HAWTHORN BANCSHARES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Forward-looking statements

This report contains certain forward-looking statements regarding the financial condition, results of operations, plans, objectives, future performance and activities of Hawthorn Bancshares, Inc.and its affiliates (collectively, the Company, we, us or our), including without limitation:

•statements that are not historical in nature, and •statements preceded, followed by or that include the words believes, expects, may, will, should, might, anticipates, estimates, intends, expects, hopes or similar expressions.

Forward-looking statements are not guarantees of future performance or results.
They involve risks, uncertainties and assumptions. Actual results may differ
materially from those contemplated by the forward-looking statements due to,
among others, 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 any integration of any business of the Company
and its acquisition targets may be greater than expected,
•legislative, regulatory or tax law changes may adversely affect the business in
which the Company and its subsidiaries are engaged,
•changes may occur in the securities markets, and
•the COVID-19 pandemic, or other external events may adversely affect the
Company.

We have described under the caption Risk Factors in the Company's Annual Report
on Form 10-K for the year ended December 31, 2021, 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.
Except as required by law, the Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events, or changes in its business, results of operations or
financial condition over time.

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Insight

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 $1.7 billion in assets at March 31, 2022, provides a broad range
of commercial and personal banking services. The Bank's specialties include
commercial banking for small and mid-sized businesses, including equipment,
operating, commercial real estate, Small Business Administration (SBA) loans,
and personal banking services including real estate mortgage lending,
installment and consumer loans, certificates of deposit, individual retirement
and other time deposit accounts, checking accounts, savings accounts, and money
market accounts. 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 Missouri
communities in and surrounding Jefferson City, Columbia, Clinton, Warsaw,
Springfield, St. Louis, 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 residential mortgage
lending. The Company's income from mortgage brokerage activities is directly
dependent on mortgage rates and the level of home purchases and refinancing
activity.

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

The 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.

Significant developments and transactions

The item listed below materially affects the comparability of our results of
operations for the three months ended March 31, 2022 and 2021, and our financial
condition as of March 31, 2022 and December 31, 2021, and may affect the
comparability of financial information we report in future fiscal periods.

Covid-19 pandemic

The Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic) has impacted the
Company and may continue to do so, as uncertainty remains about the duration of
the pandemic and the timing and strength of the global and national economic
recovery. In conjunction with our efforts to support clients affected by the
pandemic, the Company has cumulatively originated $136.0 million in loans under
the Paycheck Protection Program (PPP) with amounts outstanding of $2.3 million
and $8.4 million at March 31, 2022 and December 31, 2021, respectively. For more
information on PPP loans, see Note 2 - Loans and Allowance for Loan Losses in
the Notes to Consolidated Financial Statements (unaudited). The future direct
and indirect impact of the pandemic on our businesses, results of operations and
financial condition remains uncertain. Should current economic conditions
deteriorate or if the pandemic worsens due to various factors, including through
the spread of more easily communicable variants of COVID-19, such conditions
could have an adverse effect on our businesses and results of operations and
could adversely affect our financial condition.

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CRITICAL ACCOUNTING METHODS

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 critical accounting
policies on the 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 - Summary of Significant Accounting Policies
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.
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Summary

The Company has prepared all of the consolidated financial information in this
report in accordance with 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 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.

                                                                  As of and 

for the three months ended

                                                                                                                                          December 31,
(Dollars in thousands, except per share data)                                                                      March 31, 2022             2021              March 31, 2021
Net interest income                                                                                              $        14,145          $   15,103          $        14,390
(Release of) provision for loan losses                                                                                      (2,500)             (2,400)                        -
Non-interest income                                                                                                           3,726               3,675                    4,572
Investment securities (losses) gains, net                                                                                       (4)                   9                       14
Non-interest expense                                                                                                         12,227              13,474                   11,780
Income before income taxes                                                                                                    8,140               7,713                    7,196
Income tax expense                                                                                                            1,531               1,723                    1,357
Net income                                                                                                       $         6,609          $    5,990          $         5,839
Basic earnings per share                                                                                         $             1.00       $        0.90       $             0.88
Diluted earnings per share                                                                                       $             1.00       $        0.90       $             0.88

Cash dividends paid on common stock                                                                              $              993       $         992       $              842
Book value per share                                                                                             $            20.35       $       22.51       $            19.75
Market price per share                                                                                           $            25.28       $       25.94       $            20.47

Return on average total assets                                                                                                1.51%               1.35%                    1.38%
Return on average stockholders' equity                                                                                       18.41%              16.70%                   18.03%
Average stockholders' equity to total assets                                                                                  8.22%               8.10%                    7.64%
Efficiency ratio (1)                                                                                                         68.42%              71.75%                   62.12%
Net interest spread                                                                                                           3.36%               3.52%                    3.44%
Net interest margin                                                                                                           3.50%               3.67%                    3.61%

Stockholders' equity to assets                                                                                                7.74%               8.13%                    7.55%
Total risk-based capital ratio                                                                                               14.66%              14.79%                   14.80%
Tier 1 risk-based capital ratio                                                                                              13.44%              13.59%                   13.21%
Common equity Tier 1 capital                                                                                                 10.36%              10.22%                    9.93%
Tier 1 leverage ratio (2)                                                                                                    10.99%              11.01%                   10.22%

Asset Quality

Net-charge-offs (recoveries)                                                                                     $           124          $     (375)         $          (248)
Non-performing loans                                                                                             $        17,099          $   25,473          $        34,233
Classified assets                                                                                                $       104,073          $  108,322          $       145,794
Non-performing loans to total loans                                                                                           1.28%               1.96%                    2.68%
Non-performing assets to total assets                                                                                         1.55%               1.97%                    2.68%
Allowance for loan losses to total loans                                                                                      1.07%               1.30%                    1.44%


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

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


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Highlights of operating results:

Consolidated net income of $6.6 million for the first quarter 2022, an increase
of $0.6 million compared to the fourth quarter 2021 ("linked quarter") and an
increase of $0.8 million from the first quarter 2021 (the "prior year quarter").
Earnings per diluted share ("EPS") was $1.00 for the first quarter 2022 compared
to $0.90 and $0.88 for the linked quarter and prior year quarter, respectively.
For the first quarter 2022, the return on average assets was 1.51%, the return
on average stockholders' equity was 18.41%, and the efficiency ratio was 68.4%.

