	​	39,454	​	​	39,323
Provision for loan losses	​	​	250	​	​	0	​	​	2,030
Net interest income after provision for loan losses	​	​	40,507	​	​	39,454	​	​	37,293
NON-INTEREST INCOME	​			​			​
Service charges and other fees	​	​	3,477	​	​	3,743	​	​	4,165
Bank card income and fees	​	​	2,455	​	​	2,368	​	​	2,200
Trust department income	​	​	929	​	​	844	​	​	796
Real estate servicing fees, net	​	​	573	​	​	319	​	​	876
Gain on sale of mortgage loans, net	​	​	1,386	​	​	1,093	​	​	1,944
Gain on sale of investment securities	​	​	8	​	​	20	​	​	778
Other	​	​	338	​	​	362	​	​	107
Total non-interest income	​	​	9,166	​	​	8,749	​	​	10,866
NON-INTEREST EXPENSE	​			​			​
Salaries and employee benefits	​	​	20,792	​	​	20,377	​	​	19,542
Occupancy expense, net	​	​	2,792	​	​	2,660	​	​	2,630
Furniture and equipment expense	​	​	1,844	​	​	1,823	​	​	2,007
Processing , network, and bank card expense	​	​	3,363	​	​	3,203	​	​	3,668
Legal, examination, and professional fees	​	​	1,321	​	​	1,159	​	​	982
FDIC insurance assessment	​	​	867	​	​	933	​	​	992
Advertising and promotion	​	​	1,111	​	​	1,274	​	​	1,301
Postage, printing, and supplies	​	​	1,120	​	​	1,117	​	​	1,210
Real estate foreclosure (gains) expense, net	​	​	(223)	​	​	845	​	​	4,924
Other	​	​	3,507	​	​	3,116	​	​	3,507
Total non-interest expense	​	​	36,494	​	​	36,507	​	​	40,763
Income before income taxes	​	​	13,179	​	​	11,696	​	​	7,396
Income tax expense	​	​	4,580	​	​	4,042	​	​	2,422
Net income	​	​	8,599	​	​	7,654	​	​	4,974
Preferred stock dividends and accretion of discount	​	​	0	​	​	0	​	​	615
Net income available to common shareholders	​	$	8,599	​	$	7,654	​	$	4,359
Basic earnings per share	​	$	1.58	​	$	1.41	​	$	0.80
Diluted earnings per share	​	$	1.58	​	$	1.41	​	$	0.80

See accompanying notes to the consolidated financial statements.

33

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income

​	Years Ended December 31,
(In thousands)	2015			2014			2013
Net income	​	$	8,599	​	$	7,654	​	$	4,974
Other comprehensive loss, net of tax	​			​			​
Securities available for sale:	​			​			​
Unrealized (loss) gain on investment securities available-for-sale, net of tax	​	​	(800)	​	​	1,717	​	​	(4,275)
Adjustment for gain on sales of investment securities, net of tax	​	​	(5)	​	​	(12)	​	​	(482)
Defined benefit pension plans:	​			​			​
Net gain (loss) arising during the year, net of tax	​	​	3	​	​	(2,212)	​	​	2,095
Amortization of prior service cost included in net periodic pension cost, net of tax	​	​	12	​	​	48	​	​	68
Total other comprehensive loss	​	​	(790)	​	​	(459)	​	​	(2,594)
Total comprehensive income	​	$	7,809	​	$	7,195	​	$	2,380

See accompanying notes to the consolidated financial statements.

34

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity

(In thousands)

Preferred Stock

Common Stock

Surplus

Retained Earnings

Accumulated Other Comprehensive (Loss) Income

Treasury Stock

Total Stockholders’ Equity

Balance, December 31, 2012

​

$

17,977

​

$

5,001

​

$

31,816

​

$

39,118

​

$

1,825

​

$

(3,517)

​

$

92,220

Net income

​

​

0

​

​

0

​

​

0

​

​

4,974

​

​

0

​

​

0

​

​

4,974

Other comprehensive loss

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(2,594)

​

​

0

​

​

(2,594)

Stock based compensation expense

​

​

0

​

​

0

​

​

19

​

​

0

​

​

0

​

​

0

​

​

19

Accretion of preferred stock discount

​

​

278

​

​

0

​

​

0

​

​

(278)

​

​

0

​

​

0

​

​

0

Redemption of 18,255 shares of preferred stock

​

​

(18,255)

​

​

0

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(18,255)

Redemption of common stock warrant

​

​

0

​

​

0

​

​

(540)

​

​

0

​

​

0

​

​

0

​

​

(540)

Stock dividend

​

​

0

​

​

194

​

​

2,090

​

​

(2,284)

​

​

0

​

​

0

​

​

0

Cash dividends declared, preferred stock

​

​

0

​

​

0

​

​

0

​

​

(456)

​

​

0

​

​

0

​

​

(456)

Cash dividends declared, common stock

​

​

0

​

​

0

​

​

0

​

​

(988)

​

​

0

​

​

0

​

​

(988)

Balance, December 31, 2013

​

$

0

​

$

5,195

​

$

33,385

​

$

40,086

​

$

(769)

​

$

(3,517)

​

$

74,380

Net income

​

​

0

​

​

0

​

​

0

​

​

7,654

​

​

0

​

​

0

​

​

7,654

Other comprehensive loss

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(459)

​

​

0

​

​

(459)

Stock based compensation expense

​

​

0

​

​

0

​

​

20

​

​

0

​

​

0

​

​

0

​

​

20

Stock dividend

​

​

0

​

​

201

​

​

2,496

​

​

(2,697)

​

​

0

​

​

0

​

​

0

Cash dividends declared, common stock

​

​

0

​

​

0

​

​

0

​

​

(1,027)

​

​

0

​

​

0

​

​

(1,027)

Balance, December 31, 2014

​

$

0

​

$

5,396

​

$

35,901

​

$

44,016

​

$

(1,228)

​

$

(3,517)

​

$

80,568

Net income

​

​

0

​

​

0

​

​

0

​

​

8,599

​

​

0

​

​

0

​

​

8,599

Other comprehensive loss

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(790)

​

​

0

​

​

(790)

Stock based compensation expense

​

​

0

​

​

0

​

​

10

​

​

0

​

​

0

​

​

0

​

​

10

Stock dividend

​

​

0

​

​

209

​

​

2,638

​

​

(2,847)

​

​

0

​

​

0

​

​

0

Purchase of treasury stock

​

​

0

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(33)

​

​

(33)

Cash dividends declared, common stock

​

​

0

​

​

0

​

​

0

​

​

(1,068)

​

​

0

​

​

0

​

​

(1,068)

Balance, December 31, 2015

​

$

0

​

$

5,605

​

$

38,549

​

$

48,700

​

$

(2,018)

​

$

(3,550)

​

$

87,286

See accompanying notes to the consolidated financial statements.

35

HAWTHORN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

​	Years Ended December 31,
(In thousands)	2015			2014			2013
Cash flows from operating activities:	​			​			​
Net income	​	$	8,599	​	$	7,654	​	$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:	​			​			​
Provision for loan losses	​	​	250	​	​	0	​	​	2,030
Depreciation expense	​	​	1,810	​	​	1,758	​	​	1,605
Net amortization of investment securities, premiums, and discounts	​	​	1,317	​	​	1,058	​	​	1,211
Amortization of intangible assets	​	​	0	​	​	0	​	​	135
Stock based compensation expense	​	​	10	​	​	20	​	​	19
Change in fair value of mortgage servicing rights	​	​	301	​	​	576	​	​	25
Gain on sale of investment securities	​	​	(8)	​	​	(20)	​	​	(778)
Gain on sales and dispositions of premises and equipment	​	​	(8)	​	​	(60)	​	​	(6)
Gain (loss) on sales and dispositions of other real estate owned and repossessed assets	​	​	(156)	​	​	(188)	​	​	330
Provision for other real estate owned	​	​	17	​	​	585	​	​	3,367
(Increase) decrease in accrued interest receivable	​	​	(37)	​	​	183	​	​	191
Increase in cash surrender value - life insurance	​	​	(64)	​	​	(71)	​	​	(77)
Decrease (increase) in other assets	​	​	1,212	​	​	(479)	​	​	4,311
Decrease (increase) in income tax receivable	​	​	621	​	​	(826)	​	​	524
Increase (decrease) in accrued interest payable	​	​	9	​	​	(53)	​	​	(483)
Decrease in other liabilities	​	​	911	​	​	966	​	​	1,113
Origination of mortgage loans for sale	​	​	(51,307)	​	​	(35,434)	​	​	(72,100)
Proceeds from the sale of mortgage loans	​	​	51,503	​	​	36,623	​	​	76,240
Gain on sale of mortgage loans, net	​	​	(1,386)	​	​	(1,093)	​	​	(1,944)
Other, net	​	​	(252)	​	​	2,355	​	​	(444)
Net cash provided by operating activities	​	​	13,342	​	​	13,554	​	​	20,243
Cash flows from investing activities:	​			​			​
Net increase in loans	​	​	(9,226)	​	​	(28,357)	​	​	(2,525)
Purchase of available-for-sale debt securities	​	​	(102,367)	​	​	(48,942)	​	​	(88,137)
Proceeds from maturities of available-for-sale debt securities	​	​	36,143	​	​	23,702	​	​	33,341
Proceeds from calls of available-for-sale debt securities	​	​	26,840	​	​	28,605	​	​	8,275
Proceeds from sales of available-for-sale debt securities	​	​	720	​	​	5,334	​	​	32,590
Proceeds from sales of FHLB stock	​	​	1,600	​	​	439	​	​	536
Purchases of FHLB stock	​	​	(4,915)	​	​	(1,160)	​	​	(612)
Purchases of premises and equipment	​	​	(872)	​	​	(1,342)	​	​	(2,680)
Proceeds from sales of premises and equipment	​	​	11	​	​	65	​	​	23
Proceeds from sales of other real estate owned and repossessed assets	​	​	1,836	​	​	4,560	​	​	9,641
Net cash used by investing activities	​	​	(50,230)	​	​	(17,096)	​	​	(9,548)
Cash flows from financing activities:	​			​			​
Net increase (decrease) in demand deposits	​	​	335	​	​	20,318	​	​	(4,889)
Net (decrease) increase in interest-bearing transaction accounts	​	​	(1,051)	​	​	22,974	​	​	13,383
Net decrease in time deposits	​	​	(21,601)	​	​	(30,249)	​	​	(43,298)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	​	​	38,864	​	​	(13,114)	​	​	10,026
Repayment of FHLB advances	​	​	(85,000)	​	​	(10,000)	​	​	(15,126)
FHLB advances	​	​	92,000	​	​	29,000	​	​	19,000
Redemption of 18,255 of preferred stock	​	​	0	​	​	0	​	​	(18,255)
Warrant redemption	​	​	0	​	​	0	​	​	(540)
Purchase of treasury stock	​	​	(33)	​	​	0	​	​	0
Cash dividends paid - preferred stock	​	​	0	​	​	0	​	​	(456)
Cash dividends paid - common stock	​	​	(1,058)	​	​	(1,017)	​	​	(978)
Net cash provided (used) by financing activities	​	​	22,456	​	​	17,912	​	​	(41,133)
Net (decrease) increase in cash and cash equivalents	​	​	(14,432)	​	​	14,370	​	​	(30,438)
Cash and cash equivalents, beginning of year	​	​	42,809	​	​	28,439	​	​	58,877
Cash and cash equivalents, end of year	​	$	28,377	​	$	42,809	​	$	28,439
Supplemental disclosures of cash flow information:	​			​			​
Cash paid during the year for:	​			​			​
Interest	​	$	4,992	​	$	5,097	​	$	6,825
Income taxes	​	$	3,509	​	$	2,265	​	$	131
Supplemental schedule of noncash investing and financing activities:	​			​			​
Other real estate and repossessions acquired in settlement of loans	​	$	5,804	​	$	1,975	​	$	4,613

See accompanying notes to the consolidated financial statements.

36

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013

(1)   Summary of Significant Accounting Policies

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

The accompanying consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

The significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below:

Principles of Consolidation

In December of 2008 and March of 2010, the Company formed Hawthorn Real Estate, LLC, and Real Estate Holdings of Missouri, LLC, respectively (the Real Estate Companies); both are wholly owned subsidiaries of the Company. The consolidated financial statements include the accounts of the Company, Hawthorn Bank (the Bank), and the Real Estate Companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

Loans

Loans that the Company has the intent and ability to hold for the foreseeable future or maturity are held for investment at their stated unpaid principal balance amount less unearned income and the allowance for loan losses. Income on loans is accrued on a simple-interest basis. Loan origination fees and certain direct costs are deferred and recognized over the life of the loan as an adjustment to yield.

Loans Held for Sale

The Bank originates certain loans, which are sold in the secondary market. These loans are classified as held for sale upon origination based on management’s intent to sell and are accounted for at the lower of adjusted cost or fair value. Adjusted cost reflects the funded loan amount and any loan origination costs and fees. In order to manage the risk associated with such activities, the Company upon locking in an interest rate with the borrower enters into an agreement to sell such loans in the secondary market. Loans held for sale are typically sold with servicing rights retained and without recourse except for normal and customary representation and warranty provisions. Mortgage loans held for sale were $1.2 million at December 31, 2015 compared to no loans held for sale at December 31, 2014.

Impaired Loans

A loan is considered impaired when it is probable the Company will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. Included in

37

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

impaired loans are all non-accrual loans and loans whose terms have been modified in a troubled debt restructuring. Impaired loans are individually evaluated for impairment based on fair values of the underlying collateral, obtained through independent appraisals or internal valuations for a collateral dependent loan or by discounting the total expected future cash flows.

Non-Accrual Loans

Loans are placed on nonaccrual status when management believes that the borrower’s financial condition, after consideration of business conditions and collection efforts, is such that collection of interest is doubtful. Loans that are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Restructured Loans

A loan is accounted for as a troubled debt restructuring (TDR) if the Company, for economic or legal reasons related to the borrowers’ financial difficulties, grants a concession to the borrower that it would not otherwise consider. A TDR typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, accrued interest, or an extended maturity date (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy. Nonperforming TDRs are returned to performing status once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months. The Company includes all performing and non-performing TDRs in the impaired and non-performing asset totals. The Company measures the impairment loss of a TDR in the same manner as described below. TDRs which are performing under their contractual terms continue to accrue interest which is recognized in current earnings.

Allowance for Loan Losses

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company’s results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. When loans become 90 days past due, they are generally placed on nonaccrual status or charged off unless extenuating circumstances justify leaving the loan on accrual basis. When loans reach 120 days past due and there is little likelihood of repayment, they are charged off. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. 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 considered to be impaired.

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded.

38

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Management determined that the previous twelve quarters were reflective of the loss characteristics of the Company’s loan portfolio during the recent economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices. The combined historical loan loss rates and qualitative factors are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

Investment in Debt and Equity Securities

At the time of purchase, debt securities are classified into one of two categories: available-for-sale or held-to-maturity. Held-to-maturity securities are those securities which the Company has the positive intent and ability to hold until maturity. All debt securities not classified as held-to-maturity are classified as available-for-sale. The Company’s securities are classified as available-for-sale and are carried at fair value. Changes in fair value, excluding certain losses associated with other-than-temporary impairment, are reported in other comprehensive income, net of taxes, a component of stockholders’ equity. Securities are periodically evaluated for other-than-temporary impairment in accordance with guidance provided in the FASB ASC Topic 320, Investments – Debt and Equity Securities. For those securities with other-than-temporary impairment, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the security before the anticipated recovery. If neither condition is met, but the Company does not expect to recover the amortized cost basis, the Company determines whether a credit loss has occurred, which is then recognized in current earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Premiums and discounts are amortized using the interest method over the lives of the respective securities, with consideration of historical and estimated prepayment rates for mortgage-backed securities, as an adjustment to yield. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings based on the specific identification method for determining the cost of securities sold.

Capital Stock of the Federal Home Loan Bank

The Bank, as a member of the Federal Home Loan Bank System administered by the Federal Housing Finance Agency, is required to maintain an investment in the capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount equal to 12 basis points of the Bank’s year-end total assets plus 4.00% of advances from the FHLB to the Bank. These invest-ments are recorded at cost, which represents redemption value.

39

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation applicable to buildings and improve-ments and furniture and equipment is charged to expense using straight-line and accelerated methods over the estimated useful lives of the assets. Such lives are estimated to be 5 to 40 years for buildings and improvements and 3 to 15 years for furniture and equipment. Maintenance and repairs are charged to expense as incurred.

Core Deposit Intangibles

Intangible assets that have finite useful lives, such as core deposit intangibles, are amortized over their estimated useful lives. Core deposit intangibles are amortized over periods of 7 to 8 years representing their estimated lives using straight line and accelerated methods.

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the carrying value based upon future cash flows expected to result from the use of the underlying asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the underlying asset, the Company recognizes an impairment loss. The impairment loss recognized represents the amount by which the carrying value of the underlying asset exceeds the fair value of the underlying asset.

Mortgage Servicing Rights

The Company originates and sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Servicing involves the collection of payments from individual borrowers and the distribution of those payments to the investors or master servicer. Upon a sale of mortgage loans for which servicing rights are retained, the retained mortgage servicing rights asset is capitalized at the fair value of future net cash flows expected to be realized for performing servicing activities.

Mortgage servicing rights do not trade in an active market with readily observable prices. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies, ancillary income, and cost to service. These assumptions are validated on a periodic basis. The fair value is validated on a quarterly basis with an independent third party valuation specialist firm.

In addition to the changes in fair value of the mortgage servicing rights, the Company also recorded loan servicing fee income as part of real estate servicing fees, net in the statement of income. Loan servicing fee income represents revenue earned for servicing mortgage loans. The servicing fees are based on contractual percentage of the outstanding principal balance and recognized as revenue as the related mortgage payments are collected. Corresponding loan servicing costs are changed to expense as incurred.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are

40

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

Pension Plan

The Company provides a noncontributory defined benefit pension plan for all full-time employees. The benefits are based on age, years of service and the level of compensation during the employees highest ten years of compensation before retirement. Net periodic costs are recognized as employees render the services necessary to earn the retirement benefits. The Company records annual amounts relating to its pension plan based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality, assumed rates of return, compensation increases, and turnover rates. The Company reviews its assumptions on an annual basis and may make modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Company believes that the assumptions utilized in recording its obligations under its plan are reasonable based on its experience and market conditions.

The Company follows authoritative guidance included in the FASB ASC Topic 715, Compensation – Retirement Plans under the subtopic Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. ASC Topic 715 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its consolidated balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. This guidance also requires an employer to measure the funded status of a plan as of the date of its fiscal year-end, with limited exceptions. Additional disclosures are required to provide users with an understanding of how investment allocation decisions are made, major categories of plan assets, and fair value measurement of plan assets as defined in ASC Topic 820, Fair Value Measurements and Disclosures.

Income Taxes

Income taxes are accounted for under the asset / liability method by recognizing the amount of taxes payable or refundable for the current period and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in addressing the Company’s future tax consequences of events that have been recognized in the consolidated financial statements or tax returns such as realization of the effects of temporary differences, net operating loss carry forwards and changes in tax laws or interpretations thereof. A valuation allowance is established when in the judgment of management, it is more likely than not that such deferred tax assets will not become realizable. In this case, the Company would adjust the recorded value of our deferred tax asset, which would result in a direct charge to income tax expense in the period that the determination was made. Likewise, the Company would reverse the valuation allowance when it is expected to realize the deferred tax asset. The Company has not recognized any tax liabilities or any interest or penalties in income tax expense related to uncertain tax positions as of December 31, 2015, 2014, and 2013.

Trust Department

Property held by the Bank in a fiduciary or agency capacity for customers is not included in the accompanying consolidated balance sheets, since such items are not assets of the Company. Trust department income is recognized on the accrual basis.

41

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Consolidated Statements of Cash Flows

For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of short-term federal funds sold and securities sold or purchased under agreements to resell, interest earning deposits with banks, cash, and due from banks.

Stock-Based Compensation

The Company’s stock-based employee compensation plan is described in Note 12, Stock Compensation. In accordance with FASB ASC Topic 718, Compensation – Stock Compensation, the Company measures the cost of the stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period. The fair value of an award is estimated using the Black-Scholes option-pricing model. The expense recognized is based on an estimation of the number of awards for which the requisite service is expected to be rendered, and is included in salaries and employee benefits in the accompanying Consolidated Statements of Income. The standard also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.

Treasury Stock

The purchase of the Company’s common stock is recorded at cost. Purchases of the stock are made both in the open market and through negotiated private purchases based on market prices. At the date of subsequent reissue, the treasury stock account is reduced by the cost associated with such stock on a first-in-first-out basis.

Reclassifications

Certain prior year information has been reclassified to conform to the current year presentation.

The following represents significant new accounting principles adopted in 2015:

Investments – Equity Method and Joint Ventures

The FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, in January 2014. These amendments allow investors in low income housing tax credit entities to account for the investments using a proportional amortization method, provided that certain conditions are met, and recognize amortization of the investment as a component of income tax expense. In addition, disclosures are required that will enable users to understand the nature of the investments, and the effect of the measurement of the investments and the related tax credits on the investor’s financial statements. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

Troubled Debt Restructurings by Creditors

The FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, in January 2014. These amendments require companies to disclose the amount of foreclosed residential real estate property held and the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. The ASU also defines when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

42

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The FASB issued ASU No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure in August 2014. The objective of this update is to reduce diversity in practice by addressing the classification of foreclosed mortgage loans that are fully or partially guaranteed under government programs, including those guaranteed by the FHA and the VA. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

(2)   Loans and Allowance for Loan Losses

Loans

A summary of loans, by major class within the Company’s loan portfolio, at December 31, 2015 and 2014 is as follows:

(in thousands)	2015			2014
Commercial, financial, and agricultural	​	$	149,091	​	$	154,834
Real estate construction - residential	​	​	16,895	​	​	18,103
Real estate construction - commercial	​	​	33,943	​	​	48,822
Real estate mortgage - residential	​	​	256,086	​	​	247,117
Real estate mortgage - commercial	​	​	385,869	​	​	372,321
Installment and other consumer	​	​	23,196	​	​	20,016
Total loans	​	$	865,080	​	$	861,213

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of vehicles. At December 31, 2015, loans with a carrying value of  $421.8 million, or $350.5 million fair value, were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

The following is a summary of loans to directors and executive officers or to entities in which such individuals had a beneficial interest of the Company, are summarized as follows:

(in thousands)	​	​
Balance at December 31, 2014	$	4,940
New loans	​	286
Amounts collected	​	(499)
Balance at December 31, 2015	$	4,727

43

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present unfavorable features.

Allowance for loan losses

The following is a summary of the allowance for loan losses for the years ended December 31, 2015, 2014, and 2013:

(in thousands)

Commercial, Financial, & Agricultural

Real Estate Construction - Residential

Real Estate Construction - Commercial

Real Estate Mortgage - Residential

Real Estate Mortgage - Commercial

Installment Loans to Individuals

Un- allocated

Total

Balance at December 31, 2012

​

$

1,937

​

$

732

​

$

1,711

​

$

3,387

​

$

6,834

​

$

239

​

$

2

​

$

14,842

Additions:

​

​

​

​

​

​

​

​

Provision for loan losses

​

​

992

​

​

318

​

​

(452)

​

​

273

​

​

622

​

​

272

​

​

5

​

​

2,030

Deductions:

​

​

​

​

​

​

​

​

Loans charged off

​

​

895

​

​

119

​

​

633

​

​

812

​

​

1,301

​

​

420

​

​

0

​

​

4,180

Less recoveries on loans

​

​

(340)

​

​

0

​

​

(5)

​

​

(111)

​

​

(368)

​

​

(203)

​

​

0

​

​

(1,027)

Net loans charged off

​

​

555

​

​

119

​

​

628

​

​

701

​

​

933

​

​

217

​

​

0

​

​

3,153

Balance at December 31, 2013

​

$

2,374

​

$

931

​

$

631

​

$

2,959

​

$

6,523

​

$

294

​

$

7

​

$

13,719

Additions:

​

​

​

​

​

​

​

​

Provision for loan losses

​

​

371

​

​

(592)

​

​

326

​

​

(226)

​

​

(107)

​

​

195

​

​

33

​

​

0

Deductions:

​

​

​

​

​

​

​

​

Loans charged off

​

​

1,285

​

​

349

​

​

491

​

​

408

​

​

2,890

​

​

405

​

​

0

​

​

5,828

Less recoveries on loans

​

​

(319)

​

​

(181)

​

​

0

​

​

(202)

​

​

(320)

​

​

(186)

​

​

0

​

​

(1,208)

Net loans charged off

​

​

966

​

​

168

​

​

491

​

​

206

​

​

2,570

​

​

219

​

​

0

​

​

4,620

Balance at December 31, 2014

​

$

1,779

​

$

171

​

$

466

​

$

2,527

​

$

3,846

​

$

270

​

$

40

​

$

9,099

Additions:

​

​

​

​

​

​

​

​

Provision for loan losses

​

​

833

​

​

(434)

​

​

193

​

​

153

​

​

(713)

​

​

157

​

​

61

​

​

250

Deductions:

​

​

​

​

​

​

​

​

Loans charged off

​

​

1,131

​

​

0

​

​

15

​

​

379

​

​

363

​

​

302

​

​

0

​

​

2,190

Less recoveries on loans

​

​

(672)

​

​

(322)

​

​

0

​

​

(138)

​

​

(165)

​

​

(148)

​

​

0

​

​

(1,445)

Net loans charged off

​

​

459

​

​

(322)

​

​

15

​

​

241

​

​

198

​

​

154

​

​

0

​

​

745

Balance at December 31, 2015

​

$

2,153

​

$

59

​

$

644

​

$

2,439

​

$

2,935

​

$

273

​

$

101

​

$

8,604

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. 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 considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration.

44

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The following table provides the balance in the allowance for loan losses at December 31, 2015 and 2014, and the related loan balance by impairment methodology.

(in thousands)

Commercial, Financial, and Agricultural

Real Estate Construction - Residential

Real Estate Construction - Commercial

Real Estate Mortgage - Residential

Real Estate Mortgage - Commercial

Installment Loans to Individuals

Un- allocated

Total

December 31, 2015

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for loan losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Individually evaluated for impairment

​

$

285

​

$

0

​

$

15

​

$

955

​

$

266

​

$

19

​

$

0

​

$

1,540

Collectively evaluated for impairment

​

​

1,868

​

​

59

​

​

629

​

​

1,484

​

​

2,669

​

​

254

​

​

101

​

​

7,064

Total

​

$

2,153

​

$

59

​

$

644

​

$

2,439

​

$

2,935

​

$

273

​

$

101

​

$

8,604

Loans outstanding:

​

​

​

​

​

​

​

​

Individually evaluated for impairment

​

$

1,005

​

$

0

​

$

102

​

$

5,936

​

$

3,081

​

$

144

​

$

0

​

$

10,268

Collectively evaluated for impairment

​

​

148,086

​

​

16,895

​

​

33,841

​

​

250,150

​

​

382,788

​

​

23,052

​

​

0

​

​

854,812

Total

​

$

149,091

​

$

16,895

​

$

33,943

​

$

256,086

​

$

385,869

​

$

23,196

​

$

0

​

$

865,080

December 31, 2014

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for loan losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Individually evaluated for impairment

​

$

134

​

$

0

​

$

0

​

$

1,343

​

$

246

​

$

26

​

$

0

​

$

1,749

Collectively evaluated for impairment

​

​

1,645

​

​

171

​

​

466

​

​

1,184

​

​

3,600

​

​

244

​

​

40

​

​

7,350

Total

​

$

1,779

​

$

171

​

$

466

​

$

2,527

​

$

3,846

​

$

270

​

$

40

​

$

9,099

Loans outstanding:

​

​

​

​

​

​

​

​

Individually evaluated for impairment

​

$

7,541

​

$

1,750

​

$

2,096

​

$

7,878

​

$

16,464

​

$

234

​

$

0

​

$

35,963

Collectively evaluated for impairment

​

​

147,293

​

​

16,353

​

​

46,726

​

​

239,239

​

​

355,857

​

​

19,782

​

​

0

​

​

825,250

Total

​

$

154,834

​

$

18,103

​

$

48,822

​

$

247,117

​

$

372,321

​

$

20,016

​

$

0

​

$

861,213

Impaired loans

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $10.3 million and $36.0 million at December 31, 2015 and 2014, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At December 31, 2015 and 2014, $6.4 million and $15.6 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At December 31, 2015, $1.5 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $10.3 million compared to $1.7 million of the Company’s allowance for loan losses allocated to impaired loans totaling approximately $36.0 million at December 31, 2014. Management determined that $4.5 million, or 44%, of total impaired loans required no reserve allocation at December 31, 2015 compared to $28.5 million, or 79%, at December 31, 2014 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

45

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The categories of impaired loans at December 31, 2015 and 2014 are as follows:

(in thousands)	2015			2014
Non-accrual loans	​	$	4,418	​	$	18,243
Performing TDRs	​	​	5,850	​	​	17,720
Total impaired loans	​	$	10,268	​	$	35,963

The following tables provide additional information about impaired loans at December 31, 2015 and 2014, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

(in thousands)	Recorded Investment			Unpaid Principal Balance			Specific Reserves
December 31, 2015	​	​	​	​	​	​	​	​	​
With no related allowance recorded:	​			​			​
Commercial, financial and agricultural	​	$	448	​	$	450	​	$	0
Real estate - residential	​	​	1,645	​	​	1,712	​	​	0
Real estate - commercial	​	​	2,446	​	​	2,572	​	​	0
Total	​	$	4,539	​	$	4,734	​	$	0
With an allowance recorded:	​			​			​
Commercial, financial and agricultural	​	$	557	​	$	572	​	$	285
Real estate - construction commercial	​	​	102	​	​	115	​	​	15
Real estate - residential	​	​	4,291	​	​	4,320	​	​	955
Real estate - commercial	​	​	635	​	​	884	​	​	266
Consumer	​	​	144	​	​	182	​	​	19
Total	​	$	5,729	​	$	6,073	​	$	1,540
Total impaired loans	​	$	10,268	​	$	10,807	​	$	1,540

(in thousands)	Recorded Investment			Unpaid Principal Balance			Specific Reserves
December 31, 2014	​	​	​	​	​	​	​	​	​
With no related allowance recorded:	​			​			​
Commercial, financial and agricultural	​	$	6,021	​	$	6,232	​	$	0
Real estate - construction residential	​	​	1,750	​	​	2,259	​	​	0
Real estate - construction commercial	​	​	2,096	​	​	2,319	​	​	0
Real estate - residential	​	​	3,213	​	​	3,270	​	​	0
Real estate - commercial	​	​	15,409	​	​	18,950	​	​	0
Consumer	​	​	36	​	​	36	​	​	0
Total	​	$	28,525	​	$	33,066	​	$	0
With an allowance recorded:	​			​			​
Commercial, financial and agricultural	​	$	1,520	​	$	1,528	​	$	134
Real estate - residential	​	​	4,665	​	​	3,546	​	​	1,343
Real estate - commercial	​	​	1,055	​	​	1,171	​	​	246
Consumer	​	​	198	​	​	237	​	​	26
Total	​	$	7,438	​	$	6,482	​	$	1,749
Total impaired loans	​	$	35,963	​	$	39,548	​	$	1,749

46

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2015 and 2014:

​

2015

2014

(in thousands)

Average Recorded Investment

Interest Recognized For the Period Ended

Average Recorded Investment

Interest Recognized For the Period Ended

With no related allowance recorded:

​

​

​

​

Commercial, financial and agricultural

​

$

2,949

​

$

39

​

$

3,141

​

$

94

Real estate - construction residential

​

​

536

​

​

0

​

​

610

​

​

2

Real estate - construction commercial

​

​

1,105

​

​

0

​

​

5,950

​

​

0

Real estate - residential

​

​

2,331

​

​

37

​

​

3,517

​

​

46

Real estate - commercial

​

​

5,169

​

​

119

​

​

13,703

​

​

400

Consumer

​

​

7

​

​

1

​

​

11

​

​

0

Total

​

$

12,097

​

$

196

​

$

26,932

​

$

542

With an allowance recorded:

​

​

​

​

Commercial, financial and agricultural

​

$

1,356

​

$

22

​

$

1,773

​

$

19

Real estate - construction residential

​

​

0

​

​

0

​

​

1,697

​

​

0

Real estate - construction commercial

​

​

52

​

​

0

​

​

42

​

​

0

Real estate - residential

​

​

4,625

​

​

110

​

​

5,118

​

​

129

Real estate - commercial

​

​

1,161

​

​

0

​

​

3,810

​

​

11

Consumer

​

​

183

​

​

0

​

​

312

​

​

0

Total

​

$

7,377

​

$

132

​

$

12,752

​

$

159

Total impaired loans

​

$

19,474

​

$

328

​

$

39,684

​

$

701

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $328,000 and $701,000, for the years ended December 31, 2015 and 2014, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the years reported.

Delinquent and Non-Accrual Loans

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

47

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The following table provides aging information for the Company’s past due and non-accrual loans at December 31, 2015 and 2014.

(in thousands)

Current or Less Than 30 Days Past Due

30-89 Days Past Due

90 Days Past Due And Still Accruing

Non-Accrual

Total

December 31, 2015

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

148,597

​

$

185

​

$

1

​

$

308

​

$

149,091

Real Estate Construction - Residential

​

​

16,830

​

​

0

​

​

0

​

​

0

​

​

16,830

Real Estate Construction - Commercial

​

​

33,472

​

​

65

​

​

0

​

​

102

​

​

33,639

Real Estate Mortgage - Residential

​

​

251,253

​

​

2,511

​

​

0

​

​

2,322

​

​

256,086

Real Estate Mortgage - Commercial

​

​

384,053

​

​

643

​

​

0

​

​

1,542

​

​

386,238

Installment and Other Consumer

​

​

22,840

​

​

207

​

​

5

​

​

144

​

​

23,196

Total

​

$

857,045

​

$

3,611

​

$

6

​

$

4,418

​

$

865,080

December 31, 2014

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

149,366

​

$

189

​

$

0

​

$

5,279

​

$

154,834

Real Estate Construction - Residential

​

​

16,352

​

​

0

​

​

0

​

​

1,751

​

​

18,103

Real Estate Construction - Commercial

​

​

46,670

​

​

0

​

​

56

​

​

2,096

​

​

48,822

Real Estate Mortgage - Residential

​

​

239,469

​

​

3,229

​

​

0

​

​

4,419

​

​

247,117

Real Estate Mortgage - Commercial

​

​

366,653

​

​

1,203

​

​

0

​

​

4,465

​

​

372,321

Installment and Other Consumer

​

​

19,551

​

​

230

​

​

2

​

​

233

​

​

20,016

Total

​

$

838,061

​

$

4,851

​

$

58

​

$

18,243

​

$

861,213

Credit Quality

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

48

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The following table presents the risk categories by class at December 31, 2015 and 2014.

(in thousands)	Commercial, Financial, & Agricultural			Real Estate Construction - Residential			Real Estate Construction - Commercial			Real Estate Mortgage - Residential			Real Estate Mortgage - Commercial			Installment and other Consumer			Total
At December 31, 2015	​			​			​			​			​			​			​
Watch	​	$	8,663	​	$	1,267	​	$	1,296	​	$	22,191	​	$	24,303	​	$	186	​	$	57,906
Substandard	​	​	421	​	​	0	​	​	37	​	​	3,737	​	​	1,485	​	​	36	​	​	5,716
Performing TDRs	​	​	697	​	​	0	​	​	0	​	​	3,615	​	​	1,538	​	​	0	​	​	5,850
Non-accrual	​	​	308	​	​	0	​	​	102	​	​	2,322	​	​	1,542	​	​	144	​	​	4,418
Total	​	$	10,089	​	$	1,267	​	$	1,435	​	$	31,865	​	$	28,868	​	$	366	​	$	73,890
At December 31, 2014	​			​			​			​			​			​			​
Watch	​	$	13,651	​	$	1,103	​	$	4,757	​	$	27,172	​	$	18,191	​	$	199	​	$	65,073
Substandard	​	​	926	​	​	90	​	​	1,211	​	​	3,124	​	​	4,102	​	​	139	​	​	9,592
Performing TDRs	​	​	2,262	​	​	0	​	​	0	​	​	3,459	​	​	11,999	​	​	0	​	​	17,720
Non-accrual	​	​	5,279	​	​	1,751	​	​	2,096	​	​	4,419	​	​	4,465	​	​	233	​	​	18,243
Total	​	$	22,118	​	$	2,944	​	$	8,064	​	$	38,174	​	$	38,757	​	$	571	​	$	110,628

Troubled Debt Restructurings

At December 31, 2015, loans classified as TDRs totaled $6.4 million, of which $527,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.9 million were classified as performing TDRs. At December 31, 2014, TDRs totaled $19.3 million, of which $1.6 million were classified as nonperforming TDRs included in non-accrual loans and $17.7 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of  $1.0 million related to TDRs were allocated to the allowance for loan losses at December 31, 2015 and 2014.

The following table summarizes loans that were modified as TDRs during the years ended December 31, 2015 and 2014.

​

2015

2014

​

Recorded Investment (1)

Recorded Investment (1)

(in thousands)

Number of Contracts

Pre- Modification

Post- Modification

Number of Contracts

Pre- Modification

Post- Modification

Troubled Debt Restructurings

​

​

​

​

​

​

Commercial, financial and agricultural

​

2

​

$

250

​

$

229

​

3

​

$

244

​

$

208

Real estate mortgage - residential

​

1

​

​

519

​

​

374

​

1

​

​

1,256

​

​

1,170

Real estate mortgage - commercial

​

4

​

​

1,273

​

​

1,249

​

0

​

​

0

​

​

0

Total

​

7

​

$

2,042

​

$

1,852

​

4

​

$

1,500

​

$

1,378

(1)

The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off, or foreclosed upon during the period ended are not reported.

The Company’s portfolio of loans classified as TDRs include concessions for the borrower due to deteriorated financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. During the year ended December 31, 2015, seven loans meeting the TDR criteria were modified compared to four loans during the year ended December 31, 2014.

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses, provided for as a

49

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

specific reserve within the allowance for loan losses, or in the process of foreclosure. There were no TDRs that defaulted within twelve months of its modification date during the year ended December 31, 2015 and two loans modified as a TDR that defaulted during the year December 31, 2014.

