HILLS BANCORPORATION
131 Main Street
Hills, Iowa 52235
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 21, 1997
This Proxy Statement is furnished to shareholders of Hills
Bancorporation (the Company) in connection with the solicitation of proxies by
the Board of Directors of the Company for the Annual Meeting of Shareholders to
be held April 21, 1997, and any adjournments thereof. This Proxy Statement and
form of Proxy enclosed herewith are first sent to the shareholders of the
Company entitled thereto on or about April 4, 1997.
If the accompanying Proxy is properly signed and returned and is not
withdrawn or revoked, the shares represented thereby will be voted in accordance
with the specifications thereon. If the manner of voting such shares is not
indicated on the Proxy, the shares will be voted FOR the election of the
nominees for directors named herein. Election of any nominee as a director
requires a majority of the votes cast by the shares entitled to vote at a
meeting at which a quorum is present.
Only shareholders of record at the close of business on March 24, 1997,
are entitled to notice of and to vote at the meeting. There were 1,465,384
shares of Common Stock of the Company outstanding at the close of business on
that date, all of which will be entitled to vote. On April 17, 1996, the Company
effected a three for one stock split in the form of a stock dividend when it
issued a stock dividend of two additional shares for each share then held. The
number of shares outstanding and per share information has been retroactively
restated. The presence, in person or by proxy, of the holders of a majority of
such outstanding shares is necessary to constitute a quorum for the transaction
of business at the meeting. Holders of the shares of Common Stock are entitled
to one vote per share standing in their names on the record date on all matters.
Shareholders do not have cumulative voting rights. If the holder of shares
abstains from voting on any matter, or if shares are held by a broker which has
indicated that it does not have discretionary authority to vote on a particular
matter, those shares will be counted for quorum purposes, but will not be
counted as votes cast with respect to any matter to come before the meeting and
will not affect the outcome of any matter.
The Company will bear the cost of solicitation of proxies. In addition
to the use of the mails, proxies may be solicited by officers, directors and
regular employees of the Company, without extra compensation, by telephone,
facsimile or personal contact. It will greatly assist the Company in limiting
expense in connection with the meeting if shareholders who do not expect to
attend in person will return signed proxies promptly whether they own a few or
many shares.
A shareholder may revoke his or her Proxy at any time prior to the
voting thereof by filing with the Secretary of the Company at the Companys
principal office at 131 Main Street, Hills, Iowa 52235, a written revocation or
a duly executed Proxy bearing a later date. A shareholder may also withdraw the
Proxy at the meeting at any time before it is exercised.
<PAGE>
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
The Company has had eleven directors with staggered terms of office.
Effective on April 21, 1997, William H. Olin, D.D.S. and Earlis Rohret will have
reached the mandatory retirement age of 72 established by the Board of Directors
and will not serve beyond the Annual Meeting. The Board of Directors has, by
resolution, reduced the number of directors from eleven to ten members so Dr.
Olin's vacancy will not be filled and one director is to be elected to fill the
newly created vacancy by the retirement of Mr. Rohret and serve the remaining
year of his expired term. In addition, four directors are to be elected at the
1997 Annual Meeting of shareholders to serve for a three-year term. The Board of
Directors has no reason to believe that any nominee will be unable to serve as a
director, if elected. However, in case any nominee should become unavailable for
election, the proxy will be voted for such substitute, if any, as the Board of
Directors may designate.
Each director of the Company also serves as a director of each of the
Company's wholly-owned subsidiaries which are three commercial banks. The
commercial banks are Hills Bank and Trust Company, Lisbon Bank and Trust
Company, and Hills Bank Kalona. The Company anticipates that, following the
election of the nominees set forth below, all directors of the company will
continue to serve as directors of the Banks, being elected to such positions by
the vote of the Company as the sole shareholder of the Banks.
Set forth below are the names of the five persons nominated by the
Board of Directors for election as directors at the 1997 Annual Meeting along
with certain other information concerning such persons.
Name and Year Positions & Principal Occupation or
First Became Offices Held Employment During
a Director Age With Company the Past Five Years
- --------------------------------------------------------------------------------
Nominee for Director to serve until the 1998 Annual Meeting
Sheldon E. Yoder, D.V.M. 44 Nominee for President
Director and shareholder of
Kalona Veterinary Clinic
Nominees for Director for a 3 Year Term Expiring at the 2000 Annual Meeting
Willis M. Bywater 58 Director Executive officer and
1984-Company shareholder of Economy
1979-Bank Advertising Company
(commercial printing
and sales of advertising
specialties)
Thomas J. Gill, D.D.S. 50 Director Dentist - Private Practice
1993-Company
1993-Bank
Donald H. Gringer 62 Director Executive officer and
1988-Company shareholder of Gringer Feed
1988-Bank and Grain (grain elevator)
Dwight O. Seegmiller 44 Director & President of the Company
1986-Company President and the Bank
1986-Bank
<PAGE>
INFORMATION CONCERNING DIRECTORS OTHER THAN NOMINEES
The following table sets forth certain information with respect to
directors of the Company who will continue to serve subsequent to the 1997
Annual Meeting and who are not nominees for election at the 1997 Annual Meeting.