Net interest income of $14.1 million for the first quarter 2022, decreased $1.0
million from the linked quarter, and decreased $0.2 million from the prior year
quarter. Net interest margin, on a fully taxable equivalent basis ("FTE") basis,
was 3.50% for the first quarter, a decrease from 3.67% for the linked quarter,
and a decrease from 3.61% for the prior year quarter. These changes are
discussed in greater detail under the Average Balance Sheet Data and Rate and
Volume Analysis section below.

Non-interest income for the first quarter 2022 was $3.7 million, an increase of
$0.1 million, or 1.4%, from the linked quarter, and a decrease of $0.8 million,
or 18.5%, from the prior year quarter. The change in the current quarter
compared to the prior year quarter is primarily due to the decrease in the gain
on sale of real estate mortgages of $1.6 million, or 64.0%. These changes are
discussed in greater detail under the Non-interest Income and Expense section
below.

Non-interest expense for the first quarter 2022 was $12.2 million, a decrease of
$1.2 million, or 9.3%, from the linked quarter, and an increase of $0.4 million,
or 3.8%, from the prior year quarter. The change in the current quarter compared
to the linked quarter is primarily due to the decrease in legal fees expenses
resulting from the recognition of final settlement of a legal matter in the
fourth quarter of 2021. These changes are discussed in greater detail under the
Non-interest Income and Expense section below.

Balance sheet highlights:

Loans - Loans held for investment increased by $31.8 million, or 2.4%, equal to
$1.3 billion as of March 31, 2022 as compared to the end of the linked quarter.
Year-over-year, loans held for investment grew $57.7 million, or 4.5%, from $1.3
billion as of March 31, 2021.

Asset quality - Non-performing loans totaled $17.1 million at March 31, 2022, a
decrease of $8.4 million from $25.5 million at the end of the linked quarter,
and a decrease of $17.1 million from $34.2 million at the end of the prior year
quarter. The reduction in non-performing loans in the current quarter, as
compared to the linked quarter and prior year quarter is primarily due to
several large non-accrual loans returning to accrual status described in more
detail below. The allowance for loan losses to total loans was 1.07% at
March 31, 2022, compared to 1.30% at December 31, 2021 and 1.44% at March 31,
2021. These changes are discussed in greater detail under the Lending and Credit
Management section below.

Deposits - Total deposits decreased by $60.7 million, or 4.0%, equal to $1.5
billion as of March 31, 2022 as compared to the end of the linked quarter.
Year-over-year deposits grew $62.2 million, or 4.5%, from $1.4 billion as of
March 31, 2021.

Capital - Total shareholder's equity was $134.4 million and the common equity to
assets ratio was 7.74% at March 31, 2022 as compared to 8.13% and 7.55% at the
end of the linked quarter and the prior year quarter, respectively. Regulatory
capital ratios remain "well-capitalized", with tier 1 leverage ratio of 10.99%
and a total risk-based capital ratio of 14.66% at March 31, 2022.

Average balance sheet data

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 sheet data, net interest income,
average yields of earning assets, average costs of interest-bearing liabilities,
net interest spread and net interest margin on a fully taxable equivalent basis
for each of the three month periods ended March 31, 2022 and 2021, respectively.
The average balances used in this table and other statistical data were
calculated using average daily balances.

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                                                                                                          Three Months Ended March 31,
                                                                               2022                                                                         2021
                                                                       Interest Income/                                                              Interest Income/
(Dollars in thousands)                        Average Balance            
Expense (1)            Rate Earned/ Paid (1)    Average Balance              Expense (1)             Rate Earned/ Paid (1)
ASSETS
Loans: (2) (3)
Commercial                                  $           220,888       $             2,832                         5.20% $            257,623       $              4,159                         6.55%
Real estate construction - residential                   23,455                       256                          4.43               33,492                        394                          4.77
Real estate construction - commercial                    95,935                       996                          4.21               78,578                        878                          4.53
Real estate mortgage - residential                      281,824                     2,832                          4.08              260,040                      2,841                          4.43
Real estate mortgage - commercial                       670,713                     6,938                          4.20              621,877                      6,600                          4.30
Installment and other consumer                           22,342                       206                          3.74               25,992                        265                          4.13
Total loans                                 $         1,315,157       $            14,060                         4.34% $          1,277,602       $             15,137                         4.81%
Loans held for sale                                       2,288                        20                          3.55                5,500                         25                          1.84
Investment securities:
U.S. Treasury                                             4,010                         5                          0.51                3,006                          8                          1.08
U.S. government and federal agency
obligations                                              27,371                        89                          1.32               38,605                        146                          1.53
Obligations of states and political
subdivisions                                            126,577                     1,020                          3.27               61,456                        452                          2.98
Mortgage-backed securities                              132,922                       510                          1.56              101,101                        338                          1.36
Other debt securities                                    13,456                       156                          4.70               11,539                        143                          5.03
Total investment securities                             304,336                     1,780                          2.37              215,707                      1,087                          2.04
Other investment securities                               5,412                        75                          5.62                5,982                         83                          5.63
Federal funds sold                                        6,232                         1                          0.07               20,276                          4                          0.08
Interest bearing deposits in other
financial institutions                                   70,824                        60                          0.34              129,048                         98                          0.31
Total interest earning assets               $         1,704,249       $            15,996                         3.81% $          1,654,115       $             16,434                         4.03%
All other assets                                         83,294                                                                       84,407
Allowance for loan losses                              (16,926)                                                                     (18,466)
Total assets                                $         1,770,617                                                         $          1,720,056
LIABILITIES AND STOCKHOLDERS' EQUITY
NOW accounts                                $           176,648       $                15                         0.03% $            142,735       $                 12                         0.03%
Savings                                                 265,542                       187                          0.29              231,311                        138                          0.24
Interest checking                                        29,398                        28                          0.39               61,522                         76                          0.50
Money market                                            289,140                        86                          0.12              279,234                         83                          0.12
Time deposits                                           260,628                       389                          0.61              267,047                        671                          1.02
Total interest bearing deposits             $         1,021,356       $               705                         0.28% $            981,849       $                980                         0.40%
Federal funds purchased and securities sold
under agreements to repurchase                           13,792                        10                          0.29               41,507                         26                          0.25
Federal Home Loan Bank advances and other
borrowings                                               77,397                       252                          1.32               98,152                        396                          1.64
Subordinated notes                                       49,486                       324                          2.66               49,486                        310                          2.54
Total borrowings                                        140,675                       586                          1.69              189,145                        732                          1.57

Total interest bearing liabilities $ 1,162,031

        1,291                         0.45% $          1,170,994       $              1,712                         0.59%
Demand deposits                                         449,175                                                                      399,429
Other liabilities                                        13,849                                                                       18,275
Total liabilities                           $         1,625,055                                                         $          1,588,698
Stockholders' equity                                    145,562                                                                      131,358
Total liabilities and stockholders' equity  $         1,770,617                                                         $          1,720,056
Net interest income (FTE)                                             $            14,705                                                          $             14,722
Net interest spread                                                                                               3.36%                                                                         3.44%
Net interest margin                                                                                               3.50%                                                                         3.61%


(1)Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate of 21%, net of nondeductible
interest expense, for the three months ended March 31, 2022 and 2021. Such
adjustments totaled $0.6 million and $0.3 million for the three months ended
March 31, 2022 and 2021, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Fees and costs on loans are included in interest income ($0.3 million and
$1.5 million of PPP fees were included in commercial loan income for the three
months ended March 31, 2022 and 2021, respectively).
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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 three months ended March 31, 2022 compared to the three months ended
March 31, 2021. 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.

