-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQvSu5sQ27Vwi/K7gzV/qEyAL7pAG8Bet/WE1VqhrMUlkZuLmgUo7oy3yKkHAXPn RJg9ANDkS3GGSHdoa0+Mpw== 0000743530-01-500042.txt : 20010516 0000743530-01-500042.hdr.sgml : 20010516 ACCESSION NUMBER: 0000743530-01-500042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLS BANCORPORATION CENTRAL INDEX KEY: 0000732417 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 421208067 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12668 FILM NUMBER: 1638649 BUSINESS ADDRESS: STREET 1: 131 MAIN ST CITY: HILLS STATE: IA ZIP: 52235 BUSINESS PHONE: 3196792291 MAIL ADDRESS: STREET 1: 131 MAIN ST CITY: HILLS STATE: IA ZIP: 52235 10-Q 1 hills10q.txt FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-26589, eff. 4/12/93.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 Commission file number: 0-12668 Hills Bancorporation Incorporated in Iowa I.R.S. Employer Identification ------------------------------ No. 42-1208067 131 MAIN STREET, HILLS, IOWA Telephone number: (319) 679-2291 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. SHARES OUTSTANDING CLASS AT April 30, 2001 - -------------------------- ------------------ Common Stock, no par value 1,495,483 HILLS BANCORPORATION Index to Form 10-Q Part I FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated balance sheets, March 31, 2001 (unaudited) and December 31, 2000 Consolidated statements of income, (unaudited) for three months ended March 31, 2001 and 2000 Consolidated statements of comprehensive income, (unaudited) for three months ended March 31, 2001 and 2000. Consolidated statements of stockholders' equity, (unaudited) for three months ended March 31, 2001 and 2000 Consolidated statements of cash flows (unaudited) for three months ended March 31, 2001 and 2000 Notes to consolidated financial statements Item 2. Management's discussion and analysis of fin Part II OTHER INFORMATION Item 1. Legal proceedings Item 2. Changes in securities and use of proceeds Item 3. Defaults upon senior securities Item 4. Submission of matters to a vote of security holders Item 5. Other information Item 6. Exhibits and reports on Form 8-K COMPUTATION OF EARNINGS PER SHARE SIGNATURES HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands Except Shares) March 31, 2001 December 31, Unaudited 2000* ----------------------- ASSETS Cash and due from banks .............................. $ 22,308 $ 25,669 Investment securities: Available for sale (amortized cost March 31, 2001 $154,141; December 31, 2000 $136,661) ..................... 157,590 137,768 Held to maturity (fair value March 31, 2001 $15,548; December 31, 2000 $15,676) ...................... 15,216 15,509 Stock of Federal Home Loan Bank ................... 7,809 7,789 Federal funds sold ................................... 21,785 28,065 Loans, net ........................................... 627,936 626,873 Property and equipment, net .......................... 17,949 16,499 Accrued interest receivable .......................... 7,382 7,522 Deferred income taxes, net ........................... 2,242 3,286 Other assets ......................................... 6,854 6,770 --------------------- $887,071 $875,750 ===================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Noninterest-bearing deposits ......................... $ 72,514 $ 76,087 Interest-bearing deposits ............................ 590,523 576,619 --------------------- Total deposits .................................... $663,037 $652,706 Federal funds purchased and securities sold under agreements to repurchase ............... 15,176 16,561 Federal Home Loan Bank notes ......................... 120,668 120,668 Accrued interest payable ............................. 2,822 2,865 Other liabilities .................................... 3,904 2,876 --------------------- $805,607 $795,646 --------------------- REDEEMABLE COMMON STOCK HELD BY EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) ............................................ $ 11,550 $ 11,550 --------------------- STOCKHOLDERS' EQUITY Capital stock, common, no par value; authorized 10,000,000 shares; issued March 31, 2001 - 1,495,483 shares; December 31, 2000 - 1,495,483 shares .............. $ 10,197 $ 10,197 Retained earnings .................................... 69,093 69,179 Accumulated other comprehensive income, unrealized gains on investment securities, net .... 2,174 698 -------------------- $ 81,464 $ 80,074 Less, maximum cash obligation related to ESOP shares ....................................... 11,550 11,550 --------------------- $ 69,914 $ 68,524 --------------------- $887,071 $875,750 ===================== * Derived from audited financial statements. See Notes to Financial Statements. HILLS BANCORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2001 and 2000 (In Thousands, Except Per Share Data) 2001 2000 --------------------- Interest income: Interest and fees on loans ...................... $12,994 $11,638 Interest on investment securities: Taxable ....................................... 1,788 1,833 Non-taxable ................................... 