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, 1998
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, 1998
- -------------------------- ------------------
Common Stock, no par value 1,467,754
<PAGE>
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated balance sheets, March 31, 1998 (unaudited)
and December 31, 1997
Consolidated statements of income, (unaudited) for three
months ended March 31, 1998 and 1997
Consolidated statement of comprehensive income, (unaudited) for
three months ended March 31, 1998 and 1997.
Consolidated statement of stockholders' equity, (unaudited)
for three months ended March 31, 1998 and 1997
Consolidated statements of cash flows (unaudited) for three
months ended March 31, 1998 and 1997
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of financial condition
and results of operations
Part II
OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in securities
Item 3. Defaults upon senior securities
Item 4. Submission of matters to vote of security holders
Item 5. Other information
Item 6. Exhibits and reports on Form 8-K
COMPUTATION OF EARNINGS PER SHARE
SIGNATURES
<PAGE>
HILLS BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31,
1998 December 31,
Unaudited 1997*
--------- ------------
ASSETS
Cash and due from banks .............................. $ 14,304 $ 15,508
Investment securities:
Available for sale (amortized cost
March 31, 1998 $110,306;
December 31, 1997 $108,718) ..................... 111,258 109,486
Held to maturity (fair value
March 31, 1998 $23,947;
December 31, 1997 $24,230) ...................... 23,542 23,840
Stock of Federal Home Bank ........................ 4,738 4,738
Federal funds sold ................................... 18,262 2,447
Loans, net ........................................... 430,994 422,761
Property and equipment, net .......................... 9,984 9,437
Accrued interest receivable .......................... 5,428 5,441
Deferred income taxes, net ........................... 1,795 1,859
Other assets ......................................... 7,170 7,585
-------- --------
$627,475 $603,102
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits ......................... $ 49,650 $ 52,174
Interest-bearing deposits ............................ 431,007 427,596
-------- --------
Total deposits .................................... $480,657 $479,770
Federal funds purchased and securities
sold under agreements to repurchase ............... 6,917 9,008
Federal Home Loan Bank notes ......................... 75,764 50,764
Accrued interest payable ............................. 1,956 2,060
Other liabilities .................................... 2,801 2,318
-------- --------
$568,095 $543,920
-------- --------
REDEEMABLE COMMON STOCK HELD BY
EMPLOYEE STOCK OWNERSHIP PLAN
(ESOP) ............................................ $ 7,842 $ 7,682
-------- --------
STOCKHOLDERS' EQUITY
Capital stock, common, no par value;
authorized 10,000,000 shares;
issued March 31, 1998 and December 31,
1997 - 1,467,754 shares ........................... $ 9,070 $ 9,070
Retained earnings .................................... 49,709 49,627
Accumulated other comprehensive income,
unrealized gains on investment securities, net .... 601 485
-------- --------
$ 59,380 $ 59,182
Less, maximum cash obligation related to
ESOP shares ....................................... 7,842 7,682
-------- --------
$ 51,538 $ 51,500
-------- --------
$627,475 $603,102
======== ========
* Derived from audited financial statements.
See Notes to Financial Statements.