                                                                      Three Months Ended March 31,
                                                                              2022 vs. 2021
                                                                                              Change due to
                                                                                                             Average
(In thousands)                                                                        Total Change           Volume            Average Rate

Interest income on a fully taxable equivalent basis: (1) Loans: (2) (3) Commercial

$(1,327) ($543) ($784)
Building construction – residential

                                                         (138)           (111)                   (27)
Real estate construction - commercial                                                            118            183                    (65)
Real estate mortgage - residential                                                               (9)            228                   (237)
Real estate mortgage - commercial                                                                338            509                   (171)
Installment and other consumer                                                                  (59)            (35)                   (24)
Loans held for sale                                                                              (5)            (20)                    15
Investment securities:
U.S. Treasury                                                                                    (3)              2                     (5)
U.S. government and federal agency obligations                                                  (57)            (38)                   (19)
Obligations of states and political subdivisions                                                 568            521                     47
Mortgage-backed securities                                                                       172            117                     55
Other debt securities                                                                             13             23                    (10)
Other investment securities                                                                      (8)             (8)                     -
Federal funds sold                                                                               (3)             (2)                    (1)
Interest bearing deposits in other financial institutions                                       (38)            (48)                    10
Total interest income                                                               $        (438)         $    778          $      (1,216)
Interest expense:
Savings                                                                                            3              3                      -
NOW accounts                                                                                      49             22                     27
Interest checking                                                                               (48)            (33)                   (15)
Money market                                                                                       3              3                      -
Time deposits                                                                                  (282)            (16)                  (266)

Fed Funds Purchased and Securities Sold Under Repurchase Agreements

                                                                                   (16)            (19)                        3
Federal Home Loan Bank advances and other borrowings                                           (144)            (75)                     (69)
Subordinated notes                                                                                14              -                        14
Total interest expense                                                     

(421) $ ($115) $(306)
Net interest income on a fully taxable equivalent basis

$ (17) $893 (910) $


(1)Interest income and yields are presented on a fully taxable equivalent basis
using the federal statutory income tax rate of 21%, net of nondeductible
interest expense, for the three months ended March 31, 2022 and 2021. Such
adjustments totaled $0.6 million and $0.3 million for the three months ended
March 31, 2022 and 2021, respectively.
(2)Non-accruing loans are included in the average amounts outstanding.
(3)Fees and costs on loans are included in interest income ($0.3 million and
$1.5 million of PPP fees were included in commercial loan income for the three
months ended March 31, 2022 and 2021, respectively).



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Financial results for the quarter ended March 31, 2022 compared to the quarter
ended March 31, 2021 reflected a decrease in net interest income, on a tax
equivalent basis, of $17,000, or 0.1%. Measured as a percentage of average
earning assets, the net interest margin (expressed on a fully taxable equivalent
basis) decreased to 3.50% for the quarter ended March 31, 2022 compared to 3.61%
for the quarter ended March 31, 2021. Net interest income and net interest
margin decreased primarily due to a decrease in PPP fees and interest income in
the three month comparative periods. The Company earned $0.3 million in PPP
income for the three months ended March 31, 2022 compared to $1.5 million for
the three months ended March 31, 2021.

Average interest-earning assets increased $50.1 millioni.e. 3.0%, at
$1.70 billion for the quarter ended March 31, 2022 compared to $1.65 billion for the quarter ended March 31, 2021and average interest-bearing liabilities decreased $9.0 millioni.e. 0.8%, at $1.16 billion for the quarter ended
March 31, 2022 compared to $1.17 billion for the quarter ended March 31, 2021.

Total interest income (expressed on a fully taxable equivalent basis) was $16.0
million for the three months ended March 31, 2022 compared to $16.4 million for
the three months ended March 31, 2021. The Company's rates earned on interest
earning assets were 3.81% for the three months ended March 31, 2022 compared to
4.03% for the three months ended March 31, 2021.

Interest income on loans held for investment was $14.1 million for the three
months ended March 31, 2022 compared to $15.1 million for the three months ended
March 31, 2021.

Average loans outstanding increased $37.6 million, or 2.9%, to $1.32 billion for
the quarter ended March 31, 2022 compared to $1.28 billion for the quarter ended
March 31, 2021. The average yield on loans decreased to 4.34% for the quarter
ended March 31, 2022 compared to 4.81% for the quarter ended March 31, 2021. See
the Lending and Credit Management section for further discussion of changes in
the composition of the lending portfolio.

Interest income on available-for-sale securities was $1.8 million for the three
months ended March 31, 2022 compared to $1.1 million for the three months ended
March 31, 2021.

Average securities increased $88.6 million, or 41.1%, to $304.3 million for the
quarter ended March 31, 2022 compared to $215.7 million for the quarter ended
March 31, 2021. The average yield on securities increased to 2.37% for the
quarter ended March 31, 2022 compared to 2.04% for the quarter ended March 31,
2021. See the Liquidity Management section for further discussion.

Total interest expense decreased to $1.3 million for the three months ended
March 31, 2022 compared to $1.7 million for the three months ended March 31,
2021. The Company's rates paid on interest bearing liabilities were 0.45% for
the three months ended March 31, 2022 compared to 0.59% for the three months
ended March 31, 2021. See the Liquidity Management section for further
discussion.

Interest expense on deposits decreased to $0.7 million for the three months ended March 31, 2022 compared to $1.0 million for the three months ended
March 31, 2021.