Name and Year Positions & Principal Occupation or
First Became Offices Held Employment During
a Director Age With Company the Past Five Years
Directors Serving Until the 1998 Annual Meeting
Richard W. Oberman 61 Director Farmer
1984-Company
1980-Bank
Earl M. Yoder 69 Director Executive officer and
1984-Company shareholder of Iowa City
1984-Bank Ready Mix Inc.
Directors Serving Until the 1999 Annual Meeting
Theodore H. Pacha 48 Director Executive officer and owner
1990-Company of Hawkeye Medical Supply,
1990-Bank Inc. (medical supplies)
Ann Marie Rhodes 43 Director Vice President for University
1993-Company Relations - The University of
1993-Bank Iowa, January, 1991 to
present; previously Assistant
Vice President for Finance and
University Services - The
University of Iowa
Ronald E. Stutsman 57 Director Executive officer and
1984-Company shareholder of Eldon C.
1981-Bank Stutsman, Inc. (fertilizer
plant)
None of the nominees or directors serves as a director of another company whose
securities are registered under the Securities Exchange Act of 1934 or a company
registered under the Investment Company Act of 1940.
INFORMATION CONCERNING THE BOARDS OF DIRECTORS
Board of Directors of Company
The Board of Directors of the Company meets on a regularly scheduled
basis. During 1996, the Board of Directors of the Company held an annual meeting
and fourteen regular meetings. The Board of Directors of the Company has
established a committee consisting of the ten non-employee directors (all
directors but Mr. Seegmiller) to administer and grant awards under the Hills
Bancorporation 1993 Incentive Stock Plan (the Incentive Stock Plan). During
1996, the Incentive Stock Committee held one meeting. The Board of Directors of
the Company has not established any standing executive, audit, nominating or
compensation committees or committees performing similar functions. During 1996,
all directors of the Company attended at least seventy-five percent of the total
number of meetings of the Board and the Incentive Stock Committee. Except as
noted below, directors are not compensated for attending meetings of the Board
of Directors of the Company or the Incentive Stock Committee.
Upon approval of the Incentive Stock Plan by the Companys shareholders
at the 1993 Annual Meeting, options to purchase up to 2,055 shares of Company
Common Stock were granted in accordance with the terms of the plan to each
non-employee director of the Company (all directors but Mr. Seegmiller). The
options were immediately exerciseable upon grant at an exercise price of $25.34
per share. The options were granted in tandem with dividend equivalents,
entitling the holder of the option to receive, upon exercise of the option, a
cash payment equal to the dividends paid with respect to the shares purchased
from the date the option was granted through the date the option is exercised.
The options will expire on the earlier of April 19, 2003 or two years after the
directors term of service on the Board of Directors of the Company ends.
<PAGE>
Boards of Directors of Banks
The business and affairs of the Banks are managed directly by the Board
of Directors of the Banks, the membership of which is identical to that of the
Board of Directors of the Company. The Board of Directors of each of the Banks
holds regular monthly meetings. In 1996, the Board of Directors of Hills Bank &
Trust Company (Hills Bank) had twelve regular meetings and two special meetings.
The Board of Directors of Hills Bank has established the Trust Committee, Audit
Committee, Loan Committee and Employee Stock Ownership Plan (ESOP) Committee as
standing committees of the Board of Directors. Directors Rhodes and Rohret serve
on the Trust Committee; Directors Gill, Olin, and Rhodes on the Audit Committee;
Directors Bywater, Gringer, Pacha, Rohret, Stutsman, and Yoder on the Loan
Committee; and Director Olin serves on the ESOP Committee. The four directors
not appointed to the Loan Committee are invited to attend meetings of that
committee and are compensated at normal rate for each meeting attended. Hills
Bank has established no standing executive, nominating or compensation
committees of the Board of Directors or committees performing similar functions.
The Trust Committee is responsible for overseeing and annually
reviewing the status of all trusts for which the Hills Banks Trust Department
acts in a fiduciary capacity. The Trust Committee met twelve times during 1996.