(3)   Real Estate and Other Assets Acquired in Settlement of Loans

(in thousands)	2015			2014
Commercial	​	$	1,445	​	$	0
Real estate construction - residential	​	​	0	​	​	23
Real estate construction - commercial	​	​	12,380	​	​	9,831
Real estate mortgage - residential	​	​	477	​	​	417
Real estate mortgage - commercial	​	​	4,923	​	​	4,831
Repossessed assets	​	​	0	​	​	38
Total	​	$	19,225	​	$	15,140
Less valuation allowance for other real estate owned	​	​	(3,233)	​	​	(3,255)
Total other real estate owned and foreclosed assets	​	$	15,992	​	$	11,885

Changes in the net carrying amount of other real estate owned and repossessed assets for the years ended December 31, 2013 2014, and 2015, respectively, were as follows:

Balance at December 31, 2013	$	19,542
Additions	​	1,975
Proceeds from sales	​	(4,560)
Charge-offs against the valuation allowance for other real estate owned	​	(2,005)
Net gain on sales	​	188
Balance at December 31, 2014	$	15,140
Additions	​	5,804
Proceeds from sales	​	(1,836)
Charge-offs against the valuation allowance for other real estate owned, net	​	(39)
Net gain on sales	​	156
Total other real estate owned and repossessed assets	$	19,225
Less valuation allowance for other real estate owned	​	(3,233)
Balance at December 31, 2015	$	15,992

During the years ended December 31, 2015 and 2014, net charge-offs against the allowance for loan losses at the time of foreclosure were approximately $995,000 and $335,000, respectively. At December 31, 2015 $390,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $209,000 at December 31, 2014.

50

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Activity in the valuation allowance for other real estate owned in settlement of loans for the years ended December 31, 2015, 2014 and 2013, respectively, is summarized as follows:

(in thousands)	2015			2014			2013
Balance, beginning of year	​	$	3,255	​	$	4,675	​	$	6,137
Provision for other real estate owned	​	​	17	​	​	585	​	​	3,367
Charge-offs	​	​	(39)	​	​	(2,005)	​	​	(4,829)
Balance, end of year	​	$	3,233	​	$	3,255	​	$	4,675

(4)   Investment Securities

The amortized cost and fair value of debt securities classified as available-for-sale at December 31, 2015 and 2014 are as follows:

(in thousands)	Amortized cost			Gross unrealized gains			Gross unrealized losses			Fair value
December 31, 2015	​			​			​			​
Government sponsored enterprises	​	$	73,605	​	$	127	​	$	235	​	$	73,497
Asset-backed securities	​	​	130,179	​	​	440	​	​	1,768	​	​	128,851
Obligations of states and political subdivisions	​	​	32,224	​	​	493	​	​	11	​	​	32,706
Total available for sale securities	​	$	236,008	​	$	1,060	​	$	2,014	​	$	235,054
December 31, 2014	​			​			​			​
Government sponsored enterprises	​	$	57,002	​	$	240	​	$	143	​	$	57,099
Asset-backed securities	​	​	106,726	​	​	855	​	​	1,119	​	​	106,462
Obligations of states and political subdivisions	​	​	34,925	​	​	583	​	​	71	​	​	35,437
Total available for sale securities	​	$	198,653	​	$	1,678	​	$	1,333	​	$	198,998

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

Other Investments and securities primarily consist of Federal Home Loan Bank stock, subordinated debt securities, and the Company’s interest in statutory trusts. These securities are reported at cost in other assets in the amount of  $8.0 million and $4.7 million as of December 31, 2015 and 2014, respectively.

Debt securities with carrying values aggregating approximately $182.7 million and $145.5 million at December 31, 2015 and December 31, 2014, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

51

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The amortized cost and fair value of debt securities classified as available-for-sale at December 31, 2015, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

(in thousands)	Amortized cost			Fair value
Due in one year or less	​	$	24,894	​	$	24,890
Due after one year through five years	​	​	67,513	​	​	67,614
Due after five years through ten years	​	​	12,593	​	​	12,871
Due after ten years	​	​	829	​	​	828
Total	​	​	105,829	​	​	106,203
Asset-backed securities	​	​	130,179	​	​	128,851
Total available for sale securities	​	$	236,008	​	$	235,054

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and December 31, 2014 were as follows:

​

Less than 12 months

12 months or more

Total

Total

(in thousands)

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

At December 31, 2015

​

​

​

​

​

​

Government sponsored enterprises

​

$

43,539

​

$

(222)

​

$

1,002

​

$

(13)

​

$

44,541

​

$

(235)

Asset-backed securities

​

​

56,095

​

​

(620)

​

​

43,576

​

​

(1,148)

​

​

99,671

​

​

(1,768)

Obligations of states and political subdivisions

​

​

2,571

​

​

(6)

​

​

718

​

​

(5)

​

​

3,289

​

​

(11)

Total

​

$

102,205

​

$

(848)

​

$

45,296

​

$

(1,166)

​

$

147,501

​

$

(2,014)

(in thousands)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

At December 31, 2014

​

​

​

​

​

​

Government sponsored enterprises

​

$

2,983

​

$

(4)

​

$

17,862

​

$

(139)

​

$

20,845

​

$

(143)

Asset-backed securities

​

​

10,314

​

​

(50)

​

​

45,445

​

​

(1,069)

​

​

55,759

​

​

(1,119)

Obligations of states and political subdivisions

​

​

3,667

​

​

(15)

​

​

1,942

​

​

(56)

​

​

5,609

​

​

(71)

Total

​

$

16,964

​

$

(69)

​

$

65,249

​

$

(1,264)

​

$

82,213

​

$

(1,333)

The total available for sale portfolio consisted of approximately 316 securities at December 31, 2015. The portfolio included 71 securities having an aggregate fair value of  $147.5 million that were in a loss position at December 31, 2015. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $45.3 million at fair value. The $2.0 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2015 was caused by interest rate fluctuations.

The total available for sale portfolio consisted of approximately 300 securities at December 31, 2014. The portfolio included 74 securities having an aggregate fair value of  $82.2 million that were in a loss position at December 31, 2014. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $65.2 million at fair value. The $1.3 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2014 was caused by interest rate fluctuations.

Because the decline in fair value is attributable to changes in interest rates and not credit quality these investments were not considered other-than-temporarily impaired at December 31, 2015 and 2014. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that it will be required to sell such investment securities.

52

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The table presents the components of investment securities gains and losses, which have been recognized in earnings:

(in thousands)	2015			2014			2013
Gains realized on sales	​	$	8	​	$	86	​	$	786
Losses realized on sales	​	​	0	​	​	(66)	​	​	(8)
Other-than-temporary impairment recognized	​	​	0	​	​	0	​	​	0
Investment securities gains	​	$	8	​	$	20	​	$	778

(5)   Premises and Equipment

A summary of premises and equipment at December 31, 2015 and 2014 is as follows:

(in thousands)	2015			2014
Land and land improvements	​	$	10,165	​	$	10,152
Buildings and improvements	​	​	35,588	​	​	35,504
Furniture and equipment	​	​	12,906	​	​	12,016
Construction in progress	​	​	94	​	​	523
Total	​	​	58,753	​	​	58,195
Less accumulated depreciation	​	​	22,364	​	​	20,697
Premises and equipment, net	​	$	36,389	​	$	37,498

Depreciation expense for the years ended December 31, 2015, 2014, and 2013 was as follows:

(in thousands)	2015			2014			2013
Depreciation expense	​	$	1,810	​	$	1,758	​	$	1,605

(6)   Intangible Assets

Core Deposit Intangible Asset

Core deposit intangible assets in the amount of  $4.8 million were fully amortized as of June 30, 2013. Amortization expense was $0, $0 and $135,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

Mortgage Servicing Rights

At December 31, 2015 and 2014, respectively, the Company serviced mortgage loans for others totaling $312.1 million and $313.9 million, respectively. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $873,000, $895,000, and $901,000, for the years ended December 31, 2015, 2014, and 2013, respectively.

53

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The table below presents changes in mortgage servicing rights (MSRs) for the years ended December 31, 2015, 2014, and 2013.

(in thousands)	2015			2014			2013
Balance at beginning of year	​	$	2,762	​	$	3,036	​	$	2,549
Originated mortgage servicing rights	​	​	386	​	​	302	​	​	512
Changes in fair value:	​			​			​
Due to change in model inputs and assumptions (1)	​	​	372	​	​	66	​	​	723
Other changes in fair value (2)	​	​	(673)	​	​	(642)	​	​	(748)
Amortization	​	​	0	​	​	0	​	​	0
Balance at end of year	​	$	2,847	​	$	2,762	​	$	3,036

(1)

The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2)

Other changes in fair value reflect changes due to customer payments and passage of time.

The following key data and assumptions were used in estimating the fair value of the Company’s mortgage servicing rights as of the years ended December 31, 2015 and 2014:

​	2015		2014
Weighted-Average Constant Prepayment Rate	​	9.58%	​	10.54%
Weighted-Average Note Rate	​	3.92%	​	3.99%
Weighted-Average Discount Rate	​	9.16%	​	9.21%
Weighted-Average Expected Life (in years)	​	5.90	​	5.70

(7)   Deposits

The scheduled maturities of total time deposits as of the years ended December 31, 2015 and 2014 were as follows:

(in thousands)	2015			2014
Due within:	​			​
One year	​	$	201,418	​	$	204,566
Two years	​	​	56,026	​	​	58,177
Three years	​	​	29,030	​	​	33,551
Four years	​	​	6,022	​	​	16,760
Five years	​	​	5,586	​	​	5,282
Thereafter	​	​	0	​	​	1,347
Total	​	$	298,082	​	$	319,683

54

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

At December 31, 2015 and 2014, the Company had certificates and other time deposits in denominations of  $100,000 or more with maturities as follows:

(in thousands)	2015			2014
Due within:	​			​
Three months or less	​	$	39,122	​	$	33,488
Over three months through six months	​	​	30,704	​	​	29,381
Over six months through twelve months	​	​	30,432	​	​	35,308
Over twelve months	​	​	31,986	​	​	36,768
Total	​	$	132,244	​	$	134,945

Total time deposits of more than $250,000 totaled $254.7 million and $253.9 million at December 31, 2015 and 2014, respectively.

The Federal Reserve Bank required the Bank to maintain cash or balances of  $1.6 million at December 31, 2015 and 2014 to satisfy reserve requirements. Average compensating balances held at correspondent banks were $544,000 and $408,000 at December 31, 2015 and 2014, respectively. The Bank maintains such compensating balances with correspondent banks to offset charges for services rendered by those banks.

(8)   Borrowings

Federal Funds Purchased and Securities Sold under Agreements to Repurchase (Repurchase Agreements)

Information relating to federal funds purchased and repurchase agreements is as follows:

(in thousands)

Year End Weighted Rate

Average Weighted Rate

Average Balance Outstanding

Maximum Outstanding at any Month End

Balance at December 31,

2015

​

​

​

​

​

Federal funds purchased

​

0.70%

​

0.41%

​

$

658

​

$

937

​

$

0

Short-term repurchase agreements

​

0.10

​

0.17

​

​

30,266

​

​

58,464

​

​

56,834

Total

​

​

​

​

​

$

30,924

​

$

59,401

​

$

56,834

2014

​

​

​

​

​

Federal funds purchased

​

0.45%

​

0.38%

​

$

404

​

$

0

​

$

0

Short-term repurchase agreements

​

0.12

​

0.10

​

​

19,819

​

​

22,849

​

​

17,970

Total

​

​

​

​

​

$

20,223

​

$

22,849

​

$

17,970

The securities underlying the agreements to repurchase are under the control of the Bank. All securities sold under agreements to repurchase are secured by a portion of the Bank’s investment portfolio. Under agreements with unaffiliated banks, the Bank may borrow federal funds up to $40.0 million on an unsecured basis and $8.6 million on a secured basis at December 31, 2015.

55

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Subordinated Notes and Other Borrowings

Other borrowings of the Company consisted of the following:

(in thousands)

​

​

​

2015

2014

​

Borrower

Maturity Date

Year End Balance

Year End Weighted Rate

Year End Balance

Year End Weighted Rate

FHLB advances

The Bank

​

2015

​

$

0

​

na%

​

$

8,000

​

0.30%

​

​

​

2016

​

​

8,000

​

0.67%

​

​

8,000

​

0.67%

​

​

​

2017

​

​

5,000

​

1.07%

​

​

5,000

​

1.07%

​

​

​

2018

​

​

22,000

​

1.93%

​

​

20,000

​

2.00%

​

​

​

2019

​

​

4,000

​

1.79%

​

​

2,000

​

1.97%

​

​

​

2020

​

​

11,000

​

1.95%

​

​

0

​

na%

Total Bank

​

​

​

​

$

50,000

​

​

​

$

43,000

​

​

Subordinated notes

The Company

​

2034

​

$

25,774

​

3.23%

​

$

25,774

​

2.94%

​

​

​

2035

​

​

23,712

​

2.36%

​

​

23,712

​

2.07%

Total Company

​

​

​

​

$

49,486

​

​

​

$

49,486

​

​

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB) and has access to term financing from the FHLB. These borrowings are secured under a blanket agreement which assigns all investment in FHLB stock, as well as qualifying first mortgage loans as collateral to secure amounts borrowed by the Bank. The outstanding balance of  $50.0 million includes $10.0 million, which the FHLB may call for early payment within the next year. Based upon the collateral pledged to the FHLB at December 31, 2015, the Bank could borrow up to an additional $207.5 million under the agreement.

On March 17, 2005, Exchange Statutory Trust II, a business trust and subsidiary of the Company, issued $23.0 million of 30-year floating rate Trust Preferred Securities (TPS) to a TPS Pool. The floating rate is equal to a three-month LIBOR rate plus 1.83% and reprices quarterly (2.36% at December 31, 2015). The TPS can be prepaid without penalty at any time after five years from the issuance date.

The TPS represent preferred interests in the trust. The Company invested approximately $712,000 in common interests in the trust and the purchaser in the private placement purchased $23.0 million in preferred interests. The proceeds were used by the trust to purchase from the Company its 30-year deeply subordinated debentures whose terms mirror those stated above for the TPS. The debentures are guaranteed by the Company pursuant to a subordinated guarantee. Distributions on the TPS are payable quarterly on March 17, June 17, September 17, and December 17 of each year that the TPS are outstanding. The trustee for the TPS holders is U.S. Bank, N.A. The trustee does not have the power to take enforcement action in the event of a default under the TPS for five years from the date of default. In the event of default, however, the Company would be precluded from paying dividends until the default is cured.

On March 17, 2004, Exchange Statutory Trust I, a business trust and subsidiary of the Company issued $25.0 million of floating rate TPS to a TPS Pool. The floating rate is equal to the three-month LIBOR rate plus 2.70% and reprices quarterly (3.23% at December 31, 2015). The TPS are fully, irrevocably, and unconditionally guaranteed on a subordinated basis by the Company. The proceeds of the TPS were invested in junior subordinated debentures of the Company. Distributions on the TPS are payable quarterly on March 17, June 17, September 17, and December 17 of each year that the TPS are outstanding. The TPS mature on March 17, 2034. That maturity date may be shortened if certain conditions are met.

The Exchange Statutory Trusts are not consolidated in the Company’s financial statements. Accordingly, the Company does not report the securities issued by the Exchange Statutory Trusts as liabilities, and instead reports the subordinated notes issued by the Company and held by the Exchange

56

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Statutory Trusts as liabilities. The amount of the subordinated notes as of December 31, 2015 and 2014 was $49.5 million, respectively. The Company has recorded the investments in the common securities issued by the Exchange Statutory Trusts aggregating $1.5 million, and the corresponding obligations under the subordinated notes, as well as the interest income and interest expense on such investments and obligations in its consolidated financial statements.

(9)   Income Taxes

The composition of income tax expense for the years ended December 31, 2015, 2014, and 2013 was as follows:

(in thousands)	2015			2014			2013
Current:	​			​			​
Federal	​	$	3,619	​	$	1,105	​	$	584
State	​	​	496	​	​	137	​	​	71
Total current	​	​	4,115	​	​	1,242	​	​	655
Deferred:	​			​			​
Federal	​	​	391	​	​	2,353	​	​	1,485
State	​	​	74	​	​	447	​	​	282
Total deferred	​	​	465	​	​	2,800	​	​	1,767
Total income tax expense	​	$	4,580	​	$	4,042	​	$	2,422

Applicable income tax expense for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate for the reasons noted in the table for the years ended December 31, 2015, 2014, and 2013 are as follows:

(in thousands)	2015					2014					2013
​	Amount			%		Amount			%		Amount			%
Income before provision for income tax expense	​	$	13,179	​	​	​	$	11,696	​	​	​	$	7,396	​	​
Tax at statutory federal income tax rate	​	$	4,481	​	34.00%	​	$	3,977	​	34.00%	​	$	2,515	​	34.00%
Tax-exempt income	​	​	(369)	​	(2.80)	​	​	(348)	​	(2.98)	​	​	(353)	​	(4.77)
State income tax, net of federal tax benefit	​	​	376	​	2.85	​	​	385	​	3.30	​	​	233	​	3.15
Other, net	​	​	92	​	0.70	​	​	28	​	0.24	​	​	27	​	0.37
Provision for income tax expense	​	$	4,580	​	34.75%	​	$	4,042	​	34.56%	​	$	2,422	​	32.75%

57

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The components of deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are as follows:

(in thousands)	2015			2014
Deferred tax assets:	​			​
Allowance for loan losses	​	$	3,269	​	$	3,458
Impairment of other real estate owned	​	​	1,226	​	​	1,233
Goodwill	​	​	1,437	​	​	1,786
Available-for-sale securities	​	​	363	​	​	0
Nonaccrual loan interest	​	​	640	​	​	1,069
Core deposit intangible	​	​	556	​	​	689
Pension	​	​	1,242	​	​	985
Deferred taxes on pension	​	​	874	​	​	998
Deferred compensation	​	​	138	​	​	130
Other	​	​	342	​	​	250
Total deferred tax assets	​	$	10,087	​	$	10,598
Deferred tax liabilities:	​			​
Available-for-sale securities	​	$	0	​	$	131
Premises and equipment	​	​	938	​	​	1,160
Mortgage servicing rights	​	​	1,064	​	​	1,022
Assets held for sale	​	​	49	​	​	114
Other	​	​	13	​	​	53
Total deferred tax liabilities	​	​	2,064	​	​	2,480
Net deferred tax assets	​	$	8,023	​	$	8,118

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of December 31, 2015 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2019 and 2020, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.

The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. As of December 31, 2015, 2014, and 2013 the Company did not have any uncertain tax provisions.

58

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

(10)   Stockholders’ Equity

Accumulated Other Comprehensive (Loss) Income

The following details the change in the components of the Company’s accumulated other comprehensive (loss) income for the years ended December 31, 2014 and 2015, respectively:

(in thousands)	Unrealized Loss on Securities (1)			Unrecognized Net Pension and Postretirement Costs (2)			Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2013	​	$	(1,491)	​	$	722	​	$	(769)
Other comprehensive (loss) income, before reclassifications	​	​	2,770	​	​	(3,568)	​	​	(798)
Amounts reclassified from accumulated other comprehensive income	​	​	(20)	​	​	79	​	​	59
Current period other comprehensive (loss) income, before tax	​	​	2,750	​	​	(3,489)	​	​	(739)
Income tax benefit (expense)	​	​	(1,045)	​	​	1,325	​	​	280
Current period other comprehensive (loss) income, net of tax	​	​	1,705	​	​	(2,164)	​	​	(459)
Balance, December 31, 2014	​	$	214	​	$	(1,442)	​	$	(1,228)
Other comprehensive (loss) income, before reclassifications	​	​	(1,291)	​	​	5	​	​	(1,286)
Amounts reclassified from accumulated other comprehensive income	​	​	(8)	​	​	144	​	​	136
Current period other comprehensive (loss) income, before tax	​	​	(1,299)	​	​	149	​	​	(1,150)
Deferred tax adjustment	​	​	0	​	​	(77)	​	​	(77)
Income tax benefit (expense)	​	​	494	​	​	(57)	​	​	437
Current period other comprehensive (loss) income, net of tax	​	​	(805)	​	​	15	​	​	(790)
Balance, December 31, 2015	​	$	(591)	​	$	(1,427)	​	$	(2,018)

(1)

The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in gain on sale of investment securities in the consolidated statements of income.

(2)

The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost. See Note 11.

(11)   Employee Benefit Plans

Employee benefits charged to operating expenses are summarized in the table below for the years ended December 31, as indicated.

(in thousands)	2015			2014			2013
Payroll taxes	​	$	1,102	​	$	1,081	​	$	1,106
Medical plans	​	​	1,928	​	​	1,974	​	​	1,915
401(k) match	​	​	325	​	​	310	​	​	309
Pension plan	​	​	1,391	​	​	960	​	​	1,173
Profit-sharing	​	​	563	​	​	201	​	​	118
Other	​	​	164	​	​	122	​	​	219
Total employee benefits	​	$	5,473	​	$	4,648	​	$	4,840

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 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.

59

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Pension

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. The Company made $716,000 of contributions to the defined benefit plan for the current plan year. There is a $758,000 minimum required contribution for the 2016 plan year. The Company has not determined whether it will make any contributions other than the minimum required funding for 2016.

Obligations and Funded Status at December 31,

(in thousands)	2015			2014
Change in projected benefit obligation:	​			​
Balance, January 1	​	$	19,977	​	$	14,852
Service cost	​	​	1,325	​	​	981
Interest cost	​	​	838	​	​	732
Actuarial (loss) gain	​	​	(1,084)	​	​	3,813
Benefits paid	​	​	(455)	​	​	(401)
Balance, December 31	​	$	20,601	​	$	19,977
Change in plan assets:	​			​
Fair value, January 1	​	$	14,933	​	$	13,532
Actual return on plan assets	​	​	(75)	​	​	1,118
Employer contribution	​	​	716	​	​	725
Expenses paid	​	​	(88)	​	​	(41)
Benefits paid	​	​	(455)	​	​	(401)
Fair value, December 31	​	$	15,031	​	$	14,933
Funded status at end of year	​	$	(5,570)	​	$	(5,044)
Accumulated benefit obligation	​	$	16,550	​	$	16,595

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

The following items are components of net pension cost for the years ended December 31, as indicated:

(in thousands)	2015			2014			2013
Service cost - benefits earned during the year	​	$	1,325	​	$	981	​	$	1,174
Interest costs on projected benefit obligations	​	​	838	​	​	732	​	​	646
Expected return on plan assets	​	​	(957)	​	​	(872)	​	​	(797)
Expected administrative expenses	​	​	40	​	​	40	​	​	40
Amortization of prior service cost	​	​	79	​	​	79	​	​	79
Amortization of unrecognized net loss	​	​	66	​	​	0	​	​	31
Net periodic pension expense	​	$	1,391	​	$	960	​	$	1,173

60

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss at December 31, 2015 and 2014 are shown below, including amounts recognized in other comprehensive income during the periods. All amounts are shown on a pre-tax basis.

(in thousands)	2015			2014
Prior service costs	​	$	(364)	​	$	(443)
Net accumulated actuarial net loss	​	​	(1,937)	​	​	(2,008)
Accumulated other comprehensive loss	​	​	(2,301)	​	​	(2,451)
Net periodic benefit cost in excess of cumulative employer contributions	​	​	(3,269)	​	​	(2,593)
Net amount recognized at December 31, balance sheet	​	$	(5,570)	​	$	(5,044)
Net gain (loss) arising during period	​	$	5	​	$	(3,568)
Prior service cost amortization	​	​	79	​	​	79
Amortization of net actuarial loss	​	​	65	​	​	0
Total recognized in other comprehensive income (loss)	​	$	149	​	$	(3,489)
Total recognized in net periodic pension cost and other comprehensive income	​	$	1,242	​	$	4,449

The estimated prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic cost in 2016 is $79,000. During 2016, there is no estimated amount of actuarial loss subject to amortization into net periodic pension cost.

Assumptions utilized to determine benefit obligations as of December 31, 2015, 2014 and 2013 and to determine pension expense for the years then ended are as follows:

​	2015		2014		2013
Determination of benefit obligation at year end:	​		​		​
Discount rate	​	4.70%	​	4.25%	​	5.00%
Annual rate of compensation increase	​	3.78%	​	3.78%	​	3.73%
Determination of pension expense for year ended:	​		​		​
Discount rate for the service cost	​	4.25%	​	5.00%	​	4.25%
Annual rate of compensation increase	​	3.78%	​	3.73%	​	3.61%
Expected long-term rate of return on plan assets	​	7.00%	​	7.00%	​	7.00%

The assumed overall expected long-term rate of return on pension plan assets used in calculating 2015 pension expense was 7.0%. Determination of the plan’s rate of return is based upon historical returns for equities and fixed income indexes. During the past five years, the Company’s plan assets have experienced the following annual returns: -0.4% in 2015, 8.3% in 2014, 19.1% in 2013, 11.4% in 2012, and 0.1% in 2011. The rate used in plan calculations may be adjusted by management for current trends in the economic environment. With a traditional investment mix of over half of the plan’s investments in equities, the actual return for any one plan year may fluctuate significantly with changes in the stock market. Due to an increase in discount rates used in the actuarial calculation of plan income, the Company expects to incur $1.2 million of expense in 2016 compared to $1.4 million 2015.

Plan Assets

The investment policy of the pension plan is designed for growth in value while minimizing risk to the overall portfolio. The Company diversifies the assets through investments in domestic and international fixed income securities and domestic and international equity securities. The assets are readily marketable and can be sold to fund benefit payment obligations as they become payable. The Company’s long-term investment target mix for the plan is 70% equity securities and 30% fixed income. The Company regularly reviews its policies on the investment mix and may make changes depending on economic conditions and perceived investment mix.

61

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The fair value of the Company’s pension plan assets at December 31, 2015 and 2014 by asset category was as follows:

​

​

​

​

Fair Value Measurements

(in thousands)

Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

December 31, 2015

​

​

​

​

Cash equivalents

​

$

1,663

​

$

1,663

​

$

0

​

$

0

Equity securities:

​

​

​

​

U.S. large-cap (a)

​

​

6,191

​

​

6,191

​

​

0

​

​

0

U.S. mid-cap (b)

​

​

2,094

​

​

2,094

​

​

0

​

​

0

U.S. small-cap (c)

​

​

820

​

​

820

​

​

0

​

​

0

International (d)

​

​

1,778

​

​

1,778

​

​

0

​

​

0

Real estate (e)

​

​

478

​

​

478

​

​

0

​

​

0

Commodities (f)

​

​

205

​

​

205

​

​

0

​

​

0

Fixed income securities:

​

​

​

​

U.S. gov’t agency obligations (g)

​

​

1,802

​

​

0

​

​

1,802

​

​

0

Total

​

$

15,031

​

$

13,229

​

$

1,802

​

$

0

December 31, 2014

​

​

​

​

Cash equivalents

​

$

1,937

​

$

1,937

​

$

0

​

$

0

Equity securities:

​

​

​

​

U.S. large-cap (a)

​

​

7,252

​

​

7,252

​

​

0

​

​

0

U.S. mid-cap (b)

​

​

921

​

​

921

​

​

0

​

​

0

U.S. small-cap (c)

​

​

1,131

​

​

1,131

​

​

0

​

​

0

International (d)

​

​

1,895

​

​

1,895

​

​

0

​

​

0

Real estate (e)

​

​

486

​

​

486

​

​

0

​

​

0

Commodities (f)

​

​

264

​

​

264

​

​

0

​

​

0

Fixed income securities:

​

​

​

​

U.S. gov’t agency obligations (g)

​

​

1,047

​

​

0

​

​

1,047

​

​

0

Total

​

$

14,933

​

$

13,886

​

$

1,047

​

$

0

(a)

This category is comprised of low-cost equity index funds not actively managed that track the S&P 500.

(b)

This category is comprised of low-cost equity index funds not actively managed that track the MSCI U.S. mid-cap 450.

(c)

This category is comprised of actively managed mutual funds.

(d)

At December 31, 2015 and 2014, 31% of this category is comprised of low-cost equity index funds not actively managed that track the MSCI EAFE.

(e)

This category is comprised of low-cost real estate index exchange traded funds.

(f)

This category is comprised of exchange traded funds investing in agricultural and energy commodities.

(g)

This category is comprised of individual bonds.

62

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The following future benefit payments are expected to be paid:

Year	Pension benefits
(in thousands)	​
2016	​	$	513
2017	​	​	637
2018	​	​	660
2019	​	​	788
2020	​	​	859
2021 to 2025	​	​	5,530

(12)   Stock Compensation

The Company’s stock option plan provides for the grant of options to purchase up to 592,168 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries.

The following table summarizes the Company’s stock option activity:

​

Number of shares December 31

Weighted average exercise price December 31

Weighted average Contractual Term (in years)

Aggregate Intrinsic Value ($000)

​

2015

2014

2013

2015

2014

2013

2015

2014

2013

2015

2014

2013

Outstanding, beginning of year

​

100,361

​

131,366

​

242,304

​

$

21.56

​

$

22.32

​

$

21.95

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Granted

​

0

​

0

​

0

​

​

0.00

​

​

0.00

​

​

0.00

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Exercised

​

0

​

0

​

0

​

​

0.00

​

​

0.00

​

​

0.00

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Forfeited or expired

​

(37,616)

​

(31,005)

​

(110,938)

​

​

21.65

​

​

24.76

​

​

21.51

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Outstanding, end of year

​

62,745

​

100,361

​

131,366

​

$

21.50

​

$

21.56

​

$

22.32

​

1.41

​

1.93

​

2.51

​

$

0.00

​

$

0.00

​

$

0.00

Exercisable, end of year

​

55,262

​

88,586

​

115,663

​

$

22.25

​

$

21.95

​

$

22.58

​

1.24

​

1.75

​

2.30

​

$

0.00

​

$

0.00

​

$

0.00

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2015.

Total stock-based compensation expense for the years ended December 31, 2015, 2014, and 2013 was $10,000, $20,000, and $19,000, respectively. As of December 31, 2015, the total unrecognized compensation expense related to non-vested stock awards was $20,000 and the related weighted average period over which it is expected to be recognized is approximately 0.57 years. No stock options were granted during the years presented above.

(13)   Earnings per Share

Stock Dividend On July 1, 2015, the Company paid a special stock dividend of four percent to common shareholders of record at the close of business on June 15, 2015. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

Preferred Stock On December 19, 2008, the Company announced its participation in the U.S. Treasury Department’s Capital Purchase Program (CPP), a voluntary program that provides capital to financially healthy banks. Participation in this program included the Company’s issuance of 30,255 shares of senior preferred stock (with a par value of  $1,000 per share) and a ten year warrant to purchase approximately 287,133 shares of common stock. On May 9, 2012, the Company redeemed 12,000 of the 30,255 shares of preferred stock issued under the U.S. Treasury’s CPP program for a total purchase price of  $12.1 million, and on May 15, 2013, the remaining 18,255 shares were redeemed for a total purchase price of  $18.5 million.

63

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

On June 11, 2013, the common stock warrant issued under the U.S. Treasury Department’s CPP program was repurchased by the Company for a total purchase price of  $540,000, or $1.88 per warrant share. The purchase price was based on the fair market value of the warrant as agreed upon by the Company and the Treasury. The repurchase of the warrant ended the Company’s participation in the U.S. Treasury Department’s CPP.

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the year.

Presented below is a summary of the components used to calculate basic and diluted earnings per common share, which have been restated for all stock dividends.

​	2015			2014			2013
Basic earnings per common share:	​			​			​
Net income	​	$	8,599	​	$	7,654	​	$	4,974
Less preferred stock dividends and accretion of discount	​	​	0	​	​	0	​	​	615
Net income available to common shareholders	​	$	8,599	​	$	7,654	​	$	4,359
Basic earnings per share	​	$	1.58	​	$	1.41	​	$	0.80
Diluted earnings per common share:	​			​			​
Net income	​	$	8,599	​	$	7,654	​	$	4,974
Less preferred stock dividends and accretion of discount	​	​	0	​	​	0	​	​	615
Net income available to common shareholders	​	$	8,599	​	$	7,654	​	$	4,359
Average shares outstanding	​	​	5,443,284	​	​	5,443,344	​	​	5,443,344
Effect of dilutive stock options	​	​	0	​	​	0	​	​	0
Average shares outstanding including dilutive stock options	​	​	5,443,284	​	​	5,443,344	​	​	5,443,344
Diluted earnings per share	​	$	1.58	​	$	1.41	​	$	0.80

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to common shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

The following options to purchase shares during the years ended December 31, 2015, 2014 and 2013 were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

​	2015		2014		2013
Anti-dilutive shares - option shares	​	62,745	​	100,361	​	131,366
Anti-dilutive shares - warrant shares	​	0	​	0	​	0
Total anti-dilutive shares	​	62,745	​	100,361	​	131,366

64

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. During 2016, the Company repurchased 2,155 shares of common stock pursuant to the plan at an average price of  $15.39 per share.

The table below shows activity in the outstanding shares of the Company’s common stock during the past three years. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

​	Number of shares December 31
​	2015		2014		2013
Outstanding, beginning of year	​	5,233,986	​	5,032,679	​	4,839,114
Issuance of stock:	​		​		​
4% stock dividend	​	209,359	​	201,307	​	193,565
Purchase of treasury stock	​	(2,155)	​	0	​	0
Outstanding, end of year	​	5,441,190	​	5,233,986	​	5,032,679

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed in 2015.

(14)   Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital to risk-weighted assets, and of Tier I capital to adjusted-average assets. Management believes, as of December 31, 2015 and 2014, the Company and the Bank met all capital adequacy requirements.

In July 2013, the federal bank regulators approved final rules (the “Basel III Rule”) implementing Basel III framework as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rule also substantially revises the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including the Company and the Bank, as compared to the general risk-based capital rules. The Basel III Rule revises the components of capital and addresses other issues affecting the numerator in regulatory capital ratios. The Basel III Rule also address asset risk weights and other issues affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach based on Basel I with a more risk-sensitive approach. The Basel III Rule became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). As of December 31, 2015, the capital ratios (as set forth in the table below) are calculated under the new Basel III rules. As of December 31, 2014, the capital ratios (as set forth in the table below) are calculated under the former Basel I rules

As of December 31, 2015, the most recent notification from the regulatory authorities categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as

65

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since the notification that management believes have changed the Bank’s categories.

​

Actual

Required for Capital Adequacy Purposes

Well-Capitalized Under Prompt Corrective Action Provision

(in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2015

Total Capital (to risk-weighted assets):

​

​

​

​

​

​

Company

​

$

146,068

​

14.78%

​

$

79,066

​

8.00%

​

$

N.A.

​

N.A.%

Bank

​

​

137,572

​

13.98

​

​

78,718

​

8.00

​

​

98,398

​

10.00

Tier I Capital (to risk-weighted assets):

​

​

​

​

​

​

Company

​

$

118,875

​

12.03%

​

$

59,299

​

6.00%

​

$

N.A.

​

N.A.%

Bank

​

​

128,808

​

13.09

​

​

59,039

​

6.00

​

​

78,718

​

8.00

Common Equity Tier I Capital (to risk-weighted assets)

​

​

​

​

​

​

Company

​

$

89,304

​

9.02%

​

$

44,475

​

4.50%

​

$

N.A.

​

N.A.%

Bank

​

​

128,808

​

13.09

​

​

44,279

​

4.50

​

​

63,959

​

6.50

Tier I leverage ratio:

​

​

​

​

​

​

Company

​

$

118,875

​

9.84%

​

$

48,314

​

4.00%

​

$

N.A.

​

N.A.%

Bank

​

​

128,808

​

10.73

​

​

48,025

​

4.00

​

​

60,031

​

5.00

(in thousands)

December 31, 2014

Total Capital (to risk-weighted assets):

​

​

​

​

​

​

Company

​

$

138,619

​

15.78%

​

$

70,282

​

8.00%

​

​

N.A.

​

N.A.%

Bank

​

​

128,311

​

14.78

​

​

69,430

​

8.00

​

$

86,788

​

10.00

Tier I Capital (to risk-weighted assets):

​

​

​

​

​

​

Company

​

$

108,785

​

12.38%

​

$

35,141

​

4.00%

​

​

N.A.

​

N.A.%

Bank

​

​

119,212

​

13.74

​

​

34,715

​

4.00

​

$

52,073

​

6.00

Tier I leverage ratio:

​

​

​

​

​

​

Company

​

$

108,785

​

9.42%

​

$

46,197

​

4.00%

​

$

N.A.

​

N.A.%

Bank

​

​

119,212

​

10.42

​

​

45,784

​

4.00

​

​

57,230

​

5.00

(15)   Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurement, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of December 31, 2015 and 2014 there were no transfers into or out of Levels 1-3.

The fair value hierarchy is as follows:

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

66

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider.

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred.

Valuation methods for instruments measured at fair value on a recurring basis

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

Available-for-sale securities

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

Mortgage servicing rights

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

​

​

​

​

Fair Value Measurements

(in thousands)

Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

December 31, 2015

Assets:

​

​

​

​

Government sponsored enterprises

​

$

73,497

​

$

0

​

​

73,497

​

$

0

Asset-backed securities

​

​

128,851

​

​

0

​

​

128,851

​

​

0

Obligations of states and political subdivisions

​

​

32,706

​

​

0

​

​

32,706

​

​

0

Mortgage servicing rights

​

​

2,847

​

​

0

​

​

0

​

​

2,847

Total

​

$

237,901

​

$

0

​

$

235,054

​

$

2,847

67

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

​

​

​

​

Fair Value Measurements

(in thousands)

Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

December 31, 2014

Assets:

​

​

​

​

Government sponsored enterprises

​

$

57,099

​

$

0

​

​

57,099

​

$

0

Asset-backed securities

​

​

106,462

​

​

0

​

​

106,462

​

​

0

Obligations of states and political subdivisions

​

​

35,437

​

​

0

​

​

35,437

​

​

0

Mortgage servicing rights

​

​

2,762

​

​

0

​

​

0

​

​

2,762

Total

​

$

201,760

​

$

0

​

$

198,998

​

$

2,762

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

(in thousands)	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Mortgage Servicing Rights
Balance at December 31, 2013	​	$	3,036
Total gains or losses (realized/unrealized):	​
Included in earnings	​	​	(576)
Included in other comprehensive income	​	​	0
Purchases	​	​	0
Sales	​	​	0
Issues	​	​	302
Settlements	​	​	0
Balance at December 31, 2014	​	$	2,762
Total gains or losses (realized/unrealized):	​
Included in earnings	​	​	(301)
Included in other comprehensive income	​	​	0
Purchases	​	​	0
Sales	​	​	0
Issues	​	​	386
Settlements	​	​	0
Balance at December 31, 2015	​	$	2,847

68

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

The change in valuation of mortgage servicing rights arising from inputs and assumptions increased $372,000 and $66,000 for the years ended December 31, 2015 and 2014, respectively.