Average interest-bearing deposits increased $39.5 million, or 4.0%, to $1.02
billion for the quarter ended March 31, 2022 compared to $0.98 billion for the
quarter ended March 31, 2021. The average cost of deposits decreased to 0.28%
for the quarter ended March 31, 2022 compared to 0.40% for the quarter ended
March 31, 2021.

Interest charges on borrowings decreased to $0.6 million for the three months ended March 31, 2022 compared to $0.7 million for the three months ended
March 31, 2021.

Average borrowings decreased to $140.7 million for the quarter ended March 31,
2022 compared to $189.1 million for the quarter ended March 31, 2021. The
average cost of borrowings increased to 1.69% for the quarter ended March 31,
2022 compared to 1.57% for the quarter ended March 31, 2021. The increase in
cost of funds primarily resulted from higher market interest rates.


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Non-interest income and expenses

Non-interest income for the periods indicated was as follows:

                                                                 Three Months Ended
                                                                     March 31,
(Dollars in thousands)                                                        2022       2021      $ Change            % Change
Non-interest income
Service charges and other fees                                             $   793    $   739    $      54                   7.3  %
Bank card income and fees                                                      961        860          101                  11.7  %
Trust department income                                                        340        294           46                  15.6  %
Real estate servicing fees, net                                                231         73          158                 216.4  %
Gain on sales of mortgage loans, net                                           888      2,469       (1,581)                (64.0) %
Other                                                                          513        137          376                 274.5  %
Total non-interest income                                                  $ 3,726    $ 4,572    $    (846)                (18.5) %
Non-interest income as a % of total revenue *                               

20.8% 24.1%


*Total revenue is calculated as net interest income plus non-interest income.
Total non-interest income decreased $0.8 million, or 18.5%, to $3.7 million for
the quarter ended March 31, 2022 compared to $4.6 million for the quarter ended
March 31, 2021. The decrease was primarily due to the decrease in gain on sale
of real estate mortgages due to lower volumes of real estate mortgage loans sold
as further discussed below.

Increase in property management fees, net of the change in the valuation of mortgage management rights (MSR) $0.2 million for $0.2 million for the quarter ended
March 31, 2022 compared to $0.1 million for the quarter ended March 31, 2021.

Mortgage loan servicing fees earned on loans sold were $0.3 million for the
three months ended March 31, 2022 compared to $0.2 million for the three months
ended March 31, 2021. The current quarter's MSR valuation increased $31,000 from
the linked quarter primarily due to an increase in market rates. The Company was
servicing $261.5 million of mortgage loans at March 31, 2022 compared to $270.0
million and $288.9 million at December 31, 2021 and March 31, 2021,
respectively.

Gain on sales of mortgage loans decreased $1.6 million to $0.9 million for the
quarter ended March 31, 2022 compared to $2.5 million for the quarter ended
March 31, 2021. The Company sold $29.1 million of loans for the three months
ended March 31, 2022 compared to $66.3 million for the three months ended
March 31, 2021. Loans sold to the secondary market slowed after strong sales
during the first six months of 2021.

Other Income increased $0.4 million to $0.5 million for the quarter ended
March 31, 2022 compared to $0.1 million for the quarter ended March 31, 2021.
The increase primarily resulted from mortgage banking derivative income,
interest component of net pension cost, and income received from the Missouri
Department of Transportation related to a land easement. During the fourth
quarter of 2021 the Company elected to record the fair value of derivatives
related to interest rate lock commitments and mandatory commitments and the
related changes due to volume and rates through non-interest income and
non-interest expense.

The following table presents the gross realized gains and losses from sales and
calls of available-for-sale securities, as well as gains and losses on equity
securities from fair value adjustments which have been recognized in earnings:

                                                                       Three Months Ended March 31,
(in thousands)                                                                            2022                   2021
Investment securities (losses) gains, net
Available-for-sale securities:
Gross realized gains                                                                $              -       $              2
Gross realized losses                                                                              -                   -
Other-than-temporary impairment recognized                                                         -                      -
Other investment securities:
Fair value adjustments, net                                                                      (4)                  12
Investment securities (losses) gains, net                                           $            (4)       $             14


                                       41
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Non-interest expenses for the periods indicated were as follows:

                                                              Three Months 

Completed in March

                                                                        31,
(Dollars in thousands)                                                         2022        2021       $ Change         % Change
Non-interest expense
Salaries                                                                    $  5,156    $  5,342    $    (187)                  (3.5) %
Employee benefits                                                              1,730       1,804          (73)                  (4.1)
Occupancy expense, net                                                           786         771           15                    1.9
Furniture and equipment expense                                                  755         744           11                    1.5
Processing, network and bank card expense                                      1,142       1,007          135                   13.4
Legal, examination, and professional fees                                        440         404           36                    8.9
Advertising and promotion                                                        293         243           50                   20.6
Postage, printing, and supplies                                                  190         204          (14)                  (6.9)
Loan expense                                                                     145         174          (29)                 (16.7)
Other                                                                          1,590       1,087          503                   46.3
Total non-interest expense                                                  $ 12,227    $ 11,780    $     447                    3.8  %
Efficiency ratio*                                                               68.4  %     62.1  %
Number of full-time equivalent employees                                    

306 304

*The efficiency ratio is calculated as non-interest expense as a percentage of revenue. Total income is net interest income plus non-interest income.

Total non-interest expense increased $0.4 million for $12.2 million for the quarter ended March 31, 2022 compared to $11.8 million for the quarter ended
March 31, 2021.

Salaries decreased $0.2 million, or 3.5%, to $5.2 million for the quarter ended
March 31, 2022 compared to $5.3 million for the quarter ended March 31, 2021
primarily due to reduced commissions based on loan volume. See Gains on sales of
mortgage loans discussion above.

Employee benefits decreased $0.1 million, or 4.1%, to $1.7 million for the
quarter ended March 31, 2022 compared to $1.8 million for the quarter ended
March 31, 2021. The decreases were primarily due to a decrease in 401(k) plan
contributions partially offset by an increase in medical premiums and pension
cost due to lower annual discount rate assumptions compared to the prior year's
annual assumptions.

Processing, network, and bank card expense increased $0.1 million, or 13.4%, to
$1.1 million for the quarter ended March 31, 2022 compared to $1.0 million for
the quarter ended March 31, 2021. These increases were primarily related to
increases in debit card processing and ATM interchange expenses, partially
offset by decreases in network and processing expenses.