<PAGE>
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1998 and 1997
(In Thousands, Except Per Share Data)
1998 1997
------- -------
Interest Income:
Interest and fees on loans ...................... $ 9,175 $ 8,041
Interest on investment securities:
Taxable ....................................... 1,680 1,673
Non-taxable ................................... 335 294
Interest on federal funds sold .................. 247 41
------- -------
Total interest income ........................... $11,437 $10,049
------- -------
Interest Expense:
Interest on deposits ............................ $ 5,026 $ 4,603
Interest on securities sold under
agreements to repurchase ........................... 88 89
Interest on FHLB borrowings ..................... 1,025 530
------- -------
Total interest expense .......................... $ 6,139 $ 5,222
------- -------
Net interest income ............................. $ 5,298 $ 4,827
Provision for loan losses .......................... 204 195
------- -------
Net interest income after provision
for loan losses .................................... $ 5,094 $ 4,632
------- -------
Other income:
Loan origination fees ........................... $ 152 $ 59
Trust fees ...................................... 457 304
Deposit account charges and fees ................ 434 433
Other fees and charges .......................... 373 329
------- -------
$ 1,416 $ 1,125
------- -------
Other expenses:
Salaries and employee benefits .................. $ 2,065 $ 1,790
Occupancy ....................................... 270 246
Furniture and equipment ......................... 410 327
Office supplies and postage ..................... 282 231
Other operating ................................. 873 866
------- -------
$ 3,900 $ 3,460
------- -------
Income before income taxes ...................... $ 2,610 $ 2,297
Federal and state income taxes ..................... 766 686
------- -------
Net income ...................................... $ 1,844 $ 1,611
======= =======
Earning per common share:
Basic ......................................... $ 1.26 $ 1.10
Diluted ....................................... 1.24 1.09
See Notes to Financial Statements
<PAGE>
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 1998 and 1997
(In Thousands)
1997 1998
------- -------
Net Income ........................................... $ 1,844 $ 1,611
Other comprehensive income:
Unrealized gains (losses) on debt securities ..... 184 (220)
Income tax effect of unrealized gains (losses) ....... (59) 82
------- -------
Comprehensive income ............................. $ 1,969 $ 1,473
======= =======
<PAGE>
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(In Thousands)
<TABLE>
Capital Retained Unrealized ESOP
Stock Earnings Gains (Losses) Obligations Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ........ $ 9,070 $ 49,627 $ 485 $ (7,682) $ 51,500
Net income ...................... - - 1,844 - - - - 1,844
Change related to ESOP shares ... - - - - - - (160) (160)
Cash dividends ($1.20 per share) - - (1,762) - - - - (1,762)
Unrealized gains (losses) on debt
securities, net ............... - - - - 116 - - 116
-------- -------- -------- -------- --------
Balance, March 31, 1998 ......... $ 9,070 $ 49,709 $ 601 $ (7,842) $ 51,538
======== ======== ======== ======== ========
Balance, January 1, 1997 ........ $ 8,997 $ 44,078 $ 676 $ (6,416) $ 47,335
Redemption of stock ............. (7) - - - - - - (7)
Net income ...................... - - 1,611 - - - - 1,611
Change related to ESOP shares ... - - - - - - (160) (160)
Cash dividends ($1.05 per share) - - (1,539) - - - - (1,539)
Unrealized gains (losses) on
debt securities, net .......... - - - - (138) - - (138)
-------- -------- -------- -------- --------
Balance, March 31, 1997 ......... $ 8,990 $ 44,150 $ 538 $ (6,576) $ 47,102
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
<PAGE>
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(In Thousands)
<TABLE>
1998 1997
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 1,844 $ 1,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ............................................................... 329 268
Provision for loan losses .................................................. 204 195
(Increase) decrease in accrued interest receivable ......................... 13 (265)
Amortization of bond discount .............................................. 63 98
(Increase) in other assets ................................................. 325 140
Amortization of intangibles ................................................ 86 86
Increase in accrued interest and other liabilities ......................... 379 503
-------- --------
Net cash provided by operating activities .................................. $ 3,243 $ 2,636
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ......................................................... $ 7,350 $ 2,270
Held to maturity ........................................................... 400 276
Purchase of investment securities:
Available for sale ......................................................... (9,103) (6,591)
Held to maturity ........................................................... - - - (1,452)
Federal funds sold, net ........................................................ (15,815) 900
Loans made to customers, net of collections .................................... (8,437) (14,802)
Purchases of property and equipment ............................................ (876) (218)
-------- --------
Net cash (used in) investing activities .................................... $(26,481) $(19,617)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ........................................ $ 887 $ (1,135)
Net increase (decrease) in fed funds purchased and
Securities sold under agreements to repurchase .......................... (2,091) 6,906
Borrowings from FHLB ....................................................... 30,000 10,000
Payments on FHLB notes ..................................................... (5,000) (30)
Redemption of common stock ................................................. - - - (7)
Dividends paid ............................................................. (1,762) (1,539)
-------- --------
Net cash provided by financing activities ............................... $ 22,034 $ 14,195
-------- --------
Increase in cash and due from banks ..................................... $ (1,204) $ (2,786)
CASH AND DUE FROM BANKS
Beginning .................................................................. 15,508 15,036
-------- --------
Ending ..................................................................... $ 14,304 $ 12,250
======== ========
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest paid to depositors and others .................................. $ 5,130 $ 4,687
Interest paid on other obligations ...................................... 1,113 619
Non-cash financing transactions:
Increase in maximum cash obligation related
to ESOP shares ......................................................... 160 160
Net unrealized gains (losses) on debt securities ........................ (184) (138)
</TABLE>
See Notes to Financial Statements.