​	Quantitative Information about Level 3 Fair Value Measurements		​	​	​	​
​	Valuation Technique	Unobservable Inputs	Input Value
​	​	​	2015		2014
Mortgage servicing rights	Discounted cash flows	Weighted average constant prepayment rate	​	9.58%	​	10.54%
​	​	Weighted average discount rate	​	9.16%	​	9.21%
​	​	Weighted average expected life (in years)	​	5.90	​	5.70

Valuation methods for instruments measured at fair value on a nonrecurring basis

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

Impaired Loans

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. Once the fair value of the collateral has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of December 31, 2015, the Company identified $5.7 million in impaired loans that had specific allowances for losses aggregating $1.5 million. Related to these loans, there was $1.9 million in charge-offs recorded during the year ended December 31, 2015. As of December 31, 2014, the Company identified $7.4 million in impaired loans that had specific allowances for losses aggregating $1.7 million. Related to these loans, there was $5.4 million in charge-offs recorded during the year ended December 31, 2014.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral comprises of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

69

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

​

Fair Value Measurements Using

(in thousands)

Total Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Total Gains (Losses) *

December 31, 2015

Assets:

​

​

​

​

​

Impaired loans:

​

​

​

​

​

Commercial, financial, & agricultural

​

$

272

​

$

0

​

$

0

​

$

272

​

$

(920)

Real estate construction - residential

​

​

0

​

​

0

​

​

0

​

​

0

​

​

0

Real estate construction - commercial

​

​

87

​

​

0

​

​

0

​

​

87

​

​

(10)

Real estate mortgage - residential

​

​

3,336

​

​

0

​

​

0

​

​

3,336

​

​

(567)

Real estate mortgage - commercial

​

​

369

​

​

0

​

​

0

​

​

369

​

​

(322)

Consumer

​

​

125

​

​

0

​

​

0

​

​

125

​

​

(66)

Total

​

$

4,189

​

$

0

​

$

0

​

$

4,189

​

$

(1,885)

Other real estate owned and repossessed assets

​

$

15,992

​

$

0

​

$

0

​

$

15,992

​

$

118

December 31, 2014

Assets:

​

​

​

​

​

Impaired loans:

​

​

​

​

​

Commercial, financial, & agricultural

​

$

1,386

​

$

0

​

$

0

​

$

1,386

​

$

(1,105)

Real estate construction - residential

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(350)

Real estate construction - commercial

​

​

0

​

​

0

​

​

0

​

​

0

​

​

(491)

Real estate mortgage - residential

​

​

3,322

​

​

0

​

​

0

​

​

3,322

​

​

(332)

Real estate mortgage - commercial

​

​

809

​

​

0

​

​

0

​

​

809

​

​

(2,937)

Consumer

​

​

172

​

​

0

​

​

0

​

​

172

​

​

(148)

Total

​

$

5,689

​

$

0

​

$

0

​

$

5,689

​

$

(5,363)

Other real estate owned and repossessed assets

​

$

11,885

​

$

0

​

$

0

​

$

11,885

​

$

(1,870)

*

Total gains (losses) reported for other real estate owned and repossessed assets includes charge-offs, valuation write-downs, and net losses taken during the periods reported.

(16)   Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Loans

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

Investment Securities

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

70

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Federal Home Loan Bank (FHLB) Stock

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold, Cash, and Due from Banks

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

Cash Surrender Value – Life Insurance

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Subordinated Notes and Other Borrowings

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

71

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

A summary of the carrying amounts and fair values of the Company’s financial instruments at December 31, 2015 and 2014 is as follows:

​

​

​

​

​

​

​

December 31, 2015 Fair Value Measurements

​

December 31, 2015

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Net Significant Unobservable Inputs (Level 3)

(in thousands)

Carrying amount

Fair value

​

​

​

​

​

​

​

​

​

Assets:

​

​

​

​

​

Cash and due from banks

​

$

20,484

​

$

20,484

​

$

20,484

​

$

0

​

$

0

Federal funds sold and overnight interest-bearing deposits

​

​

7,893

​

​

7,893

​

​

7,893

​

​

0

​

​

0

Investment in available-for-sale securities

​

​

235,054

​

​

235,054

​

​

0

​

​

235,054

​

​

0

Loans, net

​

​

856,476

​

​

854,775

​

​

0

​

​

0

​

​

854,775

Investment in FHLB stock

​

​

3,390

​

​

3,390

​

​

0

​

​

3,390

​

​

0

Mortgage servicing rights

​

​

2,847

​

​

2,847

​

​

0

​

​

0

​

​

2,847

Cash surrender value - life insurance

​

​

2,348

​

​

2,348

​

​

0

​

​

2,348

​

​

0

Accrued interest receivable

​

​

4,853

​

​

4,853

​

​

4,853

​

​

0

​

​

0

​

​

$

1,133,345

​

$

1,131,644

​

$

33,230

​

$

240,792

​

$

857,622

Liabilities:

​

​

​

​

​

Deposits:

​

​

​

​

​

Non-interest bearing demand

​

$

208,035

​

$

208,035

​

$

208,035

​

$

0

​

$

0

Savings, interest checking and money market

​

​

441,080

​

​

441,080

​

​

441,080

​

​

0

​

​

0

Time deposits

​

​

298,082

​

​

298,323

​

​

0

​

​

0

​

​

298,323

Federal funds purchased and securities sold under agreements to repurchase

​

​

56,834

​

​

56,834

​

​

56,834

​

​

0

​

​

0

Subordinated notes

​

​

49,486

​

​

40,821

​

​

0

​

​

40,821

​

​

0

Federal Home Loan Bank advances

​

​

50,000

​

​

52,340

​

​

0

​

​

52,340

​

​

0

Accrued interest payable

​

​

382

​

​

382

​

​

382

​

​

0

​

​

0

​

​

$

1,103,899

​

$

1,097,815

​

$

706,331

​

$

93,161

​

$

298,323

​

​

​

​

​

​

​

December 31, 2014 Fair Value Measurements

​

December 31, 2014

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Net Significant Unobservable Inputs (Level 3)

(in thousands)

Carrying amount

Fair value

​

​

​

​

​

​

​

​

​

Assets:

​

​

​

​

​

Cash and due from banks

​

$

22,364

​

$

22,364

​

$

22,364

​

$

0

​

$

0

Federal funds sold and overnight interest-bearing deposits

​

​

20,445

​

​

20,445

​

​

20,445

​

​

0

​

​

0

Investment in available-for-sale securities

​

​

198,998

​

​

198,998

​

​

0

​

​

198,998

​

​

0

Loans, net

​

​

852,114

​

​

854,062

​

​

0

​

​

0

​

​

854,062

Investment in FHLB stock

​

​

3,075

​

​

3,075

​

​

0

​

​

3,075

​

​

0

Mortgage servicing rights

​

​

2,762

​

​

2,762

​

​

0

​

​

0

​

​

2,762

Cash surrender value - life insurance

​

​

2,284

​

​

2,284

​

​

0

​

​

2,284

​

​

0

Accrued interest receivable

​

​

4,816

​

​

4,816

​

​

4,816

​

​

0

​

​

0

​

​

$

1,106,858

​

$

1,108,806

​

$

47,625

​

$

204,357

​

$

856,824

72

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

​

​

​

​

​

​

​

December 31, 2014 Fair Value Measurements

​

December 31, 2014

Quoted Prices in Active Markets for Identical Assets (Level 1)

Other Observable Inputs (Level 2)

Net Significant Unobservable Inputs (Level 3)

(in thousands)

Carrying amount

Fair value

​

​

​

​

​

​

​

​

​

Liabilities:

​

​

​

​

​

Deposits:

​

​

​

​

​

Non-interest bearing demand

​

$

207,700

​

$

207,700

​

$

207,700

​

$

0

​

$

0

Savings, interest checking and money market

​

​

442,059

​

​

442,059

​

​

442,059

​

​

0

​

​

0

Time deposits

​

​

319,755

​

​

321,041

​

​

0

​

​

0

​

​

321,041

Federal funds purchased and securities sold under agreements to repurchase

​

​

17,970

​

​

17,970

​

​

17,970

​

​

0

​

​

0

Subordinated notes

​

​

49,486

​

​

33,371

​

​

0

​

​

33,371

​

​

0

Federal Home Loan Bank advances

​

​

43,000

​

​

44,396

​

​

0

​

​

44,396

​

​

0

Accrued interest payable

​

​

373

​

​

373

​

​

373

​

​

0

​

​

0

​

​

$

1,080,343

​

$

1,066,910

​

$

668,102

​

$

77,767

​

$

321,041

Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

Limitations

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.

(17)   Repurchase Reserve Liability

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both December 31, 2015 and 2014. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At December 31, 2015, the Company was servicing 3,024 loans sold to the secondary market with a balance of approximately $312.1 million compared to 3,057 loans sold with a balance of approximately $313.9 million at December 31, 2014.

(in thousands)	2015			2014			2013
Balance at beginning of year	​	$	160	​	$	160	​	$	0
Provision for repurchase liability	​	​	40	​	​	0	​	​	279
Reimbursement of expenses	​	​	(40)	​	​	0	​	​	(119)
Balance at end of year	​	$	160	​	$	160	​	$	160

73

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

(18)   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 Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance 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. At December 31, 2015, no amounts have been accrued for any estimated losses for these financial instruments.

The contractual amount of off-balance-sheet financial instruments as of December 31, 2015 and 2014 is as follows:

(in thousands)	2015			2014
Commitments to extend credit	​	$	161,306	​	$	135,137
Commitments to originate residential first and second mortgage loans	​	​	3,175	​	​	1,640
Standby letters of credit	​	​	1,466	​	​	1,621
Total	​	​	165,947	​	​	138,398

Commitments

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at December 31, 2015.

Pending Litigation

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss amount can be estimated.

74

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

(19)   Condensed Financial Information of the Parent Company Only

Following are the condensed financial statements of Hawthorn Bancshares, Inc. (Parent only) as of and for the years indicated:

Condensed Balance Sheets
​	December 31,
(in thousands)	2015			2014
Assets	​			​
Cash and due from bank subsidiaries	​	$	4,971	​	$	1,024
Investment in equity securities	​	​	1,486	​	​	1,486
Investment in subsidiaries	​	​	134,099	​	​	130,728
Deferred tax asset	​	​	2,116	​	​	1,989
Other assets	​	​	7	​	​	308
Total assets	​	$	142,679	​	$	135,535
Liabilities and Stockholders’ Equity	​			​
Subordinated notes	​	$	49,486	​	$	49,486
Other liabilities	​	​	5,907	​	​	5,481
Stockholders’ equity	​	​	87,286	​	​	80,568
Total liabilities and stockholders’ equity	​	$	142,679	​	$	135,535

Condensed Statements of Income
​	For the Years Ended December 31,
​	2015			2014			2013
Income	​			​			​
Interest and dividends received from subsidiaries	​	$	1,039	​	$	2,538	​	$	15,039
Total income	​	​	1,039	​	​	2,538	​	​	15,039
Expenses	​			​			​
Interest on subordinated notes	​	​	1,293	​	​	1,264	​	​	1,284
Other	​	​	2,138	​	​	1,730	​	​	1,778
Total expenses	​	​	3,431	​	​	2,994	​	​	3,062
Income before income tax benefit and equity in undistributed income of subsidiaries	​	​	(2,392)	​	​	(456)	​	​	11,977
Income tax benefit	​	​	1,065	​	​	1,100	​	​	1,126
Equity in undistributed income (losses) of subsidiaries	​	​	9,926	​	​	7,010	​	​	(8,129)
Net income	​	$	8,599	​	$	7,654	​	$	4,974

75

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

Condensed Statements of Cash Flows
​	For the Years Ended December 31,
(in thousands)	2015			2014			2013
Cash flows from operating activities:	​			​			​
Net income	​	$	8,599	​	$	7,654	​	$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:	​			​			​
Depreciation	​	​	0	​	​	0	​	​	1
Equity in undistributed (income) losses of subsidiaries	​	​	(9,926)	​	​	(7,010)	​	​	8,129
Stock based compensation expense	​	​	10	​	​	20	​	​	19
(Increase) decrease in deferred tax asset	​	​	(127)	​	​	(1,415)	​	​	1,325
Other, net	​	​	732	​	​	1,942	​	​	(182)
Net cash (used) provided by operating activities	​	$	(712)	​	$	1,191	​	$	14,266
Cash flows from investing activities:	​			​			​
Investment in subsidiary	​	$	5,750	​	$	400	​	$	4,550
Net cash provided by investing activities	​	$	5,750	​	$	400	​	$	4,550
Cash flows from financing activities:	​			​			​
Redemption of 18,255 shares of preferred stock	​	$	0	​	$	0	​	$	(18,255)
Cash dividends paid - preferred stock	​	​	0	​	​	0	​	​	(456)
Cash dividends paid - common stock	​	​	(1,058)	​	​	(1,017)	​	​	(978)
Purchase of treasury stock	​	​	(33)	​	​	0	​	​	0
Warrant redemption	​	​	0	​	​	0	​	​	(540)
Net cash used in financing activities	​	$	(1,091)	​	$	(1,017)	​	$	(20,229)
Net increase (decrease) in cash and due from banks	​	​	3,947	​	​	574	​	​	(1,413)
Cash and due from banks at beginning of year	​	​	1,024	​	​	450	​	​	1,863
Cash and due from banks at end of year	​	$	4,971	​	$	1,024	​	$	450

76

Hawthorn Bancshares, Inc.
and subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2015, 2014, and 2013
 

(20)   Quarterly Financial Information (Unaudited)

(In thousands except per share data)

First quarter

Second quarter

Third quarter

Fourth quarter

Year to Date

Year Ended December 31, 2015

​

​

​

​

​

Interest income

​

$

11,198

​

$

11,214

​

$

11,829

​

$

11,515

​

$

45,756

Interest expense

​

​

1,220

​

​

1,230

​

​

1,271

​

​

1,278

​

​

4,999

Net interest income

​

​

9,978

​

​

9,984

​

​

10,558

​

​

10,237

​

​

40,757

Provision for loan losses

​

​

0

​

​

250

​

​

0

​

​

0

​

​

250

Noninterest income

​

​

1,987

​

​

2,461

​

​

2,337

​

​

2,381

​

​

9,166

Noninterest expense

​

​

8,708

​

​

9,267

​

​

8,978

​

​

9,541

​

​

36,494

Income tax expense

​

​

1,119

​

​

1,001

​

​

1,377

​

​

1,083

​

​

4,580

Net income available to common stockholders

​

$

2,138

​

$

1,927

​

$

2,540

​

$

1,994

​

$

8,599

Net income per share:

​

​

​

​

​

Basic earnings per share

​

$

0.39

​

$

0.35

​

$

0.47

​

$

0.37

​

$

1.58

Diluted earnings per share

​

​

0.39

​

​

0.35

​

​

0.47

​

​

0.37

​

​

1.58

Year Ended December 31, 2014

​

​

​

​

​

Interest income

​

$

10,963

​

$

11,125

​

$

11,196

​

$

11,214

​

$

44,498

Interest expense

​

​

1,309

​

​

1,278

​

​

1,240

​

​

1,217

​

​

5,044

Net interest income

​

​

9,654

​

​

9,847

​

​

9,956

​

​

9,997

​

​

39,454

Provision for loan losses

​

​

0

​

​

0

​

​

0

​

​

0

​

​

0

Noninterest income

​

​

2,085

​

​

2,183

​

​

2,313

​

​

2,168

​

​

8,749

Noninterest expense

​

​

8,707

​

​

8,811

​

​

9,899

​

​

9,090

​

​

36,507

Income tax expense

​

​

1,045

​

​

1,121

​

​

802

​

​

1,074

​

​

4,042

Net income available to common stockholders

​

$

1,987

​

$

2,098

​

$

1,568

​

$

2,001

​

$

7,654

Net income per share:

​

​

​

​

​

Basic earnings per share

​

$

0.36

​

$

0.39

​

$

0.29

​

$

0.37

​

$

1.41

Diluted earnings per share

​

​

0.36

​

​

0.39

​

​

0.29

​

​

0.37

​

​

1.41

77

MARKET PRICE OF AND DIVIDENDS ON EQUITY SECURITIES AND RELATED MATTERS

Market Price

The Company’s common stock trades on Nasdaq’s global select market under the stock symbol of HWBK. The following table sets forth the range of high and low bid prices of the Company’s common stock by quarter for each quarter in 2015 and 2014 in which the stock was traded.

​	High			Low
2015	​			​
First Quarter	​	$	14.42	​	$	12.02
Second Quarter	​	$	17.58	​	$	12.91
Third Quarter	​	$	14.89	​	$	13.12
Fourth Quarter	​	$	15.95	​	$	13.07
2014	​			​
First Quarter	​	$	13.12	​	$	10.62
Second Quarter	​	$	13.12	​	$	11.93
Third Quarter	​	$	13.50	​	$	11.44
Fourth Quarter	​	$	16.18	​	$	12.50

Shares Outstanding

As of December 31, 2015, the Company had issued 5,605,203 shares of common stock, of which 5,441,190 shares were outstanding. The outstanding shares were held of record by approximately 1,309 shareholders.

Dividends

The following table sets forth information on dividends paid by the Company in 2015 and 2014.

Month Paid	Dividends Per Share
January, 2015	​	$	0.05
April, 2015	​	​	0.05
July, 2015	​	​	0.05
October, 2015	​	​	0.05
Total for 2015	​	$	0.20
January, 2014	​	$	0.05
April, 2014	​	​	0.05
July, 2014	​	​	0.05
October, 2014	​	​	0.05
Total for 2014	​	$	0.20

The board of directors intends that the Company will continue to pay quarterly dividends. The actual amount of quarterly dividends and the payment, as well as the amount, of any special dividend ultimately will depend on the payment of sufficient dividends by the subsidiary Bank to the Company. The payment by the Bank of dividends to the Company will depend upon such factors as the Bank’s financial condition, results of operations and current and anticipated cash needs, including capital requirements.

78

Stock Performance Graph

The following performance graph shows a comparison of cumulative total returns for the Company, the Nasdaq Stock Market (U.S. Companies), and a peer index of financial institutions having total assets of between $1 billion and $5 billion for the period from December 31, 2010, through December 31, 2015. The cumulative total return on investment for each of the periods for the Company, the Nasdaq Stock Market (U.S. Companies) and the peer index is based on the stock price or index at December 31, 2010. The performance graph assumes that the value of an investment in the Company’s common stock and each index was $100 at December 31, 2010 and that all dividends were reinvested. The information presented in the performance graph is historical in nature and is not intended to represent or guarantee future returns.

The comparison of cumulative total returns presented in the above graph was plotted using the following index values and common stock price values:

​	12/31/10			12/31/11			12/31/12			12/31/13			12/31/14			12/31/15
Hawthorn Bancshares, Inc.	​	$	100.00	​	$	75.21	​	$	99.31	​	$	170.02	​	$	210.46	​	$	245.35
Nasdaq Composite (U.S. Companies)	​	$	100.00	​	$	99.21	​	$	116.82	​	$	163.75	​	$	188.03	​	$	201.40
Index of financial institutions ($1 billion to $5 billion)	​	$	100.00	​	$	91.20	​	$	112.45	​	$	163.52	​	$	170.98	​	$	191.36

79

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Name	Position with The Company	Position with Subsidiary Bank	Principal Occupation
David T. Turner	Chairman, Chief Executive Officer, President and Director-Class III	Chairman, Chief Executive Officer, President and Director	Position with Hawthorn Bancshares, Inc. and Hawthorn Bank
Kevin L. Riley	Director-Class III	Director	Co-owner, Riley Chevrolet, Buick, GMC Cadillac, and Riley Toyota Scion, Jefferson City, Missouri
Frank E. Burkhead	Director-Class II	Director	Owner, Burkhead Wealth Management, Co-owner, Burkhead & Associates, LLC, Pro 356, LLC, and FACT Properties, LLC,
Gus S. Wetzel, II	Director-Class II	Director	Physician, Wetzel Clinic, Clinton, Missouri
Philip D. Freeman	Director-Class I	Director	Owner, Freeman Properties, JCMO, LLC, Jefferson City, Missouri
James E. Smith	Director-Class I	Director	Retired
W. Bruce Phelps	Chief Financial Officer	Senior Vice President and Chief Financial Officer	Position with Hawthorn Bancshares, Inc. and Hawthorn Bank
Kathleen L. Bruegenhemke	Senior Vice President and Corporate Secretary	Senior Vice President and Columbia Market President	Position with Hawthorn Bancshares, Inc. and Hawthorn Bank

ANNUAL REPORT ON FORM 10-K

A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission, excluding exhibits, will be furnished without charge to shareholders entitled to vote at the 2015 annual meeting of shareholders upon written request to Kathleen L. Bruegenhemke, Corporate Secretary, Hawthorn Bancshares, Inc., 132 East High Street, Jefferson City, Missouri 65101. The Company will provide a copy of any exhibit to the Form 10-K to any such person upon written request and the payment of the Company’s reasonable expenses in furnishing such exhibits.

80

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Hawthorn Bancshares, Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-68366 and No. 333-136477) on Form S-8 of Hawthorn Bancshares, Inc. of our reports dated March 30, 2016, with respect to the consolidated balance sheets of Hawthorn Bancshares, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, which report appears in the December 31, 2015 annual report to shareholders incorporated by reference in the December 31, 2015 Form 10-K of Hawthorn Bancshares, Inc., and with respect to the effectiveness of internal control over financial reporting as of December 31, 2015, which report appears in the December 31, 2015 Form 10-K of Hawthorn Bancshares, Inc.

/s/ KPMG LLP

St. Louis, Missouri
March 30, 2016

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, David T. Turner, certify that:

1. I have reviewed this report on Form 10-K of Hawthorn Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 30, 2016

/s/ David T. Turner

David T. Turner

Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, W. Bruce Phelps, certify that:

1. I have reviewed this report on Form 10-K of Hawthorn Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 30, 2016

/s/ W. Bruce Phelps

W. Bruce Phelps

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

In connection with the Annual Report of Hawthorn Bancshares, Inc. (the Company) on Form 10-K for the period ended December 31, 2015 as filed with the Securities and Exchange Commission (the Report), I, David T. Turner, Chairman of the Board and Chief Executive Officer of the Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Dated: March 30, 2016

/s/ David T. Turner

David T. Turner

Chairman of the Board and Chief Executive Officer

“A signed original of this written statement required by Section 906 has been provided to Hawthorn Bancshares, Inc. and will be retained by Hawthorn Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.”

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

In connection with the Annual Report of Hawthorn Bancshares, Inc. (the Company) on Form 10-K for the period ended December 31, 2015 as filed with the Securities and Exchange Commission (the Report), I, W. Bruce Phelps, Chief Financial Officer of the Company, hereby certify in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

Dated: March 30, 2016

/s/ W. Bruce Phelps
W. Bruce Phelps

Chief Financial Officer

“A signed original of this written statement required by Section 906 has been provided to Hawthorn Bancshares, Inc. and will be retained by Hawthorn Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.”

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 30, 2016	Jun. 30, 2015
Document And Entity Information Abstract
Entity Registrant Name	HAWTHORN BANCSHARES, INC.
Entity Central Index Key	0000893847
Trading Symbol	hwbk
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding		5,441,190
Entity Public Float			$ 58,113,180
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Amendment Flag	false
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
ASSETS
Cash and due from banks	$ 20,484	$ 22,364
Federal funds sold and other overnight interest-bearing deposits	7,893	20,445
Cash and cash equivalents	28,377	42,809
Investment in available-for-sale securities, at fair value	235,054	198,998
Other investments and securities, at cost	8,037	4,722
Total investment securities	243,091	203,720
Loans	865,080	861,213
Allowances for loan losses	(8,604)	(9,099)
Net loans	856,476	852,114
Premises and equipment - net	36,389	37,498
Mortgage servicing rights	2,847	2,762
Other real estate owned and repossessed assets - net	15,992	11,885
Accrued interest receivable	4,853	4,816
Cash surrender value - life insurance	2,348	2,284
Other assets	10,548	11,843
Total assets	1,200,921	1,169,731
Deposits
Non-interest bearing demand	208,035	207,700
Savings, interest checking and money market	441,080	442,131
Time deposits $100,000 and over	132,244	134,945
Other time deposits	165,838	184,738
Total deposits	947,197	969,514
Federal funds purchased and securities sold under agreements to repurchase	56,834	17,970
Subordinated notes	49,486	49,486
Federal Home Loan Bank advances	50,000	43,000
Accrued interest payable	382	373
Other liabilities	9,736	8,820
Total liabilities	1,113,635	1,089,163
Stockholders' equity:
Common stock, $1 par value, authorized 15,000,000 shares; issued 5,605,203 and 5,395,844 shares, respectively	5,605	5,396
Surplus	38,549	35,901
Retained earnings	48,700	44,016
Accumulated other comprehensive loss, net of tax	(2,018)	(1,228)
Treasury stock; 164,013 and 161,858 shares, at cost, respectively	(3,550)	(3,517)
Total stockholders' equity	87,286	80,568
Total liabilities and stockholders' equity	$ 1,200,921	$ 1,169,731

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Consolidated Balance Sheets (Parentheticals) - $ / shares	Dec. 31, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	5,605,203	5,395,844
Treasury stock, shares	164,013	161,858

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Consolidated Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
INTEREST INCOME
Interest and fees on loans	$ 41,267	$ 40,274	$ 41,110
Interest on investment securities:
Taxable	3,554	3,394	3,592
Nontaxable	681	722	844
Federal funds sold and other overnight interest-bearing deposits	38	28	37
Dividends on other securities	216	80	82
Total interest income	45,756	44,498	45,665
Interest on deposits:
Savings, interest checking and money market	970	968	974
Time deposit accounts $100,000 and over	867	940	1,142
Other time deposits	1,090	1,384	2,498
Interest on federal funds purchased and securities sold under agreements to repurchase	56	21	24
Interest on subordinated notes	1,293	1,264	1,284
Interest on Federal Home Loan Bank advances	723	467	420
Total interest expense	4,999	5,044	6,342
Net interest income	40,757	39,454	39,323
Provision for loan losses	250	0	2,030
Net interest income after provision for loan losses	40,507	39,454	37,293
NON-INTEREST INCOME
Service charges and other fees	3,477	3,743	4,165
Bank card income and fees	2,455	2,368	2,200
Trust department income	929	844	796
Real estate servicing fees, net	573	319	876
Gain on sale of mortgage loans, net	1,386	1,093	1,944
Gain on sale of investment securities	8	20	778
Other	338	362	107
Total non-interest income	9,166	8,749	10,866
NON-INTEREST EXPENSE
Salaries and employee benefits	20,792	20,377	19,542
Occupancy expense, net	2,792	2,660	2,630
Furniture and equipment expense	1,844	1,823	2,007
Processing , network, and bank card expense	3,363	3,203	3,668
Legal, examination, and professional fees	1,321	1,159	982
FDIC insurance assessment	867	933	992
Advertising and promotion	1,111	1,274	1,301
Postage, printing, and supplies	1,120	1,117	1,210
Real estate foreclosure (gains) expense, net	(223)	845	4,924
Other	3,507	3,116	3,507
Total non-interest expense	36,494	36,507	40,763
Income before income taxes	13,179	11,696	7,396
Income tax expense	4,580	4,042	2,422
Net income	8,599	7,654	4,974
Preferred stock dividends and accretion of discount	0	0	615
Net income available to common shareholders	$ 8,599	$ 7,654	$ 4,359
Basic earnings per share	$ 1.58	$ 1.41	$ 0.80
Diluted earnings per share	$ 1.58	$ 1.41	$ 0.80

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Consolidated Statements of Comprehensive Income
Net income	$ 8,599	$ 7,654	$ 4,974
Securities available for sale:
Unrealized (loss) gain on investment securities available-for-sale, net of tax	(800)	1,717	(4,275)
Adjustment for gain on sales of investment securities, net of tax	(5)	(12)	(482)
Defined benefit pension plans:
Net gain (loss) arising during the year, net of tax	3	(2,212)	2,095
Amortization of prior service cost included in net periodic pension cost, net of tax	12	48	68
Total other comprehensive loss	(790)	(459)	(2,594)
Total comprehensive income	$ 7,809	$ 7,195	$ 2,380

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Preferred Stock	Common Stock	Surplus	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Treasury Stock	Total
Balance at Dec. 31, 2012	$ 17,977	$ 5,001	$ 31,816	$ 39,118	$ 1,825	$ (3,517)	$ 92,220
Increase (Decrease) in Stockholders' Equity
Net income	0	0	0	4,974	0	0	4,974
Other comprehensive income (loss)	0	0	0	0	(2,594)	0	(2,594)
Stock based compensation expense	0	0	19	0	0	0	19
Accretion of preferred stock discount	278	0	0	(278)	0	0	0
Redemption of 18,255 shares of preferred stock	(18,255)	0	0	0	0	0	(18,255)
Redemption of common stock warrant	0	0	(540)	0	0	0	(540)
Stock dividend	0	194	2,090	(2,284)	0	0	0
Cash dividends declared, preferred stock	0	0	0	(456)	0	0	(456)
Cash dividends declared, common stock	0	0	0	(988)	0	0	(988)
Balance at Dec. 31, 2013	0	5,195	33,385	40,086	(769)	(3,517)	74,380
Increase (Decrease) in Stockholders' Equity
Net income	0	0	0	7,654	0	0	7,654
Other comprehensive income (loss)	0	0	0	0	(459)	0	(459)
Stock based compensation expense	0	0	20	0	0	0	20
Stock dividend	0	201	2,496	(2,697)	0	0	0
Cash dividends declared, common stock	0	0	0	(1,027)	0	0	(1,027)
Balance at Dec. 31, 2014	0	5,396	35,901	44,016	(1,228)	(3,517)	80,568
Increase (Decrease) in Stockholders' Equity
Net income	0	0	0	8,599	0	0	8,599
Other comprehensive income (loss)	0	0	0	0	(790)	0	(790)
Stock based compensation expense	0	0	10	0	0	0	10
Stock dividend	0	209	2,638	(2,847)	0	0	0
Purchase of treasury stock	0	0	0	0	0	(33)	(33)
Cash dividends declared, common stock	0	0	0	(1,068)	0	0	(1,068)
Balance at Dec. 31, 2015	$ 0	$ 5,605	$ 38,549	$ 48,700	$ (2,018)	$ (3,550)	$ 87,286

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Consolidated Statements of Stockholders' Equity (Parentheticals)	12 Months Ended
	Dec. 31, 2013 shares
Preferred Stock
Redemption of preferred shares	18,255

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities:
Net income	$ 8,599	$ 7,654	$ 4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	250	0	2,030
Depreciation expense	1,810	1,758	1,605
Net amortization of investment securities, premiums, and discounts	1,317	1,058	1,211
Amortization of intangible assets	0	0	135
Stock based compensation expense	10	20	19
Change in fair value of mortgage servicing rights	301	576	25
Gain on sale of investment securities	(8)	(20)	(778)
Gain on sales and dispositions of premises and equipment	(8)	(60)	(6)
Gain (loss) on sales and dispositions of other real estate owned and repossessed assets	(156)	(188)	330
Provision for other real estate owned	17	585	3,367
(Increase) decrease in accrued interest receivable	(37)	183	191
Increase in cash surrender value - life insurance	(64)	(71)	(77)
Decrease (increase) in other assets	1,212	(479)	4,311
Decrease (increase) in income tax receivable	621	(826)	524
Increase (decrease) in accrued interest payable	9	(53)	(483)
Decrease in other liabilities	911	966	1,113
Origination of mortgage loans for sale	(51,307)	(35,434)	(72,100)
Proceeds from the sale of mortgage loans	51,503	36,623	76,240
Gain on sale of mortgage loans, net	(1,386)	(1,093)	(1,944)
Other, net	(252)	2,355	(444)
Net cash provided by operating activities	13,342	13,554	20,243
Cash flows from investing activities:
Net increase in loans	(9,226)	(28,357)	(2,525)
Purchase of available-for-sale debt securities	(102,367)	(48,942)	(88,137)
Proceeds from maturities of available-for-sale debt securities	36,143	23,702	33,341
Proceeds from calls of available-for-sale debt securities	26,840	28,605	8,275
Proceeds from sales of available-for-sale debt securities	720	5,334	32,590
Proceeds from sales of FHLB stock	1,600	439	536
Purchases of FHLB stock	(4,915)	(1,160)	(612)
Purchases of premises and equipment	(872)	(1,342)	(2,680)
Proceeds from sales of premises and equipment	11	65	23
Proceeds from sales of other real estate owned and repossessed assets	1,836	4,560	9,641
Net cash used by investing activities	(50,230)	(17,096)	(9,548)
Cash flows from financing activities:
Net increase (decrease) in demand deposits	335	20,318	(4,889)
Net (decrease) increase in interest-bearing transaction accounts	(1,051)	22,974	13,383
Net decrease in time deposits	(21,601)	(30,249)	(43,298)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	38,864	(13,114)	10,026
Repayment of FHLB advances	(85,000)	(10,000)	(15,126)
FHLB advances	92,000	29,000	19,000
Redemption of 18,255 of preferred stock	0	0	(18,255)
Warrant redemption	0	0	(540)
Purchase of treasury stock	(33)	0	0
Cash dividends paid - preferred stock	0	0	(456)
Cash dividends paid - common stock	(1,058)	(1,017)	(978)
Net cash provided (used) by financing activities	22,456	17,912	(41,133)
Net (decrease) increase in cash and cash equivalents	(14,432)	14,370	(30,438)
Cash and cash equivalents, beginning of year	42,809	28,439	58,877
Cash and cash equivalents, end of year	28,377	42,809	28,439
Cash paid during the year for:
Interest	4,992	5,097	6,825
Income taxes	3,509	2,265	131
Supplemental schedule of noncash investing and financing activities:
Other real estate and repossessions acquired in settlement of loans	$ 5,804	$ 1,975	$ 4,613

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Consolidated Statements of Cash Flows (Parentheticals)	12 Months Ended
	Dec. 31, 2013 shares
Preferred Stock
Redemption of preferred shares	18,255

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

(1) Summary of Significant Accounting Policies

Hawthorn Bancshares, Inc. (the Company) through its subsidiary, Hawthorn Bank (the Bank), provides a broad range of banking services to individual and corporate customers located within the communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson, and the greater Kansas City metropolitan area. The Company is subject to competition from other financial and nonfinancial institutions providing financial products. Additionally, the Company and its subsidiaries are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies.

The accompanying consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the consolidated financial statements includes all adjustments that, in the opinion of management, are necessary in order to make those statements not misleading. Management is required to make estimates and assumptions, including the determination of the allowance for loan losses, real estate acquired in connection with foreclosure or in satisfaction of loans, and fair values of investment securities available-for-sale that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s management has evaluated and did not identify any subsequent events or transactions requiring recognition or disclosure in the consolidated financial statements.

The significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below:

Principles of Consolidation

In December of 2008 and March of 2010, the Company formed Hawthorn Real Estate, LLC, and Real Estate Holdings of Missouri, LLC, respectively (the Real Estate Companies); both are wholly owned subsidiaries of the Company. The consolidated financial statements include the accounts of the Company, Hawthorn Bank (the Bank), and the Real Estate Companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

Loans

Loans that the Company has the intent and ability to hold for the foreseeable future or maturity are held for investment at their stated unpaid principal balance amount less unearned income and the allowance for loan losses. Income on loans is accrued on a simple-interest basis. Loan origination fees and certain direct costs are deferred and recognized over the life of the loan as an adjustment to yield.

Loans Held for Sale

The Bank originates certain loans, which are sold in the secondary market. These loans are classified as held for sale upon origination based on management’s intent to sell and are accounted for at the lower of adjusted cost or fair value. Adjusted cost reflects the funded loan amount and any loan origination costs and fees. In order to manage the risk associated with such activities, the Company upon locking in an interest rate with the borrower enters into an agreement to sell such loans in the secondary market. Loans held for sale are typically sold with servicing rights retained and without recourse except for normal and customary representation and warranty provisions. Mortgage loans held for sale were $1.2 million at December 31, 2015 compared to no loans held for sale at December 31, 2014.

Impaired Loans

A loan is considered impaired when it is probable the Company will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. Included in impaired loans are all non-accrual loans and loans whose terms have been modified in a troubled debt restructuring. Impaired loans are individually evaluated for impairment based on fair values of the underlying collateral, obtained through independent appraisals or internal valuations for a collateral dependent loan or by discounting the total expected future cash flows. 

Non-Accrual Loans

Loans are placed on nonaccrual status when management believes that the borrower’s financial condition, after consideration of business conditions and collection efforts, is such that collection of interest is doubtful. Loans that are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Restructured Loans

A loan is accounted for as a troubled debt restructuring (TDR) if the Company, for economic or legal reasons related to the borrowers’ financial difficulties, grants a concession to the borrower that it would not otherwise consider. A TDR typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, accrued interest, or an extended maturity date (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy. Nonperforming TDRs are returned to performing status once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months. The Company includes all performing and non-performing TDRs in the impaired and non-performing asset totals. The Company measures the impairment loss of a TDR in the same manner as described below. TDRs which are performing under their contractual terms continue to accrue interest which is recognized in current earnings.

Allowance for Loan Losses

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company’s results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. When loans become 90 days past due, they are generally placed on nonaccrual status or charged off unless extenuating circumstances justify leaving the loan on accrual basis. When loans reach 120 days past due and there is little likelihood of repayment, they are charged off. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. 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 considered to be impaired.

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded.

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Management determined that the previous twelve quarters were reflective of the loss characteristics of the Company’s loan portfolio during the recent economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices. The combined historical loan loss rates and qualitative factors are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

Investment in Debt and Equity Securities

At the time of purchase, debt securities are classified into one of two categories: available-for-sale or held-to-maturity. Held-to-maturity securities are those securities which the Company has the positive intent and ability to hold until maturity. All debt securities not classified as held-to-maturity are classified as available-for-sale. The Company’s securities are classified as available-for-sale and are carried at fair value. Changes in fair value, excluding certain losses associated with other-than-temporary impairment, are reported in other comprehensive income, net of taxes, a component of stockholders’ equity. Securities are periodically evaluated for other-than-temporary impairment in accordance with guidance provided in the FASB ASC Topic 320,Investments – Debt and Equity Securities. For those securities with other-than-temporary impairment, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the security before the anticipated recovery. If neither condition is met, but the Company does not expect to recover the amortized cost basis, the Company determines whether a credit loss has occurred, which is then recognized in current earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Premiums and discounts are amortized using the interest method over the lives of the respective securities, with consideration of historical and estimated prepayment rates for mortgage-backed securities, as an adjustment to yield. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings based on the specific identification method for determining the cost of securities sold.

Capital Stock of the Federal Home Loan Bank

The Bank, as a member of the Federal Home Loan Bank System administered by the Federal Housing Finance Agency, is required to maintain an investment in the capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount equal to 12 basis points of the Bank’s year-end total assets plus 4.00% of advances from the FHLB to the Bank. These invest-ments are recorded at cost, which represents redemption value.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation applicable to buildings and improve-ments and furniture and equipment is charged to expense using straight-line and accelerated methods over the estimated useful lives of the assets. Such lives are estimated to be 5 to 40 years for buildings and improvements and 3 to 15 years for furniture and equipment. Maintenance and repairs are charged to expense as incurred.

Core Deposit Intangibles

Intangible assets that have finite useful lives, such as core deposit intangibles, are amortized over their estimated useful lives. Core deposit intangibles are amortized over periods of 7 to 8 years representing their estimated lives using straight line and accelerated methods. 

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the carrying value based upon future cash flows expected to result from the use of the underlying asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the underlying asset, the Company recognizes an impairment loss. The impairment loss recognized represents the amount by which the carrying value of the underlying asset exceeds the fair value of the underlying asset.

Mortgage Servicing Rights

The Company originates and sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Servicing involves the collection of payments from individual borrowers and the distribution of those payments to the investors or master servicer. Upon a sale of mortgage loans for which servicing rights are retained, the retained mortgage servicing rights asset is capitalized at the fair value of future net cash flows expected to be realized for performing servicing activities.

Mortgage servicing rights do not trade in an active market with readily observable prices. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies, ancillary income, and cost to service. These assumptions are validated on a periodic basis. The fair value is validated on a quarterly basis with an independent third party valuation specialist firm.