Other non-interest expense increased $0.5 million, or 46.3%, to $1.6 million for
the quarter ended March 31, 2022 compared to $1.1 million for the quarter ended
March 31, 2021. The increases were primarily related to mortgage banking
derivative expense, telephone, travel, donations and software expense, partially
offset by a decrease in FDIC insurance assessments. During the fourth quarter of
2021 the Company elected to record the fair value of derivatives related to
interest rate lock commitments and mandatory commitments and the related changes
due to volume and rates through non-interest income and non-interest expense.

Income taxes

Income taxes as a percentage of earnings before income taxes, as presented in the consolidated financial statements, were 18.8% for the three months ended
March 31, 2022 compared to 18.9% for the three months ended March 31, 2021.

The decrease in the effective tax rate for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was primarily attributable to
the increase in earnings and an increase in state taxes attributed to elevated
earnings partially offset by the benefit recorded pertaining to the historical
tax credit. The effective tax rate for each of the three months ended March 31,
2022 and 2021, respectively, is lower than the U.S. federal statutory rate of
21% primarily due to tax-free revenues.

                                       42
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Included in the effective tax rate for the quarter ended March 31, 2022 is a
$13,000 benefit associated with a historic tax credit investment. The investment
is expected to generate a $321,000 tax benefit over the life of the project and
is being recognized under the deferral method of accounting.

Loan and credit management

Interest earned on the loan portfolio is a primary source of interest income for
the Company. Net loans represented 76.0% of total assets as of March 31, 2022
compared to 70.2% as of December 31, 2021.

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.

The main classifications within the Company’s portfolio of loans held for investment purposes at the dates indicated are as follows:

                                                      March 31, 2022                                December 31, 2021
(Dollars in thousands)                         Amount            % of Loans                    Amount             % of Loans
Commercial, financial, and agricultural
(a)                                       $      221,015                  16.6  %       $         217,214                  16.7  %
Real estate construction - residential            21,515                   1.6                     27,920                   2.1
Real estate construction - commercial            103,478                   7.8                     91,369                   7.0
Real estate mortgage - residential               287,879                  21.6                    279,346                  21.5
Real estate mortgage - commercial                677,539                  50.8                    663,256                  50.9
Installment and other consumer                    22,497                   1.7                     23,028                   1.8
Total loans held for investment           $    1,333,923                 100.0  %       $       1,302,133                 100.0  %


(a) Includes $2.3 million and $8.4 million SBA PPP loans, net at March 31, 2022 and December 31, 2021respectively.

The Company extends credit to its local community markets 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 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 non-accrual, past due,
or restructured loans if such assets were loans.

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. During the three months ended March 31, 2022, the Company
sold approximately $29.1 million of loans to investors compared to $66.3 million
for the three months ended March 31, 2021. At March 31, 2022, the Company was
servicing approximately $261.5 million of loans sold to the secondary market
compared to $270.0 million at December 31, 2021, and $288.9 million at March 31,
2021.

Loan Portfolio Risk Elements

Management, the senior loan committee, and internal loan review, formally review
all loans in excess of certain dollar amounts (periodically established) at
least annually. Loans in excess of $2.0 million in aggregate and all adversely
classified credits identified by management are reviewed by the senior loan
committee. In addition, all other loans are reviewed on a risk weighted
selection process. The senior loan committee reviews and reports to the Board of
Directors, at scheduled meetings: past due, classified, and watch list loans in
order to classify or reclassify loans as loans requiring attention, substandard,
doubtful, or loss. During this review, management also determines which loans
should be considered impaired. Management follows the guidance provided in the
Financial Accounting Standards Board's (FASB) 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 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,

                                       43
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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.

Non-performing assets

The following table summarizes the non-performing assets on the dates indicated:

                                                                      March 31,              December 31,
(Dollars in thousands)                                                  2022                     2021

Non-accrual loans:
Commercial, financial, and agricultural                           $             136       $               153

Real estate construction - commercial                                           100                       105
Real estate mortgage - residential                                            1,258                     1,129
Real estate mortgage - commercial                                            15,477                    24,029
Installment and other consumer                                                  125                        43
Total                                                             $          17,096       $            25,459

Contractually past due loans – 90 days or more past due and still outstanding:

Real estate mortgage - residential                                $               -       $                14

Installment and other consumer                                                    3                         -
Total                                                             $               3       $                14
Total non-performing loans (a)                                               17,099                    25,473
Other real estate owned and repossessed assets                                9,758                    10,525
Total non-performing assets                                       $          26,857       $            35,998

Loans held for investment                                         $       1,333,923       $         1,302,133
Allowance for loan losses to loans                                          1.07  %                   1.30  %
Non-accrual loans to total loans                                            1.28  %                   1.96  %
Non-performing loans to loans (a)                                           1.28  %                   1.96  %
Non-performing assets to loans (b)                                          2.01  %                   2.76  %
Non-performing assets to assets (b)                                         1.55  %                   1.97  %
Allowance for loan losses to non-accrual loans                             83.52  %                  66.39  %
Allowance for loan losses to non-performing loans                          83.51  %                  66.36  %


(a)Non-performing loans include loans 90 days past due and accruing, non-accrual
loans, and non-performing TDRs included in non-accrual loans and 90 days past
due.
(b)Non-performing assets include non-performing loans and other real estate
owned and repossessed assets.

Total non-performing assets were $26.9 millioni.e. 2.01% of total loans, at
March 31, 2022 compared to $36.0 millioni.e. 2.76% of total loans, at
December 31, 2021.

Total non-accrual loans at March 31, 2022 decreased $8.4 million, or 32.8%, to
$17.1 million compared to $25.5 million at December 31, 2021. There were $3,000
in loans past due 90 days and still accruing interest at March 31, 2022 compared
to $14,000 at December 31, 2021. Other real estate and repossessed assets were
$9.8 million and $10.5 million at March 31, 2022 and December 31, 2021,
respectively. During the three months ended March 31, 2022 there were no
additions to other real estate owned compared to $30,000 of non-accrual loans,
net of charge-offs taken, during the three months ended March 31, 2021. During
the first quarter ended March 31, 2022, an additional $52,000 charge-off was
recorded related to a property that moved into other real estate owned at the
end of the fourth quarter of 2021.

As of March 31, 2022, approximately $21.9 million of loans classified as
substandard, which include performing TDRs, and not included in the
non-performing asset table, were identified as potential problem loans having
more than normal risk which raised doubts as to the ability of the borrower to
comply with present loan repayment terms, compared to $13.8

                                       44
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million at December 31, 2021. Management believes the allowance for loan losses
was sufficient to cover the risks and probable losses related to such loans at
March 31, 2022 and December 31, 2021, respectively.