The Audit Committee held four meetings during 1996 and is responsible for
coordinating the audit service with McGladrey & Pullen, LLP and addressing
internal audit functions. The Loan Committee held twelve meetings during 1996
and is responsible for review and oversight of the loan activities of Hills
Bank. The ESOP Committee, which is responsible for overseeing the ESOP in
connection with which Hills Banks Trust Department serves as trustee, had two
meetings during 1996. During 1996, all of the directors of Hills Bank attended
at least 75% of the total number of meetings of the Board of Directors and the
committees to which each director was appointed.
Directors of the Hills Bank who are not employees of Hills Bank (all
directors but Mr. Seegmiller) receive a retainer of $4,000 per year and $250 for
each meeting of the Board of Directors attended. William H. Olin, the Chairman
of the Board of the Bank, receives an additional $1,500 per year as a retainer
fee. Directors of Hills Bank who are not employees of Hills Bank are compensated
for serving on the various Hills Bank committees at the rate of $150 per meeting
attended.
The membership of the Board of Directors of Lisbon Bank and Trust
Company (Lisbon Bank) and Hills Bank Kalona is identical to the membership of
the Boards of Directors of the Company and Hills Bank. The directors of Lisbon
Bank and Hills Bank Kalona are compensated at the rate of $25.00 for each
meeting attended. During 1996, there were no committees of the Board of
Directors of Lisbon Bank or the Board of Directors of Hills Bank Kalona. The
Board of Directors of Lisbon Bank held six regular meetings during 1996. The
Board of Directors of Hills Bank Kalona held three regular meetings during 1996.
All directors of the Lisbon and Hills Bank Kalona attended at least 75% of the
meetings held.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Set forth in the following table is certain information on each person
who is known to the Board of Directors to be the beneficial owner as of February
28, 1997 of more than 5% of the Companys Common Stock, which is the only class
of equity securities which the Company has outstanding.
Amount and Nature of Beneficial Ownership
Total Shares Sole Voting Shared Voting Percent
Name and Address of Beneficially and Investment and Investment of
Beneficial Owner Owned Power Power Class
- --------------------------------------------------------------------------------
Hills Bank and Trust 160,401 0 160,401 (1) 10.78%
Company, as trustee
of the Hills Bank
and Trust Company
Employee Stock
Ownership Plan
131 Main Street
Hills, Iowa 52235
NOTE:
(1) Consists of shares of Company Common Stock allocated to the accounts of
employees of the Bank eligible to participate in the Hills Bank and Trust
Company Employee Stock Ownership Plan. Employees are entitled to direct the
trustee how to vote shares allocated to their accounts.
The following table sets forth certain information as of March 17, 1997
as to the number of shares of the Companys Common Stock beneficially owned by
each director, nominee for director, executive officer and by the executive
officers and directors as a group.
<PAGE>
Amount and Nature of Beneficial Ownership
Total Shares Sole Voting Shared Voting Percent
Beneficially and Investment and Investment of
Name Owned Power Power Class
- --------------------------------------------------------------------------------
Directors
Willis M. Bywater 26,695 (1) 15,535 11,160 1.79%
Thomas J. Gill, D.D.S. 2,055 (1) 2,055 0 .14%
Donald H. Gringer 2,679 (1) 2,679 0 .18%
Richard W. Oberman 15,255 (1) 4,275 10,980 1.03%
William H. Olin, D.D.S. 10,526 (1) 3,725 6,801 .71%
Theodore H. Pacha 2,655 (1) 2,655 0 .18%
Ann Marie Rhodes 2,055 (1) 2,055 0 .14%
Earlis Rohret 20,055 (1) 11,055 9,000 1.35%
Dwight O. Seegmiller 31,533 (2) 30,333 1,200 2.12%
Ronald E. Stutsman 15,133 (1) 14,944 189 1.02%
Earl M. Yoder 16,164 (1) 16,164 0 1.09%
Non-Director Executive Officers
Thomas J. Cilek 13,148 (2) 8,528 4,620 .88%
James G. Pratt 15,513 (2) 10,593 4,920 1.04%
All Directors and 173,466 (3) 124,596 48,870 11.66%
Executive Officers
as a group (13 persons)
NOTES:
(1) This figure includes 2,055 shares subject to currently exerciseable stock
options granted in 1993 to the director of the Company pursuant to the
Hills Bancorporation 1993 Incentive Stock Plan. The number of shares shown
reflects the effect of the three for one stock split effected on April 17,
1996, as described on page 2 of this Proxy Statement.
