Hills Bancorporation Q3 net income rises to $23.5M
An October portfolio repositioning generated a $6.47 million pretax loss, with proceeds intended for higher-yielding securities.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
Hills Bancorporation reported third-quarter 2026 net income of $23.467 million, compared with $12.905 million a year earlier; net interest income was $45.474 million versus $38.510 million. For the first nine months, net income was $71.422 million, compared with $45.990 million in 2025. At September 30, 2026, total assets were $4,961.444 million, deposits were $3,670.211 million and net loans were $3,681.073 million.
Unrealized losses on available-for-sale securities were $65.840 million at September 30, 2026, and accumulated other comprehensive loss was $50.184 million, compared with $1.304 million at December 31, 2025. Hills Bancorporation completed an October balance-sheet repositioning by selling securities representing approximately 1.98% of the Bank’s investment portfolio and recording a $6.47 million pretax realized loss. It intends to reinvest the proceeds in available-for-sale debt securities at higher yields; the loss will be reflected in fourth-quarter 2026 results.
1 point · 0 major0 major · 0 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter net income rose to $23.467 million from $12.905 million.
Negative
- None.
Filing Explained
During the nine months ended
Key Figures
Net income: $23.467 million; $12.905 million in 2025
Net income: $71.422 million; $45.990 million in 2025
Net interest income: $45.474 million; $38.510 million in 2025
+5 more
8 metrics
Net income
$23.467 million; $12.905 million in 2025
Three months ended September 30, 2026 and 2025
Net income
$71.422 million; $45.990 million in 2025
Nine months ended September 30, 2026 and 2025
Net interest income
$45.474 million; $38.510 million in 2025
Three months ended September 30, 2026 and 2025
Total assets
$4,961.444 million
September 30, 2026
Total deposits
$3,670.211 million
September 30, 2026
Net loans
$3,681.073 million
September 30, 2026
Pretax realized loss
$6.47 million
October 2026 balance-sheet repositioning
Investment portfolio represented by securities sold
Approximately 1.98%
October 2026 balance-sheet repositioning
Key Terms
available-for-sale securities, allowance for credit losses, accumulated other comprehensive loss, nonrecognized subsequent event
4 terms
available-for-sale securities financial
"Available-for-sale securities are stated at fair value"
Available-for-sale securities are investments in stocks, bonds or similar instruments that a company does not intend to trade frequently but may sell before they mature. They matter to investors because changes in the market value of these holdings show up as paper gains or losses on the company's balance sheet rather than immediately in profit, so they can affect reported net worth and the timing of income without changing day-to-day earnings. Think of them like items on a household shelf you might sell later: their value moves with the market even if you haven’t cashed out.
allowance for credit losses financial
"allowance for credit losses for loans held for investment"
Allowance for credit losses is a reserve set aside by a financial institution to cover potential losses from borrowers who may not repay their loans. It acts like a safety net, helping the institution prepare for loans that might turn sour. For investors, it signals how cautious the institution is about the quality of its loans and potential risks to its financial health.
accumulated other comprehensive loss financial
"accumulated other comprehensive loss was $50.184 million"
Accumulated other comprehensive loss is the running negative total of certain gains and losses that companies record outside their regular profit-and-loss statement, such as changes in the value of some investments, pension adjustments, or currency translation effects. It matters to investors because it reduces shareholders’ equity and reveals economic swings that haven’t affected reported net income yet — like a side ledger showing pending ups and downs that could influence future cash flow or balance-sheet strength.
nonrecognized subsequent event financial
"accounted for as a nonrecognized subsequent event"
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What was HBIA's third-quarter 2026 net income?
HBIA reported net income of $23.467 million for the three months ended September 30, 2026, compared with $12.905 million in the same 2025 period. Net interest income was $45.474 million, versus $38.510 million.
What proportion of the HBIA investment portfolio was involved in the October repositioning?
The securities sold in October represented approximately 1.98% of the Bank’s total investment portfolio. The transaction involved specific lower-yielding available-for-sale debt securities.
When were additional HBIA stock-split shares issued?
Hills Bancorporation declared a two-for-one stock split on April 20, 2026, for shares outstanding as of June 1, 2026. The additional shares were issued on June 8, 2026, and 2025 and 2026 share and earnings-per-share information was restated.
AI-generated analysis. How Rhea-AI works. Not financial advice.
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Index
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 | |||||
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ___________ to ___________
Commission file number: 0-12668
(State or other jurisdiction of incorporation or organization) | I.R.S. Employer Identification No. | ||||
Telephone number: (319 ) 679-2291
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by checkmark 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. ☑ Yes ☐ No
Indicate by checkmark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☑ | |||||||||
| Non-accelerated filer | ☐ | Small Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Index
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 | October 31, 2026 | |||||||
| Common Stock | No par value | |||||||
Index
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
| Page | ||||||||
| Number | ||||||||
| Item 1. | Financial Statements | |||||||
Consolidated balance sheets, September 30, 2026 (unaudited) and December 31, 2025 | 4 | |||||||
Consolidated statements of income (unaudited) for three and nine months ended September 30, 2026 and 2025 | 5 | |||||||
Consolidated statements of comprehensive income (loss) (unaudited) for three and nine months ended September 30, 2026 and 2025 | 6 | |||||||
Consolidated statements of stockholders' equity (unaudited) for three and nine months ended September 30, 2026 and 2025 | 7 | |||||||
Consolidated statements of cash flows (unaudited) for nine months ended September 30, 2026 and 2025 | 9 | |||||||
Notes to consolidated financial statements (condensed) | 11 | |||||||
| Item 2. | Management Discussion and Analysis of Financial Condition and Results of Operations | 55 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 70 | ||||||
| Item 4. | Controls and Procedures | 71 | ||||||
| Part II | ||||||||
| OTHER INFORMATION | ||||||||
| Item 1. | Legal proceedings | 73 | ||||||
| Item 1A. | Risk factors | 73 | ||||||
| Item 2. | Unregistered sales of equity securities and use of proceeds | 74 | ||||||
| Item 3. | Defaults upon senior securities | 75 | ||||||
| Item 4. | Mine safety disclosures | 75 | ||||||
| Item 5. | Other information | 75 | ||||||
| Item 6. | Exhibits | 76 | ||||||
Signatures | 77 | |||||||
Page 3
Index
HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands, Except Share Amounts)
| September 30, 2026 | December 31, 2025 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Investment securities available for sale at fair value (amortized cost September 30, 2026 $ | |||||||||||
| Stock of Federal Home Loan Bank | |||||||||||
| Loans held for sale | |||||||||||
Loans, net of allowance for credit losses September 30, 2026 $ | |||||||||||
| Property and equipment, net | |||||||||||
| Tax credit real estate | |||||||||||
| Accrued interest receivable | |||||||||||
| Deferred income taxes, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Liabilities | |||||||||||
| Noninterest-bearing deposits | $ | $ | |||||||||
| Interest-bearing deposits | |||||||||||
| Total deposits | |||||||||||
| Other short-term borrowings, including FHLB daily reset advances | |||||||||||
| Federal Home Loan Bank borrowings | |||||||||||
| Accrued interest payable | |||||||||||
| Allowance for credit losses on off-balance sheet credit exposures | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP) | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Common stock, no par value; authorized | $ | $ | |||||||||
| Paid in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock at cost (September 30, 2026 | ( | ( | |||||||||
| Total Stockholders' Equity | |||||||||||
| Less maximum cash obligation related to ESOP shares | |||||||||||
| Total Stockholders' Equity Less Maximum Cash Obligation Related to ESOP Shares | |||||||||||
| Total Liabilities & Stockholders' Equity | $ | $ | |||||||||
See Notes to Consolidated Financial Statements.
Page 4
Index
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Amounts In Thousands, Except Per Share Amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||||||||
| Taxable | ||||||||||||||||||||||||||||||||
| Nontaxable | ||||||||||||||||||||||||||||||||
| Federal funds sold | ||||||||||||||||||||||||||||||||
| Total interest income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Other short-term borrowings | ||||||||||||||||||||||||||||||||
| FHLB borrowings | ||||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||||||||
| Credit loss expense (benefit) | ( | |||||||||||||||||||||||||||||||
| Net interest income after credit loss expense | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||||||||||
| Net gain on sale of loans | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Trust fees | ||||||||||||||||||||||||||||||||
| Service charges and fees | ||||||||||||||||||||||||||||||||
| Other noninterest income | ||||||||||||||||||||||||||||||||
| Gain (loss) on sale of investment securities | ( | ( | ||||||||||||||||||||||||||||||
| Total noninterest income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Noninterest expenses: | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Occupancy | ||||||||||||||||||||||||||||||||
| Furniture, equipment and software | ||||||||||||||||||||||||||||||||
| Office supplies and postage | ||||||||||||||||||||||||||||||||
| Advertising and business development | ||||||||||||||||||||||||||||||||
| Outside services | ||||||||||||||||||||||||||||||||
| FDIC insurance assessment | ||||||||||||||||||||||||||||||||
| Other noninterest expense | ||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
Page 5
Index
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited) (Amounts In Thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on securities available for sale | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||
| Reclassification adjustment for net losses realized in net income | |||||||||||||||||||||||||||||
| Income taxes | ( | ( | |||||||||||||||||||||||||||
| Other comprehensive income (loss) on securities available for sale | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||
| Derivatives used in cash flow hedging relationships: | |||||||||||||||||||||||||||||
| Net change in unrealized gain on derivatives | $ | $ | $ | $ | |||||||||||||||||||||||||
| Income taxes | ( | ||||||||||||||||||||||||||||
| Other comprehensive income on cash flow hedges | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
Page 6
Index
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited) (Amounts In Thousands, Except Share Amounts)
Three Months Ended September 30, 2026 and 2025 | |||||||||||||||||||||||||||||||||||||||||
| Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Maximum Cash Obligation Related to ESOP Shares | Total | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Issuance of | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unearned restricted stock compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Forfeiture of | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Change related to ESOP shares | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Issuance of | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unearned restricted stock compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Forfeiture of | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Change related to ESOP shares | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Purchase of | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
Page 7
Index
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Amounts In Thousands, Except Share Amounts)
Nine Months Ended September 30, 2026 and 2025 | |||||||||||||||||||||||||||||||||||||||||
| Paid in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Treasury Stock | Maximum Cash Obligation Related to ESOP Shares | Total | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Issuance of | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unearned restricted stock compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Forfeiture of | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Change related to ESOP shares | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Cash dividends ($ | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
Purchase of | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
Issuance of | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unearned restricted stock compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Forfeiture of | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Change related to ESOP shares | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Cash dividends ($ | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||
Purchase of | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Excise tax on shares repurchased | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
Page 8
Index
HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: | |||||||||||
| Depreciation | $ | $ | |||||||||
| Credit loss expense (benefit) | ( | ||||||||||
| Loss on sale of investment securities available for sale | |||||||||||
| Gain on sale of VISA Class B shares | ( | ||||||||||
| Forfeiture of common stock | ( | ( | |||||||||
| Share-based compensation | |||||||||||
| Compensation expensed through issuance of common stock | |||||||||||
| Provision (benefit) for deferred income taxes | ( | ||||||||||
| Purchase of state tax credits | ( | ||||||||||
| Net (gain) loss on sale of other real estate owned and other repossessed assets | ( | ||||||||||
| Loss from equity method investments | |||||||||||
| Net loss on the disposal of property and impairments of property | |||||||||||
| Increase in accrued interest receivable | ( | ( | |||||||||
| Net accretion of discount on investment securities | ( | ( | |||||||||
| Increase in other assets | ( | ( | |||||||||
| Amortization of operating lease right of use assets | |||||||||||
| Amortization of tax credit real estate investments | |||||||||||
| Increase (decrease) in accrued interest payable and other liabilities | ( | ||||||||||
| Loans originated for sale | ( | ( | |||||||||
| Proceeds on sales of loans | |||||||||||
| Net gain on sales of loans | ( | ( | |||||||||
| Net cash and cash equivalents provided by operating activities | $ | $ | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Proceeds from maturities of investment securities available for sale | $ | $ | |||||||||
| Proceeds from sales of investment securities available for sale | |||||||||||
| Proceeds from sale of VISA Class B shares | |||||||||||
| Purchases of investment securities available for sale | ( | ( | |||||||||
| Proceeds from sale of stock of Federal Home Loan Bank | |||||||||||
| Purchases of stock of Federal Home Loan Bank | ( | ( | |||||||||
| Loans made to customers, net of collections | ( | ( | |||||||||
| Proceeds on sale of other real estate owned | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Earnest money payments | ( | ||||||||||
| Investment in tax credit real estate | ( | ||||||||||
| Net cash and cash equivalents used in investing activities | $ | ( | $ | ( | |||||||
| (Continued) | |||||||||||
Page 9
Index
| HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (Amounts In Thousands) | |||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash Flows from Financing Activities | |||||||||||
| Net increase in deposits | $ | $ | |||||||||
| Net increase (decrease) in other short-term borrowings | ( | ||||||||||
| Principal payments on short-term FHLB borrowings | ( | ( | |||||||||
| Proceeds from the issuance of short-term FHLB borrowings | |||||||||||
| Principal payments on long-term FHLB borrowings | ( | ( | |||||||||
| Proceeds from the issuance of long-term FHLB borrowings | |||||||||||
| Excise tax on shares repurchased | ( | ||||||||||
| Purchase of common stock | ( | ( | |||||||||
| Proceeds from the issuance of common stock through the employee stock purchase plan | |||||||||||
| Dividends paid | ( | ( | |||||||||
| Net cash and cash equivalents provided by financing activities | $ | $ | |||||||||
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Decrease in cash and cash equivalents | $ | ( | $ | ( | |||||||
| Cash and cash equivalents: | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
| Supplemental Disclosures | |||||||||||
| Cash payments for: | |||||||||||
| Interest paid to depositors | $ | $ | |||||||||
| Interest paid on other obligations | |||||||||||
| Income taxes paid | |||||||||||
| Noncash activities: | |||||||||||
| Increase in maximum cash obligation related to ESOP shares | $ | $ | |||||||||
| Recognition of right of use asset and lease liability | |||||||||||
| Transfers to other real estate owned | |||||||||||
| Sale and financing of other real estate owned | |||||||||||
| Property acquired through extinguishment of loan receivable | |||||||||||
| Tax credits acquired through extinguishment of loan receivable | |||||||||||
See Notes to Consolidated Financial Statements.