<PAGE>
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.
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 31
----------------------
1998 1997
----------------------
Agricultural ................. $ 28,820 $ 23,974
Commercial and financial ..... 36,583 31,314
Real estate, construction .... 15,728 9,622
Real estate, mortgage ........ 328,868 292,068
Loans to individual .......... 29,050 33,189
--------- ---------
$ 439,049 $ 390,167
Less allowance for loan losses (8,055) (7,296)
--------- ---------
$ 430,994 $ 382,871
========= =========
Transactions in the allowance for loan losses are as follows:
(In thousands)
Three Months
ended March 31
------------------
1998 1997
------------------
Balance, beginning ........... $ 8,010 $ 7,311
Provision charged to expense 204 195
Net charge-offs ............ (159) (210)
------- -------
Balance, ending .............. $ 8,055 $ 7,296
======= =======
The following summarizes the Company's nonaccrual, past due,
restructured and impaired loans:
(In thousands)
March 31
---------------
1998 1997
---------------
Nonaccrual ............................. $ - - $ 376
Accruing loans, past due 90 days or more 1,259 929
Restructured loan ...................... - - - -
Impaired loans ......................... 8,653 6,435
<PAGE>
Note 3. Changes in Accounting Policies
In June 1997, the FASB issued Statement #130, "Reporting Comprehensive
Income", and Statement #131, "Disclosures About Segments of an
Enterprise and Related Information". Statement #130 establishes
standards for reporting comprehensive income in financial statements.
Statement #131 expands certain reporting and disclosure requirements for
segments from current standards. The Statements are effective for the
quarter ended March 31, 1998. The company has presented a Statement of
Comprehensive Income. Statement #131 has no effect on the interim period
financial statements.
<PAGE>
PART I, ITEM 2.
HILLS BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated balance sheet of Hills Bancorporation as of March 31, 1998
reflects total assets of $627.5 million which is an increase of $24.4 million
from December 31, 1997. Net loans from $431.0 million which represents an
increase of $18.8 million from December 31, 1997. Compared to one year ago,
total assets have increased from $556.1 million to $627.5 million for an
increase of $71.4 million. Also during this time, net loans increased $48.1
million to $431.0 million as of March 31, 1998. These loan increases were
primarily single family residential loans in the Iowa City and Coralville area.
Federal funds sold increased during the first quarter of 1998 by $15.8 million
and have increased from March 31, 1997 to March 31, 1998 by $18.1 million. This
increase is primarily excess funds that will be used for loan demand and other
investments during the balance of 1998. In January and February of 1998 Hills
Bank and Trust Company took advantage of lower interest rates on four and five
year advances available from the Federal Home Loan Bank and borrowed a net $25
million since December 31, 1997 and a net $40 million since March 31, 1997.
These advances are secured by 1-4 family mortgage loans.
Total deposits, including federal funds purchased and securities sold under
agreements to repurchase, total $487.6 million at March 31, 1998 and this is a
decrease of $1.2 million from the December 31, 1997 balances. Deposits and
securities sold under agreements to repurchase increased from $462.0 million at
March 31,1997 to $487.6 million at March 31, 1998, an increase of $25.6 million.