In addition to the changes in fair value of the mortgage servicing rights, the Company also recorded loan servicing fee income as part of real estate servicing fees, net in the statement of income. Loan servicing fee income represents revenue earned for servicing mortgage loans. The servicing fees are based on contractual percentage of the outstanding principal balance and recognized as revenue as the related mortgage payments are collected. Corresponding loan servicing costs are changed to expense as incurred.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

Pension Plan

The Company provides a noncontributory defined benefit pension plan for all full-time employees. The benefits are based on age, years of service and the level of compensation during the employees highest ten years of compensation before retirement. Net periodic costs are recognized as employees render the services necessary to earn the retirement benefits. The Company records annual amounts relating to its pension plan based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality, assumed rates of return, compensation increases, and turnover rates. The Company reviews its assumptions on an annual basis and may make modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Company believes that the assumptions utilized in recording its obligations under its plan are reasonable based on its experience and market conditions.

The Company follows authoritative guidance included in the FASB ASC Topic 715, Compensation – Retirement Plans under the subtopic Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. ASC Topic 715 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its consolidated balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. This guidance also requires an employer to measure the funded status of a plan as of the date of its fiscal year-end, with limited exceptions. Additional disclosures are required to provide users with an understanding of how investment allocation decisions are made, major categories of plan assets, and fair value measurement of plan assets as defined in ASC Topic 820, Fair Value Measurements and Disclosures.

Income Taxes

Income taxes are accounted for under the asset / liability method by recognizing the amount of taxes payable or refundable for the current period and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in addressing the Company’s future tax consequences of events that have been recognized in the consolidated financial statements or tax returns such as realization of the effects of temporary differences, net operating loss carry forwards and changes in tax laws or interpretations thereof. A valuation allowance is established when in the judgment of management, it is more likely than not that such deferred tax assets will not become realizable. In this case, the Company would adjust the recorded value of our deferred tax asset, which would result in a direct charge to income tax expense in the period that the determination was made. Likewise, the Company would reverse the valuation allowance when it is expected to realize the deferred tax asset. The Company has not recognized any tax liabilities or any interest or penalties in income tax expense related to uncertain tax positions as of December 31, 2015, 2014, and 2013.

Trust Department

Property held by the Bank in a fiduciary or agency capacity for customers is not included in the accompanying consolidated balance sheets, since such items are not assets of the Company. Trust department income is recognized on the accrual basis.

Consolidated Statements of Cash Flows

For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of short-term federal funds sold and securities sold or purchased under agreements to resell, interest earning deposits with banks, cash, and due from banks.

Stock-Based Compensation

The Company’s stock-based employee compensation plan is described in Note 12, Stock Compensation. In accordance with FASB ASC Topic 718, Compensation – Stock Compensation, the Company measures the cost of the stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period. The fair value of an award is estimated using the Black-Scholes option-pricing model. The expense recognized is based on an estimation of the number of awards for which the requisite service is expected to be rendered, and is included in salaries and employee benefits in the accompanying Consolidated Statements of Income. The standard also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.

Treasury Stock

The purchase of the Company’s common stock is recorded at cost. Purchases of the stock are made both in the open market and through negotiated private purchases based on market prices. At the date of subsequent reissue, the treasury stock account is reduced by the cost associated with such stock on a first-in-first-out basis.

Reclassifications

Certain prior year information has been reclassified to conform to the current year presentation.

The following represents significant new accounting principles adopted in 2015:

Investments – Equity Method and Joint Ventures

The FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, in January 2014. These amendments allow investors in low income housing tax credit entities to account for the investments using a proportional amortization method, provided that certain conditions are met, and recognize amortization of the investment as a component of income tax expense. In addition, disclosures are required that will enable users to understand the nature of the investments, and the effect of the measurement of the investments and the related tax credits on the investor’s financial statements. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

Troubled Debt Restructurings by Creditors

The FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, in January 2014. These amendments require companies to disclose the amount of foreclosed residential real estate property held and the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. The ASU also defines when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

The FASB issued ASU No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure in August 2014. The objective of this update is to reduce diversity in practice by addressing the classification of foreclosed mortgage loans that are fully or partially guaranteed under government programs, including those guaranteed by the FHA and the VA. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

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Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2015

Loans and Leases Receivable Disclosure [Abstract]

Loans and Allowance for Loan Losses

(2) Loans and Allowance for Loan Losses

Loans

A summary of loans, by major class within the Company’s loan portfolio, at December 31, 2015 and 2014 is as follows:

(in thousands)	2015		2014
Commercial, financial, and agricultural	$	149,091	$	154,834
Real estate construction - residential		16,895		18,103
Real estate construction - commercial		33,943		48,822
Real estate mortgage - residential		256,086		247,117
Real estate mortgage - commercial		385,869		372,321
Installment and other consumer		23,196		20,016
Total loans	$	865,080	$	861,213

The Bank grants real estate, commercial, installment, and other consumer loans to customers located within the communities surrounding Jefferson City, Columbia, Clinton, Warsaw, Springfield, Branson and the greater Kansas City metropolitan area. As such, the Bank is susceptible to changes in the economic environment in these communities. The Bank does not have a concentration of credit in any one economic sector. Installment and other consumer loans consist primarily of the financing of vehicles. At December 31, 2015, loans with a carrying value of $421.8 million, or $350.5 million fair value, were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.

The following is a summary of loans to directors and executive officers or to entities in which such individuals had a beneficial interest of the Company, are summarized as follows:

(in thousands)
Balance at December 31, 2014	$	4,940
New loans		286
Amounts collected		(499	)
Balance at December 31, 2015	$	4,727

Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present unfavorable features. 

Allowance for loan losses

The following is a summary of the allowance for loan losses for the years ended December 31, 2015, 2014, and 2013:

	Commercial,			Real Estate			Real Estate			Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -			Mortgage -			Mortgage -			Loans to			Un-
(in thousands)	Agricultural			Residential			Commercial			Residential			Commercial			Individuals			allocated		Total
Balance at December 31, 2012	$	1,937		$	732		$	1,711		$	3,387		$	6,834		$	239		$	2	$	14,842
Additions:
Provision for loan losses		992			318			(452	)		273			622			272			5		2,030
Deductions:
Loans charged off		895			119			633			812			1,301			420			0		4,180
Less recoveries on loans		(340	)		0			(5	)		(111	)		(368	)		(203	)		0		(1,027	)
Net loans charged off		555			119			628			701			933			217			0		3,153
Balance at December 31, 2013	$	2,374		$	931		$	631		$	2,959		$	6,523		$	294		$	7	$	13,719
Additions:
Provision for loan losses		371			(592	)		326			(226	)		(107	)		195			33		0
Deductions:
Loans charged off		1,285			349			491			408			2,890			405			0		5,828
Less recoveries on loans		(319	)		(181	)		0			(202	)		(320	)		(186	)		0		(1,208	)
Net loans charged off		966			168			491			206			2,570			219			0		4,620
Balance at December 31, 2014	$	1,779		$	171		$	466		$	2,527		$	3,846		$	270		$	40	$	9,099
Additions:
Provision for loan losses		833			(434	)		193			153			(713	)		157			61		250
Deductions:
Loans charged off		1,131			0			15			379			363			302			0		2,190
Less recoveries on loans		(672	)		(322	)		0			(138	)		(165	)		(148	)		0		(1,445	)
Net loans charged off		459			(322	)		15			241			198			154			0		745
Balance at December 31, 2015	$	2,153		$	59		$	644		$	2,439		$	2,935		$	273		$	101	$	8,604

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. 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 considered to be impaired. These loans are evaluated individually for impairment, and in conjunction with current economic conditions and loss experience, specific reserves are estimated as further discussed below. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type, delinquencies, current economic conditions, loan risk ratings and industry concentration. 

The following table provides the balance in the allowance for loan losses at December 31, 2015 and 2014, and the related loan balance by impairment methodology.

	Commercial,		Real Estate		Real Estate		Real Estate		Real Estate		Installment
	Financial, and		Construction -		Construction -		Mortgage -		Mortgage -		Loans to		Un-
(in thousands)	Agricultural		Residential		Commercial		Residential		Commercial		Individuals		allocated		Total
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	285	$	0	$	15	$	955	$	266	$	19	$	0	$	1,540
Collectively evaluated for impairment		1,868		59		629		1,484		2,669		254		101		7,064
Total	$	2,153	$	59	$	644	$	2,439	$	2,935	$	273	$	101	$	8,604
Loans outstanding:
Individually evaluated for impairment	$	1,005	$	0	$	102	$	5,936	$	3,081	$	144	$	0	$	10,268
Collectively evaluated for impairment		148,086		16,895		33,841		250,150		382,788		23,052		0		854,812
Total	$	149,091	$	16,895	$	33,943	$	256,086	$	385,869	$	23,196	$	0	$	865,080
December 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	134	$	0	$	0	$	1,343	$	246	$	26	$	0	$	1,749
Collectively evaluated for impairment		1,645		171		466		1,184		3,600		244		40		7,350
Total	$	1,779	$	171	$	466	$	2,527	$	3,846	$	270	$	40	$	9,099
Loans outstanding:
Individually evaluated for impairment	$	7,541	$	1,750	$	2,096	$	7,878	$	16,464	$	234	$	0	$	35,963
Collectively evaluated for impairment		147,293		16,353		46,726		239,239		355,857		19,782		0		825,250
Total	$	154,834	$	18,103	$	48,822	$	247,117	$	372,321	$	20,016	$	0	$	861,213

Impaired loans

Loans evaluated under ASC 310-10-35 include loans which are individually evaluated for impairment. All other loans are collectively evaluated for impairment under ASC 450-20. Impaired loans individually evaluated for impairment totaled $10.3 million and $36.0 million at December 31, 2015 and 2014, respectively, and are comprised of loans on non-accrual status and loans which have been classified as troubled debt restructurings (TDRs).

The net carrying value of impaired loans is based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. At December 31, 2015 and 2014, $6.4 million and $15.6 million, respectively, of impaired loans were evaluated based on the fair value less estimated selling costs of the loan’s collateral. Once the impairment amount is calculated, a specific reserve allocation is recorded. At December 31, 2015, $1.5 million of the Company’s allowance for loan losses was allocated to impaired loans totaling $10.3 million compared to $1.7 million of the Company's allowance for loan losses allocated to impaired loans totaling approximately $36.0 million at December 31, 2014. Management determined that $4.5 million, or 44%, of total impaired loans required no reserve allocation at December 31, 2015 compared to $28.5 million, or 79%, at December 31, 2014 primarily due to adequate collateral values, acceptable payment history and adequate cash flow ability.

The categories of impaired loans at December 31, 2015 and 2014 are as follows:

(in thousands)	2015		2014
Non-accrual loans	$	4,418	$	18,243
Performing TDRs		5,850		17,720
Total impaired loans	$	10,268	$	35,963

The following tables provide additional information about impaired loans at December 31, 2015 and 2014, respectively, segregated between loans for which an allowance has been provided and loans for which no allowance has been provided.

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		Reserves
December 31, 2015
With no related allowance recorded:
Commercial, financial and agricultural	$	448	$	450	$	0
Real estate - residential		1,645		1,712		0
Real estate - commercial		2,446		2,572		0
Total	$	4,539	$	4,734	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	557	$	572	$	285
Real estate - construction commercial		102		115		15
Real estate - residential		4,291		4,320		955
Real estate - commercial		635		884		266
Consumer		144		182		19
Total	$	5,729	$	6,073	$	1,540
Total impaired loans	$	10,268	$	10,807	$	1,540

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		Reserves
December 31, 2014
With no related allowance recorded:
Commercial, financial and agricultural	$	6,021	$	6,232	$	0
Real estate - construction residential		1,750		2,259		0
Real estate - construction commercial		2,096		2,319		0
Real estate - residential		3,213		3,270		0
Real estate - commercial		15,409		18,950		0
Consumer		36		36		0
Total	$	28,525	$	33,066	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	1,520	$	1,528	$	134
Real estate - residential		4,665		3,546		1,343
Real estate - commercial		1,055		1,171		246
Consumer		198		237		26
Total	$	7,438	$	6,482	$	1,749
Total impaired loans	$	35,963	$	39,548	$	1,749

The following table presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2015 and 2014:

	2015				2014
			Interest				Interest
	Average		Recognized		Average		Recognized
	Recorded		For the		Recorded		For the
(in thousands)	Investment		Period Ended		Investment		Period Ended
With no related allowance recorded:
Commercial, financial and agricultural	$	2,949	$	39	$	3,141	$	94
Real estate - construction residential		536		0		610		2
Real estate - construction commercial		1,105		0		5,950		0
Real estate - residential		2,331		37		3,517		46
Real estate - commercial		5,169		119		13,703		400
Consumer		7		1		11		0
Total	$	12,097	$	196	$	26,932	$	542
With an allowance recorded:
Commercial, financial and agricultural	$	1,356	$	22	$	1,773	$	19
Real estate - construction residential		0		0		1,697		0
Real estate - construction commercial		52		0		42		0
Real estate - residential		4,625		110		5,118		129
Real estate - commercial		1,161		0		3,810		11
Consumer		183		0		312		0
Total	$	7,377	$	132	$	12,752	$	159
Total impaired loans	$	19,474	$	328	$	39,684	$	701

The recorded investment varies from the unpaid principal balance primarily due to partial charge-offs taken resulting from current appraisals received. The amount recognized as interest income on impaired loans continuing to accrue interest, primarily related to troubled debt restructurings, was $328,000 and $701,000, for the years ended December 31, 2015 and 2014, respectively. The average recorded investment in impaired loans is calculated on a monthly basis during the years reported.

Delinquent and Non-Accrual Loans

The delinquency status of loans is determined based on the contractual terms of the notes. Borrowers are generally classified as delinquent once payments become 30 days or more past due. The Company’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of management, the ultimate collectibility of interest or principal is no longer probable. In general, loans are placed on non-accrual when they become 90 days or more past due. However, management considers many factors before placing a loan on non-accrual, including the delinquency status of the loan, the overall financial condition of the borrower, the progress of management’s collection efforts and the value of the underlying collateral. Non-accrual loans are returned to accrual status when, in the opinion of management, the financial condition of the borrower indicates that the timely collectibility of interest and principal is probable and the borrower demonstrates the ability to pay under the terms of the note through a sustained period of repayment performance, which is generally six months.

The following table provides aging information for the Company’s past due and non-accrual loans at December 31, 2015 and 2014.

 

(in thousands)

Current or  Less Than  30 Days  Past Due

30-89 Days  Past Due

90 Days  Past Due  And Still  Accruing

Non-Accrual

Total

December 31, 2015

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

148,597

​

$

185

​

$

1

​

$

308

​

$

149,091

Real Estate Construction - Residential

​

​

16,830

​

​

0

​

​

0

​

​

0

​

​

16,830

Real Estate Construction - Commercial

​

​

33,472

​

​

65

​

​

0

​

​

102

​

​

33,639

Real Estate Mortgage - Residential

​

​

251,253

​

​

2,511

​

​

0

​

​

2,322

​

​

256,086

Real Estate Mortgage - Commercial

​

​

384,053

​

​

643

​

​

0

​

​

1,542

​

​

386,238

Installment and Other Consumer

​

​

22,840

​

​

207

​

​

5

​

​

144

​

​

23,196

Total

​

$

857,045

​

$

3,611

​

$

6

​

$

4,418

​

$

865,080

December 31, 2014

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

149,366

​

$

189

​

$

0

​

$

5,279

​

$

154,834

Real Estate Construction - Residential

​

​

16,352

​

​

0

​

​

0

​

​

1,751

​

​

18,103

Real Estate Construction - Commercial

​

​

46,670

​

​

0

​

​

56

​

​

2,096

​

​

48,822

Real Estate Mortgage - Residential

​

​

239,469

​

​

3,229

​

​

0

​

​

4,419

​

​

247,117

Real Estate Mortgage - Commercial

​

​

366,653

​

​

1,203

​

​

0

​

​

4,465

​

​

372,321

Installment and Other Consumer

​

​

19,551

​

​

230

​

​

2

​

​

233

​

​

20,016

Total

​

$

838,061

​

$

4,851

​

$

58

​

$

18,243

​

$

861,213

Credit Quality

The Company categorizes loans into risk categories based upon an internal rating system reflecting management’s risk assessment. Loans are placed on watch status when one or more weaknesses that may result in the deterioration of the repayment exits or the Company’s credit position at some future date. Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified may have a well defined weakness or weaknesses that jeopardize the repayment of the debt. Such loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. A loan is classified as a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and are included with all other nonaccrual loans for presentation purposes. It is the Company’s policy to discontinue the accrual of interest income on loans when management believes that the collection of interest or principal is doubtful. Loans are placed on non-accrual status when (1) deterioration in the financial condition of the borrower exists for which payment of full principal and interest is not expected, or (2) payment of principal or interest has been in default for a period of 90 days or more and the asset is not both well secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis.

The following table presents the risk categories by class at December 31, 2015 and 2014.

(in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and other Consumer		Total
At December 31, 2015
Watch	$	8,663	$	1,267	$	1,296	$	22,191	$	24,303	$	186	$	57,906
Substandard		421		0		37		3,737		1,485		36		5,716
Performing TDRs		697		0		0		3,615		1,538		0		5,850
Non-accrual		308		0		102		2,322		1,542		144		4,418
Total	$	10,089	$	1,267	$	1,435	$	31,865	$	28,868	$	366	$	73,890
At December 31, 2014
Watch	$	13,651	$	1,103	$	4,757	$	27,172	$	18,191	$	199	$	65,073
Substandard		926		90		1,211		3,124		4,102		139		9,592
Performing TDRs		2,262		0		0		3,459		11,999		0		17,720
Non-accrual		5,279		1,751		2,096		4,419		4,465		233		18,243
Total	$	22,118	$	2,944	$	8,064	$	38,174	$	38,757	$	571	$	110,628

Troubled Debt Restructurings

At December 31, 2015, loans classified as TDRs totaled $6.4 million, of which $527,000 were classified as nonperforming TDRs and included in non-accrual loans and $5.9 million were classified as performing TDRs. At December 31, 2014, TDRs totaled $19.3 million, of which $1.6 million were classified as nonperforming TDRs included in non-accrual loans and $17.7 million were classified as performing TDRs. Both performing and nonperforming TDRs are considered impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. Accordingly, specific reserves of $1.0 million related to TDRs were allocated to the allowance for loan losses at December 31, 2015 and 2014.

The following table summarizes loans that were modified as TDRs during the years ended December 31, 2015 and 2014.

	2015						2014
	Recorded Investment (1)						Recorded Investment (1)
(in thousands)	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
Troubled Debt Restructurings
Commercial, financial and agricultural		2	$	250	$	229		3	$	244	$	208
Real estate mortgage - residential		1		519		374		1		1,256		1,170
Real estate mortgage - commercial		4		1,273		1,249		0		0		0
Total		7	$	2,042	$	1,852		4	$	1,500	$	1,378

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off, or foreclosed upon during the period ended are not reported.

The Company’s portfolio of loans classified as TDRs include concessions for the borrower due to deteriorated financial condition such as interest rates below the current market rate, deferring principal payments, and extending maturity dates. During the year ended December 31, 2015, seven loans meeting the TDR criteria were modified compared to four loans during the year ended December 31, 2014. 

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses, provided for as a specific reserve within the allowance for loan losses, or in the process of foreclosure. There were no TDRs that defaulted within twelve months of its modification date during the year ended December 31, 2015 and two loans modified as a TDR that defaulted during the year December 31, 2014.

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Real Estate and Other Assets Acquired in Settlement of Loans

12 Months Ended

Dec. 31, 2015

Other Real Estate [Abstract]

Real Estate and Other Assets Acquired in Settlement of Loans

(3) Real Estate and Other Assets Acquired in Settlement of Loans

(in thousands)	2015			2014
Commercial	$	1,445		$	0
Real estate construction - residential		0			23
Real estate construction - commercial		12,380			9,831
Real estate mortgage - residential		477			417
Real estate mortgage - commercial		4,923			4,831
Repossessed assets		0			38
Total	$	19,225		$	15,140
Less valuation allowance for other real estate owned		(3,233	)		(3,255	)
Total other real estate owned and foreclosed assets	$	15,992		$	11,885

Changes in the net carrying amount of other real estate owned and repossessed assets for the years ended December 31, 2013 2014, and 2015, respectively, were as follows:

Balance at December 31, 2013	$	19,542
Additions		1,975
Proceeds from sales		(4,560	)
Charge-offs against the valuation allowance for other real estate owned		(2,005	)
Net gain on sales		188
Balance at December 31, 2014	$	15,140
Additions		5,804
Proceeds from sales		(1,836	)
Charge-offs against the valuation allowance for other real estate owned, net		(39	)
Net gain on sales		156
Total other real estate owned and repossessed assets	$	19,225
Less valuation allowance for other real estate owned		(3,233	)
Balance at December 31, 2015	$	15,992

During the years ended December 31, 2015 and 2014, net charge-offs against the allowance for loan losses at the time of foreclosure were approximately $995,000 and $335,000, respectively. At December 31, 2015 $390,000 of consumer mortgage loans secured by residential real estate properties were in the process of foreclosure compared to $209,000 at December 31, 2014.

Activity in the valuation allowance for other real estate owned in settlement of loans for the years ended December 31, 2015, 2014 and 2013, respectively, is summarized as follows:

(in thousands)	2015			2014			2013
Balance, beginning of year	$	3,255		$	4,675		$	6,137
Provision for other real estate owned		17			585			3,367
Charge-offs		(39	)		(2,005	)		(4,829	)
Balance, end of year	$	3,233		$	3,255		$	4,675

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Investment Securities

12 Months Ended

Dec. 31, 2015

Investments Debt And Equity Securities [Abstract]

Investment Securities

(4) Investment Securities

The amortized cost and fair value of debt securities classified as available-for-sale at December 31, 2015 and 2014 are as follows:

			Gross		Gross
	Amortized		unrealized		unrealized
(in thousands)	cost		gains		losses		Fair value
December 31, 2015
Government sponsored enterprises	$	73,605	$	127	$	235	$	73,497
Asset-backed securities		130,179		440		1,768		128,851
Obligations of states and political subdivisions		32,224		493		11		32,706
Total available for sale securities	$	236,008	$	1,060	$	2,014	$	235,054
December 31, 2014
Government sponsored enterprises	$	57,002	$	240	$	143	$	57,099
Asset-backed securities		106,726		855		1,119		106,462
Obligations of states and political subdivisions		34,925		583		71		35,437
Total available for sale securities	$	198,653	$	1,678	$	1,333	$	198,998

All of the Company’s investment securities are classified as available for sale. Agency bonds and notes, agency mortgage-backed securities and agency collateralized mortgage obligations (CMO) include securities issued by the Government National Mortgage Association (GNMA), a U.S. government agency, and the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB), which are U.S. government-sponsored enterprises.

Other Investments and securities primarily consist of Federal Home Loan Bank stock, subordinated debt securities, and the Company’s interest in statutory trusts. These securities are reported at cost in other assets in the amount of $8.0 million and $4.7 million as of December 31, 2015 and 2014, respectively.

Debt securities with carrying values aggregating approximately $182.7 million and $145.5 million at December 31, 2015 and December 31, 2014, respectively, were pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

The amortized cost and fair value of debt securities classified as available-for-sale at December 31, 2015, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.

	Amortized		Fair
(in thousands)	cost		value
Due in one year or less	$	24,894	$	24,890
Due after one year through five years		67,513		67,614
Due after five years through ten years		12,593		12,871
Due after ten years		829		828
Total		105,829		106,203
Asset-backed securities		130,179		128,851
Total available for sale securities	$	236,008	$	235,054

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and December 31, 2014 were as follows:

	Less than 12 months					12 months or more					Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands)	Value		Losses			Value		Losses			Value		Losses
At December 31, 2015
Government sponsored enterprises	$	43,539	$	(222	)	$	1,002	$	(13	)	$	44,541	$	(235	)
Asset-backed securities		56,095		(620	)		43,576		(1,148	)		99,671		(1,768	)
Obligations of states and political subdivisions		2,571		(6	)		718		(5	)		3,289		(11	)
Total	$	102,205	$	(848	)	$	45,296	$	(1,166	)	$	147,501	$	(2,014	)
(in thousands)
At December 31, 2014
Government sponsored enterprises	$	2,983	$	(4	)	$	17,862	$	(139	)	$	20,845	$	(143	)
Asset-backed securities		10,314		(50	)		45,445		(1,069	)		55,759		(1,119	)
Obligations of states and political subdivisions		3,667		(15	)		1,942		(56	)		5,609		(71	)
Total	$	16,964	$	(69	)	$	65,249	$	(1,264	)	$	82,213	$	(1,333	)

The total available for sale portfolio consisted of approximately 316 securities at December 31, 2015. The portfolio included 71 securities having an aggregate fair value of $147.5 million that were in a loss position at December 31, 2015. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $45.3 million at fair value. The $2.0 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2015 was caused by interest rate fluctuations.

The total available for sale portfolio consisted of approximately 300 securities at December 31, 2014. The portfolio included 74 securities having an aggregate fair value of $82.2 million that were in a loss position at December 31, 2014. Securities identified as temporarily impaired which had been in a loss position for 12 months or longer totaled $65.2 million at fair value. The $1.3 million aggregate unrealized loss included in accumulated other comprehensive income at December 31, 2014 was caused by interest rate fluctuations.

Because the decline in fair value is attributable to changes in interest rates and not credit quality these investments were not considered other-than-temporarily impaired at December 31, 2015 and 2014. In addition, the Company does not have the intent to sell these investments over the period of recovery, and it is not more likely than not that it will be required to sell such investment securities.

The table presents the components of investment securities gains and losses, which have been recognized in earnings:

(in thousands)	2015		2014			2013
Gains realized on sales	$	8	$	86		$	786
Losses realized on sales		0		(66	)		(8	)
Other-than-temporary impairment recognized		0		0			0
Investment securities gains	$	8	$	20		$	778

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Premises and Equipment

12 Months Ended

Dec. 31, 2015

Premises and Equipment

Premises and Equipment

(5) Premises and Equipment

A summary of premises and equipment at December 31, 2015 and 2014 is as follows:

(in thousands)	2015		2014
Land and land improvements	$	10,165	$	10,152
Buildings and improvements		35,588		35,504
Furniture and equipment		12,906		12,016
Construction in progress		94		523
Total		58,753		58,195
Less accumulated depreciation		22,364		20,697
Premises and equipment, net	$	36,389	$	37,498

Depreciation expense for the years ended December 31, 2015, 2014, and 2013 was as follows:

(in thousands)	2015		2014		2013
Depreciation expense	$	1,810	$	1,758	$	1,605

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Intangible Assets

12 Months Ended

Dec. 31, 2015

Intangible Assets

Intangible Assets

(6) Intangible Assets

Core Deposit Intangible Asset

Core deposit intangible assets in the amount of $4.8 million were fully amortized as of June 30, 2013. Amortization expense was $0, $0 and $135,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

Mortgage Servicing Rights

At December 31, 2015 and 2014, respectively, the Company serviced mortgage loans for others totaling $312.1 million and $313.9 million, respectively. Mortgage loan servicing fees, reported as non-interest income, earned on loans sold were $873,000, $895,000, and $901,000, for the years ended December 31, 2015, 2014, and 2013, respectively.

The table below presents changes in mortgage servicing rights (MSRs) for the years ended December 31, 2015, 2014, and 2013.

(in thousands)	2015			2014			2013
Balance at beginning of year	$	2,762		$	3,036		$	2,549
Originated mortgage servicing rights		386			302			512
Changes in fair value:
Due to change in model inputs and assumptions (1)		372			66			723
Other changes in fair value (2)		(673	)		(642	)		(748	)
Amortization		0			0			0
Balance at end of year	$	2,847		$	2,762		$	3,036

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2) Other changes in fair value reflect changes due to customer payments and passage of time.

The following key data and assumptions were used in estimating the fair value of the Company’s mortgage servicing rights as of the years ended December 31, 2015 and 2014:

	2015			2014
Weighted-Average Constant Prepayment Rate		9.58	%		10.54	%
Weighted-Average Note Rate		3.92	%		3.99	%
Weighted-Average Discount Rate		9.16	%		9.21	%
Weighted-Average Expected Life (in years)		5.90			5.70

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Deposits

12 Months Ended

Dec. 31, 2015

Deposits

Deposits

(7) Deposits

The scheduled maturities of total time deposits as of the years ended December 31, 2015 and 2014 were as follows:

(in thousands)	2015		2014
Due within:
One year	$	201,418	$	204,566
Two years		56,026		58,177
Three years		29,030		33,551
Four years		6,022		16,760
Five years		5,586		5,282
Thereafter		0		1,347
Total	$	298,082	$	319,683

At December 31, 2015 and 2014, the Company had certificates and other time deposits in denominations of $100,000 or more with maturities as follows:

(in thousands)	2015		2014
Due within:
Three months or less	$	39,122	$	33,488
Over three months through six months		30,704		29,381
Over six months through twelve months		30,432		35,308
Over twelve months		31,986		36,768
Total	$	132,244	$	134,945

Total time deposits of more than $250,000 totaled $254.7 million and $253.9 million at December 31, 2015 and 2014, respectively.

The Federal Reserve Bank required the Bank to maintain cash or balances of $1.6 million at December 31, 2015 and 2014 to satisfy reserve requirements. Average compensating balances held at correspondent banks were $544,000 and $408,000 at December 31, 2015 and 2014, respectively. The Bank maintains such compensating balances with correspondent banks to offset charges for services rendered by those banks.

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Borrowings

12 Months Ended

Dec. 31, 2015

Borrowings

Borrowings

(8) Borrowings

Federal Funds Purchased and Securities Sold under Agreements to Repurchase (Repurchase Agreements)

Information relating to federal funds purchased and repurchase agreements is as follows:

(in thousands)	Year End Weighted Rate			Average Weighted Rate			Average Balance Outstanding		Maximum Outstanding at any Month End		Balance at December 31,
2015
Federal funds purchased		0.70	%		0.41	%	$	658	$	937	$	0
Short-term repurchase agreements		0.10			0.17			30,266		58,464		56,834
Total							$	30,924	$	59,401	$	56,834
2014
Federal funds purchased		0.45	%		0.38	%	$	404	$	0	$	0
Short-term repurchase agreements		0.12			0.10			19,819		22,849		17,970
Total							$	20,223	$	22,849	$	17,970

The securities underlying the agreements to repurchase are under the control of the Bank. All securities sold under agreements to repurchase are secured by a portion of the Bank’s investment portfolio. Under agreements with unaffiliated banks, the Bank may borrow federal funds up to $40.0 million on an unsecured basis and $8.6 million on a secured basis at December 31, 2015.

Subordinated Notes and Other Borrowings

Other borrowings of the Company consisted of the following:

(in thousands)				2015					2014
	Borrower	Maturity Date		Year End Balance		Year End Weighted Rate			Year End Balance		Year End Weighted Rate
FHLB advances	The Bank		2015	$	0		na	%	$	8,000		0.30	%
			2016		8,000		0.67	%		8,000		0.67	%
			2017		5,000		1.07	%		5,000		1.07	%
			2018		22,000		1.93	%		20,000		2.00	%
			2019		4,000		1.79			2,000		1.97	%
			2020		11,000		1.95	%		0		na	%
Total Bank				$	50,000				$	43,000
Subordinated notes	The Company		2034	$	25,774		3.23	%	$	25,774		2.94	%
			2035		23,712		2.36	%		23,712		2.07	%
Total Company				$	49,486				$	49,486

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB) and has access to term financing from the FHLB. These borrowings are secured under a blanket agreement which assigns all investment in FHLB stock, as well as qualifying first mortgage loans as collateral to secure amounts borrowed by the Bank. The outstanding balance of $50.0 million includes $10.0 million, which the FHLB may call for early payment within the next year. Based upon the collateral pledged to the FHLB at December 31, 2015, the Bank could borrow up to an additional $207.5 million under the agreement.

On March 17, 2005, Exchange Statutory Trust II, a business trust and subsidiary of the Company, issued $23.0 million of 30-year floating rate Trust Preferred Securities (TPS) to a TPS Pool. The floating rate is equal to a three-month LIBOR rate plus 1.83% and reprices quarterly (2.36% at December 31, 2015). The TPS can be prepaid without penalty at any time after five years from the issuance date.

The TPS represent preferred interests in the trust. The Company invested approximately $712,000 in common interests in the trust and the purchaser in the private placement purchased $23.0 million in preferred interests. The proceeds were used by the trust to purchase from the Company its 30-year deeply subordinated debentures whose terms mirror those stated above for the TPS. The debentures are guaranteed by the Company pursuant to a subordinated guarantee. Distributions on the TPS are payable quarterly on March 17, June 17, September 17, and December 17 of each year that the TPS are outstanding. The trustee for the TPS holders is U.S. Bank, N.A. The trustee does not have the power to take enforcement action in the event of a default under the TPS for five years from the date of default. In the event of default, however, the Company would be precluded from paying dividends until the default is cured.

On March 17, 2004, Exchange Statutory Trust I, a business trust and subsidiary of the Company issued $25.0 million of floating rate TPS to a TPS Pool. The floating rate is equal to the three-month LIBOR rate plus 2.70% and reprices quarterly (3.23% at December 31, 2015). The TPS are fully, irrevocably, and unconditionally guaranteed on a subordinated basis by the Company. The proceeds of the TPS were invested in junior subordinated debentures of the Company. Distributions on the TPS are payable quarterly on March 17, June 17, September 17, and December 17 of each year that the TPS are outstanding. The TPS mature on March 17, 2034. That maturity date may be shortened if certain conditions are met.

The Exchange Statutory Trusts are not consolidated in the Company’s financial statements. Accordingly, the Company does not report the securities issued by the Exchange Statutory Trusts as liabilities, and instead reports the subordinated notes issued by the Company and held by the Exchange Statutory Trusts as liabilities. The amount of the subordinated notes as of December 31, 2015 and 2014 was $49.5 million, respectively. The Company has recorded the investments in the common securities issued by the Exchange Statutory Trusts aggregating $1.5 million, and the corresponding obligations under the subordinated notes, as well as the interest income and interest expense on such investments and obligations in its consolidated financial statements.

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

(9) Income Taxes

The composition of income tax expense for the years ended December 31, 2015, 2014, and 2013 was as follows:

(in thousands)	2015		2014		2013
Current:
Federal	$	3,619	$	1,105	$	584
State		496		137		71
Total current		4,115		1,242		655
Deferred:
Federal		391		2,353		1,485
State		74		447		282
Total deferred		465		2,800		1,767
Total income tax expense	$	4,580	$	4,042	$	2,422

Applicable income tax expense for financial reporting purposes differs from the amount computed by applying the statutory federal income tax rate for the reasons noted in the table for the years ended December 31, 2015, 2014, and 2013 are as follows:

(in thousands)	2015						2014						2013
	Amount			%			Amount			%			Amount			%
Income before provision for income tax expense	$	13,179					$	11,696					$	7,396
Tax at statutory federal income tax rate	$	4,481			34.00	%	$	3,977			34.00	%	$	2,515			34.00	%
Tax-exempt income		(369	)		(2.80	)		(348	)		(2.98	)		(353	)		(4.77	)
State income tax, net of federal tax benefit		376			2.85			385			3.30			233			3.15
Other, net		92			0.70			28			0.24			27			0.37
Provision for income tax expense	$	4,580			34.75	%	$	4,042			34.56	%	$	2,422			32.75	%

The components of deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are as follows:

(in thousands)	2015		2014
Deferred tax assets:
Allowance for loan losses	$	3,269	$	3,458
Impairment of other real estate owned		1,226		1,233
Goodwill		1,437		1,786
Available-for-sale securities		363		0
Nonaccrual loan interest		640		1,069
Core deposit intangible		556		689
Pension		1,242		985
Deferred taxes on pension		874		998
Deferred compensation		138		130
Other		342		250
Total deferred tax assets	$	10,087	$	10,598
Deferred tax liabilities:
Available-for-sale securities	$	0	$	131
Premises and equipment		938		1,160
Mortgage servicing rights		1,064		1,022
Assets held for sale		49		114
Other		13		53
Total deferred tax liabilities		2,064		2,480
Net deferred tax assets	$	8,023	$	8,118

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income available in carryback years, and tax planning strategies in making this assessment. With the exception of certain capital losses generated during 2013 and 2014, it is management’s opinion that the Company will more likely than not realize the benefits of these temporary differences as of December 31, 2015 and, therefore, only established a valuation reserve against the Company’s capital loss carry forward. Management arrived at this conclusion based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible. As indicated above, the Company generated approximately $219,000 of capital losses during 2013 and 2014 as a result of disposing of certain limited partnership interests. The capital losses will expire between 2019 and 2020, and it is management’s opinion that the Company will not more likely than not generate the capital gain income necessary to utilize the capital loss carry forwards before the capital losses expire. As such, the Company has established an $83,000 valuation reserve against its capital loss carry forward deferred tax asset.

The Company follows ASC Topic 740, Income Taxes, which addresses the accounting for uncertain tax positions. As of December 31, 2015, 2014, and 2013 the Company did not have any uncertain tax provisions.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2015

Stockholders' Equity Note [Abstract]

Stockholders' Equity

(10) Stockholders’ Equity

Accumulated Other Comprehensive (Loss) Income

The following details the change in the components of the Company’s accumulated other comprehensive (loss) income for the years ended December 31, 2014 and 2015, respectively: 

							Accumulated
				Unrecognized Net			Other
				Pension and			Comprehensive
	Unrealized Loss			Postretirement			(Loss)
(in thousands)	on Securities (1)			Costs (2)			Income
Balance, December 31, 2013	$	(1,491	)	$	722		$	(769	)
Other comprehensive (loss) income, before reclassifications		2,770			(3,568	)		(798	)
Amounts reclassified from accumulated other comprehensive income		(20	)		79			59
Current period other comprehensive (loss) income, before tax		2,750			(3,489	)		(739	)
Income tax benefit (expense)		(1,045	)		1,325			280
Current period other comprehensive (loss) income, net of tax		1,705			(2,164	)		(459	)
Balance, December 31, 2014	$	214		$	(1,442	)	$	(1,228	)
Other comprehensive (loss) income, before reclassifications		(1,291	)		5			(1,286	)
Amounts reclassified from accumulated other comprehensive income		(8	)		144			136
Current period other comprehensive (loss) income, before tax		(1,299	)		149			(1,150	)
Deferred tax adjustment		0			(77	)		(77	)
Income tax benefit (expense)		494			(57	)		437
Current period other comprehensive (loss) income, net of tax		(805	)		15			(790	)
Balance, December 31, 2015	$	(591	)	$	(1,427	)	$	(2,018	)

(1) The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost. See Note 11.

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2015

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

(11) Employee Benefit Plans

Employee benefits charged to operating expenses are summarized in the table below for the years ended December 31, as indicated.

(in thousands)	2015		2014		2013
Payroll taxes	$	1,102	$	1,081	$	1,106
Medical plans		1,928		1,974		1,915
401(k) match		325		310		309
Pension plan		1,391		960		1,173
Profit-sharing		563		201		118
Other		164		122		219
Total employee benefits	$	5,473	$	4,648	$	4,840

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 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.

