SecProbe.io

November 22, 2010
 Mr. James E. Smith
Chairman of the Board and Chief Executive Officer
Hawthorn Bancshares, Inc.  300 Southwest Longview Boulevard Lee’s Summit, Missouri 64081
Re: Hawthorn Bancshares, Inc.
Form 10-K for Fiscal Year Ended December 31, 2009 Filed March 15, 2010 Forms 10-Q for Fiscal Quarters Ended March 31, 2010,  June 30, 2010 and September 30, 2010
  File No. 000-23636

Dear Mr. Smith,
 We have reviewed your filings and have the following comments.  In some of our
comments, we may ask you to provide us with  information so we may better understand your
disclosure.
 Please respond to this letter within ten business days by amending your filing, by
providing the requested information, or by advi sing us when you will provide the requested
response.  If you do not believe our comments apply to your fact s and circumstances or do not
believe an amendment is appropriate, pl ease tell us why in your response.
 After reviewing any amendment to your filing and the information you provide in
response to these comments, we ma y have additional comments.
            Form 10-K for Fiscal Year Ended December 31, 2009

Exhibit 13

Management’s Discussion and Analysis of Cons olidated Financial Condition and Results of
Operations, page 4

Allowance for Loan Losses, page 18

1. We note your disclosure on page 34 and in your  Form 10-Q for the period ended September
30, 2010 related to the three components of your al lowance for loan losses.  As it relates to
your expected loss component, please tell us in more detail how this component is

 Mr. James E. Smith
Hawthorn Bancshares, Inc.  November 22, 2010 Page 2
determined, and if it is determined based upon in herent losses in your por tfolio as of your
balance sheet date consider revising the disc losures in your future filings accordingly.
 Form 10-Q for Fiscal Quarter Ended September 30, 2010

 Valuation Methods for Instruments M easured at Fair Value, page 16

 2. We note your disclosure describing your me thodology for measuring loans for impairment
and also your disclosure on page seven that  you had approximately $34.7 million of impaired
loans with a specific valuati on allowance of $7.8 million and $31.8 million of impaired loans
without specific valuation allowances at Sept ember 30, 2010.  As it relates to these loans and
taking into consideration your disclosure on pa ge 32 regarding your activ e approach to obtain
current appraisals, please tell  us and revise your future fi lings to include the following
enhanced disclosures:
• The approximate amount or percentage of im paired loans for which you relied on current
third party appraisals of the co llateral to assist in measuri ng impairment versus those for
which current appraisals were not available;
• The type(s) of appraisal typically received, such as “retai l value” or “as-is” value;
• The typical timing surrounding the recogni tion of a collateral dependent lending
relationship and respective loans as nonpe rforming, when you order and receive an
appraisal, and the subsequent recognition of any provision or related charge-off. In this
regard, tell us if there have been any significant time lapses during this process;
• In more detail, the procedures you perform to  monitor these loans be tween the receipt of
an original appraisal and the updated appraisal;
• Whether you have charged-off an amount differe nt from what was determined to be the
fair value of the collateral as presented in the appraisal for any pe riod presented.  If so,
please tell us the amount of the difference and corresponding reasons for the difference,
as applicable;
• How you account for any partially charged-off loans subsequent to receiving an updated
appraisal. In this regard, specifically tell us your policies regarding whether or not these
loans return to performing or remain non-performing status, in additi on to whether or not
any of the terms of the original  loans have been modified (e .g. loan extension, changes to
interest rates, etc);
• In the event that you do not use external appraisals to fair value the underlying collateral
for impaired loans or in cases where the appr aisal has not been updated to reflect current
market conditions, please provide us with  a comprehensive response which discusses
your process and procedures for estimating the fa ir value of the collat eral for these loans;
and
• For those loans you determined that no speci fic valuation allowance was necessary, the
substantive reasons to su pport this conclusion.

 Mr. James E. Smith
Hawthorn Bancshares, Inc.  November 22, 2010 Page 3  Provision and Allowance for Loan Losses, page 32

 3. We note your disclosure on page 33 related to yo ur troubled debt restru ctured loans (TDR’s)
and the fact that over 70% of TDR’s are still accruing as of September 30, 2010.  Please tell us and revise your future filings to clearly  and comprehensively discuss your nonaccrual
policies for restructured loans.  In your re sponse and revised disclo sure please include the
following:
• Clarify if you have different policies for differe nt loan types (e.g. real estate mortgage –
commercial versus consumer);
• How you determine if the borrower has demonstrated performance under the previous
terms and has shown the capacity to continue to perform under the restructured terms;
• For TDR’s that accrue interest at the time th e loan is restructured, whether you generally
charge-off a portion of the loan.  If you do, pl ease tell us how you consider this fact in
determining whether the loan should accrue inte rest.  If you continue to accrue interest,
tell us in detail and disclose how you conclude d that repayment of interest and principal
contractually due on the entire debt is reasonably assured;
• The total amount of TDR’s  at each period e nd by loan type, accr ual status, the amount
that is considered impaired, the amount ch arged-off during the pe riod and any valuation
allowance at period end; and
• To the extent you track the information, quantify your TDR’s by type of concession (reduction in interest rate, payment extensions, forgiveness of principal, etc) and disclose
your success/redefault rates for each type of concession.

4. We note the continued deterioration of your credit quality during the quarter ended
September 30, 2010.  Please tell us and revise fu ture filings beginning with your Form 10-K
for the period ended December 31, 2010 to provide a detailed and comprehensive discussion explaining the significant observed changes in your asset qualit y and its resulting impact on
the determined allowance for credit losses,  including any signif icant changes to its
components. Please also provide us your propos ed disclosure based upon the financial results
for the quarter ended of September 30, 2010 taken into consideration the following:

• Total non-performing loans have increased a pproximately 56% from $42.3 million as of
December 31, 2009 to $65.9 million as of September 30, 2010.
• The majority of non-performing loans as of September 30, 2010, in addition to the increases from December 31, 2009 to Septembe r 30, 2010, is primarily attributed to your
real estate construction – commercial and real estate mortgage – commercial loan portfolios.
• The ratio of non-performing loans to total loans receivable was 7.06% as of September
30, 2010 compared to 4.27% as of December 31, 2009.
• The ratio of the allowance for loan losses to total non-performing loans was 21.18% as of
September 30, 2010 as compared to 34.94% as of December 31, 2009.

 Mr. James E. Smith Hawthorn Bancshares, Inc.  November 22, 2010 Page 4
• Your allowance for loan losses was $13.9 million as of September 30, 2010. During the
nine-months ended September 30, 2010 net charge-offs were $7.9 million, which represents 56% and 53% of your allowance for credit losses as of September 30, 2010
and December 31, 2009, respectively.

• Your general allowance for lo an losses (consisting of th e expected loss and unallocated
components) decreased from $8.4 million as  of December 31, 2009 to $6.2 million as of
September 30, 2010 despite the continued current economic conditions and your
significant level of charge-offs experienced in 2010.

             We urge all persons who are res ponsible for the accuracy and adequacy of the disclosure
in the filing to be certain that the filing include s the information the Securities Exchange Act of
1934 and all applicable Exchange Act rules requir e.  Since the company and its management are
in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy
and adequacy of the disclosures they have made.                In responding to our comments, please provide a written statement from the company
acknowledging that:
• the company is responsible for the adequacy and accuracy of the disclo sure in the filing;

• staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and

• the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federa l securities laws of  the United States.

You may contact John Spitz, St aff Accountant, at (202) 551-3484 or me at (202) 551-
3423 with any questions.
Sincerely,

Amit Pande Accounting Branch Chief