(2) This figure includes shares held by the Hills Bank and Trust Company
Employee Stock Ownership Plan which have been allocated to the executive
officer for voting purposes. The following number of shares have been
allocated under the ESOP to the executive officers for voting purposes: Mr.
Seegmiller - 13,293; Mr. Cilek - 8,528; Mr. Pratt - 10,593; all executive
officers as a group - 32,414.
(3) Includes shares subject to currently exercisable options and shares held by
the Hills Bank and Trust Company Employee Stock Ownership Plan as noted in
Notes 1 and 2.
<PAGE>
EXECUTIVE COMPENSATION AND BENEFITS
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company and the Bank for the last three
fiscal years with respect to Mr. Seegmiller, as President of the Company, and to
the other two executive officers of the Company:
<TABLE>
Annual Compensation Long Term Compensation
------------------------------------ ----------------------
Awards
Name and ------------------
Principal Securities All Other
Position Year Salary ($) Bonus ($) (1) Underlying Options Compensation ($) (2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dwight O. Seegmiller 1996 201,428 17,643 0 13,500
President of 1995 180,500 13,986 0 19,500
Company and 1994 167,550 5,000 0 22,500
Bank
Thomas J. Cilek 1996 159,512 7,951 0 13,500
Secretary of 1995 151,500 6,390 0 19,500
Company; Senior 1994 142,550 5,000 0 22,133
Vice President
of Bank
James G. Pratt 1996 159,512 7,951 0 13,500
Treasurer of 1995 151,500 5,726 0 19,500
Company; 1994 137,550 5,000 0 21,383
Senior Vice
President of Bank
</TABLE>
Note:
(1) Consists of a $10,000 cash bonus for Mr. Seegmiller and a $5,000 cash bonus
to Mr. Cilek and Mr. Pratt and additional compensation that represents the
contributions, which were limited due to statutory and administrative
rules, for the Hills Bank and Trust Company Employee Stock Ownership Plan
and Profit Sharing Plan.
(2) Consists solely of contributions made by the Bank to the Hills Bank and
Trust Company Employee Stock Ownership Plan and Profit Sharing Plan for the
named executive officer for the specified year.
Unexercised Stock Options
The following table contains information concerning unexercised stock
options which were granted in fiscal 1993 to the named executive officers under
the Companys 1993 Incentive Stock Plan:
<TABLE>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the Money Options at
FY-End(#) FY-End ($)
Exercisable/Unexercisable(1)(2)(3) Exercisable/Unexercisable (4)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Dwight O. Seegmiller -0-/8,886 $-0-/$122,893
Thomas J. Cilek -0-/7,683 $-0-/$106,256
James G. Pratt -0-/7,395 $-0-/$102,273
</TABLE>
<PAGE>
Notes:
(1) Options were granted in tandem with dividend equivalents. Dividend
equivalents entitle the holder of the option to receive, upon exercise of
the option, a cash payment equal to the dividends paid with respect to the
shares purchased from the date the option was granted through the date the
option was exercised.
(2) All options granted are subject to a five-year vesting requirement and no
options may be exercised before July 13, 1998. All options will be
forfeited if the holder ceases to be employed by the Bank prior to
satisfying the five-year vesting requirement. The options may, in the
discretion of the Board of Directors, vest immediately upon a change in the
control of the Company.
(3) The number of shares shown reflects the effect of the three for one stock
split effected on April 17, 1996, as described on page 1 of this Proxy
Statement.
(4) These dollar values were calculated by determining the difference between
the fair market value of the securities underlying the options and the
exercise or base price of the options at fiscal year-end. Options were
granted at an exercise price equal to the then fair market value of the
underlying stock which was determined by the Incentive Stock Committee of
the Board of Directors to be equal to the then book value per share
($26.17) of the stock. The fair market value of stock as of December 31,
1996 is $40.00 per share. Since no established trading market exists for
the Companys common stock the price of $40.00 is based on the last known
selling price in December, 1996. The book value per share of the stock as
of December 31, 1996 is $36.68 computed on the same method as the $26.17
book value used at the date the options were granted. All per share values
referred to above are after the three for one stock split effected on April
17, 1996, as described on page 1 of this Proxy Statement.