The following table summarizes the Company’s ToRs on the dates indicated:

                                                               March 31, 2022                                                             December 31, 2021
                                        Number of                                            Specific               Number of                                            Specific
(Dollars in thousands)                  contracts             Recorded Investment            Reserves               contracts             Recorded Investment            Reserves
Performing TDRs
Commercial, financial and
agricultural                                         2       $                 183       $             23                        2       $                 188       $             24
Real estate mortgage - residential                   5                       1,170                     46                        6                       1,262                     56
Real estate mortgage - commercial                    2                         323                     38                        2                         328                     38
Installment and other consumer                       2                          15                      2                        2                          17                      2
Total performing TDRs                               11       $               1,691       $            109                       12       $               1,795       $            120
Non-performing TDRs

Real estate mortgage - residential                   5       $                 551       $             70                        5       $                 561       $             39

Total non-performing TDRs                            5       $                 551       $             70                        5       $                 561       $             39
Total TDRs                                          16       $               2,242       $            179                       17       $               2,356       $            159


At March 31, 2022, loans classified as TDRs totaled $2.2 million, with $0.2
million of specific reserves, compared to $2.4 million of loans classified as
TDRs, with $0.2 million of specific reserves at December 31, 2021.
Non-performing loans, included $0.6 million of loans classified as TDRs at
March 31, 2022 compared to $0.6 million at December 31, 2021. Both performing
and non-performing 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 if the loan is collateral dependent. The net decrease in total TDRs from
December 31, 2021 to March 31, 2022 was primarily due to $115,000 of payments
received on TDRs.

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:

                                                             March 31, 2022                        December 31, 2021
                                                                      % of loans in                         % of loans in
                                                                    each category to                      each category to
(In thousands)                                          Amount         total loans             Amount        total loans
Allocation of allowance for loan losses at end of
period:
Commercial, financial, and agricultural            $       2,830              16.6  %       $    2,717              16.7  %
Real estate construction - residential                        60               1.6                 137               2.1
Real estate construction - commercial                        664               7.8                 588               7.0
Real estate mortgage - residential                         2,578              21.6               2,482              21.5
Real estate mortgage - commercial                          7,692              50.8              10,662              50.9
Installment and other consumer                               273               1.7                 256               1.8
Unallocated                                                  182                 -                  61                 -
Total                                              $      14,279             100.0  %       $   16,903             100.0  %


The allowance for loan losses was $14.3 million, or 1.07%, of loans outstanding
at March 31, 2022 compared to $16.9 million, or 1.30%, of loans outstanding at
December 31, 2021. The ratio of the allowance for loan losses to non-performing
loans was 83.51% at March 31, 2022, compared to 66.36% at December 31, 2021.

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

                                                                   March 31,
(In thousands)                                                        2022             December 31, 2021
Allocation of allowance for loan losses:
Individually evaluated for impairment - specific reserves         $     317          $            3,044
Collectively evaluated for impairment - general reserves             13,962                      13,859
Total                                                             $  14,279          $           16,903


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 March 31, 2022, $0.3 million of the Company's ALL was allocated to
impaired loans totaling approximately $18.8 million compared to $3.0 million of
the Company's ALL allocated to impaired loans totaling approximately $27.3
million at December 31, 2021. Management determined that $16.1 million, or 86%,
of total impaired loans required no reserve allocation at March 31, 2022
compared to $16.6 million, or 61%, at December 31, 2021, primarily due to
adequate collateral values, acceptable payment history and adequate cash flow
ability.

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. The look-back period
begins with loss history in the first quarter 2012 as the starting point through
the current quarter and it will continue to include this starting point going
forward. Management determined that the look-back period should be expanded
until a loss producing downturn is recognized. This would be accomplished by
allowing the look-back period to shift forward by eliminating the earliest loss
period and replenishing it with losses from the most recent period. The
look-back period is consistently evaluated for relevance given the current facts
and circumstances.

These historical loss rates for each risk group are used as the starting point
to determine loss rates for measurement purposes. The historical loan loss rates
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 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 non-accrual 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 specific and general reserve allocations represent management's best
estimate of probable losses inherent in the loan portfolio at the evaluation
date. Although the ALL is comprised of specific and general allocations, the
entire ALL is available to absorb any credit losses.

The changes in the allowance for loan losses from December 31, 2021 to March 31,
2022 primarily resulted from transitioning loans impacted by COVID-19 from
non-accrual status back to performing status. This transition was made according
to the Company's established internal loan policies regarding loan performance
as well as consultation with industry experts. This transition back to
performing status also reduced specific reserves based on the attributes of the
individual loan collateral, to the general allocations method described above.
The Company continues to monitor the risks associated with its non-performing
loans.

Provision

The Company recorded a negative provision charge for loan losses of
$2.5 million for the three months ended March 31, 2022 compared to no provision charge for the three months ended March 31, 2021. The negative provision charge results mainly from the reversal of specific provisions for an amount
$2.8 million in the first quarter of 2022 due to the return of large loan balances to accrual from non-recognition status or other collateral valuation adjustments. No provision was required during the first quarter of 2021 primarily due to the impact of net recoveries and improved

                                       46
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the economic outlook as the economy began to recover from the effects of the COVID-19 pandemic suffered throughout 2020.

The following table summarizes loan loss experience for the periods indicated:

                                                                                            Three Months Ended March 31,
                                                                  2022                                                                        2021
                                                                                     Net (Recoveries)                                                            Net (Recoveries)
                                   Net Charge-offs                                    Charge-offs /            Net Charge-offs                                    Charge-offs /
(Dollars in thousands)              (Recoveries)             Average Loans            Average Loans              (Recoveries)            Average Loans            Average Loans
Commercial, financial, and
agricultural                     $             15          $      220,888                       0.01  %       $          (122)         $      257,623                      (0.05) %
Real estate construction -
residential                                     -                  23,455                          -                      (13)                 33,492                      (0.04)
Real estate construction -
commercial                                      -                  95,935                          -                        -                  78,578                          -
Real estate mortgage -
residential                                    (3)                281,824                          -                     (168)                260,040                      (0.06)
Real estate mortgage -
commercial                                     73                 670,713                       0.01                       23                 621,877                          -
Installment and other consumer                 39                  22,342                       0.17                       32                  25,992                       0.12
Total                            $               124       $    1,315,157                       0.01  %       $            (248)       $    1,277,602                      (0.02) %

Net loan write-offs (recoveries)

The Company’s net charges were $0.1 millioni.e. 0.01%, of the average loans for the three months ended March 31, 2022 compared to the net recoveries of $0.2 million(0.02)%, for the three months ended March 31, 2021.