Page 10
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. These financial statements include all adjustments that, in the opinion of management, are considered necessary for the fair presentation of the Company's financial position and results of operations for the periods presented. While the chief operating decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a consolidated basis. Although the loan activity of the Bank is diversified with commercial and agricultural loans, real estate loans, automobile, installment and other consumer loans, the Bank's credit is concentrated in real estate loans. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment.
Operating results for the nine-month period ended September 30, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2026. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2025 filed with the Securities and Exchange Commission on March 18, 2026. The consolidated balance sheet as of December 31, 2025, has been derived from the audited consolidated financial statements for that period.
Subsequent Events: The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.
In October 2026, subsequent to September 30, 2026, the Company approved and completed a balance sheet repositioning transaction. The securities sold represented only a limited portion of the Bank's total investment portfolio – approximately 1.98 %. This consisted of the sale of specific lower-yielding AFS debt securities resulting in a pre-tax realized loss on the sales of $6.47 million. The Company intends to reinvest the proceeds from the sale of these securities to purchase AFS debt securities at higher yields to improve income going forward, while maintaining the liquidity provided by the investment portfolio. The decision to sell the securities was made subsequent to September 30, 2026. Accordingly, the transaction has been accounted for as a nonrecognized subsequent event, and the realized loss will be reflected in the Company's financial results for the fourth quarter of 2026.
Accounting Estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain Significant Estimates: The allowance for credit losses, fair values of securities and other financial instruments, and share-based compensation involve significant estimates and assumptions. These estimates and assumptions are subject to change as additional information becomes available or as circumstances change, and actual results could differ from those estimates.
Revenue Recognition: Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, recognized as performance obligations are satisfied.
The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit and investment securities as these activities are not subject to the requirements of ASC 606. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts. Loan origination fees of mortgage loans originated for sale are recognized when the loans are sold.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606 are the following: Service charges and fees on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue which includes interchange income, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of September 30, 2026 and December 31, 2025, the Company did not have any significant contract balances.
Tax credit real estate: Tax credit real estate represents three multi-family rental properties, three assisted living rental properties, a multi-tenant rental property for persons with disabilities, and a multi-family senior living rental property, all of which are affordable housing projects as of September 30, 2026. In addition, in July 2024, the Company made a tax equity investment in an entity to provide for the historic preservation of a mixed use property in Cedar Rapids, Iowa. The Company has a 99 % or greater limited partnership interest in each limited partnership or company. The investment in each was completed after the projects had been developed by the general partner or managing member. On a regular basis, the Company evaluates recoverability of the carrying value of the tax credit real estate investments to determine if there are indications of impairment. This is measured by a comparison of the carrying amount of the investments to the future undiscounted cash flows expected to be generated by the investment properties, including the low-income housing tax credits and any estimated proceeds from eventual disposition. If there is an indication of impairment, a valuation allowance would be established with a charge to expense. There were no indications of impairment based on management's evaluation and therefore no valuation allowance was determined necessary as of September 30, 2026 and December 31, 2025. Depreciation expense is provided on a straight-line basis over the estimated useful life of the assets. Expenditures for normal repairs and maintenance are charged to expense as incurred.
The investments in tax credit real estate are recorded for all years presented using the equity method of accounting, with the exception of the investments in the affordable housing project and historic preservation project described below. The operations of the properties are not expected to contribute significantly to the Company’s income before income taxes. However, the properties do contribute in the form of income tax credits, which lowers the Company’s effective tax rate. Once established, the credits on each property last for ten years , five years for the historic preservation property, and are passed through from the limited partnerships or entity to the Company and reduces the consolidated federal tax liability of the Company.
In February 2021, the Company provided construction financing and contributed capital of $4.18 million to Del Ray Ridge LP, as limited partner, which owns and operates an affordable housing property in Iowa City, Iowa. The Company accounts for the investment in this tax credit real estate using the proportional amortization method as provided for under Accounting Standards Codification (ASC) 323-740. The investment qualifies for the proportional amortization method as it meets all of the criteria under ASC 323-740-25-1. Substantially all of the projected benefits are from tax credits and other tax benefits due to the minimum buyout clause included in the partnership agreement.
In July 2024, the Company provided construction financing and contributed capital of $2.38 million to SLE Iowa Building, LC, as investor member, which owns and operates a historically preserved mixed use property in Cedar Rapids, Iowa. Upon certain
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
conditions being met, an additional $1.25 million of contributions to capital were made in February 2025. Additionally, a final contribution of $1.19 million was made in September 2025 for a geothermal credit. The Company accounts for the investment in this tax credit real estate using the proportional amortization method as provided for under Accounting Standards Codification (ASC) 323-740. The investment qualifies for the proportional amortization method as it meets all of the criteria under ASC 323-740-25-1. Substantially all of the projected benefits are from tax credits and other tax benefits due to the minimum buyout clause included in the operating agreement.
Available-for-sale debt securities and the allowance for credit losses on available-for-sale debt securities: Available-for-sale ("AFS") securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. There were no trading or held to maturity securities as of September 30, 2026 or 2025.
Fair value measurement is based upon quoted market prices in active markets, if available. If quoted prices in active markets are not available, fair value is measured using pricing models or other model-based valuation techniques such as present value of future cash flows, which consider prepayment assumptions and other factors such as credit losses and market liquidity. Unrealized gains and losses are excluded from earnings and reported, net of tax, in other comprehensive income (loss) ("OCI"). Premiums on callable debt securities are amortized to the earliest call date. For mortgage-backed securities and collateralized mortgage obligations, premiums and discounts are amortized or accreted using the interest method based on estimated future cash flows that incorporate prepayment assumptions. Changes in estimated prepayments are recognized prospectively through adjustments to yield. Discounts on non-mortgage-backed debt securities are accreted to maturity using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.
Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of whether any decline in fair value is due to a credit loss, all relevant information is considered at the individual security level. For asset-backed securities performance indicators considered related to the underlying assets include default rates, delinquency rates, percentage of nonperforming assets, debt-to-collateral ratios, third-party guarantees, current levels of subordination, vintage, geographic concentration, analyst reports and forecasts, credit ratings and other market data. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis.
If the Company intends to sell an impaired AFS debt security, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost basis is written down to fair value, with the impairment recognized in earnings.
Accrued interest receivable on AFS debt securities, stock of the Federal Home Loan Bank, and Federal Reserve excess balance account totaled $8.30 million and $6.81 million at September 30, 2026 and December 31, 2025, respectively, and is excluded from the estimate of credit losses.
Stock of the Federal Home Loan Bank is carried at cost. The Company has evaluated the stock and determined there is no impairment.
Loans held for sale: Loans held for sale are stated at the lower of aggregate cost or estimated fair value. Loans are sold on a non-recourse basis with servicing released and gains and losses are recognized based on the difference between sales proceeds and the carrying value of the loan. The Company has had very few experiences of repurchasing loans previously sold into the secondary market. A specific reserve was not considered necessary based on the Company’s historical experience with repurchase activity.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Loans held for investment: Loans are stated at the amount of unpaid principal, net of deferred loan fees, and reduced by the allowance for credit losses ("ACL"). Accrued interest receivable on loans held for investment totaled $18.50 million and $16.59 million at September 30, 2026 and December 31, 2025, respectively, and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Nonrefundable loan fees and origination costs are deferred and recognized as a yield adjustment over the life of the related loan.
The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the borrower's ability to meet payments of interest or principal when they become due, which is generally when a loan is 90 days or more past due. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Loans are returned to an accrual status when all of the principal and interest amounts contractually due are brought current and repayment of the remaining contractual principal and interest is expected. A loan may also return to accrual status if additional collateral is received from the borrower and, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the collection of the amount contractually due. Payment received on nonaccrual loans are applied first to principal. Once principal is recovered, any remaining payments received are applied to interest income.
The policy for charging off loans is consistent throughout all loan categories. A loan is charged off based on criteria that includes but is not limited to: delinquency status, financial condition of the entire customer credit line and underlying collateral coverage, economic or external conditions that might impact full repayment of the loan, legal issues, overdrafts, and the customer’s willingness to work with the Company.
Allowance for credit losses for loans held for investment: The allowance for credit losses is an estimate of the expected losses over the remaining life of the Company's existing loans held for investment portfolio. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.
The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments which consist of agricultural, commercial and financial, real estate, loans to individuals, and obligations of state and political subdivisions. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The following provides the credit quality indicators and risk elements that are most relevant and most carefully considered and monitored for each loan portfolio segment.
Agricultural - Agricultural operating loans include loans made to finance agricultural production and other loans to farmers and farming operations. Agricultural loans also include mortgage loans secured by farmland. Agricultural operating loans, most of which are secured by crops and machinery, are provided to finance capital improvement and farm operations as well as acquisitions of livestock and machinery. The ability of the borrower to repay may be affected by many factors outside of the borrower’s control including adverse weather conditions, loss of livestock due to disease or other factors, declines in market prices for agricultural products and the impact of government regulations. The ultimate repayment of agricultural operating loans is dependent upon the profitable operation or management of the agricultural entity. Agricultural operating loans generally have a term of one year and may have a fixed or variable rate. The primary economic forecast used in estimating expected credit losses for this segment is the Iowa unemployment rate.
Commercial and Financial - The commercial loan portfolio segment is comprised of commercial lines of credit, term loans, and other business-related lending that are generally secured by business assets or supported by borrower and guarantor cash flows. Underwriting emphasizes assessment of borrower profitability, liquidity, leverage, and historical financial performance. Repayment is sensitive to changes in general economic conditions, business performance, and interest rates. The primary economic forecast utilized for this segment is the Iowa unemployment rate.
Real Estate - The real estate loan segment includes loans secured by real property and is disaggregated into the following loan classes: construction, 1 to 4 family residential; construction, land development and commercial; mortgage loans secured by farmland; mortgage loans secured by 1 to 4 family residential properties (first and junior liens); mortgage loans secured by multi-family properties; and mortgage loans secured by commercial real estate.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
•Construction Loans include loans for residential construction and for commercial construction and land development projects. These loans are generally dependent on the successful completion and sale or stabilization of the underlying property and are subject to risks related to construction timelines, cost overruns, absorption rates, and market demand.
•Residential Mortgage Loans secured by 1 to 4 family properties are comprised of the single family and home equity loan classes, which are underwritten after evaluating a borrower's capacity to repay, credit, and collateral. Several factors are considered when assessing a borrower's capacity, including the borrower's employment, income, current debt, assets, and level of equity in the property. Credit refers to how well a borrower manages their current and prior debts as documented by a credit report that provides credit scores and the borrower's current and past information about their credit history. Collateral refers to the type and use of property, occupancy, and market value. Property appraisals are obtained to assist in evaluating collateral. Loan-to-property value and debt-to-income ratios, loan amount, and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect housing prices and demand and levels of unemployment.
•Commercial and Multi-Family Mortgage Loans are underwritten based on analysis of property cash flows, debt service coverage, tenant composition, vacancy trends, borrower experience, and sponsorship strength. Repayment is sensitive to changes in interest rates, property operating performance, and local economic conditions.
•Farmland Mortgage Loans secured by agricultural real estate are made to individuals and businesses within the Company's trade area. The primary source of repayment is the cash flow generated by the collateral underlying the loan. The secondary repayment source would be the liquidation of the collateral. Terms for real estate loans secured by farmland range from one to ten years with an amortization period of 25 years or less. Generally, interest rates are fixed for mortgage loans secured by farmland.
The primary economic forecast utilized in estimating expected credit losses for real estate loan classes is the Iowa unemployment rate.
Loans to Individuals - The Bank offers consumer loans to individuals including personal loans and automobile loans. These consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than real estate-related loans. Consumer loans collections are dependent on the borrower's continuing financial stability and are more likely to be affected by adverse personal circumstances. Collateral for these loans generally includes automobiles, boats, recreational vehicles and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. The collateral securing these loans may depreciate over time, may be difficult to recover and may fluctuate in value based on condition. Primary economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product.
Obligations of State and Political Subdivisions – The obligations of state and political subdivisions portfolio segment consists solely of tax‑exempt loans made to state governments, municipalities, school districts, and other political subdivisions. Underwriting standards for this segment emphasize the borrower’s legal authority to incur debt, the stability and diversity of pledged revenue sources, historical operating performance, budgetary trends, and the overall financial capacity of the governmental entity. Additional considerations include the strength of taxing authority, the predictability of revenue collections, the presence of voter or legislative appropriation requirements, and the entity’s reliance on state or federal funding. Repayment of these obligations is generally supported by dedicated revenue streams or general obligation pledges, resulting in credit performance that has historically demonstrated low volatility and limited correlation with broader economic cycles. Given these characteristics, expected credit losses for this segment are estimated primarily using long‑run historical loss experience and internal credit assessments, and do not incorporate specific forward‑looking macroeconomic forecasts, as management has determined that traditional economic indicators do not meaningfully influence expected loss outcomes for this portfolio.