Employee Stock Ownership Plan
Hills Bank sponsors a tax-qualified income plan for the employees of
Hills Bank, Lisbon Bank and Hills Bank Kalona known as the Hills Bank and Trust
Company Employee Stock Ownership Plan (the ESOP). The ESOP is described in and
operated in accordance with the provisions of the written plan document. Hills
Bank is the trustee of the ESOP assets. The ESOP is a defined contribution plan
designed primarily to reward eligible employees for long and loyal service by
providing them with retirement benefits. The ESOP is designed and intended to
invest primarily in Common Stock issued by the Company and, in so doing, to
provide for employee participation in the equity ownership of the Company. The
ESOP may also provide benefits in the event of death, disability or other
termination of employment prior to retirement. Any benefits payable under the
ESOP will be based solely upon the amounts contributed for the benefit of a
participant and any changes in the value of those contributions while they are
held in the ESOP. The total number of participants in the ESOP as of January 1,
1997, was 174.
Participating employees are entitled to direct the trustee of the ESOP
how to vote the Common Stock of the Company held for their benefit and allocated
to their accounts under the ESOP. The trustee of the ESOP will have voting
discretion with regard to all other Common Stock of the Company owned by the
ESOP, if any. All common stock owned by the ESOP has been allocated to
participating employees.
Each calendar year Hills Bank, as plan sponsor, contributes to the ESOP
such amount as may be determined by the Board of Directors of Hills Bank or as
may be required to make any payments of principal and interest due on any loan
made to the trustee of the ESOP. The ESOP does not require or allow
contributions by participating employees. Distributions of benefits from the
ESOP to plan participants or their beneficiaries can be made either in cash or
in Common Stock of the Company. In recent years, distributions have been made
partly in cash and partly in Common Stock of the Company. Subject to certain
exceptions, contributions to the ESOP are fully vested after seven (7) years of
service with Hills Bank.
<PAGE>
The following table indicates the amount accrued pursuant to the ESOP
for each named executive officer or group during 1996:
Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- --------------------------------------------------------------------------------
Dwight O. Seegmiller ........ Director and President of the $ 1,500
Company; Director and President
of the Bank
Thomas J. Cilek ............. Secretary of the Company; $ 1,500
Senior Vice President of the Bank
James G. Pratt .............. Treasurer of the Company; $ 1,500
Senior Vice President of the Bank
All Executive Officers
as a group (3 persons) ...... $ 4,500
All Other Participating
Employees (171 persons) ..... $37,972
Profit Sharing Plan
Hills Bank began sponsoring a new profit sharing plan in December,
1994. Hills Bank is the trustee of the Hills Bank and Trust Company Profit
Sharing Plan (the Profit Sharing Plan). The Profit Sharing Plan will be operated
in accordance with the provisions of the written plan document. Employees of
Hills Bank, Lisbon Bank and Hills Bank Kalona are eligible to participate in the
Profit Sharing Plan. The Profit Sharing Plan, like the ESOP, is designed
primarily to reward eligible employees for long and loyal service by providing
them with retirement benefits. The Profit Sharing Plan is a defined contribution
plan and will be invested in assets other than equity securities of the Company.
Any benefits payable under the Profit Sharing Plan will be based solely upon the
amounts contributed for the benefit of a participant and any changes in the
value of those contributions while they are held in the Profit Sharing Plan. The
Profit Sharing Plan does not require or allow contributions by participating
employees. Subject to certain exceptions, contributions to the Profit Sharing
Plan are fully vested after seven (7) years of service with Hills Bank.
The following table indicates the amount accrued pursuant to the Profit
Sharing Plan for each named executive officer or group during 1996:
Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- --------------------------------------------------------------------------------
Dwight O. Seegmiller ...... Director and President of the
Company; Director and President
of the Bank $ 12,000
Thomas J. Cilek .......... Secretary of the Company;
Senior Vice President of the Bank $ 12,000
James G. Pratt ........... Treasurer of the Company;
Senior Vice President of the Bank $ 12,000
All Executive Officers
as a Group (3 persons) ... $ 36,000
All Other Participating
Employees (171 persons) .. $303,774
Performance Graph
The graphical presentation omitted herein provided information regarding
cumulative, five year shareholder returns on an indexed basis of the Companys
Common Stock as compared with NASDAQ Market Index and the West North Central
Bank Index prepared by Media General Financial Services of Richmond, Virginia.
The latter index reflects the performance of thirty-five bank holding companies
operating principally in the upper Midwest as selected by Media General
Financial Services. The indexes assume the investment of $100 on December 31,
1991 in Company Common Stock, the NASDAQ Index and the West North Central Bank
Index, with all dividends reinvested.