Pension

The Company provides a noncontributory defined benefit pension plan for all full-time employees. An employer is required to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. The Company made $716,000 of contributions to the defined benefit plan for the current plan year. There is a $758,000 minimum required contribution for the 2016 plan year. The Company has not determined whether it will make any contributions other than the minimum required funding for 2016.

Obligations and Funded Status at December 31,

(in thousands)	2015			2014
Change in projected benefit obligation:
Balance, January 1	$	19,977		$	14,852
Service cost		1,325			981
Interest cost		838			732
Actuarial (loss) gain		(1,084	)		3,813
Benefits paid		(455	)		(401	)
Balance, December 31	$	20,601		$	19,977
Change in plan assets:
Fair value, January 1	$	14,933		$	13,532
Actual return on plan assets		(75	)		1,118
Employer contribution		716			725
Expenses paid		(88	)		(41	)
Benefits paid		(455	)		(401	)
Fair value, December 31	$	15,031		$	14,933
Funded status at end of year	$	(5,570	)	$	(5,044	)
Accumulated benefit obligation	$	16,550		$	16,595

Components of Net Pension Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income

The following items are components of net pension cost for the years ended December 31, as indicated:

(in thousands)	2015			2014			2013
Service cost—benefits earned during the year	$	1,325		$	981		$	1,174
Interest costs on projected benefit obligations		838			732			646
Expected return on plan assets		(957	)		(872	)		(797	)
Expected administrative expenses		40			40			40
Amortization of prior service cost		79			79			79
Amortization of unrecognized net loss		66			0			31
Net periodic pension expense	$	1,391		$	960		$	1,173

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss at December 31, 2015 and 2014 are shown below, including amounts recognized in other comprehensive income during the periods. All amounts are shown on a pre-tax basis.

(in thousands)	2015			2014
Prior service costs	$	(364	)	$	(443	)
Net accumulated actuarial net loss		(1,937	)		(2,008	)
Accumulated other comprehensive loss		(2,301	)		(2,451	)
Net periodic benefit cost in excess of cumulative employer contributions		(3,269	)		(2,593	)
Net amount recognized at December 31, balance sheet	$	(5,570	)	$	(5,044	)
Net gain (loss) arising during period	$	5		$	(3,568	)
Prior service cost amortization		79			79
Amortization of net actuarial loss		65			0
Total recognized in other comprehensive income (loss)	$	149		$	(3,489	)
Total recognized in net periodic pension cost and other comprehensive income	$	1,242		$	4,449

The estimated prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic cost in 2016 is $79,000. During 2016, there is no estimated amount of actuarial loss subject to amortization into net periodic pension cost.

Assumptions utilized to determine benefit obligations as of December 31, 2015, 2014 and 2013 and to determine pension expense for the years then ended are as follows:

	2015			2014			2013
Determination of benefit obligation at year end:
Discount rate		4.70	%		4.25	%		5.00	%
Annual rate of compensation increase		3.78	%		3.78	%		3.73	%
Determination of pension expense for year ended:
Discount rate for the service cost		4.25	%		5.00	%		4.25	%
Annual rate of compensation increase		3.78	%		3.73	%		3.61	%
Expected long-term rate of return on plan assets		7.00	%		7.00	%		7.00	%

The assumed overall expected long-term rate of return on pension plan assets used in calculating 2015 pension expense was 7.0%. Determination of the plan’s rate of return is based upon historical returns for equities and fixed income indexes. During the past five years, the Company’s plan assets have experienced the following annual returns: -0.4% in 2015, 8.3% in 2014, 19.1% in 2013, 11.4% in 2012, and 0.1% in 2011. The rate used in plan calculations may be adjusted by management for current trends in the economic environment. With a traditional investment mix of over half of the plan’s investments in equities, the actual return for any one plan year may fluctuate significantly with changes in the stock market. Due to an increase in discount rates used in the actuarial calculation of plan income, the Company expects to incur $1.2 million of expense in 2016 compared to $1.4 million 2015.

Plan Assets

The investment policy of the pension plan is designed for growth in value while minimizing risk to the overall portfolio. The Company diversifies the assets through investments in domestic and international fixed income securities and domestic and international equity securities. The assets are readily marketable and can be sold to fund benefit payment obligations as they become payable. The Company’s long-term investment target mix for the plan is 70% equity securities and 30% fixed income. 

The Company regularly reviews its policies on the investment mix and may make changes depending on economic conditions and perceived investment mix.

The fair value of the Company’s pension plan assets at December 31, 2015 and 2014 by asset category was as follows:

			Fair Value Measurements
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2015
Cash equivalents	$	1,663	$	1,663	$	0	$	0
Equity securities:
U.S. large-cap (a)		6,191		6,191		0		0
U.S. mid-cap (b)		2,094		2,094		0		0
U.S. small-cap (c)		820		820		0		0
International (d)		1,778		1,778		0		0
Real estate (e)		478		478		0		0
Commodities (f)		205		205		0		0
Fixed income securities:
U.S. gov't agency obligations (g)		1,802		0		1,802		0
Total	$	15,031	$	13,229	$	1,802	$	0
December 31, 2014
Cash equivalents	$	1,937	$	1,937	$	0	$	0
Equity securities:
U.S. large-cap (a)		7,252		7,252		0		0
U.S. mid-cap (b)		921		921		0		0
U.S. small-cap (c)		1,131		1,131		0		0
International (d)		1,895		1,895		0		0
Real estate (e)		486		486		0		0
Commodities (f)		264		264		0		0
Fixed income securities:
U.S. gov't agency obligations (g)		1,047		0		1,047		0
Total	$	14,933	$	13,886	$	1,047	$	0

(a) This category is comprised of low-cost equity index funds not actively managed that track the S&P 500.

(b) This category is comprised of low-cost equity index funds not actively managed that track the MSCI U.S. mid-cap 450.

(c) This category is comprised of actively managed mutual funds.

(d) At December 31, 2015 and 2014, 31% of this category is comprised of low-cost equity index funds not actively managed that track the MSCI EAFE.

(e) This category is comprised of low-cost real estate index exchange traded funds.

(f) This category is comprised of exchange traded funds investing in agricultural and energy commodities.

(g) This category is comprised of individual bonds.

The following future benefit payments are expected to be paid:

Year	Pension  benefits
(in thousands)
2016	$	513
2017		637
2018		660
2019		788
2020		859
2021 to 2025		5,530

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Stock Compensation

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Compensation

(12) Stock Compensation

The Company’s stock option plan provides for the grant of options to purchase up to 592,168 shares of the Company’s common stock to officers and other key employees of the Company and its subsidiaries.

The following table summarizes the Company’s stock option activity:

										Weighted average						Weighted average						Aggregate
	Number of shares									exercise price						Contractual Term						Intrinsic Value
	December 31									December 31						(in years)						($000)
	2015			2014			2013			2015		2014		2013		2015		2014		2013		2015		2014		2013
Outstanding, beginning of year		100,361			131,366			242,304		$	21.56	$	22.32	$	21.95
Granted		0			0			0			0.00		0.00		0.00
Exercised		0			0			0			0.00		0.00		0.00
Forfeited or expired		(37,616	)		(31,005	)		(110,938	)		21.65		24.76		21.51
Outstanding, end of year		62,745			100,361			131,366		$	21.50	$	21.56	$	22.32		1.41		1.93		2.51	$	0.00	$	0.00	$	0.00
Exercisable, end of year		55,262			88,586			115,663		$	22.25	$	21.95	$	22.58		1.24		1.75		2.30	$	0.00	$	0.00	$	0.00

Options have been adjusted to reflect a 4% stock dividend paid on July 1, 2015.

Total stock-based compensation expense for the years ended December 31, 2015, 2014, and 2013 was $10,000, $20,000, and $19,000, respectively. As of December 31, 2015, the total unrecognized compensation expense related to non-vested stock awards was $20,000 and the related weighted average period over which it is expected to be recognized is approximately 0.57 years. No stock options were granted during the years presented above.

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Earnings per Share

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

Earnings per Share

(13) Earnings per Share

Stock Dividend On July 1, 2015, the Company paid a special stock dividend of four percent to common shareholders of record at the close of business on June 15, 2015. For all periods presented, share information, including basic and diluted earnings per share, has been adjusted retroactively to reflect this change.

Preferred Stock On December 19, 2008, the Company announced its participation in the U.S. Treasury Department’s Capital Purchase Program (CPP), a voluntary program that provides capital to financially healthy banks. Participation in this program included the Company’s issuance of 30,255 shares of senior preferred stock (with a par value of $1,000 per share) and a ten year warrant to purchase approximately 287,133 shares of common stock. On May 9, 2012, the Company redeemed 12,000 of the 30,255 shares of preferred stock issued under the U.S. Treasury’s CPP program for a total purchase price of $12.1 million, and on May 15, 2013, the remaining 18,255 shares were redeemed for a total purchase price of $18.5 million.

On June 11, 2013, the common stock warrant issued under the U.S. Treasury Department’s CPP program was repurchased by the Company for a total purchase price of $540,000, or $1.88 per warrant share. The purchase price was based on the fair market value of the warrant as agreed upon by the Company and the Treasury. The repurchase of the warrant ended the Company’s participation in the U.S. Treasury Department’s CPP.

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the year.

Presented below is a summary of the components used to calculate basic and diluted earnings per common share, which have been restated for all stock dividends.

	2015		2014		2013
Basic earnings per common share:
Net income	$	8,599	$	7,654	$	4,974
Less preferred stock dividends and accretion of discount		0		0		615
Net income available to common shareholders	$	8,599	$	7,654	$	4,359
Basic earnings per share	$	1.58	$	1.41	$	0.80
Diluted earnings per common share:
Net income	$	8,599	$	7,654	$	4,974
Less preferred stock dividends and accretion of discount		0		0		615
Net income available to common shareholders	$	8,599	$	7,654	$	4,359
Average shares outstanding		5,443,284		5,443,344		5,443,344
Effect of dilutive stock options		0		0		0
Average shares outstanding including dilutive stock options		5,443,284		5,443,344		5,443,344
Diluted earnings per share	$	1.58	$	1.41	$	0.80

Under the treasury stock method, outstanding stock options are dilutive when the average market price of the Company’s common stock, when combined with the effect of any unamortized compensation expense, exceeds the option price during the period, except when the Company has a loss from continuing operations available to common shareholders. In addition, proceeds from the assumed exercise of dilutive options along with the related tax benefit are assumed to be used to repurchase common shares at the average market price of such stock during the period.

The following options to purchase shares during the years ended December 31, 2015, 2014 and 2013 were not included in the respective computations of diluted earnings per share because the exercise price of the option, when combined with the effect of the unamortized compensation expense, was greater than the average market price of the common shares and were considered anti-dilutive.

	2015		2014		2013
Anti-dilutive shares - option shares		62,745		100,361		131,366
Anti-dilutive shares - warrant shares		0		0		0
Total anti-dilutive shares		62,745		100,361		131,366

Repurchase Program On August 6, 2015, the Board of Directors authorized a share repurchase plan to purchase through open market transactions $2.0 million market value of the Company’s common stock. During 2016, the Company repurchased 2,155 shares of common stock pursuant to the plan at an average price of $15.39 per share.

The table below shows activity in the outstanding shares of the Company's common stock during the past three years. Shares in the table below are presented on a historical basis and have not been restated for the annual 4% stock dividends.

	Number of shares
	December 31
	2015			2014		2013
Outstanding, beginning of year		5,233,986			5,032,679		4,839,114
Issuance of stock:
4% stock dividend		209,359			201,307		193,565
Purchase of treasury stock		(2,155	)		0		0
Outstanding, end of year		5,441,190			5,233,986		5,032,679

Except as noted in the above table, all share and per share amounts in this note have been restated for the 4% common stock dividend distributed in 2015.

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Capital Requirements

12 Months Ended

Dec. 31, 2015

Capital Requirements

Capital Requirements

(14) Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital to risk-weighted assets, and of Tier I capital to adjusted-average assets. Management believes, as of December 31, 2015 and 2014, the Company and the Bank met all capital adequacy requirements.

In July 2013, the federal bank regulators approved final rules (the “Basel III Rule”) implementing Basel III framework as well as certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Basel III Rule also substantially revises the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including the Company and the Bank, as compared to the general risk-based capital rules. The Basel III Rule revises the components of capital and addresses other issues affecting the numerator in regulatory capital ratios. The Basel III Rule also address asset risk weights and other issues affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach based on Basel I with a more risk-sensitive approach. The Basel III Rule became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). As of December 31, 2015, the capital ratios (as set forth in the table below) are calculated under the new Basel III rules. As of December 31, 2014, the capital ratios (as set forth in the table below) are calculated under the former Basel I rules 

As of December 31, 2015, the most recent notification from the regulatory authorities categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since the notification that management believes have changed the Bank’s categories.

											Well-Capitalized Under
						Required for Capital					Prompt Corrective Action
	Actual					Adequacy Purposes					Provision
(in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2015
Total Capital (to risk-weighted assets):
Company	$	146,068		14.78	%	$	79,066		8.00	%	$	N.A.		N.A.	%
Bank		137,572		13.98			78,718		8.00			98,398		10.00
Tier I Capital (to risk-weighted assets):
Company	$	118,875		12.03	%	$	59,299		6.00	%	$	N.A.		N.A.	%
Bank		128,808		13.09			59,039		6.00			78,718		8.00
Common Equity Tier I Capital (to risk-weighted assets)
Company	$	89,304		9.02	%	$	44,475		4.50	%	$	N.A.		N.A.	%
Bank		128,808		13.09			44,279		4.50			63,959		6.50
Tier I leverage ratio:
Company	$	118,875		9.84	%	$	48,314		4.00	%	$	N.A.		N.A.	%
Bank		128,808		10.73			48,025		4.00			60,031		5.00
(in thousands)
December 31, 2014
Total Capital (to risk-weighted assets):
Company	$	138,619		15.78	%	$	70,282		8.00	%		N.A.		N.A.	%
Bank		128,311		14.78			69,430		8.00		$	86,788		10.00
Tier I Capital (to risk-weighted assets):
Company	$	108,785		12.38	%	$	35,141		4.00	%		N.A.		N.A.	%
Bank		119,212		13.74			34,715		4.00		$	52,073		6.00
Tier I leverage ratio:
Company	$	108,785		9.42	%	$	46,197		4.00	%	$	N.A.		N.A.	%
Bank		119,212		10.42			45,784		4.00			57,230		5.00

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Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

(15) Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities. The FASB ASC Topic 820, Fair Value Measurements, defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. The standard applies whenever other standards require (permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, FASB clarified the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. As of December 31, 2015 and 2014 there were no transfers into or out of Levels 1-3.

The fair value hierarchy is as follows:

Level 1 – Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 – Inputs are unobservable inputs for the asset or liability and significant to the fair value. These may be internally developed using the Company’s best information and assumptions that a market participant would consider. 

ASC Topic 820 also provides guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances when a transaction may not be considered orderly.

The Company is required to disclose assets and liabilities measured at fair value on a recurring basis separate from those measured at fair value on a nonrecurring basis. Nonfinancial assets measured at fair value on a nonrecurring basis would include foreclosed real estate, long-lived assets, and core deposit intangible assets, which are reviewed when circumstances or other events indicate that impairment may have occurred. 

Valuation methods for instruments measured at fair value on a recurring basis

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis:

Available-for-sale securities

The fair value measurements of the Company’s investment securities are determined by a third party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value measurements are subject to independent verification to another pricing source by management each quarter for reasonableness. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.

Mortgage servicing rights

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

			Fair Value Measurements
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2015
Assets:
Government sponsored enterprises	$	73,497	$	0		73,497	$	0
Asset-backed securities		128,851		0		128,851		0
Obligations of states and political subdivisions		32,706		0		32,706		0
Mortgage servicing rights		2,847		0		0		2,847
Total	$	237,901	$	0	$	235,054	$	2,847
December 31, 2014
Assets:
Government sponsored enterprises	$	57,099	$	0		57,099	$	0
Asset-backed securities		106,462		0		106,462		0
Obligations of states and political subdivisions		35,437		0		35,437		0
Mortgage servicing rights		2,762		0		0		2,762
Total	$	201,760	$	0	$	198,998	$	2,762

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
(in thousands)	Mortgage Servicing Rights
Balance at December 31, 2013	$	3,036
Total gains or losses (realized/unrealized):
Included in earnings		(576	)
Included in other comprehensive income		0
Purchases		0
Sales		0
Issues		302
Settlements		0
Balance at December 31, 2014	$	2,762
Total gains or losses (realized/unrealized):
Included in earnings		(301	)
Included in other comprehensive income		0
Purchases		0
Sales		0
Issues		386
Settlements		0
Balance at December 31, 2015	$	2,847

The change in valuation of mortgage servicing rights arising from inputs and assumptions increased $372,000 and $66,000 for the years ended December 31, 2015 and 2014, respectively.

	Quantitative Information about Level 3 Fair Value Measurements
	Valuation Technique	Unobservable Inputs	Input Value
			2015			2014
Mortgage servicing rights	Discounted cash flows	Weighted average constant prepayment rate		9.58	%		10.54	%
		Weighted average discount rate		9.16	%		9.21	%
		Weighted average expected life (in years)		5.90			5.70

Valuation methods for instruments measured at fair value on a nonrecurring basis

Following is a description of the Company’s valuation methodologies used for assets and liabilities recorded at fair value on a nonrecurring basis:

Impaired Loans

The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. The net carrying value of impaired loans is generally based on fair values of the underlying collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. Once the fair value of the collateral has been determined and any impairment amount calculated, a specific reserve allocation is made. Because many of these inputs are not observable, the measurements are classified as Level 3. As of December 31, 2015, the Company identified $5.7 million in impaired loans that had specific allowances for losses aggregating $1.5 million. Related to these loans, there was $1.9 million in charge-offs recorded during the year ended December 31, 2015. As of December 31, 2014, the Company identified $7.4 million in impaired loans that had specific allowances for losses aggregating $1.7 million. Related to these loans, there was $5.4 million in charge-offs recorded during the year ended December 31, 2014.

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consisted of loan collateral that has been repossessed through foreclosure. This collateral comprises of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. Because many of these inputs are not observable, the measurements are classified as Level 3.

	Fair Value Measurements Using
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Total		Assets		Inputs		Inputs		Total Gains
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)		(Losses)*
December 31, 2015
Assets:
Impaired loans:
Commercial, financial, & agricultural	$	272	$	0	$	0	$	272	$	(920	)
Real estate construction - residential		0		0		0		0		0
Real estate construction - commercial		87		0		0		87		(10	)
Real estate mortgage - residential		3,336		0		0		3,336		(567	)
Real estate mortgage - commercial		369		0		0		369		(322	)
Consumer		125		0		0		125		(66	)
Total	$	4,189	$	0	$	0	$	4,189	$	(1,885	)
Other real estate owned and repossessed assets	$	15,992	$	0	$	0	$	15,992	$	118
December 31, 2014
Assets:
Impaired loans:
Commercial, financial, & agricultural	$	1,386	$	0	$	0	$	1,386	$	(1,105	)
Real estate construction - residential		0		0		0		0		(350	)
Real estate construction - commercial		0		0		0		0		(491	)
Real estate mortgage - residential		3,322		0		0		3,322		(332	)
Real estate mortgage - commercial		809		0		0		809		(2,937	)
Consumer		172		0		0		172		(148	)
Total	$	5,689	$	0	$	0	$	5,689	$	(5,363	)
Other real estate owned and repossessed assets	$	11,885	$	0	$	0	$	11,885	$	(1,870	)

* Total gains (losses) reported for other real estate owned and repossessed assets includes charge-offs, valuation write-downs, and net losses taken during the periods reported.

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

Financial Instruments, Owned, at Fair Value [Abstract]

Fair Value of Financial Instruments

(16) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

Loans

The fair values of loans are estimated by discounting the expected future cash flows using the current rates at which similar loans could be made to borrowers with similar credit ratings and for the same remaining maturities. The net carrying amount of impaired loans is generally based on the fair values of collateral obtained through independent appraisals or internal evaluations, or by discounting the total expected future cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

Investment Securities

A detailed description of the fair value measurement of the debt instruments in the available-for-sale sections of the investment security portfolio is provided in the Fair Value Measurement section above. A schedule of investment securities by category and maturity is provided in the notes on Investment Securities.

Federal Home Loan Bank (FHLB) Stock

Ownership of equity securities of FHLB is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

Federal Funds Sold, Cash, and Due from Banks

The carrying amounts of short-term federal funds sold and securities purchased under agreements to resell, interest earning deposits with banks, and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell classified as short-term generally mature in 90 days or less.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on the discounted value of estimated future cash flows utilizing contractual cash flows, servicing rate, constant prepayment rate, servicing cost, and discount rate factors. Accordingly, the fair value is estimated based on a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees.

Cash Surrender Value – Life Insurance

The fair value of Bank owned life insurance (BOLI) approximates the carrying amount. Upon liquidation of these investments, the Company would receive the cash surrender value which equals the carrying amount.

Accrued Interest Receivable and Payable

For accrued interest receivable and payable, the carrying amount is a reasonable estimate of fair value because of the short maturity for these financial instruments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand, NOW accounts, savings, and money market, is equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities Sold under Agreements to Repurchase and Interest-bearing Demand Notes to U.S. Treasury

For securities sold under agreements to repurchase and interest-bearing demand notes to U.S. Treasury, the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period.

Subordinated Notes and Other Borrowings

The fair value of subordinated notes and other borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for other borrowed money of similar remaining maturities.

A summary of the carrying amounts and fair values of the Company’s financial instruments at December 31, 2015 and 2014 is as follows:

					December 31, 2015
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	December 31, 2015				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	20,484	$	20,484	$	20,484	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		7,893		7,893		7,893		0		0
Investment in available-for-sale securities		235,054		235,054		0		235,054		0
Loans, net		856,476		854,775		0		0		854,775
Investment in FHLB stock		3,390		3,390		0		3,390		0
Mortgage servicing rights		2,847		2,847		0		0		2,847
Cash surrender value - life insurance		2,348		2,348		0		2,348		0
Accrued interest receivable		4,853		4,853		4,853		0		0
	$	1,133,345	$	1,131,644	$	33,230	$	240,792	$	857,622
Liabilities:
Deposits:
Non-interest bearing demand	$	208,035	$	208,035	$	208,035	$	0	$	0
Savings, interest checking and money market		441,080		441,080		441,080		0		0
Time deposits		298,082		298,323		0		0		298,323
Federal funds purchased and securities sold under agreements to repurchase		56,834		56,834		56,834		0		0
Subordinated notes		49,486		40,821		0		40,821		0
Federal Home Loan Bank advances		50,000		52,340		0		52,340		0
Accrued interest payable		382		382		382		0		0
	$	1,103,899	$	1,097,815	$	706,331	$	93,161	$	298,323

					December 31, 2014
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	December 31, 2014				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	22,364	$	22,364	$	22,364	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		20,445		20,445		20,445		0		0
Investment in available-for-sale securities		198,998		198,998		0		198,998		0
Loans, net		852,114		854,062		0		0		854,062
Investment in FHLB stock		3,075		3,075		0		3,075		0
Mortgage servicing rights		2,762		2,762		0		0		2,762
Cash surrender value - life insurance		2,284		2,284		0		2,284		0
Accrued interest receivable		4,816		4,816		4,816		0		0
	$	1,106,858	$	1,108,806	$	47,625	$	204,357	$	856,824
Liabilities:
Deposits:
Non-interest bearing demand	$	207,700	$	207,700	$	207,700	$	0	$	0
Savings, interest checking and money market		442,059		442,059		442,059		0		0
Time deposits		319,755		321,041		0		0		321,041
Federal funds purchased and securities sold under agreements to repurchase		17,970		17,970		17,970		0		0
Subordinated notes		49,486		33,371		0		33,371		0
Federal Home Loan Bank advances		43,000		44,396		0		44,396		0
Accrued interest payable		373		373		373		0		0
	$	1,080,343	$	1,066,910	$	668,102	$	77,767	$	321,041

Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms that are competitive in the markets in which it operates.

Limitations

The fair value estimates provided are made at a point in time based on market information and information about the financial instruments. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the fair value estimates.

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Repurchase Reserve Liability

12 Months Ended

Dec. 31, 2015

Repurchase Reserve Liability [Abstract]

Repurchase Reserve Liability

(17) Repurchase Reserve Liability

The Company’s repurchase reserve liability for estimated losses incurred on sold loans was $160,000 at both December 31, 2015 and 2014. This liability represents management’s estimate of the potential repurchase or make-whole liability for residential mortgage loans originated for sale that may arise from representation and warranty claims that could relate to a variety of issues, including but not limited to, misrepresentation of facts, appraisal issues, or program requirements that may not meet investor guidelines. At December 31, 2015, the Company was servicing 3,024 loans sold to the secondary market with a balance of approximately $312.1 million compared to 3,057 loans sold with a balance of approximately $313.9 million at December 31, 2014.

(in thousands)	2015			2014			2013
Balance at beginning of year	​	$	160	​	$	160	​	$	0
Provision for repurchase liability	​	​	40	​	​	0	​	​	279
Reimbursement of expenses	​	​	(40)	​	​	0	​	​	(119)
Balance at end of year	​	$	160	​	$	160	​	$	160

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

(18) 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 Company’s extent of involvement and maximum potential exposure to credit loss in the event of nonperformance 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. At December 31, 2015, no amounts have been accrued for any estimated losses for these financial instruments.

The contractual amount of off-balance-sheet financial instruments as of December 31, 2015 and 2014 is as follows:

(in thousands)	2015		2014
Commitments to extend credit	$	161,306	$	135,137
Commitments to originate residential first and second mortgage loans		3,175		1,640
Standby letters of credit		1,466		1,621
Total		165,947		138,398

Commitments

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments and letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, furniture and equipment, and real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Company’s customers. The approximate remaining term of standby letters of credit range from one month to five years at December 31, 2015.

Pending Litigation

The Company and its subsidiaries are defendants in various legal actions incidental to the Company’s past and current business activities. Based on the Company’s analysis, and considering the inherent uncertainties associated with litigation, management does not believe that it is reasonably possible that these legal actions will materially adversely affect the Company’s consolidated financial condition or results of operations in the near term. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Some legal matters, which are at early stages in the legal process, have not yet progressed to the point where a loss amount can be estimated.

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Condensed Financial Information of the Parent Company Only

12 Months Ended

Dec. 31, 2015

Condensed Financial Information of the Parent Company Only

Condensed Financial Information of the Parent Company Only

(19) Condensed Financial Information of the Parent Company Only

Following are the condensed financial statements of Hawthorn Bancshares, Inc. (Parent only) as of and for the years indicated:

Condensed Balance Sheets
	December 31,
(in thousands)	2015		2014
Assets
Cash and due from bank subsidiaries	$	4,971	$	1,024
Investment in equity securities		1,486		1,486
Investment in subsidiaries		134,099		130,728
Deferred tax asset		2,116		1,989
Other assets		7		308
Total assets	$	142,679	$	135,535
Liabilities and Stockholders’ Equity
Subordinated notes	$	49,486	$	49,486
Other liabilities		5,907		5,481
Stockholders’ equity		87,286		80,568
Total liabilities and stockholders’ equity	$	142,679	$	135,535

Condensed Statements of Income
	For the Years Ended December 31,
	2015			2014			2013
Income
Interest and dividends received from subsidiaries	$	1,039		$	2,538		$	15,039
Total income		1,039			2,538			15,039
Expenses
Interest on subordinated notes		1,293			1,264			1,284
Other		2,138			1,730			1,778
Total expenses		3,431			2,994			3,062
Income before income tax benefit and equity in undistributed income of subsidiaries		(2,392	)		(456	)		11,977
Income tax benefit		1,065			1,100			1,126
Equity in undistributed income (losses) of subsidiaries		9,926			7,010			(8,129	)
Net income	$	8,599		$	7,654		$	4,974

Condensed Statements of Cash Flows
	For the Years Ended December 31,
(in thousands)	2015			2014			2013
Cash flows from operating activities:
Net income	$	8,599		$	7,654		$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		0			0			1
Equity in undistributed (income) losses of subsidiaries		(9,926	)		(7,010	)		8,129
Stock based compensation expense		10			20			19
(Increase) decrease in deferred tax asset		(127	)		(1,415	)		1,325
Other, net		732			1,942			(182	)
Net cash (used) provided by operating activities	$	(712	)	$	1,191		$	14,266
Cash flows from investing activities:
Investment in subsidiary	$	5,750		$	400		$	4,550
Net cash provided by investing activities	$	5,750		$	400		$	4,550
Cash flows from financing activities:
Redemption of 18,255 shares of preferred stock	$	0		$	0		$	(18,255	)
Cash dividends paid - preferred stock		0			0			(456	)
Cash dividends paid - common stock		(1,058	)		(1,017	)		(978	)
Purchase of treasury stock		(33	)		0			0
Warrant redemption		0			0			(540	)
Net cash used in financing activities	$	(1,091	)	$	(1,017	)	$	(20,229	)
Net increase (decrease) in cash and due from banks		3,947			574			(1,413	)
Cash and due from banks at beginning of year		1,024			450			1,863
Cash and due from banks at end of year	$	4,971		$	1,024		$	450

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Quarterly Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Information (Unaudited)

Quarterly Financial Information (Unaudited)

(20) Quarterly Financial Information (Unaudited)

									Year
	First		Second		Third		Fourth		to
(In thousands except per share data)	quarter		quarter		quarter		quarter		Date
Year Ended December 31, 2015
Interest income	$	11,198	$	11,214	$	11,829	$	11,515	$	45,756
Interest expense		1,220		1,230		1,271		1,278		4,999
Net interest income		9,978		9,984		10,558		10,237		40,757
Provision for loan losses		0		250		0		0		250
Noninterest income		1,987		2,461		2,337		2,381		9,166
Noninterest expense		8,708		9,267		8,978		9,541		36,494
Income tax expense		1,119		1,001		1,377		1,083		4,580
Net income available to common stockholders	$	2,138	$	1,927	$	2,540	$	1,994	$	8,599
Net income per share:
Basic earnings per share	$	0.39	$	0.35	$	0.47	$	0.37	$	1.58
Diluted earnings per share		0.39		0.35		0.47		0.37		1.58
Year Ended December 31, 2014
Interest income	$	10,963	$	11,125	$	11,196	$	11,214	$	44,498
Interest expense		1,309		1,278		1,240		1,217		5,044
Net interest income		9,654		9,847		9,956		9,997		39,454
Provision for loan losses		0		0		0		0		0
Noninterest income		2,085		2,183		2,313		2,168		8,749
Noninterest expense		8,707		8,811		9,899		9,090		36,507
Income tax expense		1,045		1,121		802		1,074		4,042
Net income available to common stockholders	$	1,987	$	2,098	$	1,568	$	2,001	$	7,654
Net income per share:
Basic earnings per share	$	0.36	$	0.39	$	0.29	$	0.37	$	1.41
Diluted earnings per share		0.36		0.39		0.29		0.37		1.41

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

In December of 2008 and March of 2010, the Company formed Hawthorn Real Estate, LLC, and Real Estate Holdings of Missouri, LLC, respectively (the Real Estate Companies); both are wholly owned subsidiaries of the Company. The consolidated financial statements include the accounts of the Company, Hawthorn Bank (the Bank), and the Real Estate Companies. All significant intercompany accounts and transactions have been eliminated in consolidation.

Loans

Loans

Loans that the Company has the intent and ability to hold for the foreseeable future or maturity are held for investment at their stated unpaid principal balance amount less unearned income and the allowance for loan losses. Income on loans is accrued on a simple-interest basis. Loan origination fees and certain direct costs are deferred and recognized over the life of the loan as an adjustment to yield.

Loans Held for Sale

The Bank originates certain loans, which are sold in the secondary market. These loans are classified as held for sale upon origination based on management’s intent to sell and are accounted for at the lower of adjusted cost or fair value. Adjusted cost reflects the funded loan amount and any loan origination costs and fees. In order to manage the risk associated with such activities, the Company upon locking in an interest rate with the borrower enters into an agreement to sell such loans in the secondary market. Loans held for sale are typically sold with servicing rights retained and without recourse except for normal and customary representation and warranty provisions. Mortgage loans held for sale were $1.2 million at December 31, 2015 compared to no loans held for sale at December 31, 2014.

Impaired Loans

A loan is considered impaired when it is probable the Company will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. Included in impaired loans are all non-accrual loans and loans whose terms have been modified in a troubled debt restructuring. Impaired loans are individually evaluated for impairment based on fair values of the underlying collateral, obtained through independent appraisals or internal valuations for a collateral dependent loan or by discounting the total expected future cash flows.

Non-Accrual Loans

Loans are placed on nonaccrual status when management believes that the borrower’s financial condition, after consideration of business conditions and collection efforts, is such that collection of interest is doubtful. Loans that are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection. Subsequent interest payments received on such loans are applied to principal if doubt exists as to the collectability of such principal; otherwise, such receipts are recorded as interest income on a cash basis. A loan remains on nonaccrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Restructured Loans

A loan is accounted for as a troubled debt restructuring (TDR) if the Company, for economic or legal reasons related to the borrowers’ financial difficulties, grants a concession to the borrower that it would not otherwise consider. A TDR typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, accrued interest, or an extended maturity date (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy. Nonperforming TDRs are returned to performing status once the borrower demonstrates the ability to pay under the terms of the restructured note through a sustained period of repayment performance, which is generally six months. The Company includes all performing and non-performing TDRs in the impaired and non-performing asset totals. The Company measures the impairment loss of a TDR in the same manner as described below. TDRs which are performing under their contractual terms continue to accrue interest which is recognized in current earnings.

Allowance for Loan Losses

Allowance for Loan Losses

Management has identified the accounting policy related to the allowance for loan losses as critical to the understanding of the Company’s results of operations, since the application of this policy requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. Many of the loans are deemed collateral dependent for purposes of the measurement of the impairment loss, thus the fair value of the underlying collateral and sensitivity of such fair values due to changing market conditions, supply and demand, condition of the collateral and other factors can be volatile over periods of time. Such volatility can have an impact on the financial performance of the Company.

Loans, or portions of loans, are charged off to the extent deemed uncollectible or a loss is confirmed. When loans become 90 days past due, they are generally placed on nonaccrual status or charged off unless extenuating circumstances justify leaving the loan on accrual basis. When loans reach 120 days past due and there is little likelihood of repayment, they are charged off. Loan charge-offs reduce the allowance for loan losses, and recoveries of loans previously charged off are added back to the allowance. 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 considered to be impaired.

The specific reserve component applies to loans evaluated individually for impairment. The net carrying value of impaired loans is generally based on the fair values of collateral obtained through independent appraisals and/or internal evaluations, or by discounting the total expected future cash flows. Once the impairment amount is calculated, a specific reserve allocation is recorded.

The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type. Loans not individually evaluated are aggregated by risk characteristics and reserves are recorded using a consistent methodology that considers historical loan loss experience by loan type. Management determined that the previous twelve quarters were reflective of the loss characteristics of the Company’s loan portfolio during the recent economic environment. These historical loss rates for each risk group are used as the starting point to determine loss rates for measurement purposes. The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates. Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices. The combined historical loan loss rates and qualitative factors are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.

Investment in Debt and Equity Securities

Investment in Debt and Equity Securities

At the time of purchase, debt securities are classified into one of two categories: available-for-sale or held-to-maturity. Held-to-maturity securities are those securities which the Company has the positive intent and ability to hold until maturity. All debt securities not classified as held-to-maturity are classified as available-for-sale. The Company’s securities are classified as available-for-sale and are carried at fair value. Changes in fair value, excluding certain losses associated with other-than-temporary impairment, are reported in other comprehensive income, net of taxes, a component of stockholders’ equity. Securities are periodically evaluated for other-than-temporary impairment in accordance with guidance provided in the FASB ASC Topic 320,Investments – Debt and Equity Securities. For those securities with other-than-temporary impairment, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the security before the anticipated recovery. If neither condition is met, but the Company does not expect to recover the amortized cost basis, the Company determines whether a credit loss has occurred, which is then recognized in current earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Premiums and discounts are amortized using the interest method over the lives of the respective securities, with consideration of historical and estimated prepayment rates for mortgage-backed securities, as an adjustment to yield. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings based on the specific identification method for determining the cost of securities sold.

Capital Stock of the Federal Home Loan Bank

Capital Stock of the Federal Home Loan Bank

The Bank, as a member of the Federal Home Loan Bank System administered by the Federal Housing Finance Agency, is required to maintain an investment in the capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount equal to 12 basis points of the Bank’s year-end total assets plus 4.00% of advances from the FHLB to the Bank. These invest-ments are recorded at cost, which represents redemption value.

Premises and Equipment

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation. Depreciation applicable to buildings and improve-ments and furniture and equipment is charged to expense using straight-line and accelerated methods over the estimated useful lives of the assets. Such lives are estimated to be 5 to 40 years for buildings and improvements and 3 to 15 years for furniture and equipment. Maintenance and repairs are charged to expense as incurred.

Core Deposit Intangibles

Core Deposit Intangibles

Intangible assets that have finite useful lives, such as core deposit intangibles, are amortized over their estimated useful lives. Core deposit intangibles are amortized over periods of 7 to 8 years representing their estimated lives using straight line and accelerated methods.

When facts and circumstances indicate potential impairment of amortizable intangible assets, the Company evaluates the recoverability of the carrying value based upon future cash flows expected to result from the use of the underlying asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the underlying asset, the Company recognizes an impairment loss. The impairment loss recognized represents the amount by which the carrying value of the underlying asset exceeds the fair value of the underlying asset.

Mortgage Servicing Rights

Mortgage Servicing Rights

The Company originates and sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Servicing involves the collection of payments from individual borrowers and the distribution of those payments to the investors or master servicer. Upon a sale of mortgage loans for which servicing rights are retained, the retained mortgage servicing rights asset is capitalized at the fair value of future net cash flows expected to be realized for performing servicing activities.

Mortgage servicing rights do not trade in an active market with readily observable prices. The Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds, discount rates, delinquencies, ancillary income, and cost to service. These assumptions are validated on a periodic basis. The fair value is validated on a quarterly basis with an independent third party valuation specialist firm.

In addition to the changes in fair value of the mortgage servicing rights, the Company also recorded loan servicing fee income as part of real estate servicing fees, net in the statement of income. Loan servicing fee income represents revenue earned for servicing mortgage loans. The servicing fees are based on contractual percentage of the outstanding principal balance and recognized as revenue as the related mortgage payments are collected. Corresponding loan servicing costs are changed to expense as incurred.

Other Real Estate Owned and Repossessed Assets

Other Real Estate Owned and Repossessed Assets

Other real estate owned and repossessed assets consist of loan collateral that has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including autos, manufactured homes, and construction equipment. Other real estate owned assets are initially recorded as held for sale at the fair value of the collateral less estimated selling costs. Any adjustment is recorded as a charge-off against the allowance for loan losses. The Company relies on external appraisals and assessment of property values by internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgment based on experience and expertise of internal specialists. Subsequent to foreclosure, valuations are updated periodically, and the assets may be written down to reflect a new cost basis. The write-downs are recorded as other real estate expense. The Company establishes a valuation allowance related to other real estate owned on an asset-by-asset basis. The valuation allowance is created during the holding period when the fair value less cost to sell is lower than the cost of the property.