Loans held for sale

The Company designates certain long-term fixed rate personal real estate loans
as held for sale. In the fourth quarter of 2021, the Company elected the fair
value option for all newly originated long-term personal real estate loans held
for sale. As of December 31, 2021, all loans held for sale were carried at fair
value. The loans are primarily sold to Freddie Mac, Fannie Mae, and PennyMac and
other various secondary market investors. At March 31, 2022, the carrying amount
of these loans was $0.9 million compared to $2.2 million at December 31, 2021.

Cash and capital resources

Cash 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 these
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 as the primary sources of funding.

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, not including other debt securities, federal funds sold,
and excess reserves held at the Federal Reserve.

                                       47
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(In thousands)                              March 31, 2022       December 31, 2021
Federal funds sold                         $           419      $           

7,122

Other interest-bearing deposits                       27,552                

135,500

Certificates of deposit in other banks               4,701                  

5,193

Available-for-sale investment securities             286,754                 310,870
Total                                      $       319,426      $          458,685


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 $286.8 million at March 31, 2022 and
included an unrealized net loss of $24.3 million. The portfolio includes
projected maturities and mortgage-backed securities pay-downs of approximately
$5.5 million over the next twelve months, which offer resources to meet either
new loan demand or reductions in the Company's borrowings.

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 as required or permitted by law. At March 31, 2022 and
December 31, 2021, the Company's unpledged securities in the available-for-sale
portfolio totaled approximately $97.3 million and $35.5 million, respectively.

The total investment securities pledged for these purposes were as follows:

                                                                                            December 31,
(In thousands)                                                      March 31, 2022              2021

Marketable securities pledged to guarantee:
Federal Reserve Bank loans

                                   $         9,448          $    10,778
Federal funds purchased and securities sold under agreements to
repurchase                                                                     6,448               28,769
Other deposits                                                               173,592              235,829
Total pledged, at fair value                                      $       189,488          $   275,376


Liquidity is available from the Company's base of core customer deposits,
defined as demand, interest checking, savings, money market deposit accounts,
and time deposits less than $250,000, less all brokered deposits under $250,000.
At March 31, 2022, such deposits totaled $1.4 billion and represented 92.8% 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.

Basic deposits at March 31, 2022 and December 31, 2021 were the following:

(In thousands)                 March 31, 2022       December 31, 2021
Core deposit base:
Non-interest bearing demand   $       450,225      $          453,066
Interest checking                     277,988                 357,825
Savings and money market              453,967                 440,331
Other time deposits                   168,568                 175,827
Total                         $     1,350,748      $        1,427,049


Estimated uninsured deposits totaled $430.4 million, including $84.7 million of
certificates of deposit, at March 31, 2022, compared to $513.5 million,
including $69.1 million of certificates of deposit, at December 31, 2021. The
Company had brokered deposits totaling $20.2 million and $20.2 million at
March 31, 2022 and December 31, 2021, respectively.

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 March 31, 2022, under
agreements

                                       48
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with these unaffiliated banks, the Bank may borrow up to $60.0 million in
federal funds on an unsecured basis and $8.9 million on a secured basis. There
were no federal funds purchased outstanding at March 31, 2022. Securities sold
under agreements to repurchase are generally borrowed overnight and are secured
by a portion of the Company's investment portfolio. At March 31, 2022, there
were $5.5 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 March 31, 2022.

The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB) and has
access to credit products of the FHLB. As of March 31, 2022, the Bank had
$77.4 million in outstanding borrowings with the FHLB. In addition, the Company
has $49.5 million in outstanding subordinated notes issued to wholly-owned
grantor trusts, funded by preferred securities issued by the trusts.

Borrowings outstanding at March 31, 2022 and December 31, 2021 were as follows:

                                                                                            December 31,
(In thousands)                                                      March 31, 2022              2021
Borrowings:

Fed Funds Purchased and Securities Sold Under Repurchase Agreements

                                                        $         5,514          $     23,829
Federal Home Loan Bank advances                                               77,357                77,418
Subordinated notes                                                            49,486                49,486

Total                                                             $       132,357          $    150,733


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 FHLB establishes a collateral value from which
the Company may draw advances against this collateral. This collateral is also
used to enable the FHLB to issue letters of credit in favor of public fund
depositors of the Company. The Federal Reserve Bank also establishes a
collateral value of assets pledged to support borrowings from the discount
window.

The following table reflects the collateral value of pledged assets, borrowings and outstanding letters of credit, in addition to the estimated future funding capacity available to the Company as follows:

                                                                              March 31, 2022                                                                                              December 31, 2021
                                                                                              Federal Funds                                                                                                 Federal Funds
(In thousands)                            FHLB                Federal Reserve Bank           Purchased Lines                Total                      FHLB                 Federal Reserve Bank           Purchased Lines                 Total
Advance equivalent                $            278,761       $                8,947       $              60,000       $          347,708       $             273,479       $               10,384       $              60,000       $           343,863
Letters of credit                              -                                  -                           -                  -                        (31,000)                              -                           -             (31,000)
Advances outstanding                     (77,357)                                 -                           -            (77,357)                       (77,418)                              -                           -             (77,418)
Total available                   $            201,404       $                8,947       $              60,000       $          270,351       $             165,061       $               10,384       $              60,000       $           235,445


At March 31, 2022, loans of $567.4 million were pledged to the Federal Home Loan
Bank as collateral for borrowings and letters of credit. At March 31, 2022,
investments with a market value of $9.4 million were pledged to secure federal
funds purchase lines and borrowing capacity at the Federal Reserve Bank.

Based upon the above, management believes the Company has more than adequate
liquidity, both on balance sheet and through the additional funding capacity
with the FHLB, the Federal Reserve Bank and Federal funds purchased lines to
meet future anticipated needs in both the short and long-term.



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Sources and uses of funds

Cash and cash equivalents were $50.5 million at March 31, 2022 compared to
$159.9 million at December 31, 2021. The $109.4 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 three months ended March 31, 2022. Cash flow
provided from operating activities consists mainly of net income adjusted for
certain non-cash items. Operating activities provided cash flow of $4.4 million
for the three months ended March 31, 2022.

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 $33.1 million during the three months ended March 31, 2022.
The cash outflow primarily consisted of a net increase in loans held for
investment of $31.8 million and $14.6 million in purchases of investment
securities partially offset by $13.5 million from maturities and calls and sales
of investment securities.