The allowance level is influenced by loan volumes, loan credit quality indicator migration or delinquency status, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics; and second, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. Depending on the nature of the pool
Page 15
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
of financial assets with similar risk characteristics, the Company uses a discounted cash flow method or remaining life method to estimate expected credit losses.
Discounted cash flow method: In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and purpose. This model calculates an expected loss percentage for each loan class by considering the probability of default, using life-of-loan analysis periods for all loan segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. Such factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. Management utilizes a qualitative factor framework to provide a qualitative estimate of the expected credit losses inherent in the loan portfolio in relation to potential limitations of the quantitative model. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets; (3) the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans; (6) the quality of our loan review system; (7) the value of underlying collateral for collateral-dependent loans; (8) the existence and effect of any concentrations of credit and changes in the level of such concentrations; and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The framework provides for a level of risk approach to measure risk in each loan segment that may not be captured in the quantitative methodology, including improved risk environment, no additional risk, minimal additional risk, moderate risk and major or significant additional risk. The framework also includes a weighting component for management to consider which qualitative factors would have the highest impact on potential loan losses within each loan segment. Management uses the qualitative factor framework within the allowance for credit losses calculation to assess the risk level environment for each qualitative factor and weightings for each loan segment which is supported by various information including publicly available information, internal information specifically developed by management, or other relevant and reliable information.
The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the economic variables.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve quarters on a straight-line basis. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
Remaining life method: Expected credit losses for credit cards and overdrafts are determined through use of the remaining life method. The remaining life method utilizes average annual charge-off rates and remaining life to estimate the allowance for credit losses. This is done by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting period and applying those principal payments against the balance outstanding as of the reporting period along with the average annual charge-off rate until the expected payments have been fully allocated. Management applies the same qualitative factor framework for the remaining life method loan portfolios as the framework used for the discounted cash flow method loan portfolios.
Collateral dependent financial assets: For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company’s estimate of the ACL reflects credit losses expected over the contractual life of the financial assets, adjusted for estimated prepayments or curtailments. The contractual term excludes expected extensions, renewals and modifications unless an extension or renewal option is included in the original or modified contract at the reporting date and is not unconditionally cancellable by the Company. A modification of a loan to a borrower experiencing financial difficulties occurs when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics.
Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments: The Company maintains a separate allowance for credit losses from off-balance sheet credit exposures, including unfunded loan commitments, which is disclosed on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No credit loss estimate is reported for off-balance-sheet (OBS) credit exposures that are unconditionally cancellable by the Company, such as credit card receivables, or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. The allowance for credit losses on OBS credit exposures is adjusted as credit loss expense. Categories of OBS credit exposures correspond to the loan portfolio segments described previously.
Effect of New Financial Accounting Standards:
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures. The standard was adopted by the Company as of December 31, 2025 on a retrospective basis. The amendments affect annual income tax disclosures only and did not have a material impact on the Company’s interim consolidated financial statements.
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718) Scope Application of Profits Interest and Similar Awards. The FASB is issuing this ASU to improve generally accepted accounting principles by adding an illustrative example to demonstrate how an entity should apply the scope guidance to determine whether profits interest and similar awards ("profit interest awards") should be accounted for in accordance with Topic 718, Compensation - Stock Compensation. The illustrative example is intended to reduce 1) complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and 2) existing diversity in practice. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. The adoption of the ASU on a prospective basis by the Company on January 1, 2025 did not have a material impact on the financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:
•Disclose the amounts of (a) employee compensation; and (b) depreciation included in each relevant expense caption.
•Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.
•Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
•Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. A public business entity should apply ASU No. 2024-03 prospectively to financial statements issued for reporting periods beginning after the effective date of ASU No. 2024-03. The disclosures required ASU No. 2024-03 do not need to be included in financial statements for reporting periods beginning before the effective date that are being presented for comparative purposes with financial statements issued for periods after the effective date. The Company is in the process of evaluating the impact of this ASU on the financial statements.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements, which provides targeted amendments intended to enable entities to apply hedge accounting to a broader range of highly effective economic hedges and to better align hedge accounting outcomes with risk-management activities. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, and early adoption is permitted. The Company currently has no derivative positions outstanding; however, because it may enter into derivative or hedging relationships in future periods, the Company is evaluating the guidance to determine the potential impact on its consolidated financial statements and the method of adoption. At this time, the Company has not yet determined the expected impact of this update upon adoption.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270), which improves the navigability of the required interim disclosures, provides clarity as to when it is applicable, and provides additional guidance on what disclosures are required in interim reporting periods by establishing a disclosure principle. The guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 and can be applied either prospectively or retrospectively. The Company is currently evaluating the updated guidance to assess the impact and determining its method of adoption.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which provides technical corrections, clarifications, and other minor enhancements across numerous areas of the Accounting Standards Codification. The amendments address 33 issues, including clarifications related to diluted earnings per share, lease receivable disclosures, and other areas where existing guidance was ambiguous or difficult to apply. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods. ASU 2025-12 contains mixed transition requirements. Issue 4, relating to diluted EPS, must be adopted retrospectively, while all other amendments may be applied either prospectively or retrospectively, at the entity’s election on an issue-by-issue basis. The Company is currently evaluating the impact of ASU 2025-12 on its accounting policies, processes, and disclosures; however, the Company does not expect adoption of this update to have a material effect on its consolidated financial statements.
Page 18
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 2.Earnings Per Share
Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding. ESOP shares are considered outstanding for this calculation unless unearned.
The following table presents calculations of earnings per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Computation of weighted average number of basic and diluted shares: | |||||||||||||||||||||||||||||
| Common shares outstanding at the beginning of the period | |||||||||||||||||||||||||||||
| Weighted average number of net shares (redeemed) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Weighted average shares outstanding (basic) | | ||||||||||||||||||||||||||||
| Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method | |||||||||||||||||||||||||||||
| Weighted average number of shares (diluted) | |||||||||||||||||||||||||||||
| Net income (In thousands) | $ | $ | $ | $ | |||||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||
Note 3.Accumulated Other Comprehensive Loss
The following table summarizes the components of accumulated other comprehensive loss (AOCI), included in stockholders’ equity, at September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | ||||||||||||||||
| (amounts in thousands) | |||||||||||||||||
| Net unrealized (loss) on available-for-sale securities | $ | ( | $ | ( | |||||||||||||
| Tax effect | |||||||||||||||||
| Net-of-tax amount | $ | ( | $ | ( | |||||||||||||
Page 19
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4.Securities
The carrying values of investment securities as of September 30, 2026 and December 31, 2025 are summarized in the following table (dollars in thousands):
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Securities available for sale | |||||||||||||||||||||||
| U.S. Treasury | $ | % | $ | % | |||||||||||||||||||
| U.S. Government Agency and GSE securities | |||||||||||||||||||||||
| State and political subdivisions | |||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | |||||||||||||||||||||||
| Total securities available for sale | $ | % | $ | % | |||||||||||||||||||
Investment securities have been classified in the consolidated balance sheets according to management’s intent. Available-for-sale securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. As of September 30, 2026 and December 31, 2025, all securities held were rated investment grade based upon external ratings where available and, where not available, based upon management knowledge of the local issuers and their financial situations. The Company has no securities designated as trading or held to maturity in its portfolio as of September 30, 2026 or December 31, 2025.
The carrying amount of available-for-sale securities and their approximate fair values as of September 30, 2026 and December 31, 2025, were as follows (in thousands):
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Allowance for Credit Losses | Estimated Fair Value | |||||||||||||||||||||||||
| September 30, 2026 | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| U.S. Government Agency and GSE securities | ( | ||||||||||||||||||||||||||||
| State and political subdivisions | ( | ||||||||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| U.S. Government Agency and GSE securities | ( | ||||||||||||||||||||||||||||
| State and political subdivisions | ( | ||||||||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
Page 20
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities as of September 30, 2026, were as follows (in thousands) below.
| Amortized Cost | Fair Value | ||||||||||
| Due in one year or less | $ | $ | |||||||||
| Due after one year through five years | |||||||||||
| Due after five years through ten years | |||||||||||
| Due over ten years | |||||||||||
| $ | $ | ||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | |||||||||||
| $ | $ | ||||||||||
Expected maturities of MBS may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the above summary.
As of September 30, 2026 and December 31, 2025, investment securities with a market value of $140.79 million and $154.03 million, respectively, were pledged to collateralize other borrowings. As of September 30, 2026, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity.
Sales proceeds and gross realized gains and losses on available-for-sale securities were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Sale proceeds | $ | $ | $ | $ | |||||||||||||||||||
| Gross realized gains | |||||||||||||||||||||||
| Gross realized losses | ( | ( | ( | ||||||||||||||||||||
The following table shows the Company's investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2026 and December 31, 2025 (in thousands):
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2026 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | ( | % | $ | $ | ( | % | $ | $ | ( | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government Agency and GSE securities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | ( | % | $ | $ | ( | % | $ | $ | ( | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Page 21
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2025 Description of Securities | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | # | Fair Value | Unrealized Loss | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | $ | ( | % | $ | $ | ( | % | $ | $ | ( | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Government Agency and GSE securities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | ( | % | $ | $ | ( | % | $ | $ | ( | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company considered the following information in reaching the conclusion that the unrealized losses disclosed in the table above are not attributable to credit losses. None of the unrealized losses in the above table were due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest. The unrealized losses are due to changes in interest rates. The Company completed several balance sheet repositioning transactions related to its investment securities portfolio throughout the last four months of 2025. This consisted of the sale of lower-yielding AFS debt securities resulting in a pre-tax realized loss on the sales of $9.63 million in total for 2025. All of the proceeds from the sale of these securities were used to purchase AFS debt securities at higher yields to improve income going forward, while maintaining the liquidity provided by the investment portfolio. Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis. The securities are of high credit quality (investment grade credit ratings) and principal and interest payments are made timely with no payments past due as of September 30, 2026. The fair value is expected to recover as the securities approach maturity. The Company evaluates whether a credit loss exists by monitoring to ensure it has adequate credit support considering the nature of the investment, number and significance of investments in an unrealized loss position, collectability or delinquency issues, the underlying financial statements of the issuers, credit ratings and subsequent changes thereto, and other available relevant information. Considering the above factors, management has determined that no allowance for credit losses is necessary for the securities portfolio as of September 30, 2026.
The Company held Visa Class B common stock received in connection with Visa's restructuring. During April 2026, the Company sold its Visa Class B shares and recognized a gain of approximately $1.69 million in gain on sale of investment securities. At September 30, 2026, no Visa Class B shares remained outstanding.
Page 22
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 5.Loans and Allowance for Credit Losses
Classes of loans are as follows:
| September 30, 2026 | December 31, 2025 | ||||||||||
| (Amounts in Thousands) | |||||||||||
| Agricultural | $ | $ | |||||||||
| Commercial and financial | |||||||||||
| Real estate: | |||||||||||
| Construction, 1 to 4 family residential | |||||||||||
| Construction, land development and commercial | |||||||||||
| Mortgage, farmland | |||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||
| Mortgage, multi-family | |||||||||||
| Mortgage, commercial | |||||||||||
| Loans to individuals | |||||||||||
| Obligations of state and political subdivisions | |||||||||||
| Gross Loans (ex net unamortized fees and costs) | |||||||||||
| Net unamortized fees and costs | |||||||||||
| Gross Loans | |||||||||||
| Less allowance for credit losses | |||||||||||
| Loans, net allowance for credit losses | $ | $ | |||||||||
Page 23
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Changes in the allowance for credit losses (ACL) on loans for the three and nine months ended September 30, 2026 and 2025 are as follows:
| Three Months Ended September 30, 2026 | ||||||||||||||||||||||||||||||||
| June 30, 2026 | Charge-offs | Recoveries | Credit loss expense (benefit) | September 30, 2026 | ||||||||||||||||||||||||||||
| (Amounts In Thousands) | ||||||||||||||||||||||||||||||||
| ACL on loans: | ||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||
| Commercial and financial | ( | ( | ||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | ( | ||||||||||||||||||||||||||||||
| Construction, land development and commercial | ||||||||||||||||||||||||||||||||
| Mortgage, farmland | ( | |||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | |||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | ( | |||||||||||||||||||||||||||||||
| Mortgage, multi-family | ||||||||||||||||||||||||||||||||
| Mortgage, commercial | ( | |||||||||||||||||||||||||||||||
| Loans to individuals | ( | |||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | ||||||||||||||||||||||||||||||||
| December 31, 2025 | Charge-offs | Recoveries | Credit loss expense (benefit) | September 30, 2026 | ||||||||||||||||||||||||||||
| (Amounts In Thousands) | ||||||||||||||||||||||||||||||||
| ACL on loans: | ||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||
| Commercial and financial | ( | ( | ||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | |||||||||||||||||||||||||||||||
| Construction, land development and commercial | ( | |||||||||||||||||||||||||||||||
| Mortgage, farmland | ( | ( | ||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | ( | ||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | ( | ( | ||||||||||||||||||||||||||||||
| Mortgage, multi-family | ||||||||||||||||||||||||||||||||
| Mortgage, commercial | ( | |||||||||||||||||||||||||||||||
| Loans to individuals | ( | |||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||
Page 24
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2025 | Charge-offs | Recoveries | Credit loss expense (benefit) | September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| ACL on loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Commercial and financial | ( | |||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | |||||||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | ( | |||||||||||||||||||||||||||||||||||||||||||
| Loans to individuals | ( | |||||||||||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Charge-offs | Recoveries | Credit loss expense (benefit) | September 30, 2025 | ||||||||||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| ACL on loans: | ||||||||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Commercial and financial | ( | |||||||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | |||||||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | ( | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | ( | |||||||||||||||||||||||||||||||||||||||||||
| Loans to individuals | ( | |||||||||||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Page 25
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Changes in the allowance for credit losses (ACL) for off-balance sheet credit exposures for the three and nine months ended September 30, 2026 and 2025 were as follows:
| Three Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| June 30, 2026 | Credit loss (benefit) expense | (Charge-offs), net recoveries | September 30, 2026 | ||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| ACL for off-balance sheet credit exposures: | |||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Commercial and financial | ( | ||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | ||||||||||||||||||||||||||||
| Construction, land development and commercial | ( | ||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | ||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | ( | ||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | ( | ||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| December 31, 2025 | Credit loss (benefit) expense | (Charge-offs), net recoveries | September 30, 2026 | ||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| ACL for off-balance sheet credit exposures: | |||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Commercial and financial | ( | ||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | ||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | ( | ||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
Page 26
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Three Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| June 30, 2025 | Credit loss (benefit) expense | (Charge-offs), net recoveries | September 30, 2025 | ||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| ACL for off-balance sheet credit exposures: | |||||||||||||||||||||||||||||
| Agricultural | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Commercial and financial | ( | ||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | ||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ( | ||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | ( | ||||||||||||||||||||||||||||
| Mortgage, commercial | ( | ||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| December 31, 2024 | Credit loss (benefit) expense | (Charge-offs), net recoveries | September 30, 2025 | ||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| ACL for off-balance sheet credit exposures: | |||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | |||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ( | ||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
Credit loss expense (benefit) for off-balance sheet credit exposures is included in credit loss expense (benefit) on the consolidated statement of income for the nine months ended September 30, 2026 and 2025.