<PAGE>
The following are the data points utilized in the omitted graph:
1991 1992 1993 1994 1995 1996
----------------------------------------------
Hills Bancorporation 100.00 113.62 129.32 149.53 163.53 201.76
West North Central Bank Index 100.00 126.49 141.01 143.94 213.25 295.55
NASDAQ Market Index 100.00 100.98 121.13 127.17 164.96 204.98
Compensation Committee Interlocks and Insider Participation
Except as otherwise noted below, all compensation decisions affecting
the executive officers of the Company and the Bank are made by the Board of
Directors of the Bank, as the executive officers are employees of the Bank. The
Board of Directors of the Bank has not established a compensation committee. Mr.
Seegmiller, President of the Bank, serves on the Board of Directors of the Bank,
but does not participate in deliberations or voting on decisions concerning
compensation of executive officers. Although Mr. Seegmiller does make a
recommendation to the Board of Directors regarding the compensation of Mr. Cilek
and Mr. Pratt, no recommendation is made by Mr. Seegmiller regarding his own
compensation. After making such recommendations, Mr. Seegmiller is excused from
the meeting and the Board of Directors deliberates and votes upon the
compensation to be paid to each of the three executive officers. Decisions
regarding the award of stock options to the three executive officers pursuant to
the Companys Incentive Stock Plan are made by a committee of the Board of
Directors of the Company consisting of the ten non-employee directors (all
directors but Mr. Seegmiller).
Willis M. Bywater and Theodore H. Pacha, both members of the Board of
Directors of the Bank and the Incentive Stock Committee, participated in
deliberations concerning executive compensation matters during 1996. Under rules
of the Securities and Exchange Commission, the Bank is required to disclose that
it has had certain business relationships during 1996 with Economy Advertising
Company, a commercial printing and specialty advertising firm and Hawkeye
Medical Supply, a medical and office supply store. Mr. Bywater is an executive
officer and principal shareholder of Economy Advertising Company and Mr. Pacha
is an executive officer and owner of Hawkeye Medical Supply. During 1996, the
Bank paid the sum of $193,274 to Economy Advertising Company for commercial
printing services and for the purchase of calendars and other specialty
advertising items and $13,547 to Hawkeye Medical Supply for office equipment and
supplies. The Bank contemplates that it will purchase a similar amount of goods
and services from Economy Advertising Company and Hawkeye Medical Supply during
1997. Such business relationships have been entered into in the ordinary course
of business of the Bank and, in the opinion of management, the prices charged
for the goods and services provided by Economy Advertising Company and Hawkeye
Medical Supply Company are at least as favorable to the Bank as prices generally
charged by similar businesses in the area for such goods and services. The Board
of Directors of the Bank does not believe that the participation by Mr. Bywater
and Mr. Pacha in the deliberations concerning executive compensation has
provided the executive officers of the Bank with more favorable compensation
arrangements than would have been the case absent their participation.
REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to Dwight Seegmiller, as President of the
Company and the Bank, and the other two executive officers of the Company and
the Bank. The disclosure requirements for these three individuals (the executive
officers) include information set forth in various compensation tables contained
in this Proxy Statement and a report explaining the rationale and matters
considered in making fundamental executive compensation decisions affecting
those individuals. Decisions regarding executive officer salaries, bonuses and
contributions to the ESOP and, beginning in 1994, the Profit Sharing Plan are
made by the Board of Directors of the Bank, with Mr. Seegmiller abstaining from
deliberations and voting on such matters. Decisions regarding the grant of
awards to executive officers pursuant to the Incentive Stock Plan are made by
the Incentive Stock Committee of the Board of Directors of the Company,
consisting of the ten non-employee directors (all directors but Mr. Seegmiller).
In fulfillment of the disclosure requirements, the Board of Directors of the
Bank and the Incentive Stock Committee of the Company have prepared the
following report.
<PAGE>
Compensation Policy
This report describes the current compensation policy as endorsed by
the Board of Directors of the Bank and the Incentive Stock Committee and the
resulting actions taken in arriving at 1996 compensation as reported in the
various compensation tables. The executive compensation program of the Bank has
been designed to:
- - provide a pay for performance policy that differentiates compensation
amounts based upon corporate and individual performance;
- - provide compensation opportunities which are comparable to those offered by
other Iowa-based financial institutions, thus allowing the Bank to compete
for and retain talented executives who are essential to the long-term
success of the Company and the Bank; and
- - align the interest of the executive officers with the long-term interest of
the Companys shareholders through the ownership of Company Common Stock.