Financing activities used total cash of $80.7 million during the three months
ended March 31, 2022, resulting primarily from a $66.2 million decrease in
interest-bearing transaction accounts and a $18.3 million decrease in securities
sold under agreements to repurchase. The decrease in interest-bearing accounts
was due primarily to reductions in deposits for public funds customers,
resulting from the distribution of prior year tax collections.

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
$418.5 million in unused loan commitments and standby letters of credit as of
March 31, 2022. 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, paying cash
dividends to its shareholders and, to a lesser extent, repurchasing its shares
of common stock. The Company paid cash dividends to its shareholders totaling
approximately $1.0 million and $0.8 million for the three months ended March 31,
2022 and 2021, respectively. A large portion of the Company's liquidity is
obtained from the Bank in the form of dividends. The Bank declared and paid $3.5
million and $4.5 million in dividends to the Company during the three months
ended March 31, 2022 and 2021, respectively. At March 31, 2022 and December 31,
2021, the Company had cash and cash equivalents totaling $4.1 million and $1.8
million, respectively. Subject to declaration by the Company's Board of
Directors, the Company expects to continue paying quarterly cash dividends as a
part of its current capital allocation strategy. Future dividends will be
subject to the determination, declaration and discretion of the Company's Board
of Directors and compliance with applicable regulatory capital requirements.

The Company's 2019 Repurchase Plan was amended during the second quarter 2021 to
authorize the purchase of up to an additional $5.0 million in 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. During the first quarter 2022, the Company repurchased 23,536
common shares at an average cost of $25.75 per share totaling $0.6 million.

The repurchases under these authorizations may be effectuated in the open
market, by block purchase, in privately negotiated transactions, or through
other transactions managed by broker-dealers, or any combination thereof. No
time limit was set for the completion of these authorized share repurchases. As
of March 31, 2022, $4.4 million remained available for the repurchase of shares
pursuant to the share repurchase authorizations. The Company may continue to
repurchase shares under its share repurchase authorizations, but the amount and
timing of such repurchases will be dependent on a number of factors, including
the price of its common stock and other cash flow needs. There is no assurance
that the Company will repurchase up to the full amount remaining under its share
repurchase authorizations.






                                       50
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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.

The Basel III regulatory capital framework (the "Basel III Capital Rules")
adopted by U.S. federal regulatory authorities, among other things, (i)
establishes the capital measure called "Common Equity Tier 1" ("CET1"), (ii)
specifies that Tier 1 capital consist of CET1 and "Additional Tier 1 Capital"
instruments meeting stated requirements, (iii) requires that most
deductions/adjustments to regulatory capital measures be made to CET1 and not to
other components of capital and (iv) defines the scope of the
deductions/adjustments to the capital measures.

Additionally, the Basel III Capital Rules require that the Company maintain a
2.5% capital conservation buffer with respect to each of CET1, Tier 1 and total
capital to risk-weighted assets, which provides for capital levels that exceed
the minimum risk-based capital adequacy requirements. A financial institution
with a conservation buffer of less than the required amount is subject to
limitations on capital distributions, including dividend payments and stock
repurchases, and certain discretionary bonus payments to executive officers.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of CET1,
Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to
average assets, each as defined in the regulations. Management believes, as of
March 31, 2022, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

Financial institutions are categorized as well capitalized or adequately
capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier
1 leverage ratios. As shown in the table below, the Company's capital ratios
exceeded the regulatory definition of adequately capitalized as of March 31,
2022 and December 31, 2021. Based upon the information in its most recently
filed call report, the Bank met the capital ratios necessary to be
well-capitalized. The regulatory authorities can apply changes in classification
of assets and such changes may retroactively subject the Company to changes in
capital ratios. Any such change could reduce one or more capital ratios below
well-capitalized status. In addition, a change may result in imposition of
additional assessments by the FDIC or could result in regulatory actions that
could have a material effect on our condition and results of operations. In
addition, bank holding companies generally are required to maintain a Tier 1
leverage ratio of at least 4%.

Because the Bank had less than $15.0 billion in total consolidated assets as of
December 31, 2009, the Company is allowed to continue to classify its trust
preferred securities, all of which were issued prior to May 19, 2010, as Tier 1
capital.

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Under the Basel III requirements, at March 31, 2022 and December 31, 2021, 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 periods indicated:

                                                                               Minimum Capital Required - Basel III            Required to be 

Well considered-

                                                   Actual                                Fully Phased-In                                 Capitalized
(Dollars in thousands)                   Amount              Ratio                 Amount                 Ratio                  Amount                 

Report

March 31, 2022
Total Capital (to risk-weighted
assets):
Company                               $ 213,114                14.66  %       $      152,691                10.50  %       $       -                          N.A%
Bank                                       211,027             14.52  %                 152,575             10.50  %                  145,309             10.00  %
Tier 1 Capital (to risk-weighted
assets):
Company                               $ 195,471                13.44  %       $      123,607                 8.50  %       $       -                          N.A%
Bank                                       196,588             13.53  %                 123,513              8.50  %                  116,248              8.00  %
Common Equity Tier 1 Capital (to
risk-weighted assets):
Company                               $ 150,675                10.36  %       $      101,794                 7.00  %       $       -                          N.A%
Bank                                       196,588             13.53  %                 101,717              7.00  %                   94,451              6.50  %
Tier 1 leverage ratio (to adjusted
average assets):
Company                               $ 195,471                10.99  %       $       71,122                 4.00  %       $       -                          N.A%
Bank                                       196,588             11.12  %                  70,747              4.00  %                   88,434              5.00  %

December 31, 2021
Total Capital (to risk-weighted
assets):
Company                               $ 210,726                14.79  %       $      149,640                10.50  %       $       -                          N.A%
Bank                                       210,148             14.78  %                 149,339             10.50  %                  142,228             10.00  %
Tier 1 Capital (to risk-weighted
assets):
Company                               $ 193,663                13.59  %       $      121,137                 8.50  %       $       -                          N.A%
Bank                                       193,085             13.58  %                 120,894              8.50  %                  113,782              8.00  %
Common Equity Tier 1 Capital (to
risk-weighted assets):
Company                               $ 145,663                10.22  %       $       99,760                 7.00  %       $       -                          N.A%
Bank                                       193,085             13.58  %                  99,559              7.00  %                   92,448              6.50  %
Tier 1 leverage ratio:
Company                               $ 193,663                11.01  %       $       70,342                   4.00%       $       -                          N.A%
Bank                                       193,085             11.04  %                  69,959              4.00  %                   87,449              5.00  %


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