Page 27
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company's risk rating methodology assigns risk ratings ranging from substandard to excellent. The Company differentiates its lending portfolios into loans sharing common risk characteristics for which expected credit loss is measured on a pool basis and loans not sharing common risk characteristics for which credit loss is measured individually.
The below are descriptions of the credit quality indicators:
Excellent – Excellent rated loans are prime quality loans covered by highly liquid collateral with generous margins or supported by superior current financial conditions reflecting substantial net worth, relative to total credit extended, and based on assets of a stable and non-speculative nature whose values can be readily verified. Identified repayment source or cash flow are abundant and assured. Loans are secured with cash, cash equivalents, or collateral with very low loan to values. The borrower would qualify for unsecured debt and guarantors provide excellent secondary support to the relationship. The borrower has a long-term relationship with Hills Bank, maintains high deposit balances and has an established payment history with Hills Bank and an established business in an established industry.
Good – Good rated loans are adequately secured by readily marketable collateral or good financial condition characterized by liquidity, flexibility and sound net worth. Loans are supported by sound primary and secondary payment sources and timely and accurate financial information. The relationship is not quite as strong as a borrower that is assigned an excellent rating but still has a very strong liquidity position, low leverage, and track record of strong performance. These loans have a strong collateral position with limited risk to bank capital. The collateral will not materially lose value in a distressed liquidation. Guarantors provide additional secondary support to mitigate possible bank losses. The borrower has a long-term relationship with Hills bank with an established track record of payments; loans with shorter remaining loan amortization; deposit balances are consistent; loan payments could be made from cash reserves in the interim period; and source of income is coming from a stable industry.
Satisfactory – Satisfactory rated loans are loans to borrowers of average financial means not especially vulnerable to changes in economic or other circumstances, where the major support for the extension is sufficient collateral of a marketable nature, and the primary source of repayment is seen to be clear and adequate. The borrower's financial performance is consistent, ratios and trends are positive, and the primary repayment source can clearly be identified and supported with acceptable financial information. The loan relationship could be vulnerable to changes in economic or industry conditions but have the ability to absorb unexpected issues. The loan collateral coverage is considered acceptable, and guarantors can provide financial support but net worth might not be as liquid as an excellent or good rated relationship. The borrower has an established relationship with Hills Bank. The relationship is making timely loan payments, any operating line is revolving, and deposit balances are positive with limited to no overdrafts. Management and industry are considered stable.
Monitor – Monitor rated loans are identified by management as warranting special attention for a variety of reasons that may bear on ultimate collectability. This may be due to adverse trends, a particular industry, loan structure, or repayment that is dependent on projections, or a one-time occurrence. The relationship liquidity levels are minimal and the borrower’s leverage position is brought into question. The primary repayment source is showing signs of being stressed or is not proven. If the borrower performs as planned, the loan will be repaid. The collateral coverage is still considered acceptable but there might be some concern with the type of real estate securing the debt or highly dependent on chattel assets. Some loans may be better secured than others. Guarantors still provide some support but there is not an abundance of financial strength supporting the guaranty. A monitor credit may be appropriate when the borrower is experiencing rapid growth which is impacting liquidity levels and increasing debt levels. Other attributes to consider would include if the business is a start-up or newly acquired, if the relationship has significant financing relationships with other financial institutions, the quality of financial information being received, management depth of the company, and changes to the business model. The track history with Hills Bank has some deficiencies such as slow payments or some overdrafts.
Special Mention – Special mention rated loans are supported by a marginal payment capacity and are marginally protected by collateral. There are identified weaknesses that if not monitored and corrected may adversely affect the Company’s credit position. A special mention credit would typically have a weakness in one of the general categories (cash flow, collateral position or payment history) but not in all categories. Potential indicators of a special mention would include past due payments, overdrafts, management issues, poor financial performance, industry issues, or the need for additional short-term borrowing. The ability to continue to make payments is in question; there are “red flags” such as past due payments, non-revolving credit lines, overdrafts, and the inability to sell assets. The borrower is experiencing delinquent taxes, legal issues,
Page 28
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
etc., obtaining financial information has become a challenge, collateral coverage is marginal at best, and the value and condition could be brought into question. Collateral document deficiencies have been noted and if not addressed, could become material. Guarantors provide minimal support for this relationship. The credit may include an action plan or follow up established in the asset quality process. There is a change in the borrower’s communication pattern. Industry issues may be impacting the relationship. Adverse credit scores or history of payment deficiencies could be noted.
Substandard – Substandard loans are not adequately supported by the paying capacity of the borrower and may be inadequately collateralized. These loans have a well-defined weakness or weaknesses. Full repayment of the loan(s) according to the original terms and conditions is in question or not expected. For these loans, it is more probable than not that the Company could sustain some loss if the deficiency(ies) is not corrected. There are identified shortfalls in the primary repayment source such as carry over debt, past due payments, and overdrafts. Obtaining quality and timely financial information is a weakness. The loan is under secured with exposure that could impact bank capital. It appears the liquidation of collateral has become the repayment source. The collateral may be difficult to foreclose or have little to no value. Collateral documentation deficiencies have been noted during the review process. Guarantor(s) provide minimal to no support of the relationship. The borrower’s communication with the Bank continues to decrease and the borrower is not addressing the situation. There is some concern about the borrower’s ability and willingness to repay the loans. Problems may be the result of external issues such as economic or industry related issues.
The following tables present the credit quality indicators and origination years by type of loan in each category as of September 30, 2026 (amounts in thousands):
| Agricultural | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial and Financial | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 29
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Real Estate: Construction, 1 to 4 Family Residential | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Construction, Land Development and Commercial | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Farmland | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, 1 to 4 Family First Liens | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 30
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Real Estate: Mortgage, 1 to 4 Family Junior Liens | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Multi-Family | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Commercial | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans to Individuals | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 31
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Obligations of State and Political Subdivisions | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | ||||||||||||||||||||||||||
| September 30, 2026 | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current-period gross write offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following tables present total loans by risk categories and gross charge-offs by year of origination as of December 31, 2025 (amounts in thousands):
| Agricultural | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Commercial and Financial | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 32
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Real Estate: Construction, 1 to 4 Family Residential | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Construction, Land Development and Commercial | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Farmland | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, 1 to 4 Family First Liens | |||||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | |||||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Good | |||||||||||||||||||||||||||||
| Satisfactory | |||||||||||||||||||||||||||||
| Monitor | |||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Page 33
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Real Estate: Mortgage, 1 to 4 Family Junior Liens | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Multi-Family | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Real Estate: Mortgage, Commercial | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Loans to Individuals | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 34
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Obligations of State and Political Subdivisions | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Totals | ||||||||||||||||||||||||||
| December 31, 2025 | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Total | ||||||||||||||||||
| Excellent | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Good | ||||||||||||||||||||||||||
| Satisfactory | ||||||||||||||||||||||||||
| Monitor | ||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross write-offs for period | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Page 35
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Past due loans as of September 30, 2026 and December 31, 2025 were as follows:
| 30 - 59 Days Past Due | 60 - 89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans Receivable | Accruing Loans Past Due 90 Days or More | |||||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
Page 36
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company does not have a significant amount of loans that are past due less than 90 days where there are serious doubts as to the ability of the borrowers to comply with the loan repayment terms. The loans 90 days or more past due and still accruing are believed to be adequately collateralized. Loans are placed on nonaccrual status when management believes the collection of future principal and interest is not reasonably assured. As of September 30, 2026 and December 31, 2025, none of the Company's nonaccrual loans were earning interest on a cash basis.
The following table presents nonaccrual loans and nonaccrual loans with no allowance for credit losses by portfolio segment at September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Non-accrual loans | Nonaccrual loans with no ACL | Total Non- accrual loans | Nonaccrual loans with no ACL | ||||||||||||||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | (Amounts In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
Page 37
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted (numbers in thousands):
| Loan Modifications Made to Borrowers Experiencing Financial Difficulty | ||||||||||||||||||||||||||
| Three Months Ended September 30, 2026 | Three Months Ended September 30, 2025 | |||||||||||||||||||||||||
| Amortized Cost Basis | % of Total Class of Financing Receivable | Amortized Cost Basis | % of Total Class of Financing Receivable | |||||||||||||||||||||||
| Loan Type | ||||||||||||||||||||||||||
| Commercial and financial | Term extension | $ | $ | |||||||||||||||||||||||
| Mortgage, farmland | Term extension | |||||||||||||||||||||||||
| Mortgage, commercial | Term extension | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| Loan Modifications Made to Borrowers Experiencing Financial Difficulty | ||||||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||
| Amortized Cost Basis | % of Total Class of Financing Receivable | Amortized Cost Basis | % of Total Class of Financing Receivable | |||||||||||||||||||||||
| Loan Type | ||||||||||||||||||||||||||
| Agricultural | Term extension | $ | $ | |||||||||||||||||||||||
| Agricultural (1) | Interest rate reduction | |||||||||||||||||||||||||
| Commercial and financial | Term extension | |||||||||||||||||||||||||
| Construction, 1 to 4 family residential | Term extension | |||||||||||||||||||||||||
| Construction, land development and commercial | Term extension | |||||||||||||||||||||||||
| Mortgage, farmland | Term extension | |||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | Term extension | |||||||||||||||||||||||||
| Mortgage, commercial | Term extension | |||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
(1)Interest rate concession reduced interest rate by 2.00 %. Modification reduced monthly payment amounts for the borrower.
Page 38
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:
| Three Months Ended September 30, 2026 | Three Months Ended September 30, 2025 | |||||||||||||||||||
| Loan Type | Added Weighted Average Life (Years) | Added Weighted Average Life (Years) | ||||||||||||||||||
| Commercial and financial | ||||||||||||||||||||
| Mortgage, Farmland | ||||||||||||||||||||
| Mortgage, commercial | ||||||||||||||||||||
| Nine Months Ended September 30, 2026 | Nine Months Ended September 30, 2025 | |||||||||||||||||||
| Loan Type | Added Weighted Average Life (Years) | Added Weighted Average Life (Years) | ||||||||||||||||||
| Agricultural | ||||||||||||||||||||
| Commercial and financial | ||||||||||||||||||||
| Construction, 1 to 4 family residential | ||||||||||||||||||||
| Construction, land development and commercial | ||||||||||||||||||||
| Mortgage, Farmland | ||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ||||||||||||||||||||
| Mortgage, commercial | ||||||||||||||||||||
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Page 39
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (numbers in thousands):
September 30, 2026 Payment Status (Amortized Cost Basis) | ||||||||||||||||||||||||||
| Current | 30-89 Days Past Due | 90+ Days Past Due | ||||||||||||||||||||||||
| Loan Type | ||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | |||||||||||||||||||||||
| Commercial and financial | ||||||||||||||||||||||||||
| Mortgage, farmland | ||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ||||||||||||||||||||||||||
| Mortgage, commercial | ||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
September 30, 2025 Payment Status (Amortized Cost Basis) | ||||||||||||||||||||||||||
| Current | 30-89 Days Past Due | 90+ Days Past Due | ||||||||||||||||||||||||
| Loan Type | ||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | |||||||||||||||||||||||
| Commercial and financial | ||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ||||||||||||||||||||||||||
| Construction, land development and commercial | ||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ||||||||||||||||||||||||||
| Mortgage, commercial | ||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
There was one financing receivable of $154 thousand that had a payment default during the period and was modified in the 12 months before default to borrowers experiencing financial difficulty as of September 30, 2026 compared to none as of September 30, 2025.
The company has committed to lend additional amounts totaling $3.59 million and $1.41 million to the borrowers included in the previous table as of September 30, 2026 and September 30, 2025, respectively.
Page 40
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables present the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:
| Primary Type of Collateral | ||||||||||||||||||||||||||||||||||||||
| Real Estate | Equipment | Total | ACL Allocation | |||||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | ||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Commercial and financial | ||||||||||||||||||||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | ||||||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | ||||||||||||||||||||||||||||||||||||||
| Mortgage, farmland | ||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | ||||||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | ||||||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | ||||||||||||||||||||||||||||||||||||||
| Mortgage, commercial | ||||||||||||||||||||||||||||||||||||||
| Loans to individuals | ||||||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Primary Type of Collateral | |||||||||||||||||||||||||||||||||||
| Real Estate | Equipment | Total | ACL Allocation | ||||||||||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Page 41
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Collateral-dependent loans are loans for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For these loans, expected credit losses are measured based on the difference between the amortized cost basis and the fair value of the collateral, adjusted for estimated selling costs when applicable. Collateral-dependent loans represented 0.74 % of loans held for investment as of September 30, 2026 and 0.88 % as of December 31, 2025. There were no significant changes in the extent to which collateral secures these loans during the periods presented.