The executive compensation program is comprised of salary,
opportunities for annual cash bonuses, participation in the ESOP and
opportunities for long-term incentives pursuant to awards granted under the
Incentive Stock Plan and, beginning in 1994, participation in the Profit Sharing
Plan. An executive officers salary is based on a number of factors, including
the Banks performance as compared to internally established goals for the most
recently ended fiscal year and to the performance of other Iowa-based financial
institutions, the individual officers level of responsibility within the Bank
and comparisons to salaries paid to officers holding similar positions in other
Iowa-based financial institutions. The award of an annual cash bonus is made in
the discretion of the Board of Directors and not pursuant to any formal plan or
formula. A bonus, if granted, is based on the individual performance of the
executive officer and the achievement of financial performance goals of the
Bank, as established in the Banks annual budget and business plan. The Bank, as
plan sponsor of the ESOP, makes an annual ESOP contribution which is allocated
among all participating employees of the Bank, including the executive officers,
based on their annual salaries. In 1996, the Bank, as sponsor of the Profit
Sharing Plan, made a Profit Sharing Plan contribution which was allocated among
all participating employees of the Bank, including the executive officers, based
on their annual salaries. The amount of the ESOP contribution and the amount of
the Profit Sharing Plan contribution are determined in the discretion of the
Board of Directors and are based on the achievement of financial performance
goals of the Bank as established in the Banks annual budget and business plan.
The Incentive Stock Committee uses the award of stock options to executive
officers (as well as the award of restricted stock to other Bank employees) to
align their interests with those of the shareholders; however, significant
vesting periods are also used to encourage retention as employees. The amount of
options granted is determined by reviewing the practices of other financial
institutions based on information provided by an outside consultant to the Board
of Directors.
In 1993, Section 162(m) of the Internal Revenue Code was amended to
place limits on the deductibility of compensation in excess of $1 million paid
to executive officers of publicly held companies. The Board of Directors of the
Bank does not believe, however, that the amendment has had or will have any
impact on the compensation policies followed by the Board.
<PAGE>
Presidents Compensation
Mr. Seegmillers base salary was increased from $180,500 to $201,428
effective January 1, 1996. This increase reflected consideration of (i) an
assessment of the Banks performance during 1995 as compared to goals set in the
Banks annual budget and business plan for 1995, (ii) a comparison of the Banks
performance as compared with that of other Iowa-based financial institutions,
and (iii) compensation data provided by comparative industry surveys. Each year,
management of the Bank prepares, and the Board of Directors approves, an annual
budget and business plan containing financial performance goals measured
primarily in terms of earnings per share, asset quality, return on assets and
return on stockholders equity. In setting Mr. Seegmillers salary for 1996, the
Board reviewed the goals established for 1995 and determined that such goals had
been achieved by the Bank. The Board also reviewed the Banks performance as
compared to that of other Iowa-based financial institutions of similar asset
size. Compensation data for other Iowa-based financial institutions of similar
asset size is also provided through surveys independently prepared by the Iowa
Bankers Association. The survey reviewed by the Board in setting 1996 salary
contained information on salaries paid during 1995 to the chief executive
officers of all of the 20 Iowa-based banks with deposits in excess of $225
million. While the foregoing factors are not specifically weighted in the
decision-making process, primary emphasis is placed on the Banks performance
during the previous year as compared to the internally-established goals. Review
of comparable compensation data is used primarily as a check to ensure that the
salary established is within the range of salaries paid to other chief executive
officers of Iowa-based financial institutions. Although the Board reviewed a
number of objective factors as described above in setting Mr. Seegmillers salary
for 1996, the amount of the increase was based on a subjective determination by
the Board.
Mr. Seegmiller was awarded a cash bonus in 1996 in the amount of
$10,000 based on a determination by the Board of Directors that the Bank had
accomplished certain goals as established in the budget and business plan for
1995. Those goals were measured primarily in terms of earnings per share, asset
quality, return on assets and return on stockholders equity. The amount of the
bonus was based on a subjective determination by the Board. In addition to the
cash bonus, Mr. Seegmiller received additional compensation that represents the
contributions, which were limited due to statutory and administrative rules, for
the Hills Bank and Trust Company Employee Stock Ownership Plan and Profit
Sharing Plan.
A contribution of $13,500 was made to Mr. Seegmillers ESOP and profit
sharing accounts during 1996. The size of the contribution was determined as a
function of Mr. Seegmillers 1995 salary (not including bonus) and the size of
the contribution made by the Bank, as plan sponsors, to the ESOP and profit
sharing plan for the benefit of all employees of the Bank eligible to
participate in the ESOP and profit sharing plans limited to a maximum of 15% of
$150,000 or $22,500 established by the Internal Revenue Service. For 1996, the
ESOP and profit sharing plan contributions made by the Bank amounted to 9% of
the aggregate salaries paid to all Bank employees eligible to participate in the
plans. The size of the ESOP and profit sharing contributions are determined by
the Board of Directors in its discretion based on its assessment of whether the
Bank achieved the goals established in the annual budget and business plan for
1996. Once the size of the ESOP and profit sharing contributions were
determined, such contributions were allocated among the ESOP and profit sharing
accounts of all eligible employees of the Bank, including Mr. Seegmiller, based
on their annual salaries for 1996.