Pension Plan

Pension Plan

The Company provides a noncontributory defined benefit pension plan for all full-time employees. The benefits are based on age, years of service and the level of compensation during the employees highest ten years of compensation before retirement. Net periodic costs are recognized as employees render the services necessary to earn the retirement benefits. The Company records annual amounts relating to its pension plan based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality, assumed rates of return, compensation increases, and turnover rates. The Company reviews its assumptions on an annual basis and may make modifications to the assumptions based on current rates and trends when it is appropriate to do so. The Company believes that the assumptions utilized in recording its obligations under its plan are reasonable based on its experience and market conditions.

The Company follows authoritative guidance included in the FASB ASC Topic 715, Compensation – Retirement Plans under the subtopic Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. ASC Topic 715 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its consolidated balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. This guidance also requires an employer to measure the funded status of a plan as of the date of its fiscal year-end, with limited exceptions. Additional disclosures are required to provide users with an understanding of how investment allocation decisions are made, major categories of plan assets, and fair value measurement of plan assets as defined in ASC Topic 820, Fair Value Measurements and Disclosures.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset / liability method by recognizing the amount of taxes payable or refundable for the current period and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in addressing the Company’s future tax consequences of events that have been recognized in the consolidated financial statements or tax returns such as realization of the effects of temporary differences, net operating loss carry forwards and changes in tax laws or interpretations thereof. A valuation allowance is established when in the judgment of management, it is more likely than not that such deferred tax assets will not become realizable. In this case, the Company would adjust the recorded value of our deferred tax asset, which would result in a direct charge to income tax expense in the period that the determination was made. Likewise, the Company would reverse the valuation allowance when it is expected to realize the deferred tax asset. The Company has not recognized any tax liabilities or any interest or penalties in income tax expense related to uncertain tax positions as of December 31, 2015, 2014, and 2013.

Trust Department

Trust Department

Property held by the Bank in a fiduciary or agency capacity for customers is not included in the accompanying consolidated balance sheets, since such items are not assets of the Company. Trust department income is recognized on the accrual basis.

Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows

For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of short-term federal funds sold and securities sold or purchased under agreements to resell, interest earning deposits with banks, cash, and due from banks.

Stock-Based Compensation

The Company’s stock-based employee compensation plan is described in Note 12, Stock Compensation. In accordance with FASB ASC Topic 718, Compensation – Stock Compensation, the Company measures the cost of the stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period. The fair value of an award is estimated using the Black-Scholes option-pricing model. The expense recognized is based on an estimation of the number of awards for which the requisite service is expected to be rendered, and is included in salaries and employee benefits in the accompanying Consolidated Statements of Income. The standard also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.

Treasury Stock

Treasury Stock

The purchase of the Company’s common stock is recorded at cost. Purchases of the stock are made both in the open market and through negotiated private purchases based on market prices. At the date of subsequent reissue, the treasury stock account is reduced by the cost associated with such stock on a first-in-first-out basis.

Reclassifications

Reclassifications

Certain prior year information has been reclassified to conform to the current year presentation.

New accounting principles adopted

The following represents significant new accounting principles adopted in 2015:
 
Investments – Equity Method and Joint Ventures
 
The FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, in January 2014. These amendments allow investors in low income housing tax credit entities to account for the investments using a proportional amortization method, provided that certain conditions are met, and recognize amortization of the investment as a component of income tax expense. In addition, disclosures are required that will enable users to understand the nature of the investments, and the effect of the measurement of the investments and the related tax credits on the investor’s financial statements. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.
 
Troubled Debt Restructurings by Creditors
 
The FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, in January 2014. These amendments require companies to disclose the amount of foreclosed residential real estate property held and the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. The ASU also defines when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.
 
The FASB issued ASU No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure in August 2014. The objective of this update is to reduce diversity in practice by addressing the classification of foreclosed mortgage loans that are fully or partially guaranteed under government programs, including those guaranteed by the FHA and the VA. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. The amendments in this ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This ASU was effective January 1, 2015, and the adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements.

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Loans and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2015

Loans and Leases Receivable Disclosure [Abstract]

Schedule of summary of loans, by major class within the Company's loan portfolio

(in thousands)	2015		2014
Commercial, financial, and agricultural	$	149,091	$	154,834
Real estate construction - residential		16,895		18,103
Real estate construction - commercial		33,943		48,822
Real estate mortgage - residential		256,086		247,117
Real estate mortgage - commercial		385,869		372,321
Installment and other consumer		23,196		20,016
Total loans	$	865,080	$	861,213

Schedule of loans to directors and executive officers

(in thousands)
Balance at December 31, 2014	$	4,940
New loans		286
Amounts collected		(499	)
Balance at December 31, 2015	$	4,727

Schedule of summary of the allowance for loan losses

	Commercial,			Real Estate			Real Estate			Real Estate			Real Estate			Installment
	Financial, &			Construction -			Construction -			Mortgage -			Mortgage -			Loans to			Un-
(in thousands)	Agricultural			Residential			Commercial			Residential			Commercial			Individuals			allocated		Total
Balance at December 31, 2012	$	1,937		$	732		$	1,711		$	3,387		$	6,834		$	239		$	2	$	14,842
Additions:
Provision for loan losses		992			318			(452	)		273			622			272			5		2,030
Deductions:
Loans charged off		895			119			633			812			1,301			420			0		4,180
Less recoveries on loans		(340	)		0			(5	)		(111	)		(368	)		(203	)		0		(1,027	)
Net loans charged off		555			119			628			701			933			217			0		3,153
Balance at December 31, 2013	$	2,374		$	931		$	631		$	2,959		$	6,523		$	294		$	7	$	13,719
Additions:
Provision for loan losses		371			(592	)		326			(226	)		(107	)		195			33		0
Deductions:
Loans charged off		1,285			349			491			408			2,890			405			0		5,828
Less recoveries on loans		(319	)		(181	)		0			(202	)		(320	)		(186	)		0		(1,208	)
Net loans charged off		966			168			491			206			2,570			219			0		4,620
Balance at December 31, 2014	$	1,779		$	171		$	466		$	2,527		$	3,846		$	270		$	40	$	9,099
Additions:
Provision for loan losses		833			(434	)		193			153			(713	)		157			61		250
Deductions:
Loans charged off		1,131			0			15			379			363			302			0		2,190
Less recoveries on loans		(672	)		(322	)		0			(138	)		(165	)		(148	)		0		(1,445	)
Net loans charged off		459			(322	)		15			241			198			154			0		745
Balance at December 31, 2015	$	2,153		$	59		$	644		$	2,439		$	2,935		$	273		$	101	$	8,604

	Commercial,		Real Estate		Real Estate		Real Estate		Real Estate		Installment
	Financial, and		Construction -		Construction -		Mortgage -		Mortgage -		Loans to		Un-
(in thousands)	Agricultural		Residential		Commercial		Residential		Commercial		Individuals		allocated		Total
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment	$	285	$	0	$	15	$	955	$	266	$	19	$	0	$	1,540
Collectively evaluated for impairment		1,868		59		629		1,484		2,669		254		101		7,064
Total	$	2,153	$	59	$	644	$	2,439	$	2,935	$	273	$	101	$	8,604
Loans outstanding:
Individually evaluated for impairment	$	1,005	$	0	$	102	$	5,936	$	3,081	$	144	$	0	$	10,268
Collectively evaluated for impairment		148,086		16,895		33,841		250,150		382,788		23,052		0		854,812
Total	$	149,091	$	16,895	$	33,943	$	256,086	$	385,869	$	23,196	$	0	$	865,080
December 31, 2014
Allowance for loan losses:
Individually evaluated for impairment	$	134	$	0	$	0	$	1,343	$	246	$	26	$	0	$	1,749
Collectively evaluated for impairment		1,645		171		466		1,184		3,600		244		40		7,350
Total	$	1,779	$	171	$	466	$	2,527	$	3,846	$	270	$	40	$	9,099
Loans outstanding:
Individually evaluated for impairment	$	7,541	$	1,750	$	2,096	$	7,878	$	16,464	$	234	$	0	$	35,963
Collectively evaluated for impairment		147,293		16,353		46,726		239,239		355,857		19,782		0		825,250
Total	$	154,834	$	18,103	$	48,822	$	247,117	$	372,321	$	20,016	$	0	$	861,213

Schedule of impaired loans

(in thousands)	2015		2014
Non-accrual loans	$	4,418	$	18,243
Performing TDRs		5,850		17,720
Total impaired loans	$	10,268	$	35,963

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		Reserves
December 31, 2015
With no related allowance recorded:
Commercial, financial and agricultural	$	448	$	450	$	0
Real estate - residential		1,645		1,712		0
Real estate - commercial		2,446		2,572		0
Total	$	4,539	$	4,734	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	557	$	572	$	285
Real estate - construction commercial		102		115		15
Real estate - residential		4,291		4,320		955
Real estate - commercial		635		884		266
Consumer		144		182		19
Total	$	5,729	$	6,073	$	1,540
Total impaired loans	$	10,268	$	10,807	$	1,540

			Unpaid
	Recorded		Principal		Specific
(in thousands)	Investment		Balance		Reserves
December 31, 2014
With no related allowance recorded:
Commercial, financial and agricultural	$	6,021	$	6,232	$	0
Real estate - construction residential		1,750		2,259		0
Real estate - construction commercial		2,096		2,319		0
Real estate - residential		3,213		3,270		0
Real estate - commercial		15,409		18,950		0
Consumer		36		36		0
Total	$	28,525	$	33,066	$	0
With an allowance recorded:
Commercial, financial and agricultural	$	1,520	$	1,528	$	134
Real estate - residential		4,665		3,546		1,343
Real estate - commercial		1,055		1,171		246
Consumer		198		237		26
Total	$	7,438	$	6,482	$	1,749
Total impaired loans	$	35,963	$	39,548	$	1,749

	2015				2014
			Interest				Interest
	Average		Recognized		Average		Recognized
	Recorded		For the		Recorded		For the
(in thousands)	Investment		Period Ended		Investment		Period Ended
With no related allowance recorded:
Commercial, financial and agricultural	$	2,949	$	39	$	3,141	$	94
Real estate - construction residential		536		0		610		2
Real estate - construction commercial		1,105		0		5,950		0
Real estate - residential		2,331		37		3,517		46
Real estate - commercial		5,169		119		13,703		400
Consumer		7		1		11		0
Total	$	12,097	$	196	$	26,932	$	542
With an allowance recorded:
Commercial, financial and agricultural	$	1,356	$	22	$	1,773	$	19
Real estate - construction residential		0		0		1,697		0
Real estate - construction commercial		52		0		42		0
Real estate - residential		4,625		110		5,118		129
Real estate - commercial		1,161		0		3,810		11
Consumer		183		0		312		0
Total	$	7,377	$	132	$	12,752	$	159
Total impaired loans	$	19,474	$	328	$	39,684	$	701

Schedule of aging information for the Company's past due and non-accrual loans

(in thousands)

Current or  Less Than  30 Days  Past Due

30-89 Days  Past Due

90 Days  Past Due  And Still  Accruing

Non-Accrual

Total

December 31, 2015

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

148,597

​

$

185

​

$

1

​

$

308

​

$

149,091

Real Estate Construction - Residential

​

​

16,830

​

​

0

​

​

0

​

​

0

​

​

16,830

Real Estate Construction - Commercial

​

​

33,472

​

​

65

​

​

0

​

​

102

​

​

33,639

Real Estate Mortgage - Residential

​

​

251,253

​

​

2,511

​

​

0

​

​

2,322

​

​

256,086

Real Estate Mortgage - Commercial

​

​

384,053

​

​

643

​

​

0

​

​

1,542

​

​

386,238

Installment and Other Consumer

​

​

22,840

​

​

207

​

​

5

​

​

144

​

​

23,196

Total

​

$

857,045

​

$

3,611

​

$

6

​

$

4,418

​

$

865,080

December 31, 2014

​

​

​

​

​

Commercial, Financial, and Agricultural

​

$

149,366

​

$

189

​

$

0

​

$

5,279

​

$

154,834

Real Estate Construction - Residential

​

​

16,352

​

​

0

​

​

0

​

​

1,751

​

​

18,103

Real Estate Construction - Commercial

​

​

46,670

​

​

0

​

​

56

​

​

2,096

​

​

48,822

Real Estate Mortgage - Residential

​

​

239,469

​

​

3,229

​

​

0

​

​

4,419

​

​

247,117

Real Estate Mortgage - Commercial

​

​

366,653

​

​

1,203

​

​

0

​

​

4,465

​

​

372,321

Installment and Other Consumer

​

​

19,551

​

​

230

​

​

2

​

​

233

​

​

20,016

Total

​

$

838,061

​

$

4,851

​

$

58

​

$

18,243

​

$

861,213

Schedule of risk categories by class

(in thousands)	Commercial, Financial, & Agricultural		Real Estate Construction - Residential		Real Estate Construction - Commercial		Real Estate Mortgage - Residential		Real Estate Mortgage - Commercial		Installment and other Consumer		Total
At December 31, 2015
Watch	$	8,663	$	1,267	$	1,296	$	22,191	$	24,303	$	186	$	57,906
Substandard		421		0		37		3,737		1,485		36		5,716
Performing TDRs		697		0		0		3,615		1,538		0		5,850
Non-accrual		308		0		102		2,322		1,542		144		4,418
Total	$	10,089	$	1,267	$	1,435	$	31,865	$	28,868	$	366	$	73,890
At December 31, 2014
Watch	$	13,651	$	1,103	$	4,757	$	27,172	$	18,191	$	199	$	65,073
Substandard		926		90		1,211		3,124		4,102		139		9,592
Performing TDRs		2,262		0		0		3,459		11,999		0		17,720
Non-accrual		5,279		1,751		2,096		4,419		4,465		233		18,243
Total	$	22,118	$	2,944	$	8,064	$	38,174	$	38,757	$	571	$	110,628

Schedule of summary of loans that were modified as TDRs

	2015						2014
	Recorded Investment (1)						Recorded Investment (1)
(in thousands)	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
Troubled Debt Restructurings
Commercial, financial and agricultural		2	$	250	$	229		3	$	244	$	208
Real estate mortgage - residential		1		519		374		1		1,256		1,170
Real estate mortgage - commercial		4		1,273		1,249		0		0		0
Total		7	$	2,042	$	1,852		4	$	1,500	$	1,378

(1) The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off, or foreclosed upon during the period ended are not reported.

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Real Estate and Other Assets Acquired in Settlement of Loans (Tables)

12 Months Ended

Dec. 31, 2015

Other Real Estate [Abstract]

Schedule of summary of real estate and other assets acquired in settlement of loans

(in thousands)	2015			2014
Commercial	$	1,445		$	0
Real estate construction - residential		0			23
Real estate construction - commercial		12,380			9,831
Real estate mortgage - residential		477			417
Real estate mortgage - commercial		4,923			4,831
Repossessed assets		0			38
Total	$	19,225		$	15,140
Less valuation allowance for other real estate owned		(3,233	)		(3,255	)
Total other real estate owned and foreclosed assets	$	15,992		$	11,885

Schedule of changes in the net carrying amount of other real estate owned and repossessed assets

Balance at December 31, 2013	$	19,542
Additions		1,975
Proceeds from sales		(4,560	)
Charge-offs against the valuation allowance for other real estate owned		(2,005	)
Net gain on sales		188
Balance at December 31, 2014	$	15,140
Additions		5,804
Proceeds from sales		(1,836	)
Charge-offs against the valuation allowance for other real estate owned, net		(39	)
Net gain on sales		156
Total other real estate owned and repossessed assets	$	19,225
Less valuation allowance for other real estate owned		(3,233	)
Balance at December 31, 2015	$	15,992

Schedule of summary of activity in valuation allowance for other real estate owned in settlement of loans

(in thousands)	2015			2014			2013
Balance, beginning of year	$	3,255		$	4,675		$	6,137
Provision for other real estate owned		17			585			3,367
Charge-offs		(39	)		(2,005	)		(4,829	)
Balance, end of year	$	3,233		$	3,255		$	4,675

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Investment Securities (Tables)

12 Months Ended

Dec. 31, 2015

Investments Debt And Equity Securities [Abstract]

Schedule of amortized cost and fair value of debt securities classified as available-for-sale

			Gross		Gross
	Amortized		unrealized		unrealized
(in thousands)	cost		gains		losses		Fair value
December 31, 2015
Government sponsored enterprises	$	73,605	$	127	$	235	$	73,497
Asset-backed securities		130,179		440		1,768		128,851
Obligations of states and political subdivisions		32,224		493		11		32,706
Total available for sale securities	$	236,008	$	1,060	$	2,014	$	235,054
December 31, 2014
Government sponsored enterprises	$	57,002	$	240	$	143	$	57,099
Asset-backed securities		106,726		855		1,119		106,462
Obligations of states and political subdivisions		34,925		583		71		35,437
Total available for sale securities	$	198,653	$	1,678	$	1,333	$	198,998

Schedule of amortized cost and fair value of debt securities classified as available-for-sale by contractual maturity

	Amortized		Fair
(in thousands)	cost		value
Due in one year or less	$	24,894	$	24,890
Due after one year through five years		67,513		67,614
Due after five years through ten years		12,593		12,871
Due after ten years		829		828
Total		105,829		106,203
Asset-backed securities		130,179		128,851
Total available for sale securities	$	236,008	$	235,054

Schedule of gross unrealized losses on debt securities and fair value of related securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 months					12 months or more					Total		Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands)	Value		Losses			Value		Losses			Value		Losses
At December 31, 2015
Government sponsored enterprises	$	43,539	$	(222	)	$	1,002	$	(13	)	$	44,541	$	(235	)
Asset-backed securities		56,095		(620	)		43,576		(1,148	)		99,671		(1,768	)
Obligations of states and political subdivisions		2,571		(6	)		718		(5	)		3,289		(11	)
Total	$	102,205	$	(848	)	$	45,296	$	(1,166	)	$	147,501	$	(2,014	)
(in thousands)
At December 31, 2014
Government sponsored enterprises	$	2,983	$	(4	)	$	17,862	$	(139	)	$	20,845	$	(143	)
Asset-backed securities		10,314		(50	)		45,445		(1,069	)		55,759		(1,119	)
Obligations of states and political subdivisions		3,667		(15	)		1,942		(56	)		5,609		(71	)
Total	$	16,964	$	(69	)	$	65,249	$	(1,264	)	$	82,213	$	(1,333	)

Schedule of components of investment securities gains (losses), which are recognized in earnings

(in thousands)	2015		2014			2013
Gains realized on sales	$	8	$	86		$	786
Losses realized on sales		0		(66	)		(8	)
Other-than-temporary impairment recognized		0		0			0
Investment securities gains	$	8	$	20		$	778

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2015

Premises and Equipment

Schedule of summary of premises and equipment

(in thousands)	2015		2014
Land and land improvements	$	10,165	$	10,152
Buildings and improvements		35,588		35,504
Furniture and equipment		12,906		12,016
Construction in progress		94		523
Total		58,753		58,195
Less accumulated depreciation		22,364		20,697
Premises and equipment, net	$	36,389	$	37,498

Schedule of depreciation expense

(in thousands)	2015		2014		2013
Depreciation expense	$	1,810	$	1,758	$	1,605

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2015

Intangible Assets

Schedule of changes in mortgage servicing rights (MSRs)

(in thousands)	2015			2014			2013
Balance at beginning of year	$	2,762		$	3,036		$	2,549
Originated mortgage servicing rights		386			302			512
Changes in fair value:
Due to change in model inputs and assumptions (1)		372			66			723
Other changes in fair value (2)		(673	)		(642	)		(748	)
Amortization		0			0			0
Balance at end of year	$	2,847		$	2,762		$	3,036

(1) The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

(2) Other changes in fair value reflect changes due to customer payments and passage of time.

Schedule of key data and assumptions used in estimating the fair value of the Company's MSRs

	2015			2014
Weighted-Average Constant Prepayment Rate		9.58	%		10.54	%
Weighted-Average Note Rate		3.92	%		3.99	%
Weighted-Average Discount Rate		9.16	%		9.21	%
Weighted-Average Expected Life (in years)		5.90			5.70

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Deposits (Tables)

12 Months Ended

Dec. 31, 2015

Deposits

Schedule of maturities of total time deposits

(in thousands)	2015		2014
Due within:
One year	$	201,418	$	204,566
Two years		56,026		58,177
Three years		29,030		33,551
Four years		6,022		16,760
Five years		5,586		5,282
Thereafter		0		1,347
Total	$	298,082	$	319,683

Schedule of maturities of certificates and other time deposits in denominations of $100,000 or more

(in thousands)	2015		2014
Due within:
Three months or less	$	39,122	$	33,488
Over three months through six months		30,704		29,381
Over six months through twelve months		30,432		35,308
Over twelve months		31,986		36,768
Total	$	132,244	$	134,945

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2015

Borrowings

Schedule of information relating to federal funds purchased and repurchase agreements

(in thousands)	Year End Weighted Rate			Average Weighted Rate			Average Balance Outstanding		Maximum Outstanding at any Month End		Balance at December 31,
2015
Federal funds purchased		0.70	%		0.41	%	$	658	$	937	$	0
Short-term repurchase agreements		0.10			0.17			30,266		58,464		56,834
Total							$	30,924	$	59,401	$	56,834
2014
Federal funds purchased		0.45	%		0.38	%	$	404	$	0	$	0
Short-term repurchase agreements		0.12			0.10			19,819		22,849		17,970
Total							$	20,223	$	22,849	$	17,970

Schedule of other borrowings

(in thousands)				2015					2014
	Borrower	Maturity Date		Year End Balance		Year End Weighted Rate			Year End Balance		Year End Weighted Rate
FHLB advances	The Bank		2015	$	0		na	%	$	8,000		0.30	%
			2016		8,000		0.67	%		8,000		0.67	%
			2017		5,000		1.07	%		5,000		1.07	%
			2018		22,000		1.93	%		20,000		2.00	%
			2019		4,000		1.79			2,000		1.97	%
			2020		11,000		1.95	%		0		na	%
Total Bank				$	50,000				$	43,000
Subordinated notes	The Company		2034	$	25,774		3.23	%	$	25,774		2.94	%
			2035		23,712		2.36	%		23,712		2.07	%
Total Company				$	49,486				$	49,486

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Schedule of composition of income tax expense (benefit)

(in thousands)	2015		2014		2013
Current:
Federal	$	3,619	$	1,105	$	584
State		496		137		71
Total current		4,115		1,242		655
Deferred:
Federal		391		2,353		1,485
State		74		447		282
Total deferred		465		2,800		1,767
Total income tax expense	$	4,580	$	4,042	$	2,422

Schedule of the applicable income tax (benefit) expense for financial reporting purposes differs from the amount computed by applying the statutory Federal income tax rate

(in thousands)	2015						2014						2013
	Amount			%			Amount			%			Amount			%
Income before provision for income tax expense	$	13,179					$	11,696					$	7,396
Tax at statutory federal income tax rate	$	4,481			34.00	%	$	3,977			34.00	%	$	2,515			34.00	%
Tax-exempt income		(369	)		(2.80	)		(348	)		(2.98	)		(353	)		(4.77	)
State income tax, net of federal tax benefit		376			2.85			385			3.30			233			3.15
Other, net		92			0.70			28			0.24			27			0.37
Provision for income tax expense	$	4,580			34.75	%	$	4,042			34.56	%	$	2,422			32.75	%

Schedule of components of deferred tax assets and deferred tax liabilities

(in thousands)	2015		2014
Deferred tax assets:
Allowance for loan losses	$	3,269	$	3,458
Impairment of other real estate owned		1,226		1,233
Goodwill		1,437		1,786
Available-for-sale securities		363		0
Nonaccrual loan interest		640		1,069
Core deposit intangible		556		689
Pension		1,242		985
Deferred taxes on pension		874		998
Deferred compensation		138		130
Other		342		250
Total deferred tax assets	$	10,087	$	10,598
Deferred tax liabilities:
Available-for-sale securities	$	0	$	131
Premises and equipment		938		1,160
Mortgage servicing rights		1,064		1,022
Assets held for sale		49		114
Other		13		53
Total deferred tax liabilities		2,064		2,480
Net deferred tax assets	$	8,023	$	8,118

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Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2015

Stockholders' Equity Note [Abstract]

Schedule of the change in the components of the accumulated other comprehensive income (loss)

							Accumulated
				Unrecognized Net			Other
				Pension and			Comprehensive
	Unrealized Loss			Postretirement			(Loss)
(in thousands)	on Securities (1)			Costs (2)			Income
Balance, December 31, 2013	$	(1,491	)	$	722		$	(769	)
Other comprehensive (loss) income, before reclassifications		2,770			(3,568	)		(798	)
Amounts reclassified from accumulated other comprehensive income		(20	)		79			59
Current period other comprehensive (loss) income, before tax		2,750			(3,489	)		(739	)
Income tax benefit (expense)		(1,045	)		1,325			280
Current period other comprehensive (loss) income, net of tax		1,705			(2,164	)		(459	)
Balance, December 31, 2014	$	214		$	(1,442	)	$	(1,228	)
Other comprehensive (loss) income, before reclassifications		(1,291	)		5			(1,286	)
Amounts reclassified from accumulated other comprehensive income		(8	)		144			136
Current period other comprehensive (loss) income, before tax		(1,299	)		149			(1,150	)
Deferred tax adjustment		0			(77	)		(77	)
Income tax benefit (expense)		494			(57	)		437
Current period other comprehensive (loss) income, net of tax		(805	)		15			(790	)
Balance, December 31, 2015	$	(591	)	$	(1,427	)	$	(2,018	)

(1) The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in gain on sale of investment securities in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost. See Note 11.

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2015

Compensation and Retirement Disclosure [Abstract]

Schedule of summary of employee benefits charged to operating expenses

(in thousands)	2015		2014		2013
Payroll taxes	$	1,102	$	1,081	$	1,106
Medical plans		1,928		1,974		1,915
401(k) match		325		310		309
Pension plan		1,391		960		1,173
Profit-sharing		563		201		118
Other		164		122		219
Total employee benefits	$	5,473	$	4,648	$	4,840

Schedule of obligations and funded status

(in thousands)	2015			2014
Change in projected benefit obligation:
Balance, January 1	$	19,977		$	14,852
Service cost		1,325			981
Interest cost		838			732
Actuarial (loss) gain		(1,084	)		3,813
Benefits paid		(455	)		(401	)
Balance, December 31	$	20,601		$	19,977
Change in plan assets:
Fair value, January 1	$	14,933		$	13,532
Actual return on plan assets		(75	)		1,118
Employer contribution		716			725
Expenses paid		(88	)		(41	)
Benefits paid		(455	)		(401	)
Fair value, December 31	$	15,031		$	14,933
Funded status at end of year	$	(5,570	)	$	(5,044	)
Accumulated benefit obligation	$	16,550		$	16,595

Schedule of components of net pension cost

(in thousands)	2015			2014			2013
Service cost—benefits earned during the year	$	1,325		$	981		$	1,174
Interest costs on projected benefit obligations		838			732			646
Expected return on plan assets		(957	)		(872	)		(797	)
Expected administrative expenses		40			40			40
Amortization of prior service cost		79			79			79
Amortization of unrecognized net loss		66			0			31
Net periodic pension expense	$	1,391		$	960		$	1,173

Schedule of amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss), including amounts recognized in other comprehensive income

(in thousands)	2015			2014
Prior service costs	$	(364	)	$	(443	)
Net accumulated actuarial net loss		(1,937	)		(2,008	)
Accumulated other comprehensive loss		(2,301	)		(2,451	)
Net periodic benefit cost in excess of cumulative employer contributions		(3,269	)		(2,593	)
Net amount recognized at December 31, balance sheet	$	(5,570	)	$	(5,044	)
Net gain (loss) arising during period	$	5		$	(3,568	)
Prior service cost amortization		79			79
Amortization of net actuarial loss		65			0
Total recognized in other comprehensive income (loss)	$	149		$	(3,489	)
Total recognized in net periodic pension cost and other comprehensive income	$	1,242		$	4,449

Schedule of assumptions utilized to determine benefit obligations and to determine pension expense

	2015			2014			2013
Determination of benefit obligation at year end:
Discount rate		4.70	%		4.25	%		5.00	%
Annual rate of compensation increase		3.78	%		3.78	%		3.73	%
Determination of pension expense for year ended:
Discount rate for the service cost		4.25	%		5.00	%		4.25	%
Annual rate of compensation increase		3.78	%		3.73	%		3.61	%
Expected long-term rate of return on plan assets		7.00	%		7.00	%		7.00	%

Schedule of fair value of the Company's pension plan assets, by asset category

			Fair Value Measurements
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2015
Cash equivalents	$	1,663	$	1,663	$	0	$	0
Equity securities:
U.S. large-cap (a)		6,191		6,191		0		0
U.S. mid-cap (b)		2,094		2,094		0		0
U.S. small-cap (c)		820		820		0		0
International (d)		1,778		1,778		0		0
Real estate (e)		478		478		0		0
Commodities (f)		205		205		0		0
Fixed income securities:
U.S. gov't agency obligations (g)		1,802		0		1,802		0
Total	$	15,031	$	13,229	$	1,802	$	0
December 31, 2014
Cash equivalents	$	1,937	$	1,937	$	0	$	0
Equity securities:
U.S. large-cap (a)		7,252		7,252		0		0
U.S. mid-cap (b)		921		921		0		0
U.S. small-cap (c)		1,131		1,131		0		0
International (d)		1,895		1,895		0		0
Real estate (e)		486		486		0		0
Commodities (f)		264		264		0		0
Fixed income securities:
U.S. gov't agency obligations (g)		1,047		0		1,047		0
Total	$	14,933	$	13,886	$	1,047	$	0

(a) This category is comprised of low-cost equity index funds not actively managed that track the S&P 500.

(b) This category is comprised of low-cost equity index funds not actively managed that track the MSCI U.S. mid-cap 450.

(c) This category is comprised of actively managed mutual funds.

(d) At December 31, 2015 and 2014, 31% of this category is comprised of low-cost equity index funds not actively managed that track the MSCI EAFE.

(e) This category is comprised of low-cost real estate index exchange traded funds.

(f) This category is comprised of exchange traded funds investing in agricultural and energy commodities.

(g) This category is comprised of individual bonds.

Schedule of future benefit payments expected to be paid

Year	Pension  benefits
(in thousands)
2016	$	513
2017		637
2018		660
2019		788
2020		859
2021 to 2025		5,530

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Stock Compensation (Tables)

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of summary of Company's stock option activity

										Weighted average						Weighted average						Aggregate
	Number of shares									exercise price						Contractual Term						Intrinsic Value
	December 31									December 31						(in years)						($000)
	2015			2014			2013			2015		2014		2013		2015		2014		2013		2015		2014		2013
Outstanding, beginning of year		100,361			131,366			242,304		$	21.56	$	22.32	$	21.95
Granted		0			0			0			0.00		0.00		0.00
Exercised		0			0			0			0.00		0.00		0.00
Forfeited or expired		(37,616	)		(31,005	)		(110,938	)		21.65		24.76		21.51
Outstanding, end of year		62,745			100,361			131,366		$	21.50	$	21.56	$	22.32		1.41		1.93		2.51	$	0.00	$	0.00	$	0.00
Exercisable, end of year		55,262			88,586			115,663		$	22.25	$	21.95	$	22.58		1.24		1.75		2.30	$	0.00	$	0.00	$	0.00

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Earnings per Share (Tables)

12 Months Ended

Dec. 31, 2015

Earnings Per Share [Abstract]

Schedule of calculations of basic and diluted earnings (loss) per share

	2015		2014		2013
Basic earnings per common share:
Net income	$	8,599	$	7,654	$	4,974
Less preferred stock dividends and accretion of discount		0		0		615
Net income available to common shareholders	$	8,599	$	7,654	$	4,359
Basic earnings per share	$	1.58	$	1.41	$	0.80
Diluted earnings per common share:
Net income	$	8,599	$	7,654	$	4,974
Less preferred stock dividends and accretion of discount		0		0		615
Net income available to common shareholders	$	8,599	$	7,654	$	4,359
Average shares outstanding		5,443,284		5,443,344		5,443,344
Effect of dilutive stock options		0		0		0
Average shares outstanding including dilutive stock options		5,443,284		5,443,344		5,443,344
Diluted earnings per share	$	1.58	$	1.41	$	0.80

Schedule of antidilutive securities excluded from computation of earnings per share

	2015		2014		2013
Anti-dilutive shares - option shares		62,745		100,361		131,366
Anti-dilutive shares - warrant shares		0		0		0
Total anti-dilutive shares		62,745		100,361		131,366

Schedule of outstanding shares of the common stock

	Number of shares
	December 31
	2015			2014		2013
Outstanding, beginning of year		5,233,986			5,032,679		4,839,114
Issuance of stock:
4% stock dividend		209,359			201,307		193,565
Purchase of treasury stock		(2,155	)		0		0
Outstanding, end of year		5,441,190			5,233,986		5,032,679

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Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2015

Capital Requirements

Schedule of minimum total risk-based, Tier I risk-based and Tier I leverage ratios to be maintained for bank to be categorized as well capitalized

											Well-Capitalized Under
						Required for Capital					Prompt Corrective Action
	Actual					Adequacy Purposes					Provision
(in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2015
Total Capital (to risk-weighted assets):
Company	$	146,068		14.78	%	$	79,066		8.00	%	$	N.A.		N.A.	%
Bank		137,572		13.98			78,718		8.00			98,398		10.00
Tier I Capital (to risk-weighted assets):
Company	$	118,875		12.03	%	$	59,299		6.00	%	$	N.A.		N.A.	%
Bank		128,808		13.09			59,039		6.00			78,718		8.00
Common Equity Tier I Capital (to risk-weighted assets)
Company	$	89,304		9.02	%	$	44,475		4.50	%	$	N.A.		N.A.	%
Bank		128,808		13.09			44,279		4.50			63,959		6.50
Tier I leverage ratio:
Company	$	118,875		9.84	%	$	48,314		4.00	%	$	N.A.		N.A.	%
Bank		128,808		10.73			48,025		4.00			60,031		5.00
(in thousands)
December 31, 2014
Total Capital (to risk-weighted assets):
Company	$	138,619		15.78	%	$	70,282		8.00	%		N.A.		N.A.	%
Bank		128,311		14.78			69,430		8.00		$	86,788		10.00
Tier I Capital (to risk-weighted assets):
Company	$	108,785		12.38	%	$	35,141		4.00	%		N.A.		N.A.	%
Bank		119,212		13.74			34,715		4.00		$	52,073		6.00
Tier I leverage ratio:
Company	$	108,785		9.42	%	$	46,197		4.00	%	$	N.A.		N.A.	%
Bank		119,212		10.42			45,784		4.00			57,230		5.00

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities recorded at fair value on a recurring basis

			Fair Value Measurements
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2015
Assets:
Government sponsored enterprises	$	73,497	$	0		73,497	$	0
Asset-backed securities		128,851		0		128,851		0
Obligations of states and political subdivisions		32,706		0		32,706		0
Mortgage servicing rights		2,847		0		0		2,847
Total	$	237,901	$	0	$	235,054	$	2,847
December 31, 2014
Assets:
Government sponsored enterprises	$	57,099	$	0		57,099	$	0
Asset-backed securities		106,462		0		106,462		0
Obligations of states and political subdivisions		35,437		0		35,437		0
Mortgage servicing rights		2,762		0		0		2,762
Total	$	201,760	$	0	$	198,998	$	2,762

Schedule of summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)
(in thousands)	Mortgage Servicing Rights
Balance at December 31, 2013	$	3,036
Total gains or losses (realized/unrealized):
Included in earnings		(576	)
Included in other comprehensive income		0
Purchases		0
Sales		0
Issues		302
Settlements		0
Balance at December 31, 2014	$	2,762
Total gains or losses (realized/unrealized):
Included in earnings		(301	)
Included in other comprehensive income		0
Purchases		0
Sales		0
Issues		386
Settlements		0
Balance at December 31, 2015	$	2,847

Schedule of quantitative Information about Level 3 Fair Value Measurements

	Quantitative Information about Level 3 Fair Value Measurements
	Valuation Technique	Unobservable Inputs	Input Value
			2015			2014
Mortgage servicing rights	Discounted cash flows	Weighted average constant prepayment rate		9.58	%		10.54	%
		Weighted average discount rate		9.16	%		9.21	%
		Weighted average expected life (in years)		5.90			5.70

Schedule of valuation methods for instruments measured at fair value on a nonrecurring basis

	Fair Value Measurements Using
			Quoted Prices
			in Active
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Total		Assets		Inputs		Inputs		Total Gains
(in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)		(Losses)*
December 31, 2015
Assets:
Impaired loans:
Commercial, financial, & agricultural	$	272	$	0	$	0	$	272	$	(920	)
Real estate construction - residential		0		0		0		0		0
Real estate construction - commercial		87		0		0		87		(10	)
Real estate mortgage - residential		3,336		0		0		3,336		(567	)
Real estate mortgage - commercial		369		0		0		369		(322	)
Consumer		125		0		0		125		(66	)
Total	$	4,189	$	0	$	0	$	4,189	$	(1,885	)
Other real estate owned and repossessed assets	$	15,992	$	0	$	0	$	15,992	$	118
December 31, 2014
Assets:
Impaired loans:
Commercial, financial, & agricultural	$	1,386	$	0	$	0	$	1,386	$	(1,105	)
Real estate construction - residential		0		0		0		0		(350	)
Real estate construction - commercial		0		0		0		0		(491	)
Real estate mortgage - residential		3,322		0		0		3,322		(332	)
Real estate mortgage - commercial		809		0		0		809		(2,937	)
Consumer		172		0		0		172		(148	)
Total	$	5,689	$	0	$	0	$	5,689	$	(5,363	)
Other real estate owned and repossessed assets	$	11,885	$	0	$	0	$	11,885	$	(1,870	)

* Total gains (losses) reported for other real estate owned and repossessed assets includes charge-offs, valuation write-downs, and net losses taken during the periods reported.