The Company regularly reviews a substantial portion of the loans in the portfolio and assesses whether the loans share common risk characteristics for which expected credit loss is measured on a pool basis or if the loans do not share common risk characteristics and therefore expected credit loss is measured on an individual loan basis. If the loans are assessed for credit losses on an individual basis, the Company determines if a specific allowance is appropriate. In addition, the Company's management also reviews and, where determined necessary, provides allowances for particular loans based upon (1) reviews of specific borrowers and (2) management’s assessment of areas that management considers are of higher credit risk, including loans that have been restructured or modified to a borrower experiencing financial difficulties. Loans that are determined not to be collateral-dependent and for which there are no specific allowances are classified into one or more risk categories and expected credit loss is measured on a pool basis. See Note 1 for further discussion of the allowance for credit losses for loans held for investment.
Specific allowances for credit losses on loans assessed individually are established if the loan balances exceed the net present value of the relevant future cash flows or the fair value of the relevant collateral based on updated appraisals and/or updated collateral analysis for the properties if the loan is collateral dependent. The Company may recognize a charge off or record a specific allowance related to an individually analyzed loan if there is a collateral shortfall or it is unlikely the borrower can make all principal and interest payments as contractually due.
For loans that are collateral-dependent, losses are evaluated based on the portion of a loan that exceeds the fair market value of the collateral. In general, this is the amount that the carrying value of the loan exceeds the related appraised value less estimated costs to sell the collateral. Generally, it is the Company’s policy not to rely on appraisals that are older than one year prior to the date the credit loss is being measured. The most recent appraisal values may be adjusted if, in the Company’s judgment, experience and other market data indicate that the property’s value, use, condition, exit market or other variables affecting its value may have changed since the appraisal was performed. The charge off or loss adjustment supported by an appraisal is considered the minimum charge off. Any adjustments made to the appraised value are to provide an additional charge off or specific reserve based on the applicable facts and circumstances. In instances where there is an estimated decline in value, a specific reserve may be provided or a charge off taken pending confirmation of the amount of the loss from an updated appraisal. Upon receipt of the new appraisals, an additional specific reserve may be provided or charge off taken based on the appraised value of the collateral. On average, appraisals are obtained within one month of order.
Page 42
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6. Leases
The Bank leases certain branch offices, certain parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 1 year to 8 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 3 years. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities. On July 1, 2026 the Bank entered into one new operating lease.
For the nine months ended September 30, 2026 and 2025 total operating lease expense was $504 thousand and $350 thousand, respectively, and is included in occupancy expenses in the consolidated statement of income. Included in this were $495 thousand and $330 thousand of operating lease costs, respectively, $2 thousand and $10 thousand of short term lease costs, respectively, and $7 thousand and $10 thousand of variable lease costs, respectively.
For the nine months ended September 30, 2026 and 2025, cash paid for amounts included in the measurement of operating lease liabilities was $494 thousand and $330 thousand, respectively, and $257 thousand of right-of-use assets were obtained in exchange for lease obligations for the nine months ended September 30, 2026 .
As of September 30, 2026 and December 31, 2025, operating lease right-of-use assets included in other assets were $1.55 million and $1.60 million respectively. Operating lease liabilities included in other liabilities were $1.65 million and $1.71 million, respectively. As of September 30, 2026 and December 31, 2025, the weighted average remaining lease term for operating leases was 5.95 years and 7.00 years, respectively, and the weighted average discount rate for operating leases was 3.79 % and 3.68 %, respectively. Discount rates used were determined from FHLB borrowing rates for comparable terms.
As of September 30, 2026, maturities of lease liabilities were as follows:
| Year ending December 31: | (Amounts In Thousands) | ||||
2026 (excluding the nine months ended September 30, 2026) | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less imputed interest | ( | ||||
| Total operating lease liabilities | $ | ||||
Page 43
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 7.Fair Value Measurements
The carrying value and estimated fair values of the Company's financial instruments as of September 30, 2026 are as follows:
| September 30, 2026 | |||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Readily Available Market Prices (1) | Observable Market Prices (2) | Unobservable Market Prices (3) | |||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| Financial instrument assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans, net | |||||||||||||||||||||||||||||
| Agricultural | |||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Total financial instrument assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Financial instrument liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Noninterest-bearing deposits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Other short-term borrowings | |||||||||||||||||||||||||||||
| Federal Home Loan Bank borrowings | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| Total financial instrument liabilities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Face Amount | |||||||||||||||||||||||||||||
| Financial instrument with off-balance sheet risk: | |||||||||||||||||||||||||||||
| Loan commitments | $ | ||||||||||||||||||||||||||||
| Letters of credit | |||||||||||||||||||||||||||||
| Total financial instrument liabilities with off-balance-sheet risk | $ | ||||||||||||||||||||||||||||
(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
(2)Considered Level 2 under ASC 820.
(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.
Page 44
Index
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The carrying value and estimated fair values of the Company's financial instruments as of December 31, 2025 are as follows:
| December 31, 2025 | |||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Readily Available Market Prices (1) | Observable Market Prices (2) | Unobservable Market Prices (3) | |||||||||||||||||||||||||
| (Amounts In Thousands) | |||||||||||||||||||||||||||||
| Financial instrument assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||
| Agricultural | |||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Total financial instrument assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Financial instrument liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Noninterest-bearing deposits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest-bearing deposits | |||||||||||||||||||||||||||||
| Other short-term borrowings | |||||||||||||||||||||||||||||
| Federal Home Loan Bank borrowings | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
| Total financial instrument liabilities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Face Amount | |||||||||||||||||||||||||||||
| Financial instrument with off-balance sheet risk: | |||||||||||||||||||||||||||||
| Loan commitments | $ | ||||||||||||||||||||||||||||
| Letters of credit | |||||||||||||||||||||||||||||
| Total financial instrument liabilities with off-balance-sheet risk | $ | ||||||||||||||||||||||||||||
(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
(2)Considered Level 2 under ASC 820.
(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Fair value of financial instruments: FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a single definition for fair value, a framework for measuring fair value and expanded disclosures concerning fair value. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company determines the fair market value of its financial instruments based on the fair value hierarchy established in ASC 820. There are three levels of inputs that may be used to measure fair value as follows:
| Level 1 | Quoted prices in active markets for identical assets or liabilities. | |||||||
| Level 2 | Observable inputs other than quoted prices included within Level 1. Observable inputs include the quoted prices for similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability. | |||||||
| Level 3 | Unobservable inputs supported by little or no market activity for financial instruments. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. | |||||||
It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Investment securities available for sale: Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If a quoted price is not available, the fair value is obtained from benchmarking the security against similar securities. U.S. Treasury securities are considered Level 1 with the remaining securities considered Level 2.
The pricing for investment securities is obtained from an independent source. There are no Level 3 investment securities owned by the Company. The Company obtains an understanding of the independent source’s valuation methodologies used to determine fair value by level of security. The Company validates assigned fair values on a sample basis using an additional third-party provider pricing service to determine if the fair value measurement is reasonable. Due to the nature of our investment portfolio, we do not expect significant and unusual fluctuations as fair value changes primarily relate to interest rate changes. No unusual fluctuations were identified during the nine months ended September 30, 2026. If a fluctuation requiring investigation was identified, the Company would research the change with the independent source or other available information.
Individually analyzed loans under ASC 326 CECL: See Note 1 for further discussion of individually analyzed loans under CECL.
A loan is considered to be non-performing when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a loan is considered non-performing, the amount of reserve is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material loans deemed non-performing using the fair value of the collateral for collateral dependent loans or based on the present value of the estimated future cash flows of interest and principal discounted at the loans effective interest rate or the fair value of the loan if determinable. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. All appraised values are adjusted for market-related trends based on the Company's experience in sales and other appraisals of similar property types as well as estimated selling costs. These loans are considered Level 3 as the instruments used to determine fair market value require significant management judgment and estimation.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Foreclosed assets: The Company does not record foreclosed assets at fair value on a recurring basis. Foreclosed assets consist mainly of other real estate owned but may include other types of assets repossessed by the Company. Foreclosed assets are adjusted to the lower of carrying value or fair value less the cost of disposal. Fair value is generally based upon independent market prices or appraised values of the collateral and may include a marketability discount as deemed necessary by management based on its experience with similar types of real estate. The value of foreclosed assets is evaluated periodically as a nonrecurring fair value adjustment. Foreclosed assets are classified as Level 3.
Off-balance sheet instruments: Fair values for outstanding letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of the outstanding letters of credit and unfunded loan commitments are not significant.
Interest rate swap agreements: The fair value is estimated using forward-looking interest rate curves and is calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below represents the balances of assets and liabilities measured at fair value on a recurring basis:
| September 30, 2026 | |||||||||||||||||||||||
| Assets | Readily Available Market Prices (1) | Observable Market Prices (2) | Company Determined Market Prices (3) | Total at Fair Value | |||||||||||||||||||
| Securities available for sale | (Amounts In Thousands) | ||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | |||||||||||||||||||
| State and political subdivisions | |||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | |||||||||||||||||||||||
| U.S. Government Agency and GSE securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Assets | Readily Available Market Prices (1) | Observable Market Prices (2) | Company Determined Market Prices (3) | Total at Fair Value | |||||||||||||||||||
| Securities available for sale | (Amounts In Thousands) | ||||||||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | |||||||||||||||||||
| State and political subdivisions | |||||||||||||||||||||||
| Mortgage-backed securities and collateralized mortgage obligations | |||||||||||||||||||||||
| U.S. Government Agency and GSE securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
(2)Considered Level 2 under ASC 820.
(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.
There were no transfers between Levels 1, 2 or 3 during the nine months ended September 30, 2026 and the year ended December 31, 2025.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company is required to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The valuation methodologies used to measure these fair value adjustments are described above. For assets measured at fair value on a nonrecurring basis that were still held on the balance sheet at September 30, 2026 and December 31, 2025, the following tables provide the level of valuation assumptions used to determine the adjustment and the carrying value of the related individual assets at year end.
| September 30, 2026 | |||||||||||||||||||||||||||||||||||
| Readily Available Market Prices (1) | Observable Market Prices (2) | Company Determined Market Prices (3) | Total at Fair Value | ||||||||||||||||||||||||||||||||
| (Amounts in Thousands) | |||||||||||||||||||||||||||||||||||
| Loans (4) | |||||||||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||||||||
| Real Estate: | |||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||||||||
| Foreclosed assets (5) | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
(2)Considered Level 2 under ASC 820.
(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.
(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully charged-off is zero.
(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (continued)
| December 31, 2025 | |||||||||||||||||||||||||||||
| Readily Available Market Prices (1) | Observable Market Prices (2) | Company Determined Market Prices (3) | Total at Fair Value | ||||||||||||||||||||||||||
| (Amounts in Thousands) | |||||||||||||||||||||||||||||
| Loans (4) | |||||||||||||||||||||||||||||
| Agricultural | $ | $ | $ | $ | |||||||||||||||||||||||||
| Commercial and financial | |||||||||||||||||||||||||||||
| Real Estate: | |||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | |||||||||||||||||||||||||||||
| Construction, land development and commercial | |||||||||||||||||||||||||||||
| Mortgage, farmland | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | |||||||||||||||||||||||||||||
| Mortgage, multi-family | |||||||||||||||||||||||||||||
| Mortgage, commercial | |||||||||||||||||||||||||||||
| Loans to individuals | |||||||||||||||||||||||||||||
| Foreclosed assets (5) | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
(1)Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).
(2)Considered Level 2 under ASC 820.
(3)Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.
(4)Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully charged-off is zero.
(5)Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value.
| September 30, 2026 | ||||||||||||||
| Fair Value | Valuation Technique(s) | Unobservable Input(s) | Range (Weighted Average) | |||||||||||
| (Amounts in Thousands) | ||||||||||||||
| Individually analyzed loans | $ | County assessed value | Discount rate | ( | ||||||||||
| Appraisal - sales comparison | Discount rate | ( | ||||||||||||
| List price | Discount rate | ( | ||||||||||||
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 8.Stock Repurchase Program
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 9. Commitments and Contingencies
Concentrations of credit risk: The Bank's loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Bank's market area. Investments in securities issued by state and political subdivisions within the state of Iowa had fair value of $146.82 million and $162.38 million as of September 30, 2026 and December 31, 2025, respectively. The concentrations of credit by type of loan are set forth in Note 5 to the Consolidated Financial Statements. Outstanding letters of credit were granted primarily to commercial borrowers. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in Johnson, Linn, Washington and Iowa Counties, Iowa.
Property acquisition commitment - On May 11, 2026, the Company entered into a purchase agreement to acquire approximately 19.2 acres of land and related improvements for a purchase price of $20.70 million. The Company intends to use the property to consolidate operational teams into a single campus and support long-term operational needs. As of September 30, 2026, the Company had paid $2.00 million of earnest money related to the transaction and had a remaining commitment of approximately $18.70 million. Closing is subject to customary conditions, including completion of due diligence activities and other conditions specified in the purchase agreement, and is currently expected to occur during the first quarter of 2027. The Company currently expects to fund the acquisition through available liquidity, which may include on-balance-sheet cash, borrowings, or a combination thereof.
Contingencies: In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Company’s business, financial conditions, or results of operations.