Compensation for Other Executive Officers
Effective January 1, 1996, the Board of Directors increased the
salaries paid to the two other executive officers of the Bank as reflected in
the compensation table appearing herein. The Board of Directors also awarded a
cash bonus of $5,000 to each of the other two executive officers in 1996, and
bonuses as discussed for Mr. Seegmiller and appearing on the compensation table.
The salary increases and bonus awards were based on the same considerations as
the compensation decisions for the President of the Bank. Additionally,
contributions were made to the ESOP accounts and the Profit Sharing Plan
accounts of the other two executive officers, the size of which were determined
in accordance with the same procedure as used for all employees of the Bank.
BOARD OF DIRECTORS
HILLS BANK AND TRUST COMPANY
Incentive Stock Committee
Hills Bancorporation
Willis M. Bywater Theodore H. Pacha
Thomas J. Gill, D.D.S. Earlis Rohret
Donald H. Gringer Ann Marie Rhodes
Richard W. Oberman Ronald E. Stutsman
William H. Olin, D.D.S. Earl M. Yoder
<PAGE>
LOANS TO AND CERTAIN OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Certain of the officers and directors of the Company, their associates
or members of their families, were customers of, and have had transactions with,
the Bank from time to time in the ordinary course of business, and additional
transactions may be expected to take place in the ordinary course of business in
the future. All loans and commitments included in such transactions have been
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons.
In the opinion of management of the Bank, such loan transactions do not involve
more than the normal risk of collectibility or present other unfavorable
features.
During the past year, the Bank and the Company have maintained business
relationships with certain companies partially owned or operated by members of
the Board of Directors of the Company through the purchase of varying amounts of
goods and services from such companies. All such business relationships have
been entered into in the ordinary course of business of the Bank and the Company
and, in the opinion of management, the prices charged for such goods and
services have been at least as favorable to the Bank and the Company as prices
generally charged by similar businesses in the area for such goods and services.
Management of the Company anticipates that the Bank and the Company will
continue to maintain such business relationships on a similar basis to the
extent that such goods and services are required by the Bank and the Company in
the future.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP, Certified Public Accountants, provided
accounting services to the Company during the Companys fiscal year ended
December 31, 1996. The Board of Directors of the Company has selected McGladrey
& Pullen, LLP to provide accounting services to the Company for the fiscal year
ending December 31, 1997. A representative of McGladrey & Pullen, LLP is
expected to be present at the Annual Meeting with the opportunity to make a
statement if he desires to do so and he is also expected to be available to
respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
Shareholder proposals intended to be presented at the Annual Meeting of
Shareholders to be held in 1998 must be received by the Company no later than
December 5, 1997 for inclusion in the Companys proxy statement and form of proxy
relating to that meeting. Proposals should be submitted to the Company at its
principal executive offices at 131 Main Street, Hills, Iowa 52235.
AVAILABILITY OF FORM 10-K REPORT
Copies of the Companys Annual Report to the Securities and Exchange
Commission (Form 10-K) including the financial statements and schedules thereto
for the fiscal year of the Company ended December 31, 1996, will be mailed when
available without charge (except for exhibits) to a holder of shares of the
Common Stock of the Company upon written request to James G. Pratt, Treasurer,
Hills Bancorporation, 131 Main Street, Hills, Iowa 52235.
OTHER MATTERS
Management of the Company knows of no other matters which will be
presented for consideration at the Annual Meeting of Shareholders other than
those stated in the Notice of Annual Meeting which is part of this Proxy
Statement, and management does not intend itself to present any such other
business. If any other matters do properly come before the meeting, it is
intended that the persons named in the accompanying proxy will vote thereon in
accordance with their judgment. The proxy will also have the power to vote for
the adjournment of the meeting from time to time.
A copy of the Annual Report of the Company for the year ended December
31, 1996, is mailed to shareholders together with this Proxy Statement. Such
report is not incorporated in this Proxy Statement and is not to be considered a
part of the proxy soliciting material.
By Order of the Board of Directors
/s/ Dwight O. Seegmiller
---------------------------
Dwight O. Seegmiller
President
April 4, 1997
Hills, Iowa
