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Hawthorn Bancshares Reports 2011 Financial Results

Hawthorn Bancshares Inc. (NASDAQ: HWBK), today reported financial results for the Company for the year ended December 31, 2011.

The Company reported diluted earnings per common share of $0.19 for the year ended December 31, 2011 compared to a $1.19 per common share loss for 2010. Improvement in operating results for 2011 was largely impacted by a $7.1 million reduction in other real estate expenses (which included a 2010 $5.7 million valuation write-down on a single commercial real estate development parcel) and a $3.7 million reduction in loan loss provision expenses. Net income available to common shareholders for 2011 was $0.9 million after deducting dividends and the related discount accretion of $2.0 million on preferred stock issued to the U.S. Treasury under the Capital Purchase Program.

Commenting on the Company’s performance, Chairman & CEO David T. Turner said, “The core performance of Hawthorn remains strong. Our pre-tax, pre-provision core earnings continue to provide solid support for the credit-related expenses needed to address our problem assets. We still have additional work ahead in reducing our problem assets to an acceptable level and returning to our accustomed earnings standards; but we feel that much has been accomplished. Management continues to closely monitor our non-performing assets and focus on problem asset resolution.”

Operating Results

Net Interest Income

Net interest income remained strong for 2011 due to increasing the net interest margin to 3.92% from 2010’s margin of 3.78% despite a 4.7% decrease in average earning assets. The higher net interest margin is primarily the result of interest bearing liabilities repricing lower than interest bearing assets.

Loan-Loss Reserve

Hawthorn's level of non-performing loans decreased $2.6 million during 2011. However, due to a decrease in loan volume, non-performing loans proportionally increased to 6.37% of total loans compared to 6.27% at year-end 2010. The Company provided $11.5 million to the allowance for loan losses in 2011, compared to $15.3 million in 2010. This decrease of $3.8 million was primarily due to a reduction in net charge-offs of $3.2 million to $12.3 million for 2011 compared to $15.5 million for 2010. The total allowance at year-end 2011 was $13.8 million, or 1.64% of outstanding loans and 25.73% of nonperforming loans. This compares to an allowance of $14.6 million, or 1.62% of outstanding loans and 25.87% of nonperforming loans as of year-end 2010.

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