Financial instruments with off-balance sheet risk: The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, credit card participations and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Company mitigates credit risk associated with these commitments through credit underwriting standards, ongoing credit monitoring, and, in many cases, collateral requirements and personal or corporate guarantees. Because many commitments are expected to expire without being fully drawn, the total contractual amount does not represent the Company’s expected future funding requirements or credit exposure. The Company maintains an allowance for credit losses on off-balance sheet credit exposures of $4.98 million at September 30, 2026, which reflects management’s estimate of expected credit losses on unfunded commitments, considering the likelihood of funding and expected credit losses consistent with the methodology applied to funded loans.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, credit card participations and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank's commitments at September 30, 2026 and December 31, 2025 is as follows:
| September 30, 2026 | December 31, 2025 | ||||||||||
| (Amounts In Thousands) | |||||||||||
| Firm loan commitments and unused portion of lines of credit: | |||||||||||
| Home equity loans | $ | $ | |||||||||
| Credit cards | |||||||||||
| Commercial, real estate and home construction | |||||||||||
| Commercial lines and real estate purchase loans | |||||||||||
| Outstanding letters of credit | |||||||||||
| Total commitments | $ | $ | |||||||||
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 10.Income Taxes
Note 11.Derivative Financial Instruments
In the normal course of business, the Bank may use derivative financial instruments to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate and market or liquidity risks. Derivative instruments are recognized as either assets or liabilities in the accompanying consolidated financial statements and are measured at fair value. The Bank’s objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amount to be exchanged between the counterparties. The Bank is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. The Bank minimizes this risk by entering into derivative contracts with large, stable financial institutions. The Bank has not experienced any losses from nonperformance by counterparties. The Bank monitors counterparty risk in accordance with the provisions of ASC 815. In addition, the Bank’s interest rate-related derivative instruments contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty. The Bank executed one interest rate swap agreement in November 2023, that expired on May 15, 2025, and was not required to pledge a US Treasury security as collateral as of September 30, 2026 and December 31, 2025, respectively.
Cash Flow Hedges: The Bank executed one forward-starting interest rate swap transaction on November 28, 2023. The interest rate swap transaction had an effective date of December 15, 2023, and an expiration date of May 15, 2025, effectively converting variable rate debt to fixed rate debt. For accounting purposes, this swap transaction was designated as a cash flow hedge of the changes in cash flows attributable to changes in the effective federal funds rate, the benchmark interest rate being hedged, associated with the interest payments made on an amount of the Bank’s debt principal equal to the then-outstanding swap notional amount. The underlying principal balance was matched to future advances related to a large customer construction project, however, the FHLB advances remained equal to the notional amount of the swap making it probable that sufficient effective federal funds rate based interest payments would exist through the maturity date of the swap.
As of September 30, 2026 and December 31, 2025 there were no derivative instruments outstanding.
The table below represents after-tax gains and (losses) recognized on the Bank’s derivative instrument designated as cash flow hedges for the three and nine months ended September 30, 2026 and September 30, 2025:
| Recognized in Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||
| (Amounts in Thousands) | Amount of Gain (Loss) | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| Interest rate swap | $ | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| Interest rate swap | $ | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| Interest rate swap | $ | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| Interest rate swap | $ | ||||||||||||||||||||||||||||
No amounts were reclassified from accumulated other comprehensive income into earnings during the periods presented.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 12. Borrowings
The following table sets forth selected information for borrowings as of September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | ||||||||||
| (Amounts in Thousands) | |||||||||||
| Other short-term borrowings | |||||||||||
FHLB daily reset advances, interest rate 2026 | $ | $ | |||||||||
| $ | $ | ||||||||||
| Federal Home Loan Bank borrowings | |||||||||||
(Effective interest rates as of September 30, 2026) | |||||||||||
Due 2026, | $ | $ | |||||||||
Due 2027, | |||||||||||
Due 2030, | |||||||||||
| $ | $ | ||||||||||
The Company has federal funds lines available totaling $175.00 50.00 million is secured by available for sale securities of $37.84 million and $48.49 million at September 30, 2026 and December 31, 2025, respectively, and the remaining balance is unsecured. The Company also has availability to borrow from the Federal Reserve Bank Discount Window of $102.95 million and $105.54 million as of September 30, 2026 and December 31, 2025, respectively, that is secured by available for sale securities.
Note 13. Segment Reporting
The Company conducts operations through one reportable segment which is determined by the Executive Committee, which is designated the chief operating decision maker, based upon information provided about the Company's products and services offered, primarily banking operations. The Executive Committee consists of the Chief Executive Officer and the Chief Financial Officer. The segment is also distinguished by the level of information provided to the Executive Committee, who uses such information to review performance of various components of the business (such as branches), which are then aggregated if operating performance, products/services, and customers are similar. The Executive Committee will evaluate the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company's segment and in the determination of allocating resources. The Executive Committee uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The Executive Committee uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessing performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, credit loss expense, and salaries and employee benefits provide the significant expenses in the banking operation. All operations are domestic. The Company’s operations have similar economic characteristics, including consistent net interest margins, cost structures, and risk profiles across lending and deposit products.
Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using consolidated net income from the consolidated statements of income. Significant income and expenses are included on the consolidated statements of income. These include interest income, interest expense, net interest income, and noninterest income. Significant expenses used in evaluating Company performance are interest expense, credit loss expense and salaries and employee benefits which are included on the consolidated statements of income.
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HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 14. Related Party Transactions
Certain directors of the Company and the Bank, companies with which the directors are affiliated, and certain principal officers and immediate family members are customers of, and have banking transactions with, the Bank in the ordinary course of business. Such indebtedness has been incurred on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons.
The following is an analysis of the changes in the loans to those the Company has determined to be related parties as of September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | ||||||||||
| (Amounts In Thousands) | |||||||||||
| Balance, beginning | $ | $ | |||||||||
| Net increase (decrease) due to change in related parties | ( | ||||||||||
| Advances | |||||||||||
| Collections | ( | ( | |||||||||
| Balance, ending | $ | $ | |||||||||
Included in the loans to related parties was one loan on nonaccrual and past due with a balance of $40 thousand and $49 thousand as of September 30, 2026 and December 31, 2025, respectively. As of September 30, 2026 there was one additional loan past due but not on nonaccrual with a balance of $0.19 million. Loans to related parties decreased significantly since December 31, 2025 due to the retirement of three directors at the annual meeting of the shareholders held on April 20, 2026.
Deposits from these related parties totaled $13.51 million and $28.69 million as of September 30, 2026 and December 31, 2025, respectively. Deposits from related parties are accepted subject to the same interest rates and terms as those from nonrelated parties.
Letters of credit with these related parties totaled $67 thousand and $67 thousand as of September 30, 2026 and December 31, 2025, respectively, and were done under the same terms as those with nonrelated parties. There were no amounts drawn related to these letters of credit as of September 30, 2026 and December 31, 2025, respectively.
Credit cards with these related parties had an outstanding balance of $45 thousand and $54 thousand as of September 30, 2026 and December 31, 2025, respectively, with a total credit limit of $0.29 million and $0.56 million as of September 30, 2026 and December 31, 2025, respectively. These related party credit cards were done under the same terms as those with nonrelated parties.
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HILLS BANCORPORATION
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
The following discussion by management is presented regarding the financial condition of Hills Bancorporation (“Hills Bancorporation” or “the Company”) and its banking subsidiary Hills Bank and Trust Company (“the Bank”) for the dates and periods indicated. The discussion should be read in conjunction with the consolidated financial statements and the accompanying footnotes thereto included or incorporated by reference elsewhere in this document.
An overview of nine month period ended September 30, 2026 is presented following the section discussing a special note regarding forward looking statements.
Special Note Regarding Forward Looking Statements
This report contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the following:
•The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. This includes current concerns related to higher inflation, rising energy prices, geopolitical conflicts, and supply chain imbalances, including tariffs.
•The effects of financial market disruptions and/or an economic recession, and monetary and other governmental actions designed to address such disruptions, recession, or pandemics.
•The financial strength of the counterparties with which the Company or the Company’s customers do business and to which the Company has investment or financial exposure.
•The credit quality and credit agency ratings of the securities in the Company’s investment securities portfolio, a deterioration or downgrade of which could lead to change in the market value, the recognition of an allowance for credit losses on the affected securities and the recognition of a credit loss.
•The effects of, and changes in, laws, regulations and policies affecting banking, securities and monetary and financial matters as well as any laws otherwise affecting the Company, including, but not limited to, changes in U.S. tax laws and regulations.
•The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.
•The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.
•The ability of the Company to obtain new customers and to retain existing customers.
•The timely development and acceptance of products and services, including products and services offered through alternative electronic delivery channels.
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HILLS BANCORPORATION
•Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.
•The ability of the Company to develop and maintain secure and reliable technology systems, including to detect and prevent the occurrence of fraudulent activity, breaches, or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools.
•The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.
•Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.
•The economic impact of natural disasters, diseases and/or pandemics, and terrorist attacks and military actions.
•Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected.
•The costs, effects and outcomes of existing or future litigation.
•Changes in accounting policies and practices that may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.
•The ability of the Company to manage the risks associated with the foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.
Economic Environment
For the third quarter of 2026, per the Beige Book, economic activity for the Company's region was flat on balance in late August and September, and contacts expected a slight pace of increase in the coming year. Manufacturing demand rose moderately; employment was up slightly; consumer spending was flat on balance; construction and real estate activity and business spending declined slightly; and nonbusiness contacts saw no change in economic activity. Prices rose moderately, wages rose modestly, and financial conditions tightened modestly. Farm income expectations for 2026 were down slightly.
Higher borrowing costs continue to present a risk to the economy, with consumer and business budgets accounting for higher interest costs. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will likely continue to impact results for the rest of 2026 and beyond.
Our credit administration continues to closely monitor and analyze the higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. Based on the Company’s capital levels, prudent underwriting policies, loan concentration diversification and our geographic footprint, senior management is cautiously optimistic that the Company is positioned to continue managing the impact of the varied set of risks and uncertainties currently impacting the economy and remain adequately capitalized. However, the Company may be required to make additional credit loss provisions as warranted by the economic conditions and migration in the loan portfolio towards the special mention risk rating category.
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Critical Accounting Policies
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policies to be those which are related to the allowance for credit losses.
Information about our critical accounting policies is included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 18, 2026, and there have been no material changes in these critical accounting policies since December 31, 2025.
Overview
The Company is a bank holding company engaged, through its wholly-owned subsidiary bank, in the business of commercial banking. The Company’s subsidiary is Hills Bank and Trust Company, Hills, Iowa. The Bank was formed in Hills, Iowa in 1904. The Bank is a full-service commercial bank extending its services to individuals, businesses, governmental units and institutional customers primarily in the communities of Hills, Iowa City, Coralville, North Liberty, Lisbon, Mount Vernon, Kalona, Wellman, Cedar Rapids, Marion, Washington and Williamsburg, Iowa.
Highlights with respect to items on the Company's statement of income for the nine month period ended September 30, 2026 included the following:
•Net income for the nine month period ended September 30, 2026 was $71.42 million compared to $45.99 million for the same nine months of 2025, an increase of $25.43 million or 55.30%. The principal factors in the increase in net income for the first nine months of 2026 were an increase in net interest income of $21.64 million, benefit in credit loss benefit of $12.49 million, and an increase in noninterest income of $7.88 million, primarily due to gain on sales of VISA B Shares of $1.69 million and the $4.29 million loss on sale of investment securities in 2025. The increase in net income was offset by an increase in noninterest expenses of $8.92 million, primarily due to an increase in salaries and employee benefits, furniture and equipment, and outside services.
•The Company achieved a return on average assets of 1.82% and a return on average equity of 15.52% for the twelve months ended September 30, 2026, compared to the twelve months ended September 30, 2025, which were 1.26% and 11.42%, respectively. The return on average assets and return on average equity for the nine months ended September 30, 2026 were 2.01% and 17.11%, respectively, compared to the nine months ended September 30, 2025, which were 1.35% and 12.27%, respectively. On a split-adjusted basis, cash dividends paid in January 2026 increased to $0.615 per share from $0.575 per share in January 2025.
•The Company’s net interest income is the largest component of revenue and it is primarily a function of the average earning assets and the net interest margin percentage. The Company achieved a net interest margin on a tax-equivalent basis of 3.88% for the nine months ended September 30, 2026 compared to 3.41% for the same nine months of 2025. Average earning assets were $4.619 billion year to date in 2026 and $4.444 billion in 2025.
Highlights noted on the balance sheet as of September 30, 2026 for the Company included the following:
•Total assets were $4.961 billion, an increase of $313.57 million since December 31, 2025.
•Cash and cash equivalents were $41.46 million, compared to $42.11 million at December 31, 2025.
•Loans net of allowance for credit losses was $3.681 billion, an increase of $174.25 million since December 31, 2025, primarily due to increases in mortgage - multi-family, mortgage - 1 to 4 family first liens, mortgage - farmland, mortgage - commercial, and construction, land development and commercial. This was offset by decreases in agricultural, commercial and financial loans and mortgage - 1 to 4 family junior liens.
•Loans held for sale were $4.18 million, a decrease of $3.87 million since December 31, 2025.
•Deposits increased $302.38 million since December 31, 2025.
•On May 11, 2026, the Company entered into a material definitive agreement for the acquisition of land and improvements consisting of approximately 19.2 acres with a purchase price of $20.70 million. The Company intends to use the property to consolidate operational teams in a single location and to address long-term operational needs. The Company has paid $2.00 million in earnest money for this project, which is scheduled to close in the first quarter of 2027.
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Reference is made to Note 7 for the Company's consolidated financial statements for a discussion of fair value measurements which relate to methods used by the Company in recording certain assets and liabilities on its consolidated financial statements.