The large increase on the liability side of the balance sheet is the increase
discussed above in Federal Home Loan Bank notes. 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.
In January 1998, Hills Bancorporation paid a dividend of $1.20 per share, a
14.29% increase from the $1.05 paid in January 1997. The total dividend of
$1,762,000 is deducted form stockholders' equity and is reflected in the
resulting stockholders' equity as of March 31, 1998 of $51,538,000.
Stockholders' equity at March 31, 1998 and December 31, 1997 reflects an
adjustment for unrealized gain (losses) on debt securities, net of income taxes.
The total stockholders' equity of Hills Bancorporation before the reduction for
the ESOP shares as a percent of total assets is 9.46%. Under risk-based capital
rules, total capital is 15.11% of risk adjusted assets, compared to the current
8% requirement.
Net income for the three months ending March 31, 1998 and 1997 is $1,844,000 and
$1,611,000 respectively. This is an increase of $233,000 or 14.46%. Earnings per
share, both basic and diluted increased for the quarter ending March 31, 1998
compared to 1997. For the period ending March 31, 1998 basic and diluted
earnings per share were $1.26 and $1.24 in comparison to $1.10 and $1.09 for the
quarter ending March 31, 1997. The increase in net income is due primarily to a
$471,000 increase in net interest income due to the volume of average earning
assets increasing by approximately $71 million between the two quarters ending
March 31, 1998 and 1997 respectively. Other income increased from the prior year
quarter ending March 31st by $291,000, which was the result of trust fees
increasing $153,000 due to an increase in volume of trust assets under
management and loan origination fees rising $93,000 as a result of lower
interest rates. Other operating expenses are up $440,000 as a result of more
full time equivalent employees, increased data processing expenses and the
addition of the Mount Vernon office of Hills Bank.
The Bank's principal sources of funds continues to be prepayment of loan
principal and current amortized loan payments. In addition, funds are provided
from current operations. All of the funds are used to fulfill loan commitments,
make short-term investments, and fund any deposit withdrawals needed. The
Company has no material commitments or plans which will materially affect its
liquidity or capital resources. The acquisition of property and equipment may be
in cash purchases, or they may be financed if favorable terms are available
<PAGE>
HILLS BANCORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings.
Item 2. Changes in Securities
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, 1998.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See exhibit II - 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, 1998.
<PAGE>
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)
Date MAY 14, 1998 /s/ Dwight O. Seegmiller
------------------------ -------------------------------------------
Dwight O. Seegmiller, President
(Duly authorized officer of the registrant)
/s/ James G. Pratt
-------------------------------------------
James G. Pratt, Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 FORM 10-Q OF HILLS BANCORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,304
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,262
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,258
<INVESTMENTS-CARRYING> 23,542
<INVESTMENTS-MARKET> 23,947
<LOANS> 439,049
<ALLOWANCE> 8,055
<TOTAL-ASSETS> 627,475
<DEPOSITS> 480,657
<SHORT-TERM> 21,917
<LIABILITIES-OTHER> 4,757
<LONG-TERM> 60,764
7,842
0
<COMMON> 9,070
<OTHER-SE> 42,468
<TOTAL-LIABILITIES-AND-EQUITY> 627,475
<INTEREST-LOAN> 9,175
<INTEREST-INVEST> 2,015
<INTEREST-OTHER> 247
<INTEREST-TOTAL> 11,437
<INTEREST-DEPOSIT> 5,026
<INTEREST-EXPENSE> 6,139
<INTEREST-INCOME-NET> 5,298
<LOAN-LOSSES> 204
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,900
<INCOME-PRETAX> 2,610
<INCOME-PRE-EXTRAORDINARY> 1,844
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,844
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 1,259
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,010
<CHARGE-OFFS> 159
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 8,055
<ALLOWANCE-DOMESTIC> 8,055
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