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Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Financial Instruments, Owned, at Fair Value [Abstract]

Schedule of summary of the carrying amounts and fair values of financial instruments

					December 31, 2015
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	December 31, 2015				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	20,484	$	20,484	$	20,484	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		7,893		7,893		7,893		0		0
Investment in available-for-sale securities		235,054		235,054		0		235,054		0
Loans, net		856,476		854,775		0		0		854,775
Investment in FHLB stock		3,390		3,390		0		3,390		0
Mortgage servicing rights		2,847		2,847		0		0		2,847
Cash surrender value - life insurance		2,348		2,348		0		2,348		0
Accrued interest receivable		4,853		4,853		4,853		0		0
	$	1,133,345	$	1,131,644	$	33,230	$	240,792	$	857,622
Liabilities:
Deposits:
Non-interest bearing demand	$	208,035	$	208,035	$	208,035	$	0	$	0
Savings, interest checking and money market		441,080		441,080		441,080		0		0
Time deposits		298,082		298,323		0		0		298,323
Federal funds purchased and securities sold under agreements to repurchase		56,834		56,834		56,834		0		0
Subordinated notes		49,486		40,821		0		40,821		0
Federal Home Loan Bank advances		50,000		52,340		0		52,340		0
Accrued interest payable		382		382		382		0		0
	$	1,103,899	$	1,097,815	$	706,331	$	93,161	$	298,323

					December 31, 2014
					Fair Value Measurements
					Quoted Prices
					in Active				Net
					Markets for		Other		Significant
	December 31, 2014				Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
(in thousands)	amount		value		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	22,364	$	22,364	$	22,364	$	0	$	0
Federal funds sold and overnight interest-bearing deposits		20,445		20,445		20,445		0		0
Investment in available-for-sale securities		198,998		198,998		0		198,998		0
Loans, net		852,114		854,062		0		0		854,062
Investment in FHLB stock		3,075		3,075		0		3,075		0
Mortgage servicing rights		2,762		2,762		0		0		2,762
Cash surrender value - life insurance		2,284		2,284		0		2,284		0
Accrued interest receivable		4,816		4,816		4,816		0		0
	$	1,106,858	$	1,108,806	$	47,625	$	204,357	$	856,824
Liabilities:
Deposits:
Non-interest bearing demand	$	207,700	$	207,700	$	207,700	$	0	$	0
Savings, interest checking and money market		442,059		442,059		442,059		0		0
Time deposits		319,755		321,041		0		0		321,041
Federal funds purchased and securities sold under agreements to repurchase		17,970		17,970		17,970		0		0
Subordinated notes		49,486		33,371		0		33,371		0
Federal Home Loan Bank advances		43,000		44,396		0		44,396		0
Accrued interest payable		373		373		373		0		0
	$	1,080,343	$	1,066,910	$	668,102	$	77,767	$	321,041

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Repurchase Reserve Liability (Tables)

12 Months Ended

Dec. 31, 2015

Repurchase Reserve Liability [Abstract]

Schedule of repurchase reserve liability

(in thousands)	2015			2014			2013
Balance at beginning of year	​	$	160	​	$	160	​	$	0
Provision for repurchase liability	​	​	40	​	​	0	​	​	279
Reimbursement of expenses	​	​	(40)	​	​	0	​	​	(119)
Balance at end of year	​	$	160	​	$	160	​	$	160

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Schedule of contractual amount of off-balance-sheet financial instruments

(in thousands)	2015		2014
Commitments to extend credit	$	161,306	$	135,137
Commitments to originate residential first and second mortgage loans		3,175		1,640
Standby letters of credit		1,466		1,621
Total		165,947		138,398

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Condensed Financial Information of the Parent Company Only (Tables)

12 Months Ended

Dec. 31, 2015

Condensed Financial Information of the Parent Company Only

Schedule of Condensed Balance Sheets

Condensed Balance Sheets
	December 31,
(in thousands)	2015		2014
Assets
Cash and due from bank subsidiaries	$	4,971	$	1,024
Investment in equity securities		1,486		1,486
Investment in subsidiaries		134,099		130,728
Deferred tax asset		2,116		1,989
Other assets		7		308
Total assets	$	142,679	$	135,535
Liabilities and Stockholders’ Equity
Subordinated notes	$	49,486	$	49,486
Other liabilities		5,907		5,481
Stockholders’ equity		87,286		80,568
Total liabilities and stockholders’ equity	$	142,679	$	135,535

Schedule of Condensed Statements of Income

Condensed Statements of Income
	For the Years Ended December 31,
	2015			2014			2013
Income
Interest and dividends received from subsidiaries	$	1,039		$	2,538		$	15,039
Total income		1,039			2,538			15,039
Expenses
Interest on subordinated notes		1,293			1,264			1,284
Other		2,138			1,730			1,778
Total expenses		3,431			2,994			3,062
Income before income tax benefit and equity in undistributed income of subsidiaries		(2,392	)		(456	)		11,977
Income tax benefit		1,065			1,100			1,126
Equity in undistributed income (losses) of subsidiaries		9,926			7,010			(8,129	)
Net income	$	8,599		$	7,654		$	4,974

Schedule of Condensed Statements of Cash Flows

Condensed Statements of Cash Flows
	For the Years Ended December 31,
(in thousands)	2015			2014			2013
Cash flows from operating activities:
Net income	$	8,599		$	7,654		$	4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		0			0			1
Equity in undistributed (income) losses of subsidiaries		(9,926	)		(7,010	)		8,129
Stock based compensation expense		10			20			19
(Increase) decrease in deferred tax asset		(127	)		(1,415	)		1,325
Other, net		732			1,942			(182	)
Net cash (used) provided by operating activities	$	(712	)	$	1,191		$	14,266
Cash flows from investing activities:
Investment in subsidiary	$	5,750		$	400		$	4,550
Net cash provided by investing activities	$	5,750		$	400		$	4,550
Cash flows from financing activities:
Redemption of 18,255 shares of preferred stock	$	0		$	0		$	(18,255	)
Cash dividends paid - preferred stock		0			0			(456	)
Cash dividends paid - common stock		(1,058	)		(1,017	)		(978	)
Purchase of treasury stock		(33	)		0			0
Warrant redemption		0			0			(540	)
Net cash used in financing activities	$	(1,091	)	$	(1,017	)	$	(20,229	)
Net increase (decrease) in cash and due from banks		3,947			574			(1,413	)
Cash and due from banks at beginning of year		1,024			450			1,863
Cash and due from banks at end of year	$	4,971		$	1,024		$	450

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Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Information (Unaudited)

Schedule of quarterly financial data (unaudited)

									Year
	First		Second		Third		Fourth		to
(In thousands except per share data)	quarter		quarter		quarter		quarter		Date
Year Ended December 31, 2015
Interest income	$	11,198	$	11,214	$	11,829	$	11,515	$	45,756
Interest expense		1,220		1,230		1,271		1,278		4,999
Net interest income		9,978		9,984		10,558		10,237		40,757
Provision for loan losses		0		250		0		0		250
Noninterest income		1,987		2,461		2,337		2,381		9,166
Noninterest expense		8,708		9,267		8,978		9,541		36,494
Income tax expense		1,119		1,001		1,377		1,083		4,580
Net income available to common stockholders	$	2,138	$	1,927	$	2,540	$	1,994	$	8,599
Net income per share:
Basic earnings per share	$	0.39	$	0.35	$	0.47	$	0.37	$	1.58
Diluted earnings per share		0.39		0.35		0.47		0.37		1.58
Year Ended December 31, 2014
Interest income	$	10,963	$	11,125	$	11,196	$	11,214	$	44,498
Interest expense		1,309		1,278		1,240		1,217		5,044
Net interest income		9,654		9,847		9,956		9,997		39,454
Provision for loan losses		0		0		0		0		0
Noninterest income		2,085		2,183		2,313		2,168		8,749
Noninterest expense		8,707		8,811		9,899		9,090		36,507
Income tax expense		1,045		1,121		802		1,074		4,042
Net income available to common stockholders	$	1,987	$	2,098	$	1,568	$	2,001	$	7,654
Net income per share:
Basic earnings per share	$	0.36	$	0.39	$	0.29	$	0.37	$	1.41
Diluted earnings per share		0.36		0.39		0.29		0.37		1.41

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Summary of Significant Accounting Policies (Detail Textuals) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Summary Of Significant Accounting Policies [Line Items]
Mortgage loans held for sale	$ 1,200	$ 0
Depreciation methods	Straight line and accelerated methods
Amortization method	Straight line and accelerated methods
Sustained period of repayment performance for non-accrual TDRs	6 months
Period of employees highest compensation before retirement	10 years
Core deposit intangible | Minimum
Summary Of Significant Accounting Policies [Line Items]
Estimated lives	7 years
Core deposit intangible | Maximum
Summary Of Significant Accounting Policies [Line Items]
Estimated lives	8 years
Buildings and improvements
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives	5 to 40 years
Furniture and equipment
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives	3 to 15 years
Federal Home Loan Bank of Des Moines
Summary Of Significant Accounting Policies [Line Items]
Investment in capital stock of the Federal Home Loan Bank of total assets	0.12%
Investment in capital stock of Federal Home Loan Bank required percentage of advances	4.00%

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Loans and Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Summary of loans, by major class within Company's loan portfolio
Total loans	$ 865,080	$ 861,213
Loans Receivable
Summary of loans, by major class within Company's loan portfolio
Total loans	865,080	861,213
Loans Receivable | Commercial, financial, and agricultural
Summary of loans, by major class within Company's loan portfolio
Total loans	149,091	154,834
Loans Receivable | Real estate construction - residential
Summary of loans, by major class within Company's loan portfolio
Total loans	16,830	18,103
Loans Receivable | Real estate - construction - commercial
Summary of loans, by major class within Company's loan portfolio
Total loans	33,639	48,822
Loans Receivable | Real estate mortgage - residential
Summary of loans, by major class within Company's loan portfolio
Total loans	256,086	247,117
Loans Receivable | Real estate mortgage - commercial
Summary of loans, by major class within Company's loan portfolio
Total loans	386,238	372,321
Loans Receivable | Installment and other consumer
Summary of loans, by major class within Company's loan portfolio
Total loans	$ 23,196	$ 20,016

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Loans and Allowance for Loan Losses (Details 1) - Loans Receivable $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($)
Loans and Leases Receivable, Related Parties [Roll Forward]
Balance at December 31, 2014	$ 4,940
New loans	286
Amounts collected	(499)
Balance at December 31, 2015	$ 4,727

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Loans and Allowance for Loan Losses (Details 2) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of the allowance for loan losses
Balance at beginning of period				$ 9,099					$ 9,099
Additions:
Provision for loan losses	$ 0	$ 0	$ 250	0	$ 0	$ 0	$ 0	$ 0	250	$ 0	$ 2,030
Deductions:
Balance at end of period	8,604				9,099				8,604	9,099
Loans Receivable
Summary of the allowance for loan losses
Balance at beginning of period				9,099				13,719	9,099	13,719	14,842
Additions:
Provision for loan losses									250	0	2,030
Deductions:
Loans charged off									2,190	5,828	4,180
Less recoveries on loans									(1,445)	(1,208)	(1,027)
Net loans charged off									745	4,620	3,153
Balance at end of period	8,604				9,099				8,604	9,099	13,719
Loans Receivable | Commercial, Financial, and Agricultural
Summary of the allowance for loan losses
Balance at beginning of period				1,779				2,374	1,779	2,374	1,937
Additions:
Provision for loan losses									833	371	992
Deductions:
Loans charged off									1,131	1,285	895
Less recoveries on loans									(672)	(319)	(340)
Net loans charged off									459	966	555
Balance at end of period	2,153				1,779				2,153	1,779	2,374
Loans Receivable | Real Estate Construction - Residential
Summary of the allowance for loan losses
Balance at beginning of period				171				931	171	931	732
Additions:
Provision for loan losses									(434)	(592)	318
Deductions:
Loans charged off									0	349	119
Less recoveries on loans									(322)	(181)	0
Net loans charged off									(322)	168	119
Balance at end of period	59				171				59	171	931
Loans Receivable | Real estate - construction - commercial
Summary of the allowance for loan losses
Balance at beginning of period				466				631	466	631	1,711
Additions:
Provision for loan losses									193	326	(452)
Deductions:
Loans charged off									15	491	633
Less recoveries on loans									0	0	(5)
Net loans charged off									15	491	628
Balance at end of period	644				466				644	466	631
Loans Receivable | Real Estate Mortgage - Residential
Summary of the allowance for loan losses
Balance at beginning of period				2,527				2,959	2,527	2,959	3,387
Additions:
Provision for loan losses									153	(226)	273
Deductions:
Loans charged off									379	408	812
Less recoveries on loans									(138)	(202)	(111)
Net loans charged off									241	206	701
Balance at end of period	2,439				2,527				2,439	2,527	2,959
Loans Receivable | Real Estate Mortgage - Commercial
Summary of the allowance for loan losses
Balance at beginning of period				3,846				6,523	3,846	6,523	6,834
Additions:
Provision for loan losses									(713)	(107)	622
Deductions:
Loans charged off									363	2,890	1,301
Less recoveries on loans									(165)	(320)	(368)
Net loans charged off									198	2,570	933
Balance at end of period	2,935				3,846				2,935	3,846	6,523
Loans Receivable | Installment Loans to Individuals
Summary of the allowance for loan losses
Balance at beginning of period				270				294	270	294	239
Additions:
Provision for loan losses									157	195	272
Deductions:
Loans charged off									302	405	420
Less recoveries on loans									(148)	(186)	(203)
Net loans charged off									154	219	217
Balance at end of period	273				270				273	270	294
Loans Receivable | Unallocated
Summary of the allowance for loan losses
Balance at beginning of period				$ 40				$ 7	40	7	2
Additions:
Provision for loan losses									61	33	5
Deductions:
Loans charged off									0	0	0
Less recoveries on loans									0	0	0
Net loans charged off									0	0	0
Balance at end of period	$ 101				$ 40				$ 101	$ 40	$ 7

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Loans and Allowance for Loan Losses (Details 3) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Allowance for loan losses:
Total	$ 8,604	$ 9,099
Loans outstanding:
Total	865,080	861,213
Loans Receivable
Allowance for loan losses:
Individually evaluated for impairment	1,540	1,749
Collectively evaluated for impairment	7,064	7,350
Total	8,604	9,099	$ 13,719	$ 14,842
Loans outstanding:
Individually evaluated for impairment	10,268	35,963
Collectively evaluated for impairment	854,812	825,250
Total	865,080	861,213
Loans Receivable | Commercial, Financial, and Agricultural
Allowance for loan losses:
Individually evaluated for impairment	285	134
Collectively evaluated for impairment	1,868	1,645
Total	2,153	1,779	2,374	1,937
Loans outstanding:
Individually evaluated for impairment	1,005	7,541
Collectively evaluated for impairment	148,086	147,293
Total	149,091	154,834
Loans Receivable | Real Estate Construction - Residential
Allowance for loan losses:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	59	171
Total	59	171	931	732
Loans outstanding:
Individually evaluated for impairment	0	1,750
Collectively evaluated for impairment	16,895	16,353
Total	16,830	18,103
Loans Receivable | Real estate - construction - commercial
Allowance for loan losses:
Individually evaluated for impairment	15	0
Collectively evaluated for impairment	629	466
Total	644	466	631	1,711
Loans outstanding:
Individually evaluated for impairment	102	2,096
Collectively evaluated for impairment	33,841	46,726
Total	33,639	48,822
Loans Receivable | Real Estate Mortgage - Residential
Allowance for loan losses:
Individually evaluated for impairment	955	1,343
Collectively evaluated for impairment	1,484	1,184
Total	2,439	2,527	2,959	3,387
Loans outstanding:
Individually evaluated for impairment	5,936	7,878
Collectively evaluated for impairment	250,150	239,239
Total	256,086	247,117
Loans Receivable | Real Estate Mortgage - Commercial
Allowance for loan losses:
Individually evaluated for impairment	266	246
Collectively evaluated for impairment	2,669	3,600
Total	2,935	3,846	6,523	6,834
Loans outstanding:
Individually evaluated for impairment	3,081	16,464
Collectively evaluated for impairment	382,788	355,857
Total	386,238	372,321
Loans Receivable | Installment Loans to Individuals
Allowance for loan losses:
Individually evaluated for impairment	19	26
Collectively evaluated for impairment	254	244
Total	273	270	294	239
Loans outstanding:
Individually evaluated for impairment	144	234
Collectively evaluated for impairment	23,052	19,782
Total	23,196	20,016
Loans Receivable | Un-allocated
Allowance for loan losses:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	101	40
Total	101	40	$ 7	$ 2
Loans outstanding:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	0	0
Total	$ 0	$ 0

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Loans and Allowance for Loan Losses (Details 4) - Loans Receivable - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Categories of impaired loans
Non-accrual loans	$ 4,418	$ 18,243
Performing TDRs	5,850	17,720
Total impaired loans	$ 10,268	$ 35,963

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Loans and Allowance for Loan Losses (Details 5) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Recorded Investment, With an allowance recorded	$ 5,700	$ 7,400
Specific Reserves, With an allowance recorded	1,500	1,700
Loans Receivable
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	4,539	28,525
Unpaid Principal Balance, With no related allowance recorded	4,734	33,066
Recorded Investment, With an allowance recorded	5,729	7,438
Unpaid Principal Balance, With an allowance recorded	6,073	6,482
Specific Reserves, With an allowance recorded	1,540	1,749
Total impaired loans, Recorded Investment	10,268	35,963
Total impaired loans, Unpaid Principal Balance	10,807	39,548
Loans Receivable | Commercial, financial, and agricultural
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	448	6,021
Unpaid Principal Balance, With no related allowance recorded	450	6,232
Recorded Investment, With an allowance recorded	557	1,520
Unpaid Principal Balance, With an allowance recorded	572	1,528
Specific Reserves, With an allowance recorded	285	134
Loans Receivable | Real estate - construction residential
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded		1,750
Unpaid Principal Balance, With no related allowance recorded		2,259
Loans Receivable | Real estate - construction - commercial
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded		2,096
Unpaid Principal Balance, With no related allowance recorded		2,319
Recorded Investment, With an allowance recorded	102
Unpaid Principal Balance, With an allowance recorded	115
Specific Reserves, With an allowance recorded	15
Loans Receivable | Real estate - residential
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	1,645	3,213
Unpaid Principal Balance, With no related allowance recorded	1,712	3,270
Recorded Investment, With an allowance recorded	4,291	4,665
Unpaid Principal Balance, With an allowance recorded	4,320	3,546
Specific Reserves, With an allowance recorded	955	1,343
Loans Receivable | Real estate - commercial
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	2,446	15,409
Unpaid Principal Balance, With no related allowance recorded	2,572	18,950
Recorded Investment, With an allowance recorded	635	1,055
Unpaid Principal Balance, With an allowance recorded	884	1,171
Specific Reserves, With an allowance recorded	266	246
Loans Receivable | Consumer
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded		36
Unpaid Principal Balance, With no related allowance recorded		36
Recorded Investment, With an allowance recorded	144	198
Unpaid Principal Balance, With an allowance recorded	182	237
Specific Reserves, With an allowance recorded	$ 19	$ 26

XML

Loans and Allowance for Loan Losses (Details 6) - Loans Receivable - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Average Recorded Investment
With no related allowance recorded	$ 12,097	$ 26,932
With an allowance recorded	7,377	12,752
Total impaired loans	19,474	39,684
Interest Recognized For the Period Ended
With no related allowance recorded	196	542
With an allowance recorded	132	159
Total impaired loans	328	701
Commercial, financial, and agricultural
Average Recorded Investment
With no related allowance recorded	2,949	3,141
With an allowance recorded	1,356	1,773
Interest Recognized For the Period Ended
With no related allowance recorded	39	94
With an allowance recorded	22	19
Real estate - construction residential
Average Recorded Investment
With no related allowance recorded	536	610
With an allowance recorded	0	1,697
Interest Recognized For the Period Ended
With no related allowance recorded	0	2
With an allowance recorded	0	0
Real estate - construction - commercial
Average Recorded Investment
With no related allowance recorded	1,105	5,950
With an allowance recorded	52	42
Interest Recognized For the Period Ended
With no related allowance recorded	0	0
With an allowance recorded	0	0
Real estate - residential
Average Recorded Investment
With no related allowance recorded	2,331	3,517
With an allowance recorded	4,625	5,118
Interest Recognized For the Period Ended
With no related allowance recorded	37	46
With an allowance recorded	110	129
Real estate - commercial
Average Recorded Investment
With no related allowance recorded	5,169	13,703
With an allowance recorded	1,161	3,810
Interest Recognized For the Period Ended
With no related allowance recorded	119	400
With an allowance recorded	0	11
Consumer
Average Recorded Investment
With no related allowance recorded	7	11
With an allowance recorded	183	312
Interest Recognized For the Period Ended
With no related allowance recorded	1	0
With an allowance recorded	$ 0	$ 0

XML

Loans and Allowance for Loan Losses (Details 7) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Aging information for the Company's past due and non-accrual loans
Loans	$ 865,080	$ 861,213
Loans Receivable
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	6	58
Non-Accrual	4,418	18,243
Loans	865,080	861,213
Loans Receivable | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	857,045	838,061
Loans Receivable | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	3,611	4,851
Loans Receivable | Commercial, Financial, and Agricultural
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	1	0
Non-Accrual	308	5,279
Loans	149,091	154,834
Loans Receivable | Commercial, Financial, and Agricultural | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	148,597	149,366
Loans Receivable | Commercial, Financial, and Agricultural | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	185	189
Loans Receivable | Real Estate Construction - Residential
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	0	0
Non-Accrual	0	1,751
Loans	16,830	18,103
Loans Receivable | Real Estate Construction - Residential | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	16,830	16,352
Loans Receivable | Real Estate Construction - Residential | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	0	0
Loans Receivable | Real estate - construction - commercial
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	0	56
Non-Accrual	102	2,096
Loans	33,639	48,822
Loans Receivable | Real estate - construction - commercial | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	33,472	46,670
Loans Receivable | Real estate - construction - commercial | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	65	0
Loans Receivable | Real Estate Mortgage - Residential
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	0	0
Non-Accrual	2,322	4,419
Loans	256,086	247,117
Loans Receivable | Real Estate Mortgage - Residential | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	251,253	239,469
Loans Receivable | Real Estate Mortgage - Residential | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	2,511	3,229
Loans Receivable | Real Estate Mortgage - Commercial
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	0	0
Non-Accrual	1,542	4,465
Loans	386,238	372,321
Loans Receivable | Real Estate Mortgage - Commercial | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	384,053	366,653
Loans Receivable | Real Estate Mortgage - Commercial | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	643	1,203
Loans Receivable | Installment and other consumer
Aging information for the Company's past due and non-accrual loans
90 Days Past Due And Still Accruing	5	2
Non-Accrual	144	233
Loans	23,196	20,016
Loans Receivable | Installment and other consumer | Current or Less Than 30 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	22,840	19,551
Loans Receivable | Installment and other consumer | 30 - 89 Days Past Due
Aging information for the Company's past due and non-accrual loans
Financing receivable, recorded investment, past due	$ 207	$ 230

XML

Loans and Allowance for Loan Losses (Details 8) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	$ 865,080	$ 861,213
Loans Receivable
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	865,080	861,213
Loans Receivable | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	57,906	65,073
Loans Receivable | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	5,716	9,592
Loans Receivable | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	5,850	17,720
Loans Receivable | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	4,418	18,243
Loans Receivable | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	73,890	110,628
Loans Receivable | Commercial, Financial, and Agricultural
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	149,091	154,834
Loans Receivable | Commercial, Financial, and Agricultural | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	8,663	13,651
Loans Receivable | Commercial, Financial, and Agricultural | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	421	926
Loans Receivable | Commercial, Financial, and Agricultural | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	697	2,262
Loans Receivable | Commercial, Financial, and Agricultural | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	308	5,279
Loans Receivable | Commercial, Financial, and Agricultural | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	10,089	22,118
Loans Receivable | Real Estate Construction - Residential
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	16,830	18,103
Loans Receivable | Real Estate Construction - Residential | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,267	1,103
Loans Receivable | Real Estate Construction - Residential | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	0	90
Loans Receivable | Real Estate Construction - Residential | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	0	0
Loans Receivable | Real Estate Construction - Residential | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	0	1,751
Loans Receivable | Real Estate Construction - Residential | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,267	2,944
Loans Receivable | Real estate - construction - commercial
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	33,639	48,822
Loans Receivable | Real estate - construction - commercial | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,296	4,757
Loans Receivable | Real estate - construction - commercial | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	37	1,211
Loans Receivable | Real estate - construction - commercial | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	0	0
Loans Receivable | Real estate - construction - commercial | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	102	2,096
Loans Receivable | Real estate - construction - commercial | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,435	8,064
Loans Receivable | Real Estate Mortgage - Residential
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	256,086	247,117
Loans Receivable | Real Estate Mortgage - Residential | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	22,191	27,172
Loans Receivable | Real Estate Mortgage - Residential | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	3,737	3,124
Loans Receivable | Real Estate Mortgage - Residential | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	3,615	3,459
Loans Receivable | Real Estate Mortgage - Residential | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	2,322	4,419
Loans Receivable | Real Estate Mortgage - Residential | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	31,865	38,174
Loans Receivable | Real Estate Mortgage - Commercial
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	386,238	372,321
Loans Receivable | Real Estate Mortgage - Commercial | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	24,303	18,191
Loans Receivable | Real Estate Mortgage - Commercial | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,485	4,102
Loans Receivable | Real Estate Mortgage - Commercial | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,538	11,999
Loans Receivable | Real Estate Mortgage - Commercial | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	1,542	4,465
Loans Receivable | Real Estate Mortgage - Commercial | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	28,868	38,757
Loans Receivable | Installment and other Consumer | Watch
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	186	199
Loans Receivable | Installment and other Consumer | Substandard
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	36	139
Loans Receivable | Installment and other Consumer | Performing TDRs
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	0	0
Loans Receivable | Installment and other Consumer | Non-accrual
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	144	233
Loans Receivable | Installment and other Consumer | Total
Credit quality of the loan portfolio using internal rating system reflecting management's risk assessment
Financing receivable	$ 366	$ 571

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Loans and Allowance for Loan Losses (Details 9) - Loans Receivable $ in Thousands		12 Months Ended
		Dec. 31, 2015 USD ($) Contract	Dec. 31, 2014 USD ($) Contract
Loans that were modified as TDRs
Number of Contracts | Contract		7	4
Pre- Modification	[1]	$ 2,042	$ 1,500
Post- Modification		$ 1,852	$ 1,378
Commercial, financial, and agricultural
Loans that were modified as TDRs
Number of Contracts | Contract		2	3
Pre- Modification	[1]	$ 250	$ 244
Post- Modification		$ 229	$ 208
Real estate mortgage - residential
Loans that were modified as TDRs
Number of Contracts | Contract		1	1
Pre- Modification	[1]	$ 519	$ 1,256
Post- Modification		$ 374	$ 1,170
Real estate mortgage - commercial
Loans that were modified as TDRs
Number of Contracts | Contract		4	0
Pre- Modification	[1]	$ 1,273	$ 0
Post- Modification		$ 1,249	$ 0

[1] The amounts reported post-modification are inclusive of all partial pay-downs and charge-offs, and no portion of the debt was forgiven. Loans modified as a TDR that were fully paid down, charged-off, or foreclosed upon during the period ended are not reported.

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Loans and Allowance for Loan Losses (Detail Textuals)	12 Months Ended
	Dec. 31, 2015 USD ($) Contract	Dec. 31, 2014 USD ($) Contract
Financing Receivable, Impaired [Line Items]
Specific allowance related to impaired loans	$ 1,500,000	$ 1,700,000
Loans Receivable
Financing Receivable, Impaired [Line Items]
Carrying amount of loans pledged as collateral to the Federal Home Loan Bank	421,800,000
Fair value amount of loans pledged as collateral to the Federal Home Loan Bank	350,500,000
Impaired loans individually evaluated for impairment	10,268,000	35,963,000
Impaired loans were evaluated based on the fair value of the loan's collateral	6,400,000	15,600,000
Specific allowance related to impaired loans	1,540,000	1,749,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 4,539,000	$ 28,525,000
Impaired Financing Receivable With No Related Allowance Recorded Investment Percentage	44.00%	79.00%
Interest income recognized on impaired loans	$ 328,000	$ 701,000
Troubled debt restructurings	6,400,000	19,300,000
Amount of specific reserves related to TDRs which were allocated to the allowance for loan losses	$ 1,000,000	$ 1,000,000
Number of contracts modified | Contract	7	4
Number of contracts defaulted within twelve months of its modification | Contract	0	2
Loans Receivable | Consumer
Financing Receivable, Impaired [Line Items]
Specific allowance related to impaired loans	$ 19,000	$ 26,000
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		36,000
Loans Receivable | Performing TDRs
Financing Receivable, Impaired [Line Items]
Troubled debt restructurings	5,900,000	17,700,000
Loans Receivable | Nonperforming TDRs
Financing Receivable, Impaired [Line Items]
Troubled debt restructurings	$ 527,000	$ 1,600,000

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Real Estate and Other Assets Acquired in Settlement of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of real estate and other assets acquired in settlement of loans
Repossessed assets	$ 0	$ 38
Total	19,225	15,140	$ 19,542
Less valuation allowance for other real estate owned	(3,233)	(3,255)	$ (4,675)	$ (6,137)
Total other real estate and repossessed assets	15,992	11,885
Commercial
Summary of real estate and other assets acquired in settlement of loans
Real estate acquired through foreclosure	1,445	0
Real estate construction - residential
Summary of real estate and other assets acquired in settlement of loans
Real estate acquired through foreclosure	0	23
Real estate - construction - commercial
Summary of real estate and other assets acquired in settlement of loans
Real estate acquired through foreclosure	12,380	9,831
Real estate mortgage - residential
Summary of real estate and other assets acquired in settlement of loans
Real estate acquired through foreclosure	477	417
Real estate mortgage - commercial
Summary of real estate and other assets acquired in settlement of loans
Real estate acquired through foreclosure	$ 4,923	$ 4,831

XML

Real Estate and Other Assets Acquired in Settlement of Loans (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Schedule of real estate acquired in settlement of loans
Balance at beginning of period	$ 15,140	$ 19,542
Additions	5,804	1,975
Proceeds from sales	(1,836)	(4,560)	$ (9,641)
Charge-offs against the valuation allowance for other real estate owned	(39)	(2,005)
Net gain on sales	156	188
Total other real estate and repossessed assets	19,225	15,140	$ 19,542
Less valuation allowance for other real estate owned	(3,233)
Balance at end of period	$ 15,992	$ 11,885

XML

Real Estate and Other Assets Acquired in Settlement of Loans (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of activity in valuation allowance for other real estate owned in settlement of loans
Balance, beginning of year	$ 3,255	$ 4,675	$ 6,137
Provision for other real estate owned	17	585	3,367
Charge-offs	(39)	(2,005)	(4,829)
Balance, end of year	$ 3,233	$ 3,255	$ 4,675

XML

Real Estate and Other Assets Acquired in Settlement of Loans (Detail Textuals) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Other Real Estate [Abstract]
Net charge-offs against allowance for loan losses	$ 995,000	$ 335,000
Consumer mortgage loans in process of foreclosure	$ 390,000	$ 209,000

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Investment Securities (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Amortized cost and fair value of debt securities
Amortized Cost	$ 236,008	$ 198,653
Gross Unrealized Gains	1,060	1,678
Gross Unrealized Losses	2,014	1,333
Fair value	235,054	198,998
Government sponsored enterprises
Amortized cost and fair value of debt securities
Amortized Cost	73,605	57,002
Gross Unrealized Gains	127	240
Gross Unrealized Losses	235	143
Fair value	73,497	57,099
Asset-backed securities
Amortized cost and fair value of debt securities
Amortized Cost	130,179	106,726
Gross Unrealized Gains	440	855
Gross Unrealized Losses	1,768	1,119
Fair value	128,851	106,462
Obligations of states and political subdivisions
Amortized cost and fair value of debt securities
Amortized Cost	32,224	34,925
Gross Unrealized Gains	493	583
Gross Unrealized Losses	11	71
Fair value	$ 32,706	$ 35,437

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Investment Securities (Details 1) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Amortized Cost
Due in one year or less	$ 24,894
Due after one year through five years	67,513
Due after five year through ten years	12,593
Due after ten years	829
Total	105,829
Asset-backed securities	130,179
Amortized Cost	236,008	$ 198,653
Fair Value
Due in one year or less	24,890
Due after one year through five years	67,614
Due after five year through ten years	12,871
Due after ten years	828
Total	106,203
Asset-backed securities	128,851
Fair value	$ 235,054	$ 198,998

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Investment Securities (Details 2) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Fair Value
Less than 12 months	$ 102,205	$ 16,964
12 months or more	45,296	65,249
Total	147,501	82,213
Unrealized Losses
Less than 12 months	(848)	(69)
12 months or more	(1,166)	(1,264)
Total	(2,014)	(1,333)
Government sponsored enterprises
Fair Value
Less than 12 months	43,539	2,983
12 months or more	1,002	17,862
Total	44,541	20,845
Unrealized Losses
Less than 12 months	(222)	(4)
12 months or more	(13)	(139)
Total	(235)	(143)
Asset-backed securities
Fair Value
Less than 12 months	56,095	10,314
12 months or more	43,576	45,445
Total	99,671	55,759
Unrealized Losses
Less than 12 months	(620)	(50)
12 months or more	(1,148)	(1,069)
Total	(1,768)	(1,119)
Obligations of states and political subdivisions
Fair Value
Less than 12 months	2,571	3,667
12 months or more	718	1,942
Total	3,289	5,609
Unrealized Losses
Less than 12 months	(6)	(15)
12 months or more	(5)	(56)
Total	$ (11)	$ (71)

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Investment Securities (Details 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Investments Debt And Equity Securities [Abstract]
Gains realized on sales	$ 8	$ 86	$ 786
Losses realized on sales	0	(66)	(8)
Other-than-temporary impairment recognized	0	0	0
Investment securities gains	$ 8	$ 20	$ 778

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Investment Securities (Detail Textuals) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) Security	Dec. 31, 2014 USD ($) Security
Investments Debt And Equity Securities [Abstract]
Available for sale securities, restricted	$ 8,000	$ 4,700
Available for sale securities, pledged	$ 182,700	$ 145,500
Number of securities consisted in portfolio | Security	316	300
Number of securities in loss position | Security	71	74
Unrealized loss included in other comprehensive	$ 147,500	$ 82,200
12 months or more	45,296	65,249
Gross Unrealized Losses	$ 2,000	$ 1,300

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Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Summary of premises and equipment
Total, premises and equipment	$ 58,753	$ 58,195
Less accumulated depreciation	22,364	20,697
Premises and equipment, net	36,389	37,498
Land and land improvements
Summary of premises and equipment
Total, premises and equipment	10,165	10,152
Buildings and improvements
Summary of premises and equipment
Total, premises and equipment	35,588	35,504
Furniture and equipment
Summary of premises and equipment
Total, premises and equipment	12,906	12,016
Construction in progress
Summary of premises and equipment
Total, premises and equipment	$ 94	$ 523

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Premises and Equipment (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Depreciation expense
Depreciation expense	$ 1,810	$ 1,758	$ 1,605

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Intangible Assets (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Changes in mortgage servicing rights
Balance at beginning of year		$ 2,762
Changes in fair value:
Balance at end of year		2,847	$ 2,762
Mortgage servicing rights (MSRs)
Changes in mortgage servicing rights
Balance at beginning of year		2,762	3,036	$ 2,549
Originated mortgage servicing rights		386	302	512
Changes in fair value:
Due to change in model inputs and assumptions	[1]	372	66	723
Other changes in fair value	[2]	(673)	(642)	(748)
Amortization		0	0	0
Balance at end of year		$ 2,847	$ 2,762	$ 3,036

[1] The change in fair value resulting from changes in valuation inputs or assumptions used in the valuation model reflects the change in discount rates and prepayment speed assumptions primarily due to changes in interest rates.

[2] Other changes in fair value reflect changes due to customer payments and passage of time.