Financial Condition
Loan demand is stable and grown through the third quarter of 2026 and loan demand is expected to remain consistent throughout the remainder of 2026.
The following table shows the composition of the loans (before deducting the allowance for credit losses) as of September 30, 2026 and December 31, 2025. The table does not include loans held for sale to the secondary market.
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| (Amounts In Thousands) | (Amounts In Thousands) | ||||||||||||||||||||||
| Agricultural | $ | 111,879 | 3.00 | % | $ | 118,924 | 3.34 | % | |||||||||||||||
| Commercial and financial | 292,994 | 7.84 | 295,618 | 8.29 | |||||||||||||||||||
| Real estate: | |||||||||||||||||||||||
| Construction, 1 to 4 family residential | 90,874 | 2.43 | 89,807 | 2.52 | |||||||||||||||||||
| Construction, land development and commercial | 294,595 | 7.89 | 248,292 | 6.97 | |||||||||||||||||||
| Mortgage, farmland | 280,580 | 7.51 | 276,790 | 7.76 | |||||||||||||||||||
| Mortgage, 1 to 4 family first liens | 1,316,298 | 35.23 | 1,261,877 | 35.40 | |||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | 142,541 | 3.81 | 143,317 | 4.02 | |||||||||||||||||||
| Mortgage, multi-family | 535,831 | 14.34 | 494,282 | 13.87 | |||||||||||||||||||
| Mortgage, commercial | 600,531 | 16.07 | 565,177 | 15.85 | |||||||||||||||||||
| Loans to individuals | 28,934 | 0.77 | 28,763 | 0.81 | |||||||||||||||||||
| Obligations of state and political subdivisions | 41,336 | 1.11 | 41,885 | 1.17 | |||||||||||||||||||
| Gross Loans (ex net unamortized fees and costs) | $ | 3,736,393 | 100.00 | % | $ | 3,564,732 | 100.00 | % | |||||||||||||||
| Net unamortized fees and costs | 302 | 291 | |||||||||||||||||||||
| Gross Loans | $ | 3,736,695 | $ | 3,565,023 | |||||||||||||||||||
| Less allowance for credit losses | 55,622 | 58,204 | |||||||||||||||||||||
| Loans, net allowance for credit losses | $ | 3,681,073 | $ | 3,506,819 | |||||||||||||||||||
The Bank has an established formal loan origination policy. In general, the loan origination policy attempts to reduce the risk of credit loss to the Company by requiring, among other things, maintenance of minimum loan to value ratios, evidence of appropriate levels of insurance carried by borrowers and documentation of appropriate types and amounts of collateral and sources of expected payment. The collateral relied upon in the loan origination policy is generally the property being financed by the Company. The source of expected payment is generally the income produced from the property being financed. Personal guarantees are required of individuals owning or controlling at least 20% of the ownership of an entity. Limited or proportional guarantees may be accepted in circumstances if approved by the Company’s Board of Directors. Financial information provided by the borrower is verified as considered necessary by reference to tax returns, or audited, reviewed or compiled financial statements. The Company does not originate subprime loans. In order to modify, restructure or otherwise change the terms of a loan, the Company’s policy is to evaluate each borrower situation individually. Modifications, restructures, extensions and other changes are done to improve the Company’s position and to protect the Company’s capital. If a borrower is not current with its payments, any additional loans to such borrowers are evaluated on an individual borrower basis.
The Company has not experienced any significant time lapses in recognizing the required provisions for collateral dependent loans, nor has the Company delayed appropriate charge-offs. When an updated appraisal value has been obtained, the Company has used the appraisal amount in helping to determine the appropriate charge-off or required reserve. The Company also evaluates any changes in the financial condition of the borrower and guarantors (if applicable), economic conditions, and the Company’s loss experience with the type of property in question. Any information utilized in addition to the appraisal is intended to identify additional charge-offs or provisions, not to override the appraised value.
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Overall credit quality in the loan portfolio remained stable during 2026, with certain metrics reflecting modest improvement compared to December 31, 2025. Nonperforming assets declined during the last nine months, driven primarily by reductions in nonaccrual loans across several loan categories. Accruing loans past due 90 days or more also decreased during the last nine months, and represented a low percentage of total loans at September 30, 2026. Management believes loans that remained accruing while past due were generally well‑collateralized. Delinquency levels declined during the quarter, reflecting improvements in customer payment performance and continued proactive credit monitoring. Trends in early‑stage delinquencies remained stable, and the Company did not experience material deterioration in any specific loan segment. Gross charge‑offs during 2026 are below historical averages and were almost completely offset by recoveries. Charge‑off activity remained concentrated in isolated credits and did not reflect broader portfolio‑level stress. Management continues to closely monitor credit quality indicators, including trends in nonperforming loans, delinquencies, loan risk‑rating migration, and charge‑offs, particularly in light of ongoing economic uncertainty and higher interest rate sensitivity for certain borrowers. While credit metrics were stable during the quarter, future credit performance may be affected by changes in economic conditions, borrower cash flows, collateral values, and interest rate levels.
Accruing loans past due 90 days or more decreased $0.73 million from December 31, 2025 to September 30, 2026. As of September 30, 2026 and December 31, 2025, accruing loans past due 90 days or more were 0.05% and 0.07% of total loans, respectively. The average balance of the accruing loans past due 90 days or more decreased in September 30, 2026 compared to December 31, 2025. The average 90 days or more past due accruing loan balance per loan was $0.12 million as of September 30, 2026 compared to $0.23 million as of December 31, 2025.
In accordance with Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues, and Staff Accounting Bulletin No. 119, which aligns the staff's guidance with FASB ASC Topic 326, or CECL, the Company determines and assigns ratings to loans using factors that include the following: an assessment of the financial condition of the borrower; a realistic determination of the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; an analysis of the levels and trends of loan categories; and a review of delinquent and classified loans.
Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to nonaccrual status, a charge-off or the establishment of a specific reserve. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction payment and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If the Company determines that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded and the uncollectible amount is charged-off. The Bank's credit and legal departments undertake a thorough and ongoing analysis to determine if an additional specific reserve and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize realized loss.
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The following table presents the allowance for credit losses by type of loans, the percentage of the allocation for each category to the total allowance and the percentage of all loans in each category to total loans as of September 30, 2026 and December 31, 2025:
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||||
| Amount | % of Total Allowance | % of Loans to Total Loans | Amount | % of Total Allowance | % of Loans to Total Loans | ||||||||||||||||||||||||||||||
| (In Thousands) | (In Thousands) | ||||||||||||||||||||||||||||||||||
| Agricultural | $ | 186 | 0.33 | % | 3.00 | % | $ | 418 | 0.72 | % | 3.34 | % | |||||||||||||||||||||||
| Commercial and financial | 10,228 | 18.39 | 7.84 | 11,890 | 20.43 | 8.29 | |||||||||||||||||||||||||||||
| Real estate: | |||||||||||||||||||||||||||||||||||
| Construction, 1 to 4 family residential | 608 | 1.09 | 2.43 | 617 | 1.06 | 2.52 | |||||||||||||||||||||||||||||
| Construction, land development and commercial | 3,815 | 6.86 | 7.89 | 3,165 | 5.44 | 6.97 | |||||||||||||||||||||||||||||
| Mortgage, farmland | 1,101 | 1.98 | 7.51 | 2,478 | 4.26 | 7.76 | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family first liens | 20,579 | 37.00 | 35.23 | 20,959 | 36.01 | 35.40 | |||||||||||||||||||||||||||||
| Mortgage, 1 to 4 family junior liens | 5,460 | 9.82 | 3.81 | 5,639 | 9.69 | 4.02 | |||||||||||||||||||||||||||||
| Mortgage, multi-family | 2,780 | 5.00 | 14.34 | 2,345 | 4.03 | 13.87 | |||||||||||||||||||||||||||||
| Mortgage, commercial | 9,891 | 17.78 | 16.07 | 9,855 | 16.93 | 15.85 | |||||||||||||||||||||||||||||
| Loans to individuals | 962 | 1.73 | 0.77 | 826 | 1.42 | 0.81 | |||||||||||||||||||||||||||||
| Obligations of state and political subdivisions | 12 | 0.02 | 1.11 | 12 | 0.01 | 1.17 | |||||||||||||||||||||||||||||
| $ | 55,622 | 100.00 | % | 100.00 | % | $ | 58,204 | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
The allowance for credit losses (ACL) totaled $55.62 million at September 30, 2026 compared to the allowance of $58.20 million at December 31, 2025. The percentage of the allowance to outstanding loans was 1.49% and 1.63% at September 30, 2026 and December 31, 2025, respectively. The allowance was based on management’s consideration of a number of factors, including composition of the loan portfolio, loans with higher credit risks and the overall amount of loans outstanding. The changes in the ACL during 2026 compared to December 31, 2025 reflect updates made during the period based on new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.
The adequacy of the allowance is reviewed quarterly and adjusted as appropriate after consideration has been given to the impact of economic conditions on the borrowers’ ability to repay, loan collateral values, past collection experience, the risk characteristics of the loan portfolio and such other factors that deserve current recognition. The growth of the loan portfolio and the trends in nonperforming loans are significant elements in the determination of the allowance for credit losses. Quantitative factors include the Company’s historical loss experience, which is then adjusted for levels and trends in past due, levels and trends in charged-off and recovered loans, trends in volume growth, trends in nonperforming loans, trends in modified loans, local economic trends and conditions, and industry and other conditions.
Management has determined that the allowance for credit losses was adequate at September 30, 2026, and that the loan portfolio is diversified and secured without undue concentration in any specific risk area. The process of estimating the allowance for credit losses involves a high degree of management judgment; however, the ACL is based on a comprehensive, well‑documented, and consistently applied analysis of the Company’s loan portfolio. The ACL is highly sensitive to changes in certain key assumptions and inputs used in the Company’s credit loss estimation process. These assumptions include, among others, economic forecasts (most notably the Iowa unemployment rate and national real gross domestic product), prepayment speeds, curtailment rates, probability of default, loss given default, time to recovery, and qualitative factors applied by management to address risks not fully captured by quantitative models.
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Changes in these assumptions can result in materially different estimates of expected credit losses. For example, adverse changes in economic conditions, including increases in unemployment or deterioration in macroeconomic indicators used in the Company’s reasonable and supportable forecast, could result in higher modeled probabilities of default and loss severity, which would increase the ACL and related credit loss expense. Conversely, improvements in economic forecasts, loan performance trends, or reductions in portfolio risk could decrease the estimated ACL. The ACL is also sensitive to changes in management judgment applied through qualitative factors, including assessments of loan portfolio composition, credit quality migration, delinquency trends, concentrations of credit, collateral values, and emerging risks within certain loan segments. Because these qualitative adjustments are based in part on judgment, actual credit losses may differ materially from estimated amounts. While management regularly evaluates the reasonableness of the assumptions and inputs used in estimating the ACL and believes the allowance was appropriate as of September 30, 2026, future changes in economic conditions, portfolio characteristics, or other factors may require material changes to the allowance in subsequent periods.
Investment securities available for sale held by the Company increased by $120.02 million from December 31, 2025 to September 30, 2026. The fair value of securities available for sale was $65.83 million less than the amortized cost of such securities as of September 30, 2026. At December 31, 2025, the fair value of the securities available for sale was $1.71 million less than the amortized cost of such securities.
Deposits increased $302.38 million in the first nine months of 2026. The Company continues to have sufficient liquidity resources available to fund expected additional loan growth.
Brokered deposits are included in total deposits and totaled $35.41 million as of September 30, 2026 with a weighted average rate of 4.26%. Brokered deposits were $35.17 million as of December 31, 2025 with a weighted average interest rate of 4.12%. As of September 30, 2026 and December 31, 2025, brokered deposits were 0.96% and 1.04% of total deposits, respectively.
There were $511.36 million and $64.33 million of Federal Home Loan Bank (FHLB) borrowings as of September 30, 2026 and December 31, 2025, respectively. There were $143.93 million of FHLB daily reset advances as of September 30, 2026 and $586.88 million as of December 31, 2025. It is expected that the FHLB and Federal Funds funding sources will be considered in the future if loan growth exceeds core deposit increases and the interest rates on funds borrowed from the FHLB and Federal Funds are favorable compared to other funding alternatives.
Income Taxes
Federal and state income tax expenses were $19.23 million and $11.57 million for the nine months ended September 30, 2026 and 2025, respectively. Income taxes as a percentage of income before taxes were 21.21% in 2026 and 20.10% in 2025. See Note 10 Income Taxes for additional information.
Liquidity
The objective of liquidity management is to ensure the availability of sufficient cash flows to fund operations, to meet depositor withdrawals, to provide for our customers' credit needs, and to meet maturing obligations and existing commitments. The Company's principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, federal funds purchased, advances from the FHLB, advances on bank lines of credit, brokered deposit relationships, and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. Investments in liquid assets are adjusted based on expected loan demand, projected loan and investment securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management, liquidity and contingency funding policies.
Investment securities available for sale comprised 21.68% of the Company’s total assets at September 30, 2026 compared to 20.56% at December 31, 2025. As of September 30, 2026, investment securities with a market value of $140.79 million were pledged to collateralize public and trust deposits and other borrowings. As of December 31, 2025, investment securities with a market value of $154.03 million were pledged.
The Company has historically maintained a stable deposit base and a relatively low level of large deposits, which has mitigated the volatility in the Company’s liquidity position. Deposit inflows and outflows can vary widely based on prevailing market interest rates, competition, economic conditions, our business customers' liquidity needs and by recent developments in the
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financial services industry. Uninsured deposits as of September 30, 2026 and December 31, 2025 were approximately $1.126 billion and $733.97 million, respectively, which comprised 30.69% and 21.79% of total deposits.