457 416 Interest on federal funds sold .................. 513 172 --------------------- Total interest income ........................... $15,752 $14,059 --------------------- Interest expense: Interest on deposits ............................ $ 7,070 $ 5,406 Interest on securities sold under Interest on FHLB borrowings ..................... 1,747 1,953 --------------------- Total interest expense .......................... $ 9,000 $ 7,492 --------------------- Net interest income ............................. $ 6,752 $ 6,567 Provision for loan losses .......................... 225 273 --------------------- Net interest income after provision Other income: Loan origination fees ........................... $ 146 $ 47 Trust fees ...................................... 594 589 Deposit account charges and fees ................ 710 569 Other fees and charges .......................... 613 584 --------------------- $ 2,063 $ 1,789 --------------------- Other expenses: Salaries and employee benefits .................. $ 2,783 $ 2,660 Occupancy ....................................... 439 340 Furniture and equipment ......................... 608 486 Office supplies and postage ..................... 282 241 Other operating ................................. 1,139 1,168 --------------------- $ 5,251 $ 4,895 --------------------- Income before income taxes ...................... $ 3,339 $ 3,188 Federal and state income taxes ..................... 1,032 984 --------------------- Net income ...................................... $ 2,307 $ 2,204 ===================== Earnings per common share: Basic ......................................... $ 1.54 $ 1.47 Diluted ....................................... 1.53 1.46 HILLS BANCORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended March 31, 2001 and 2000 (In Thousands, Except Per Share Data) 2001 2000 -------------------- Net Income ........................................... $ 2,307 $ 2,204 Other comprehensive income: Unrealized gains (losses) on debt securities ...... 2,342 (367) Income tax effect of unrealized gains (losses) .... (866) 136 ------- ------- Comprehensive Income ................................. $ 3,783 $ 1,973 ======= ======= See Notes to Financial Statements. HILLS BANCORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three Months Ended March 31, 2001 and 2000 (In Thousands, Except Per Share Data) Less Accum- Maximum mulated Cash Compre- Obligation Capital Retained hensive To ESOP Stock Earnings Income Shares Total --------------------------------------------------- Balance, December 31, 2000 $ ..... $10,197 $69,179 $ 698 $(11,550) $ 68,524 Net income ..................... -- 2,307 -- -- 2,307 Cash dividends ($1.60 per share) -- (2,393) -- -- (2,393) Other comprehensive income ..... -- -- 1,476 -- 1,476 --------------------------------------------------- Balance, March 31, 2001 ......... $10,197 $69,093 $2,174 $(11,550) $ 69,914 =================================================== Balance, December 31, 1999 $ ..... $10,214 $61,984 $ (981) $(10,953) $ 60,264 Net income ..................... -- 2,204 -- -- 2,204 Change related to ESOP shares .. -- -- -- (156) (156) Cash dividends ($1.45 per share) -- (2,169) -- -- (2,169) Other comprehensive income ..... -- -- (231) -- (231) --------------------------------------------------- Balance, March 31, 2000 .......... $10,214 $62,019 $(1,212) $(11,109) $ 59,912 ====================================================
See Notes to Financial Statements. HILLS BANCORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2001 and 2000 (In Thousands) 2001 2000 -------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................................................... $ 2,307 $ 2,204 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ............................................................... 482 340 Provision for loan losses .................................................. 225 273 Deferred income taxes ...................................................... 178 163 (Increase) decrease in accrued interest receivable ......................... 140 (152) Amortization of bond discount .............................................. 19 21 (Increase) decrease in other assets ........................................ (169) 1,111 Amortization of intangibles ................................................ 85 86 Increase in accrued interest and other liabilities ......................... 985 566 -------------------- Net cash provided by operating activities .............................. $ 4,252 $ 4,612 -------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities: Available for sale ......................................................... $ 18,747 $ 6,746 Held to maturity ........................................................... 293 399 Purchase of investment securities, available for sale .......................... (36,266) (9,515) Federal funds sold, net ........................................................ 6,280 (15,004) Loans made to customers, net of collections .................................... (1,288) (14,646) Purchases of property and equipment ............................................ (1,932) (1,522) -------------------- Net cash (used in) investing activities ................................ $(14,166) $(33,542) -------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits ....................................................... $ 10,331 $ 18,971 Net (decrease) in fed funds purchased and securities sold under agreements to repurchase ............................... (1,385) (14,945) Borrowings from FHLB ........................................................... -- 40,000 Payments on FHLB notes ......................................................... -- (15,000) Dividends paid ................................................................. (2,393) (2,169) -------------------- Net cash provided by financing activities .............................. $ 6,553 $ 26,857 -------------------- (Decrease) in cash and due from banks ................................... $ (3,361) $ (2,073) CASH AND DUE FROM BANKS Beginning .................................................................... 25,669 21,765 -------------------- Ending ....................................................................... $ 22,308 $ 19,692 ==================== SUPPLEMENTAL DISCLOSURES Cash payments for: Interest paid to depositors and others ...................................... $ 7,113 $ 5,437 Interest paid on other obligations .......................................... 1,930 2,086 Non-cash financing transaction, increase in maximum cash obligation related to ESOP shares ........................................................... -- 156
See Notes to Financial Statements. HILLS BANCORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Interim Financial Statements Interim consolidated financial statements have not been examined by independent public accountants, but include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the results for these periods. The results of operation for the interim periods are not necessarily indicative of the results for a full year. In reviewing these financial statements, reference should be made to the Notes to Financial Statements contained in the Financial Statements for the year ended December 31, 2000. There were no changes in accounting policies which had a significant effect on the interim consolidated financial statements for the periods presented. For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from demand deposits, NOW accounts, savings accounts, and federal funds purchased and sold are reported net since their original maturities are less than three months. Cash flows from loans and time deposits are presented as net increases or decreases. Note 2. Loans The following tables set forth the composition of loans and the allowance for loan losses: (In thousands) March --------------------------- 2001 2000 --------------------------- Agricultural ............................... $ 30,441 $ 27,876 Commercial and financial ................... 36,572 38,872 Real estate, construction .................. 39,548 35,456 Real estate, mortgage ...................... 499,578 456,388 Loans to individuals ....................... 32,129 30,961 --------- --------- $ 638,268 $ 589,553 Less allowance for loan losses ............. (10,332) (9,799) --------- --------- $ 627,936 $ 579,754 ========= ========= Transactions in the allowance for loan losses are as follows: (In thousands) Three Months Ended March 31, ------------------------- 2001 2000 ------------------------- Balance, beginning .......................... $ 10,428 $ 9,750 Provision charged to expense .............. 225 273 Net charge-offs ........................... (321) (224) ------------------------- Balance, ending .............................. $ 10,332 $ 9,799 ========================= The following summarizes the Company's nonaccrual, past due, restructured and impaired loans: (In thousands) March 31 ------------------- 2001 2000 ------------------- Nonaccrual ................................... $ 618 $ -- Accruing loans, past due 90 days or more ..... 3,019 2,103 Restructured loan ............................ -- -- Impaired loans ............................... 12,858 8,367 Note 3. Earnings Per Share Basic net income per share amounts are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period plus the number of potential dilutive common shares attributable to the Company's stock option plan. PART I, ITEM 2. HILLS BANCORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Information Forward looking information relating to the financial results or strategies of the Company are made in the Management's Discussion and Analysis. The following paragraphs identify forward looking statements and the risks that need to be considered when reading those statements. Forward looking statements include such words as believe, expect, anticipate, target, goal, objective and other words with similar meaning. The Company is under no obligation to update such statements. The risks involved in the operations and strategies of the Company include competition from other