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Intangible Assets (Details 1) - Mortgage servicing rights (MSRs)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Assumptions used in estimating the fair value of mortgage service rights
Weighted-Average Constant Prepayment Rate (as a percent)	9.58%	10.54%
Weighted-Average Note Rate (as a percent)	3.92%	3.99%
Weighted-Average Discount Rate (as a percent)	9.16%	9.21%
Weighted-Average Expected Life (in years)	5 years 10 months 24 days	5 years 8 months 12 days

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Intangible Assets (Detail Textuals) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Amortization expense	$ 0	$ 0	$ 135,000
Core Deposit Intangible Asset
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount				$ 4,800,000
Amortization expense	0	0	135,000
Mortgage servicing rights (MSRs)
Finite-Lived Intangible Assets [Line Items]
Mortgage loans serviced for others	312,100,000	313,900,000
Mortgage loan servicing fees reported as other non-interest income	873,000	895,000	901,000
Amortization	$ 0	$ 0	$ 0

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Deposits (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Due within:
One year	$ 201,418	$ 204,566
Two years	56,026	58,177
Three years	29,030	33,551
Four years	6,022	16,760
Five years	5,586	5,282
Thereafter	0	1,347
Total	$ 298,082	$ 319,683

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Deposits (Details 1) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Due within:
Three months or less	$ 39,122	$ 33,488
Over three months through six months	30,704	29,381
Over six months through twelve months	30,432	35,308
Over twelve months	31,986	36,768
Total	$ 132,244	$ 134,945

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Deposits (Detail Textuals) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Deposits
Minimum cash required	$ 1,600,000	$ 1,600,000
Average compensating balances	544,000	408,000
Time deposits $250000 or more	$ 254,700,000	$ 253,900,000

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Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Borrowings
Average Balance Outstanding	$ 30,924	$ 20,223
Maximum Outstanding at any Month End	59,401	22,849
Balance	$ 56,834	$ 17,970
Federal funds purchased
Borrowings
Year End Weighted Rate (as a percent)	0.70%	0.45%
Average Weighted Rate (as a percent)	0.41%	0.38%
Average Balance Outstanding	$ 658	$ 404
Maximum Outstanding at any Month End	937	0
Balance	$ 0	$ 0
Short-term repurchase agreements
Borrowings
Year End Weighted Rate (as a percent)	0.10%	0.12%
Average Weighted Rate (as a percent)	0.17%	0.10%
Average Balance Outstanding	$ 30,266	$ 19,819
Maximum Outstanding at any Month End	58,464	22,849
Balance	$ 56,834	$ 17,970

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Borrowings (Details 1) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Borrowings
Year End Balance - Total Bank	$ 50,000	$ 43,000
Year End Balance - Total Company	49,486	49,486
Bank
Borrowings
Year End Balance - Total Bank	50,000
FHLB advances | Bank
Borrowings
2015	0	8,000
2016	8,000	8,000
2017	5,000	5,000
2018	22,000	20,000
2019	4,000	2,000
2020	11,000	0
Year End Balance - Total Bank	$ 50,000	$ 43,000
2015 (as a percent)		0.30%
2016 (as a percent)	0.67%	0.67%
2017 (as a percent)	1.07%	1.07%
2018 (as a percent)	1.93%	2.00%
2019 (as a percent)	1.79%	1.97%
2020 (as a percent)	1.95%
Subordinated notes due 2034
Borrowings
Year End Balance - Total Company	$ 25,774	$ 25,774
Year End Weighted Rate (as a percent)	3.23%	2.94%
Subordinated notes due 2035
Borrowings
Year End Balance - Total Company	$ 23,712	$ 23,712
Year End Weighted Rate (as a percent)	2.36%	2.07%

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Borrowings (Detail Textuals) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Short-term Debt [Line Items]
Long-term Federal Home Loan Bank Advances	$ 50,000	$ 43,000
Bank
Short-term Debt [Line Items]
Long-term Federal Home Loan Bank Advances	50,000
Federal funds purchased | Bank
Short-term Debt [Line Items]
Maximum borrowing capacity of federal funds on unsecured basis	40,000
Maximum borrowing capacity of federal funds on secured basis	8,600
Amount of FHLB advances which may be called early	10,000
Maximum additional borrowing amount under agreement with FHLB	$ 207,500

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Borrowings (Detail Textuals 1) - USD ($)	1 Months Ended		12 Months Ended
	Mar. 17, 2005	Mar. 17, 2004	Dec. 31, 2015	Dec. 31, 2014
Borrowings
Investment in common interests of the trust during the period			$ 712,000
Investment in preferred interests of the trust by a third party during the period			23,000,000
Subordinated notes			49,486,000	$ 49,486,000
Investment in common securities of the trust			$ 1,500,000
Exchange Statutory Trust II
Borrowings
Trust preferred securities issued	$ 23,000,000
Term	30 years
Description of variable rate			three-month LIBOR
Basis spread on variable rate (as a percent)			1.83%
Interest rate at end of period (as a percent)			2.36%
Period of time after issuance in which TPS can be repaid without penalty			5 years
Exchange Statutory Trust I
Borrowings
Trust preferred securities issued		$ 25,000,000
Description of variable rate			three-month LIBOR
Basis spread on variable rate (as a percent)			2.70%
Interest rate at end of period (as a percent)			3.23%

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Current:
Federal									$ 3,619	$ 1,105	$ 584
State									496	137	71
Total current									4,115	1,242	655
Deferred:
Federal									391	2,353	1,485
State									74	447	282
Total deferred									465	2,800	1,767
Total income tax expense	$ 1,083	$ 1,377	$ 1,001	$ 1,119	$ 1,074	$ 802	$ 1,121	$ 1,045	$ 4,580	$ 4,042	$ 2,422

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Income Taxes (Details 1) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Income before provision for income tax expense									$ 13,179	$ 11,696	$ 7,396
Tax at statutory federal income tax rate									4,481	3,977	2,515
Tax-exempt income									(369)	(348)	(353)
State income tax, net of federal tax benefit									376	385	233
Other, net									92	28	27
Total income tax expense	$ 1,083	$ 1,377	$ 1,001	$ 1,119	$ 1,074	$ 802	$ 1,121	$ 1,045	$ 4,580	$ 4,042	$ 2,422
Tax at statutory federal income tax rate (in percent)									34.00%	34.00%	34.00%
Tax-exempt income (in percent)									(2.80%)	(2.98%)	(4.77%)
State income tax, net of federal tax benefit (in percent)									2.85%	3.30%	3.15%
Other, net (in percent)									0.70%	0.24%	0.37%
Provision for income tax expense (in percent)									34.75%	34.56%	32.75%

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Income Taxes (Details 2) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Deferred tax assets:
Allowance for loan losses	$ 3,269	$ 3,458
Impairment of other real estate owned	1,226	1,233
Goodwill	1,437	1,786
Available-for-sale securities	363	0
Nonaccrual loan interest	640	1,069
Core deposit intangible	556	689
Pension	1,242	985
Deferred taxes on pension	874	998
Deferred compensation	138	130
Other	342	250
Total deferred tax assets	10,087	10,598
Deferred tax liabilities:
Available-for-sale securities	0	131
Premises and equipment	938	1,160
Mortgage servicing rights	1,064	1,022
Assets held for sale	49	114
Other	13	53
Total deferred tax liabilities	2,064	2,480
Net deferred tax assets	$ 8,023	$ 8,118

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Income Taxes (Details Textuals) - Capital loss carryforward - USD ($)	Dec. 31, 2014	Dec. 31, 2013
Tax Credit Carryforward [Line Items]
Capital losses	$ 219,000	$ 219,000
Valuation reserve	$ 83,000

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Stockholders' Equity (Details) - USD ($)		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Unrealized Loss on Securities
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning	[1]	$ 214,000	$ (1,491,000)
Other comprehensive (loss) income, before reclassifications	[1]	(1,291,000)	2,770,000
Amounts reclassified from accumulated other comprehensive income	[1]	(8,000)	(20,000)
Current period other comprehensive (loss) income, before tax	[1]	(1,299,000)	2,750,000
Deferred tax adjustment	[1]	0
Income tax benefit (expense)	[1]	494,000	(1,045,000)
Current period other comprehensive (loss) income, net of tax	[1]	(805,000)	1,705,000
Balance at the end	[1]	(591,000)	214,000	$ (1,491,000)
Unrecognized Net Pension and Postretirement Costs
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning	[2]	(1,442,000)	722,000
Other comprehensive (loss) income, before reclassifications	[2]	5,000	(3,568,000)
Amounts reclassified from accumulated other comprehensive income	[2]	144,000	79,000
Current period other comprehensive (loss) income, before tax	[2]	149,000	(3,489,000)
Deferred tax adjustment	[2]	(77,000)
Income tax benefit (expense)	[2]	(57,000)	1,325,000
Current period other comprehensive (loss) income, net of tax	[2]	15,000	(2,164,000)
Balance at the end	[2]	(1,427,000)	(1,442,000)	722,000
Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive Income (Loss)
Balance at the beginning		(1,228,000)	(769,000)
Other comprehensive (loss) income, before reclassifications		(1,286,000)	(798,000)
Amounts reclassified from accumulated other comprehensive income		136,000	59,000
Current period other comprehensive (loss) income, before tax		(1,150,000)	(739,000)
Deferred tax adjustment		(77,000)
Income tax benefit (expense)		437,000	280,000
Current period other comprehensive (loss) income, net of tax		(790,000)	(459,000)	(2,594,000)
Balance at the end		(2,018,000)	(1,228,000)	(769,000)
Balance at the beginning		(1,228,000)
Current period other comprehensive (loss) income, net of tax		(790,000)	(459,000)	$ (2,594,000)
Balance at the end		$ (2,018,000)	$ (1,228,000)

[1] The pre-tax amounts reclassified from accumulated other comprehensive (loss) income are included in gain on sale of investment securities in the consolidated statements of income.

[2] The pre-tax amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic pension cost. See Note 11.

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Employee Benefit Plans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of employee benefits charged to operating expenses
Payroll taxes	$ 1,102	$ 1,081	$ 1,106
Medical plans	1,928	1,974	1,915
401(k) match	325	310	309
Pension plan	1,391	960	1,173
Profit-sharing	563	201	118
Other	164	122	219
Total employee benefits	$ 5,473	$ 4,648	$ 4,840

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Employee Benefit Plans (Details 1) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Change in projected benefit obligation:
Balance, January 1	$ 19,977	$ 14,852
Service cost	1,325	981	$ 1,174
Interest cost	838	732	646
Actuarial (loss) gain	(1,084)	(3,813)
Benefits paid	(455)	(401)
Balance, December 31	20,601	19,977	14,852
Defined Benefit Plan, Change in Fair Value of Plan Assets [Roll Forward]
Fair value, January 1	14,933	13,532
Actual return on plan assets	(75)	1,118
Employer contribution	716	725
Expenses paid	(88)	(41)
Benefits paid	(455)	(401)
Fair value, December 31	15,031	14,933	$ 13,532
Funded status at end of year	(5,570)	(5,044)
Accumulated benefit obligation	$ 16,550	$ 16,595

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Employee Benefit Plans (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Components of net pension cost
Service cost - benefits earned during the year	$ 1,325	$ 981	$ 1,174
Interest costs on projected benefit obligations	838	732	646
Expected return on plan assets	(957)	(872)	(797)
Expected administrative expenses	40	40	40
Amortization of prior service cost	79	79	79
Amortization of unrecognized net loss	66	0	31
Net periodic pension expense	$ 1,391	$ 960	$ 1,173

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Employee Benefit Plans (Details 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]
Prior service costs	$ (364)	$ (443)
Net accumulated actuarial net loss	(1,937)	(2,008)
Accumulated other comprehensive loss	(2,301)	(2,451)
Net periodic benefit cost in excess of cumulative employer contributions	(3,269)	(2,593)
Net amount recognized at December 31, balance sheet	(5,570)	(5,044)
Net gain (loss) arising during period	5	(3,568)
Prior service cost amortization	79	79
Amortization of net actuarial loss	65	0
Total recognized in other comprehensive income (loss)	149	(3,489)
Total recognized in net periodic pension cost and other comprehensive income	$ 1,242	$ 4,449

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Employee Benefit Plans (Details 4)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Determination of benefit obligation at year end:
Discount rate	4.70%	4.25%	5.00%
Annual rate of compensation increase	3.78%	3.78%	3.73%
Determination of pension expense for year ended:
Discount rate for the service cost	4.25%	5.00%	4.25%
Annual rate of compensation increase	3.78%	3.73%	3.61%
Expected long-term rate of return on plan assets	7.00%	7.00%	7.00%

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Employee Benefit Plans (Details 5) - USD ($) $ in Thousands	Dec. 31, 2015		Dec. 31, 2014	Dec. 31, 2013
Defined Benefit Plan Disclosure [Line Items]
Fair Value	$ 15,031		$ 14,933	$ 13,532
Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	13,229		13,886
Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,802		1,047
Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0		0
Cash equivalents
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,663		1,937
Cash equivalents | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,663		1,937
Cash equivalents | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0		0
Cash equivalents | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0		0
U.S. large-cap
Defined Benefit Plan Disclosure [Line Items]
Fair Value	6,191	[1]	7,252
U.S. large-cap | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	6,191	[1]	7,252
U.S. large-cap | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[1]	0
U.S. large-cap | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[1]	0
U.S. mid-cap
Defined Benefit Plan Disclosure [Line Items]
Fair Value	2,094	[2]	921
U.S. mid-cap | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	2,094	[2]	921
U.S. mid-cap | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[2]	0
U.S. mid-cap | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[2]	0
U.S. small-cap
Defined Benefit Plan Disclosure [Line Items]
Fair Value	820	[3]	1,131
U.S. small-cap | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	820	[3]	1,131
U.S. small-cap | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[3]	0
U.S. small-cap | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[3]	0
International
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,778	[4]	1,895
International | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,778	[4]	1,895
International | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[4]	0
International | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[4]	0
Real estate
Defined Benefit Plan Disclosure [Line Items]
Fair Value	478	[5]	486
Real estate | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	478	[5]	486
Real estate | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[5]	0
Real estate | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[5]	0
Commodities
Defined Benefit Plan Disclosure [Line Items]
Fair Value	205	[6]	264
Commodities | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	205	[6]	264
Commodities | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[6]	0
Commodities | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[6]	0
U.S. gov't agency obligations
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,802	[7]	1,047
U.S. gov't agency obligations | Quoted Prices in Active Markets for Identical Assets (Level 1)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	0	[7]	0
U.S. gov't agency obligations | Other Observable Inputs (Level 2)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	1,802	[7]	1,047
U.S. gov't agency obligations | Significant Unobservable Inputs (Level 3)
Defined Benefit Plan Disclosure [Line Items]
Fair Value	$ 0	[7]	$ 0

[1] This category is comprised of low-cost equity index funds not actively managed that track the S&P 500.

[2] This category is comprised of low-cost equity index funds not actively managed that track the MSCI U.S. mid-cap 450.

[3] This category is comprised of actively managed mutual funds.

[4] At December 31, 2015 and 2014, 31% of this category is comprised of low-cost equity index funds not actively managed that track the MSCI EAFE.

[5] This category is comprised of low-cost real estate index exchange traded funds.

[6] This category is comprised of exchange traded funds investing in agricultural and energy commodities.

[7] This category is comprised of individual bonds.

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Employee Benefit Plans (Parentheticals) (Details 5)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]
Percentage of securities comprising of low-cost equity index funds not actively managed that track the MSCI EAFE	31.00%	31.00%

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Employee Benefit Plans (Details 6) $ in Thousands	Dec. 31, 2014 USD ($)
Future benefit payments expected to be paid
Pension benefits, 2016	$ 513
Pension benefits, 2017	637
Pension benefits, 2018	660
Pension benefits, 2019	788
Pension benefits, 2020	859
Pension benefits, 2021 to 2025	$ 5,530

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Employee Benefit Plans (Detail Textuals) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Employer match	3.00%	3.00%
Defined benefit plan contributions by employer percent	6.00%	6.00%
Defined Benefit Plan, Contributions by Employer	$ 716,000	$ 725,000
Defined Benefit Plan Contributions Minimum Required Contribution	758,000
Estimated prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic cost	$ 79,000
Assumed overall expected long-term rate of return on pension plan assets (in percent)	7.00%	7.00%	7.00%
Annual return on plan assets	(0.40%)	8.30%	19.10%	11.40%	0.10%
Estimated pension expense	$ 1,200,000	$ 1,400,000

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Employee Benefit Plans (Detail Textuals 1)	12 Months Ended
	Dec. 31, 2015
Equity securities
Defined Benefit Plan Disclosure [Line Items]
Long-term investment target mix for the plan	70.00%
Fixed income
Defined Benefit Plan Disclosure [Line Items]
Long-term investment target mix for the plan	30.00%

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Stock Compensation (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of shares
Outstanding, beginning of year (in shares)	100,361	131,366	242,304
Granted (in shares)	0	0	0
Exercised (in shares)	0	0	0
Forfeited (in shares)	(37,616)	(31,005)	(110,938)
Outstanding, end of year (in shares)	62,745	100,361	131,366
Exercisable, end of year (in shares)	55,262	88,586	115,663
Weighted average exercise price
Outstanding, beginning of year (in dollars per share)	$ 21.56	$ 22.32	$ 21.95
Granted (in dollars per share)	0.00	0.00	0.00
Exercised (in dollars per share)	0.00	0.00	0.00
Forfeited (in dollars per share)	21.65	24.76	21.51
Outstanding, end of year (in dollars per share)	21.50	21.56	22.32
Exercisable, end of year (in dollars per share)	$ 22.25	$ 21.95	$ 22.58
Weighted average Contractual Term (in years)
Outstanding at the end of period	1 year 4 months 28 days	1 year 11 months 5 days	2 years 6 months 4 days
Exercisable at the end of period	1 year 2 months 27 days	1 year 9 months	2 years 3 months 18 days
Aggregate Intrinsic Value
Outstanding, end of year	$ 0	$ 0	$ 0
Exercisable, end of year	$ 0	$ 0	$ 0

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Stock Compensation (Detail Textuals) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Grant of options to purchase (in shares)	592,168
Stock dividend (in percent)	4.00%
Stock based compensation expense	$ 10,000	$ 20,000	$ 19,000
Total unrecognized compensation expense related to non-vested stock awards	$ 20,000
Weighted average period is expected to be recognized	6 months 26 days

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Basic earnings per common share:
Net income									$ 8,599	$ 7,654	$ 4,974
Less preferred stock dividends and accretion of discount									0	0	615
Net income available to common shareholders	$ 1,994	$ 2,540	$ 1,927	$ 2,138	$ 2,001	$ 1,568	$ 2,098	$ 1,987	$ 8,599	$ 7,654	$ 4,359
Basic earnings per share	$ 0.37	$ 0.47	$ 0.35	$ 0.39	$ 0.37	$ 0.29	$ 0.39	$ 0.36	$ 1.58	$ 1.41	$ 0.80
Diluted earnings per common share:
Net income									$ 8,599	$ 7,654	$ 4,974
Less preferred stock dividends and accretion of discount									0	0	615
Net income available to common shareholders	$ 1,994	$ 2,540	$ 1,927	$ 2,138	$ 2,001	$ 1,568	$ 2,098	$ 1,987	$ 8,599	$ 7,654	$ 4,359
Average shares outstanding (in shares)									5,443,284	5,443,344	5,443,344
Effect of dilutive stock options (in shares)									0	0	0
Average shares outstanding including dilutive stock options (in shares)									5,443,284	5,443,344	5,443,344
Diluted earnings per share	$ 0.37	$ 0.47	$ 0.35	$ 0.39	$ 0.37	$ 0.29	$ 0.39	$ 0.36	$ 1.58	$ 1.41	$ 0.80

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Earnings per Share (Details 1) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of anti-dilutive shares
Anti-dilutive shares	62,745	100,361	131,366
Option shares
Summary of anti-dilutive shares
Anti-dilutive shares	62,745	100,361	131,366
Warrant shares
Summary of anti-dilutive shares
Anti-dilutive shares	0	0	0

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Earnings per Share (Details 2) - shares		12 Months Ended
	Aug. 06, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Schedule Of Common Stock Outstanding [Roll Forward]
Outstanding, beginning of year		5,233,986	5,032,679	4,839,114
Issuance of stock as 4% stock dividend		209,359	201,307	193,565
Purchase of treasury stock	(2,155)	(2,155)	0	0
Outstanding, end of year		5,441,190	5,233,986	5,032,679

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Earnings per Share (Parentheticals) (Details 2)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share [Abstract]
Common Stock, Dividend Rate, Percentage	4.00%	4.00%	4.00%

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Earnings per Share (Detail Textuals) - USD ($)					12 Months Ended
	Aug. 06, 2015	Jun. 11, 2013	May. 15, 2013	May. 09, 2012	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 19, 2008
Class of Stock [Line Items]
Total purchase price of preferred shares redeemed							$ 18,255,000
Share repurchase plan, Authorized amount	$ 2,000,000
Number of common stock repurchased	2,155				2,155	0	0
Average price per share of common stock repurchased	$ 15.39
U.S. Treasury Department's Capital Purchase Program
Class of Stock [Line Items]
Preferred Stock, Shares Issued								30,255
Preferred stock, par value (in dollars per share)								$ 1,000
Redemption of preferred shares			18,255	12,000
Total purchase price of preferred shares redeemed			$ 18,500,000	$ 12,100,000
U.S. Treasury Department's Capital Purchase Program | Ten year warrant
Class of Stock [Line Items]
Number of common stock called by warrants								287,133
U.S. Treasury Department's Capital Purchase Program | Common stock warrant
Class of Stock [Line Items]
Total purchase price of warrants repurchased		$ 540,000
Purchase price per share of warrants repurchased (in warrants per share)		$ 1.88

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Capital Requirements (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
The actual and required capital amounts and ratios for the Company and the Bank
Total capital (to risk-weighted assets), Actual Amount	$ 146,068	$ 138,619
Total capital (to risk-weighted assets), Actual Ratio (as a percent)	14.78%	15.78%
Total capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 79,066	$ 70,282
Total capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	8.00%	8.00%
Tier I capital (to risk-weighted assets), Actual Amount	$ 118,875	$ 108,785
Tier I capital (to risk-weighted assets), Actual, Ratio (as a percent)	12.03%	12.38%
Tier I capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 59,299	$ 35,141
Tier I capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	6.00%	4.00%
Common Equity Tier I Capital (to risk-weighted assets), Actual Amount	$ 89,304
Common Equity Tier I Capital (to risk-weighted assets), Actual Ratio (as a percent)	9.02%
Common Equity Tier I Capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 44,475
Common Equity Tier I Capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	4.50%
Tier I Capital (to adjusted average assets), Actual Amount	$ 118,875	$ 108,785
Tier I Capital (to adjusted average assets), Actual Ratio (as a percent)	9.84%	9.42%
Tier I Capital (to adjusted average assets), Required for Capital Adequacy Purposes, Amount	$ 48,314	$ 46,197
Tier I capital (to adjusted average assets) Required for Capital Adequacy Purposes, Ratio (as a percent)	4.00%	4.00%
Bank
The actual and required capital amounts and ratios for the Company and the Bank
Total capital (to risk-weighted assets), Actual Amount	$ 137,572	$ 128,311
Total capital (to risk-weighted assets), Actual Ratio (as a percent)	13.98%	14.78%
Total capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 78,718	$ 69,430
Total capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	8.00%	8.00%
Total capital (to risk-weighted assets), Well-Capitalized Capital requirements, Amount	$ 98,398	$ 86,788
Total capital (to risk-weighted assets), Well-Capitalized Capital requirements, Ratio (as a percent)	10.00%	10.00%
Tier I capital (to risk-weighted assets), Actual Amount	$ 128,808	$ 119,212
Tier I capital (to risk-weighted assets), Actual, Ratio (as a percent)	13.09%	13.74%
Tier I capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 59,039	$ 34,715
Tier I capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	6.00%	4.00%
Tier I capital (to risk-weighted assets), Well-Capitalized Capital requirements, Amount	$ 78,718	$ 52,073
Tier I capital (to risk-weighted assets), Well-Capitalized Capital requirements, Ratio (as a percent)	8.00%	6.00%
Common Equity Tier I Capital (to risk-weighted assets), Actual Amount	$ 128,808
Common Equity Tier I Capital (to risk-weighted assets), Actual Ratio (as a percent)	13.09%
Common Equity Tier I Capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Amount	$ 44,279
Common Equity Tier I Capital (to risk-weighted assets), Required for Capital Adequacy Purposes, Ratio (as a percent)	4.50%
Common Equity Tier I Capital (to risk-weighted assets), Well-Capitalized Under Prompt Corrective Action Provision, Amount	$ 63,959
Common Equity Tier I Capital (to risk-weighted assets), Well-Capitalized Under Prompt Corrective Action Provision, Ratio (as a percent)	6.50%
Tier I Capital (to adjusted average assets), Actual Amount	$ 128,808	$ 119,212
Tier I Capital (to adjusted average assets), Actual Ratio (as a percent)	10.73%	10.42%
Tier I Capital (to adjusted average assets), Required for Capital Adequacy Purposes, Amount	$ 48,025	$ 45,784
Tier I capital (to adjusted average assets) Required for Capital Adequacy Purposes, Ratio (as a percent)	4.00%	4.00%
Tier I capital (to adjusted average assets), Well-Capitalized Capital requirements, Amount	$ 60,031	$ 57,230
Tier I capital (to adjusted average assets), Well-Capitalized Capital requirements, Ratio (as a percent)	5.00%	5.00%

XML

Fair Value Measurements (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Assets:
Available for sale debt securities, fair value	$ 235,054	$ 198,998
Mortgage servicing rights, fair value	2,847	2,762
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Available for sale debt securities, fair value	0	0
Mortgage servicing rights, fair value	0	0
Other Observable Inputs (Level 2)
Assets:
Available for sale debt securities, fair value	235,054	198,998
Mortgage servicing rights, fair value	0	0
Significant Unobservable Inputs (Level 3)
Assets:
Available for sale debt securities, fair value	0	0
Mortgage servicing rights, fair value	2,847	2,762
Recurring
Assets:
Assets, Total	237,901	201,760
Recurring | Government sponsored enterprises
Assets:
Available for sale debt securities, fair value	73,497	57,099
Recurring | Asset-backed securities
Assets:
Available for sale debt securities, fair value	128,851	106,462
Recurring | Obligations of states and political subdivisions
Assets:
Available for sale debt securities, fair value	32,706	35,437
Recurring | Mortgage servicing rights
Assets:
Mortgage servicing rights, fair value	2,847	2,762
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Assets, Total	0	0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Government sponsored enterprises
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Asset-backed securities
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Obligations of states and political subdivisions
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage servicing rights
Assets:
Mortgage servicing rights, fair value	0	0
Recurring | Other Observable Inputs (Level 2)
Assets:
Assets, Total	235,054	198,998
Recurring | Other Observable Inputs (Level 2) | Government sponsored enterprises
Assets:
Available for sale debt securities, fair value	73,497	57,099
Recurring | Other Observable Inputs (Level 2) | Asset-backed securities
Assets:
Available for sale debt securities, fair value	128,851	106,462
Recurring | Other Observable Inputs (Level 2) | Obligations of states and political subdivisions
Assets:
Available for sale debt securities, fair value	32,706	35,437
Recurring | Other Observable Inputs (Level 2) | Mortgage servicing rights
Assets:
Mortgage servicing rights, fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3)
Assets:
Assets, Total	2,847	2,762
Recurring | Significant Unobservable Inputs (Level 3) | Government sponsored enterprises
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3) | Asset-backed securities
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3) | Obligations of states and political subdivisions
Assets:
Available for sale debt securities, fair value	0	0
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage servicing rights
Assets:
Mortgage servicing rights, fair value	$ 2,847	$ 2,762

XML

Fair Value Measurements (Details 1) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Fair value of assets
Balance at beginning of period	$ 2,762	$ 3,036
Total gains or losses (realized/unrealized) included in earnings	(301)	(576)
Total gains or losses (realized/unrealized) included in other comprehensive income	0	0
Purchases	0	0
Sales	0	0
Issues	386	302
Settlements	0	0
Balance at end of period	$ 2,847	$ 2,762

XML

Fair Value Measurements (Details 2) - Recurring - Significant Unobservable Inputs (Level 3) - Mortgage servicing rights	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Quantitative Information
Weighted average constant prepayment rate (as a percent)	9.58%	10.54%
Weighted average discount rate (as a percent)	9.16%	9.21%
Weighted average expected life (in years)	5 years 10 months 24 days	5 years 8 months 12 days

XML

Fair Value Measurements (Details 3) - Nonrecurring - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	$ (1,885)	$ (5,363)
Gains (losses) on other real estate owned and repossessed assets	[1]	(118)	(1,870)
Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		4,189	5,689
Other real estate owned and repossessed assets		15,992	11,885
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Other real estate owned and repossessed assets		0	0
Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Other real estate owned and repossessed assets		0	0
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		4,189	5,689
Other real estate owned and repossessed assets		15,992	11,885
Commercial, financial, and agricultural | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	(920)	(1,105)
Commercial, financial, and agricultural | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		272	1,386
Commercial, financial, and agricultural | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Commercial, financial, and agricultural | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Commercial, financial, and agricultural | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		272	1,386
Real estate construction - residential | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	0	(350)
Real estate construction - residential | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate construction - residential | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate construction - residential | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate construction - residential | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate - construction - commercial | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	(10)	(491)
Real estate - construction - commercial | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		87	0
Real estate - construction - commercial | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate - construction - commercial | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate - construction - commercial | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		87	0
Real estate mortgage - residential | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	(567)	(332)
Real estate mortgage - residential | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		3,336	3,322
Real estate mortgage - residential | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate mortgage - residential | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate mortgage - residential | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		3,336	3,322
Real estate mortgage - commercial | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	(322)	(2,937)
Real estate mortgage - commercial | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		369	809
Real estate mortgage - commercial | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate mortgage - commercial | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Real estate mortgage - commercial | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		369	809
Consumer | Total Gains (Losses)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Gains (losses) on impaired loans	[1]	(66)	(148)
Consumer | Total Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		125	172
Consumer | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Consumer | Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		0	0
Consumer | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		$ 125	$ 172

[1] Total gains (losses) reported for other real estate owned and repossessed assets includes charge-offs, valuation write-downs, and net losses taken during the periods reported.

XML

Fair Value Measurements (Detail Textuals) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Fair Value Disclosures [Abstract]
Gains included in earnings attributable to change in unrealized gains or losses	$ 372,000	$ 66,000
Impaired loans with a specific allowance	5,700,000	7,400,000
Specific allowance related to impaired loans	1,500,000	1,700,000
Impaired financing receivable charge offs	$ 1,900,000	$ 5,400,000

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Assets:
Cash and due from banks	$ 20,484	$ 22,364
Federal funds sold and overnight interest-bearing deposits	7,893	20,445
Investment in available-for-sale securities, at fair value	235,054	198,998
Mortgage servicing rights	2,847	2,762
Accrued interest receivable	4,853	4,816
Deposits:
Non-interest bearing demand	208,035	207,700
Savings, interest checking and money market	441,080	442,131
Time deposits	298,082	319,683
Accrued interest payable	382	373
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Cash and due from banks	20,484	22,364
Federal funds sold and overnight interest-bearing deposits	7,893	20,445
Investment in available-for-sale securities, at fair value	0	0
Loans, net	0	0
Investment in FHLB stock	0	0
Mortgage servicing rights	0	0
Cash surrender value - life insurance	0	0
Accrued interest receivable	4,853	4,816
Assets, Total	33,230	47,625
Deposits:
Non-interest bearing demand	208,035	207,700
Savings, interest checking and money market	441,080	442,059
Time deposits	0	0
Federal funds purchased and securities sold under agreements to repurchase	56,834	17,970
Subordinated notes	0	0
Federal Home Loan Bank advances	0	0
Accrued interest payable	382	373
Liabilities, Fair Value Disclosure, Total	706,331	668,102
Other Observable Inputs (Level 2)
Assets:
Cash and due from banks	0	0
Federal funds sold and overnight interest-bearing deposits	0	0
Investment in available-for-sale securities, at fair value	235,054	198,998
Loans, net	0	0
Investment in FHLB stock	3,390	3,075
Mortgage servicing rights	0	0
Cash surrender value - life insurance	2,348	2,284
Accrued interest receivable	0	0
Assets, Total	240,792	204,357
Deposits:
Non-interest bearing demand	0	0
Savings, interest checking and money market	0	0
Time deposits	0	0
Federal funds purchased and securities sold under agreements to repurchase	0	0
Subordinated notes	40,821	33,371
Federal Home Loan Bank advances	52,340	44,396
Accrued interest payable	0	0
Liabilities, Fair Value Disclosure, Total	93,161	77,767
Net Significant Unobservable Inputs (Level 3)
Assets:
Cash and due from banks	0	0
Federal funds sold and overnight interest-bearing deposits	0	0
Investment in available-for-sale securities, at fair value	0	0
Loans, net	854,775	854,062
Investment in FHLB stock	0	0
Mortgage servicing rights	2,847	2,762
Cash surrender value - life insurance	0	0
Accrued interest receivable	0	0
Assets, Total	857,622	856,824
Deposits:
Non-interest bearing demand	0	0
Savings, interest checking and money market	0	0
Time deposits	298,323	321,041
Federal funds purchased and securities sold under agreements to repurchase	0	0
Subordinated notes	0	0
Federal Home Loan Bank advances	0	0
Accrued interest payable	0	0
Liabilities, Fair Value Disclosure, Total	298,323	321,041
Carrying Amount
Assets:
Cash and due from banks	20,484	22,364
Federal funds sold and overnight interest-bearing deposits	7,893	20,445
Investment in available-for-sale securities, at fair value	235,054	198,998
Loans, net	856,476	852,114
Investment in FHLB stock	3,390	3,075
Mortgage servicing rights	2,847	2,762
Cash surrender value - life insurance	2,348	2,284
Accrued interest receivable	4,853	4,816
Assets, Total	1,133,345	1,106,858
Deposits:
Non-interest bearing demand	208,035	207,700
Savings, interest checking and money market	441,080	442,059
Time deposits	298,082	319,755
Federal funds purchased and securities sold under agreements to repurchase	56,834	17,970
Subordinated notes	49,486	49,486
Federal Home Loan Bank advances	50,000	43,000
Accrued interest payable	382	373
Liabilities, Fair Value Disclosure, Total	1,103,899	1,080,343
Fair Value
Assets:
Cash and due from banks	20,484	22,364
Federal funds sold and overnight interest-bearing deposits	7,893	20,445
Investment in available-for-sale securities, at fair value	235,054	198,998
Loans, net	854,775	854,062
Investment in FHLB stock	3,390	3,075
Mortgage servicing rights	2,847	2,762
Cash surrender value - life insurance	2,348	2,284
Accrued interest receivable	4,853	4,816
Assets, Total	1,131,644	1,108,806
Deposits:
Non-interest bearing demand	208,035	207,700
Savings, interest checking and money market	441,080	442,059
Time deposits	298,323	321,041
Federal funds purchased and securities sold under agreements to repurchase	56,834	17,970
Subordinated notes	40,821	33,371
Federal Home Loan Bank advances	52,340	44,396
Accrued interest payable	382	373
Liabilities, Fair Value Disclosure, Total	$ 1,097,815	$ 1,066,910

XML

Repurchase Reserve Liability (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Repurchase Reserve Liability [Abstract]
Balance at beginning of year	$ 160	$ 160	$ 0
Provision for repurchase liability	40	0	279
Reimbursement of expenses	(40)	0	(119)
Balance at end of year	$ 160	$ 160	$ 160

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Repurchase Reserve Liability (Detail Textuals) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) Loans	Dec. 31, 2014 USD ($) Loans	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)
Repurchase Reserve Liability [Abstract]
Repurchase reserve liability	$ 160	$ 160	$ 160	$ 0
Number of loans sold to the secondary market | Loans	3,024	3,057
Balance of loans sold to the secondary market	$ 312,100	$ 313,900

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Contractual amount of off-balance-sheet financial instruments
Total contractual amount of off-balance-sheet financial instruments	$ 165,947	$ 138,398
Commitments to extend credit
Contractual amount of off-balance-sheet financial instruments
Total contractual amount of off-balance-sheet financial instruments	161,306	135,137
Commitments to originate residential first and second mortgage loans
Contractual amount of off-balance-sheet financial instruments
Total contractual amount of off-balance-sheet financial instruments	3,175	1,640
Standby letters of credit
Contractual amount of off-balance-sheet financial instruments
Total contractual amount of off-balance-sheet financial instruments	$ 1,466	$ 1,621

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Commitments and Contingencies (Detail Textuals) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($)
Contractual amount of off-balance-sheet financial instruments
Amounts accrued for estimated losses for the financial instruments	$ 0
Minimum
Contractual amount of off-balance-sheet financial instruments
Remaining term of standby letters of credit	1 year
Maximum
Contractual amount of off-balance-sheet financial instruments
Remaining term of standby letters of credit	5 years

XML

Condensed Financial Information of the Parent Company Only (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Assets
Cash and due from bank subsidiaries	$ 20,484	$ 22,364
Deferred tax asset	10,087	10,598
Other assets	10,548	11,843
Total assets	1,200,921	1,169,731
Liabilities and Stockholders' Equity
Subordinated notes	49,486	49,486
Other liabilities	9,736	8,820
Stockholders' equity	87,286	80,568	$ 74,380	$ 92,220
Total liabilities and stockholders' equity	1,200,921	1,169,731
HAWTHORN BANCSHARES, INC.
Assets
Cash and due from bank subsidiaries	4,971	1,024
Investment in equity securities	1,486	1,486
Investment in subsidiaries	134,099	130,728
Deferred tax asset	2,116	1,989
Other assets	7	308
Total assets	142,679	135,535
Liabilities and Stockholders' Equity
Subordinated notes	49,486	49,486
Other liabilities	5,907	5,481
Stockholders' equity	87,286	80,568
Total liabilities and stockholders' equity	$ 142,679	$ 135,535

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Condensed Financial Information of the Parent Company Only (Details 1) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income
Interest and dividends received from subsidiaries	$ 11,515	$ 11,829	$ 11,214	$ 11,198	$ 11,214	$ 11,196	$ 11,125	$ 10,963	$ 45,756	$ 44,498	$ 45,665
Expenses
Interest on subordinated notes									1,293	1,264	1,284
Other									3,507	3,116	3,507
Income tax benefit	$ (1,083)	$ (1,377)	$ (1,001)	$ (1,119)	$ (1,074)	$ (802)	$ (1,121)	$ (1,045)	(4,580)	(4,042)	(2,422)
Net income									8,599	7,654	4,974
HAWTHORN BANCSHARES, INC.
Income
Interest and dividends received from subsidiaries									1,039	2,538	15,039
Total income									1,039	2,538	15,039
Expenses
Interest on subordinated notes									1,293	1,264	1,284
Other									2,138	1,730	1,778
Total expenses									3,431	2,994	3,062
Income before income tax benefit and equity in undistributed income of subsidiaries									(2,392)	(456)	11,977
Income tax benefit									1,065	1,100	1,126
Equity in undistributed income (losses) of subsidiaries									9,926	7,010	(8,129)
Net income									$ 8,599	$ 7,654	$ 4,974

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Condensed Financial Information of the Parent Company Only (Details 2) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities:
Net income	$ 8,599	$ 7,654	$ 4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,810	1,758	1,605
Stock based compensation expense	10	20	19
Other, net	(252)	2,355	(444)
Net cash (used) provided by operating activities	13,342	13,554	20,243
Cash flows from investing activities:
Net cash provided by investing activities	(50,230)	(17,096)	(9,548)
Cash flows from financing activities:
Redemption of 18,255 shares of preferred stock	0	0	(18,255)
Cash dividends paid - preferred stock	0	0	(456)
Cash dividends paid - common stock	(1,058)	(1,017)	(978)
Purchase of treasury stock	(33)	0	0
Warrant redemption	0	0	(540)
Net cash used in financing activities	22,456	17,912	(41,133)
Net increase (decrease) in cash and due from banks	(14,432)	14,370	(30,438)
Cash and cash equivalents, beginning of year	42,809	28,439	58,877
Cash and cash equivalents, end of year	28,377	42,809	28,439
HAWTHORN BANCSHARES, INC.
Cash flows from operating activities:
Net income	8,599	7,654	4,974
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	0	0	1
Equity in undistributed (income) losses of subsidiaries	(9,926)	(7,010)	8,129
Stock based compensation expense	10	20	19
(Increase) decrease in deferred tax asset	(127)	(1,415)	1,325
Other, net	732	1,942	(182)
Net cash (used) provided by operating activities	(712)	1,191	14,266
Cash flows from investing activities:
Investment in subsidiary	5,750	400	4,550
Net cash provided by investing activities	5,750	400	4,550
Cash flows from financing activities:
Redemption of 18,255 shares of preferred stock	0	0	(18,255)
Cash dividends paid - preferred stock	0	0	(456)
Cash dividends paid - common stock	(1,058)	(1,017)	(978)
Purchase of treasury stock	(33)	0	0
Warrant redemption	0	0	(540)
Net cash used in financing activities	(1,091)	(1,017)	(20,229)
Net increase (decrease) in cash and due from banks	3,947	574	(1,413)
Cash and cash equivalents, beginning of year	1,024	450	1,863
Cash and cash equivalents, end of year	$ 4,971	$ 1,024	$ 450

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Quarterly Financial Information (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Quarterly Financial Information (Unaudited)
Interest income	$ 11,515	$ 11,829	$ 11,214	$ 11,198	$ 11,214	$ 11,196	$ 11,125	$ 10,963	$ 45,756	$ 44,498	$ 45,665
Interest expense	1,278	1,271	1,230	1,220	1,217	1,240	1,278	1,309	4,999	5,044	6,342
Net interest income	10,237	10,558	9,984	9,978	9,997	9,956	9,847	9,654	40,757	39,454	39,323
Provision for loan losses	0	0	250	0	0	0	0	0	250	0	2,030
Noninterest income	2,381	2,337	2,461	1,987	2,168	2,313	2,183	2,085	9,166	8,749	10,866
Noninterest expense	9,541	8,978	9,267	8,708	9,090	9,899	8,811	8,707	36,494	36,507	40,763
Income tax (benefit) expense	1,083	1,377	1,001	1,119	1,074	802	1,121	1,045	4,580	4,042	2,422
Net income available to common shareholders	$ 1,994	$ 2,540	$ 1,927	$ 2,138	$ 2,001	$ 1,568	$ 2,098	$ 1,987	$ 8,599	$ 7,654	$ 4,359
Net income (loss) per share:
Basic (loss) earnings per share (in dollars per share)	$ 0.37	$ 0.47	$ 0.35	$ 0.39	$ 0.37	$ 0.29	$ 0.39	$ 0.36	$ 1.58	$ 1.41	$ 0.80
Diluted (loss) earnings per share (in dollars per share)	$ 0.37	$ 0.47	$ 0.35	$ 0.39	$ 0.37	$ 0.29	$ 0.39	$ 0.36	$ 1.58	$ 1.41	$ 0.80