financial institutions, changes in interest rates, changes in economic or market conditions and changes in regulatory factors. These risks, which are not all inclusive, cannot be estimated. Recent Activities During the first three months of 2001 the Company moved to its new bank operations center in Hills, Iowa that centralized all bank operations. Also the expansion of 6,000 square feet and remodeling of the Coralville office location was completed and this will assist in serving customers in that market area. Financial Position Total assets of Hills Bancorporation are $887.1 million at March 31, 2001 and that is an increase of $83.7 million from March 31, 2000. This increase in assets includes a net increase in loans since March 31, 2000 of $48.2 million or 8.31%. Net loans outstanding totaled $627.9 million at March 31, 2001. Investment securities increased from one year ago by $22.4 million and this and the loan volume was funded by deposit and securities sold under agreement increases of $85.4 million. The majority of the increase in loans were real estate loans secured by mortgages and were primarily 1-4 family real estate loans. Investment rates on U.S. Treasury securities in 2001 continued to decrease. For example, most rates with maturities up to 10 years are 150 to 200 basis points less than one year ago. These rates have a direct effect on investment securities rates, loan rates including secondary market loans and on cost of funds which consist of both deposits and borrowings from the Federal Home Loan Bank. Due to the continued loan demand and challenges for funding sources, asset-liability management continues to be very important. The asset-liability management encompasses both the management of interest rate sensitivity and the maintenance of adequate liquidity. Interest rate sensitivity management attempts to provide the optimal level of net interest income while managing exposure to risks associated with interest rate movements. Liquidity management involves planning to meet anticipated funding needs. Management monitors the rate sensitivity and liquidity positions on an on-going basis and, when necessary, appropriate action is taken to minimize any adverse effects of rapid interest rate movements or any unexpected liquidity concerns. The Company believes it will be able to maintain sufficient liquidity. In January 2001, Hills Bancorporation paid a dividend of $2,393,000 or $1.60 per share, a 10.34% increase from the $1.45 paid in January 2000. After payment of the dividend and adjustment for accumulated other comprehensive income, stockholders' equity as of March 31, 2001 totaled $69,914,000. The total stockholders' equity of Hills Bancorporation as of March 31, 2001 before the reduction for the ESOP shares, totaled 9.18% of total assets. Under risk-based capital rules, our total risk based capital is 13.98% of risk adjusted assets, and substantially in excess of required minimums. Liquidity The Company actively monitors and manages its liquidity position with the objective of maintaining sufficient cash flows to fund operations, meet client commitments, take advantage of market opportunities and provide a margin against unforeseeable liquidity needs. Federal funds sold, loans held for sale and investment securities available for sale are readily marketable assets. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's interest rate risk position. Readily marketable assets, as defined above, comprised 17.8% of the Company's total assets at March 31, 2001. Net cash provided from Company operations is another primary source of liquidity. For the three months ended March 31, 2001, and 2000, net cash provided by operating activities was $4,252,000 and $4,612,000, respectively. The Company's trend of increasing cash flows from operations is expected to resume in the foreseeable future due to the Company's growth. The Company has historically maintained a stable deposit base and a relatively low level of large deposits, which result in a low dependence on volatile liabilities. As of March 31, 2001, the Company had advances of $120,668,000 from the FHLB of Des Moines. These advances were used as a means of providing both long- and short-term, fixed-rate funding for certain assets and managing interest rate risk. The Company had additional borrowing capacity available from the FHLB of approximately $93 million at March 31, 2001. The combination of high levels of potentially liquid assets, low dependence on volatile liabilities and additional borrowing capacity provided sufficient liquidity for the Company at March 31, 2001. Results of Operations Net income was $2,307,000 and $2,204,000 for the three months ended March 31, 2001 and 2000, respectively. This is an increase of $103,000 or 4.67%. The increase is due to a $185,000 increase in net interest income and an increase in other income of $274,000. The increase in net interest income is due primarily to average earning assets for the first quarter of 2001 being approximately $80.0 million higher than the balances in 2000 for the three months ended March 31, 2000. The increase in net interest income was less than expected based on the change in the volume of earning assets, due to a decline in the net interest margin, primarily a result of a higher cost of funds. Due to lower secondary market interest rates, loan origination fees were up for the quarter by $99,000 to $146,000. Deposit account charges increased over the quarter from one year ago by $141,000 or 24.78% due primarily to volume increases in the number of deposit accounts and some increases in service charges. Other expenses increased from the prior year quarter by $356,000. $123,000 of this increase was in salaries and employee benefits attributable to additional staff and salary adjustments in the first quarter of 2001 compared to the same quarter in 2000. Occupancy and furniture and equipment expenses increased $221,000 to a total for the quarter of $1,047,000 and is primarily the result of additional depreciation on new property and equipment additions in 2000 and 2001. Earnings per share, both basic and diluted increased for the quarter ended March 31, 2001 compared to 2000. For the period ended March 31, 2001 basic and diluted earnings per share were $1.54 and $1.53 in comparison to $1.47 and $1.46 for the quarter ended March 31, 2000. Market Risk Management Market risk is the risk of earnings volatility that results from adverse changes in interest rates and market prices. The Company's market risk is comprised primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk is the risk that changes in market interest rates may adversely affect the Company's net interest income. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Company's primary market risk exposures and how those exposures have been managed to-date in 2001 changed significantly when compared to 2000. Asset/Liability Management The Company has a fully integrated asset/liability management system to assist in managing the balance sheet. The process, which is used to project the results of alternative investment decisions, includes the development of simulations that reflect the effects of various interest rate scenarios on net interest income. Management analyzes the simulations to manage interest rate risk, the net interest margin and levels of net interest income. The goal is to structure the balance sheet so that net interest margin fluctuates in a narrow range during periods of changing interest rates. The Company currently believes that net interest income would fall by less than 5 percent if interest rates increased or decreased by 300 basis points over a one-year time horizon. This is within the Company's policy limits. To improve net interest income and lessen interest rate risk, management continues its strategy of de-emphasizing fixed-rate portfolio residential real estate loans with long repricing periods. The Company continues to focus on reducing interest rate risk by emphasizing growth in variable-rate consumer and commercial loans. Other actions include the use of fixed-rate Federal Home Loan Bank (FHLB) advances as alternatives to certificates of deposit and active management of the available for sale investment securities portfolio to provide for cash flows that will facilitate interest rate risk management. The highly competitive banking environment in Iowa also greatly impacts the Company's net interest margin. The effect of competition on net interest income is difficult to predict. HILLS BANCORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings. Item 2. Changes in Securities and use of proceeds. There were no changes in securities. Item 3. Defaults upon Senior Securities. Hills Bancorporation has no senior securities. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the quarter ending March 31, 2001. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit See exhibit 11 - Statement Re Computation of Earnings Per Common Share (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized. HILLS BANCORPORATION (Registrant) May 15, 2001 /s/ Dwight O. Seegmiller - ----------------- ------------------------------- Date Dwight O. Seegmiller, President (Duly authorized officer of the registrant) May 15, 2001 - ------------------ /s/ James G. Pratt Date ------------------------------- James G. Pratt, Treasurer (Principal Financial Officer) EX-11 2 hillsexhb11.txt HILLS BANCORPORATION EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE Three months ended March 31 2001 2000 ---------------------- Weighted average number of shares outstanding (basic) ...................................... 1,495,483 1,495,941 Weighted average of potential dilutive shares Attributable to stock options granted computed under the treasury stock method ..... 13,250 12,585 ---------------------- Weighted average number of shares (diluted) .... 1,508,733 1,508,526 ====================== Earnings Per Share: Net income (in thousands) ................... $ 2,307 $ 2,204 ====================== Earnings per common share: Basic ..................................... $ 1.54 $ 1.47 Diluted ................................... 1.53 1.46 -----END PRIVACY-ENHANCED MESSAGE-----