As of September 30, 2026, the Company had additional borrowing capacity available from the Federal Home Loan Bank (“FHLB”) of $508.74 million. The Company had $511.36 million and $64.33 million outstanding in FHLB borrowings as of September 30, 2026 and December 31, 2025, respectively, with maturities through 2030. The Company also had $143.93 million and $586.88 million outstanding in FHLB daily reset advances as of September 30, 2026 and December 31, 2025, respectively. In addition, the Company had $175.00 million in borrowing capacity available through secured and unsecured lines of credit with correspondent banks with no borrowings under those federal fund lines as of September 30, 2026. Finally, the Company had $102.95 million in borrowing capacity available through the Federal Reserve Discount Window, with no borrowings as of September 30, 2026.
Other liquidity sources include various sources of brokered deposits.
Contractual Obligations
On May 11, 2026, the Company entered into a material definitive agreement for the acquisition of land and improvements consisting of approximately 19.2 acres with a purchase price of $20.70 million. The Company intends to use the property to consolidate operational teams in a single location and to address long-term operational needs. The Company has paid $2.00 million in earnest money for this project. Closing is subject to customary conditions and is expected to occur during the first quarter of 2027. There have been no other material changes with regard to contractual obligations disclosed in the Company’s Form 10-K for the year ended December 31, 2025.
Dividends and Equity
In January 2026, Hills Bancorporation paid a dividend of $10.81 million or $0.615 per share. The dividend paid in January 2025 was $0.575 per share. The per share values for January 2025 and 2026 have been adjusted for the stock split in second quarter of 2026. After payment of the dividend and the adjustment for accumulated other comprehensive income (loss), stockholders’ equity as of September 30, 2026 totaled $545.60 million.
The Bank has elected to use the Community Bank Leverage Ratio ("CBLR") framework as provided for in the Economic Growth, Regulatory Relief, and Consumer Protection Act. Under the CBLR framework, a qualifying community banking organization is generally considered to have met applicable risk-based and leverage capital requirements if it maintains a leverage ratio above the required threshold.
For regulatory capital purposes, both the Company and the Bank have elected the accumulated other comprehensive income ("AOCI") opt-out provision permitted under applicable banking regulations. Accordingly, most components of AOCI, including unrealized gains and losses on available-for-sale securities, are excluded from the calculation of regulatory capital.
Under the CBLR framework, the Bank is required to maintain a CBLR of greater than 8.00% as of September 30, 2026, as measured by dividing the Bank's Tier 1 capital by its average total consolidated assets. Effective July 1, 2026 the CBLR requirement dropped from 9.00% to 8.00%. As of September 30, 2026 and December 31, 2025, the Company had regulatory capital in excess of the Federal Reserve’s minimum and well-capitalized definition requirements. The actual amounts and capital ratios as of September 30, 2026 and December 31, 2025 are presented below (amounts in thousands):
| Actual | |||||||||||||||||||||||
As of September 30, 2026: | Amount of Tier 1 Capital | Ratio | |||||||||||||||||||||
| Company: | |||||||||||||||||||||||
| Community Bank Leverage ratio (1) | $ | 655,981 | 13.80 | % | |||||||||||||||||||
| Bank: | |||||||||||||||||||||||
| Community Bank Leverage ratio | 653,685 | 13.75 | % | ||||||||||||||||||||
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| Actual | |||||||||||||||||||||||
As of December 31, 2025: | Amount of Tier 1 Capital | Ratio | |||||||||||||||||||||
| Company: | |||||||||||||||||||||||
| Community Bank Leverage ratio (1) | $ | 601,513 | 12.94 | % | |||||||||||||||||||
| Bank: | |||||||||||||||||||||||
| Community Bank Leverage ratio | 601,341 | 12.94 | |||||||||||||||||||||
(1)The community bank leverage ratio for the holding company is only included for informational purposes.
Discussion of operations for the nine months ended September 30, 2026 and 2025
Net Income Overview
Net income was $71.42 million in 2026 and $45.99 million in the comparable period in 2025, an increase of $25.43 million or 55.30%. The change in net income in 2026 from the first nine months of 2025 was primarily the result of the following:
•Net interest income before credit loss expense increased by $21.64 million or 19.72%, primarily driven by an increase in loan interest income of $11.67 million.
•Credit loss benefit was $1.51 million compared to the credit loss expense of $10.98 million. This represents a benefit in expense of $12.49 million.
•Noninterest income increased by $7.88 million, or 37.71%, primarily due to the gain on sale of VISA B shares of $1.69 million and the $4.29 million loss on sale of investment securities in 2025.
•Noninterest expenses increased by $8.92 million, or 14.36%.
•Income taxes increased $7.66 million due to an increase in earnings compared to prior year.
For the nine month period ended September 30, 2026 and September 30, 2025 basic earnings per share was $4.08 and $2.59, respectively. Diluted earnings per share was $4.08 for the nine months ended September 30, 2026 compared to $2.58 for the same period in 2025.
The Company’s net income experienced an increase in comparison to prior year for the period and was driven primarily by two factors. The first factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $131.35 million for the first nine months of 2026 was derived from the Company’s $4.619 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.88%. Average earning assets in the nine months ended September 30, 2025 were $4.444 billion and the tax-equivalent net interest margin was 3.41%. Net interest income for the Company increased primarily as a result of increased interest income from higher interest rates on real estate and commercial loans and investments as well as higher volume of investments. Also, total interest expense was slightly lower than the same period in 2025 due to favorable rate variances. While net interest margin has increased in recent periods, the Company expects ongoing competition for loans and deposits to continue to exert pressure on earning asset yields and funding costs, which may adversely affect future net interest margin and earnings. The Company believes growth in net interest income will be contingent on the growth of the Company’s earning assets, increasing yield on loans and the ongoing interest rate stance of the Federal Reserve Board.
The second factor affecting the Company's net income is credit loss expense (benefit). The majority of the Company’s interest-earning assets are in loans outstanding, which amounted to $3.681 billion at September 30, 2026. Credit loss benefit was $1.51 million in 2026 compared to an expense of $10.98 million in 2025. The benefit in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as loss drivers, max loss rates, prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in economic conditions partially offset by changes in management experience, which resulted in a decrease in the ACL.
Net Interest Income
Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $21.15 million for the nine months ended
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September 30, 2026 compared to the comparable period in 2025. The increase was primarily as a result of increased interest income from higher interest rates on real estate and commercial loans and investments as well as higher volume of loans and investments. Also, overall there was a decrease in interest expense in comparison to the same period in 2025 due to favorable rate variances. The net interest margin for the first nine months of 2026 was 3.88% compared to 3.41% in 2025 for the same period. The measure is shown on a tax-equivalent basis using a tax rate of 21% to make the interest earned on taxable and non-taxable assets more comparable. The change in average balances and average rates between periods and the effect on the net interest income on a tax equivalent basis for the nine months ended in 2026 compared to the comparable period in 2025 are shown in the following table:
| Increase (Decrease) in Net Interest Income | |||||||||||||||||||||||||||||
| Change in Average Balance | Change in Average Rate | Volume Changes | Rate Changes | Net Change | |||||||||||||||||||||||||
| (Amounts in Thousands) | |||||||||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||||||||
| Loans, net | $ | 137,574 | 0.22 | % | $ | 5,894 | $ | 5,765 | $ | 11,659 | |||||||||||||||||||
| Taxable securities | 74,589 | 0.35 | 2,895 | 1,465 | 4,360 | ||||||||||||||||||||||||
| Nontaxable securities | (30,599) | 0.28 | (885) | 731 | (154) | ||||||||||||||||||||||||
| Interest-bearing cash and cash equivalents | (6,130) | (0.75) | (202) | (33) | (235) | ||||||||||||||||||||||||
| $ | 175,434 | $ | 7,702 | $ | 7,928 | $ | 15,630 | ||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 33,337 | (0.05) | % | $ | (336) | $ | 362 | $ | 26 | |||||||||||||||||||
| Savings deposits | 118,630 | 0.10 | (2,266) | 297 | (1,969) | ||||||||||||||||||||||||
| Time deposits | (25,868) | (0.50) | 675 | 3,174 | 3,849 | ||||||||||||||||||||||||
| Other short-term borrowings, including FHLB daily reset advances | 51,517 | 0.62 | (1,724) | 1,426 | (298) | ||||||||||||||||||||||||
| FHLB Borrowings | (78,561) | (0.51) | 2,647 | 1,268 | 3,915 | ||||||||||||||||||||||||
| $ | 99,055 | $ | (1,004) | $ | 6,527 | $ | 5,523 | ||||||||||||||||||||||
| Change in net interest income | $ | 6,698 | $ | 14,455 | $ | 21,153 | |||||||||||||||||||||||
Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates. Loan fees included in interest income are not material. Interest on nontaxable securities and loans is shown at tax equivalent amounts.
A summary of the net interest spread and margin nine months ended September 30, 2026 and 2025 is as follows:
| Nine Months Ended September 30, | ||||||||||||||
| (Tax Equivalent Basis) | 2026 | 2025 | ||||||||||||
| Yield on average interest-earning assets | 5.55 | % | 5.31 | % | ||||||||||
| Rate on average interest-bearing liabilities | 2.21 | 2.49 | ||||||||||||
| Net interest spread | 3.34 | % | 2.82 | % | ||||||||||
| Effect of noninterest-bearing funds | 0.54 | 0.59 | ||||||||||||
| Net interest margin (tax equivalent net interest income divided by average interest-earning assets) | 3.88 | % | 3.41 | % | ||||||||||
The Federal Open Market Committee met six times during the first nine months of 2026. The federal funds target rate decreased to 4.00% as of September 30, 2026 from 4.25% as of the same period in 2025. Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally correlate to the Federal Reserve Board federal funds rate. In the pricing of loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates. As of September 30, 2026, the average rate indexes for the one, three and five year indexes were 4.54%, 5.00% and
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5.09%, respectively. Compared to September 30, 2025, the one, three and five year indexes were 3.65%, 3.63%, and 3.74%, respectively.
Credit Loss Expense (Benefit)
Credit loss benefit was $1.51 million for the nine months ended September 30, 2026 compared to credit loss expense of $10.98 million in 2025, benefit of expense of $12.49 million. Credit loss expense is the amount necessary to adjust the allowance for credit losses to the level considered by management to appropriately account for the estimated current expected credit losses within the Bank's loan portfolio.
Also, under CECL, a significant component in estimating expected credit losses are economic forecasts such as Iowa unemployment and National real gross domestic product (National GDP). For the allowance for credit losses as of September 30, 2026, the key loss drivers were Iowa unemployment and National GDP. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as loss drivers, max loss rates, prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in economic conditions partially offset by changes in management experience, which resulted in a decrease in the ACL.
The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the nine months ended September 30, 2026 and 2025, recoveries were $2.95 million and $2.63 million, respectively; and charge-offs were $3.54 million in 2026 and $4.51 million in 2025. The allowance for credit losses totaled $55.62 million at September 30, 2026 compared to $58.20 million as of December 31, 2025. The allowance represented 1.49% and 1.63% of loans held for investment at September 30, 2026 and December 31, 2025.
Noninterest Income
The following table sets forth the various categories of noninterest income for the nine months ended September 30, 2026 and 2025.
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||
| Net gain on sale of loans | $ | 1,514 | $ | 1,113 | $ | 401 | 36.03% | ||||||||||||||||
| Trust fees | 13,334 | 12,543 | 791 | 6.31 | |||||||||||||||||||
| Service charges and fees | 10,157 | 9,851 | 306 | 3.11 | |||||||||||||||||||
| Other noninterest income | 2,099 | 1,689 | 410 | 24.27 | |||||||||||||||||||
| Gain (Loss) on sale of investment securities | 1,680 | (4,294) | 5,974 | (139.12) | |||||||||||||||||||
| $ | 28,784 | $ | 20,902 | $ | 7,882 | 37.71 | % | ||||||||||||||||
Net gain on sale of loans was $1.51 million and $1.11 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of 36.03%. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The servicing of the loans sold into the secondary market is not retained by the Company, so these do not provide an ongoing stream of income.
Other noninterest income was $2.10 million and $1.69 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of 24.27%. This is primarily due to annual incentive and marketing bonuses from the VISA payment network growth agreement.
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Gain on sale of investments securities was $1.68 million and loss on sale of investments was $4.29 million for the nine months ended September 30, 2026 and September 30, 2025. In 2026 the Company sold its Visa Class B shares and recognized a gain of approximately $1.69 million in gain on sale of investment securities, as opposed to a $4.29 million loss on sale of securities in September 30, 2025. At September 30, 2026, no Visa Class B shares remained outstanding.
Trust fees and service charges and fees for the nine months ended September 30, 2026 experienced nominal changes compared to the same period in prior year.
Noninterest Expenses
The following table sets forth the various categories of noninterest expenses for the nine months ended September 30, 2026 and 2025.
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||
| Salaries and employee benefits | $ | 37,474 | $ | 33,951 | $ | 3,523 | 10.38 | % | |||||||||||||||
| Occupancy | 3,543 | 3,347 | 196 | 5.86 | |||||||||||||||||||
| Furniture, equipment and software | 7,400 | 5,504 | 1,896 | 34.45 | |||||||||||||||||||
| Office supplies and postage | 1,667 | 1,538 | 129 | 8.39 | |||||||||||||||||||
| Advertising and business development | 2,631 | 2,293 | 338 | 14.74 | |||||||||||||||||||
| Outside services | 13,834 | 11,581 | 2,253 | 19.45 | |||||||||||||||||||
| FDIC insurance assessment | 1,543 | 1,506 | 37 | 2.46 | |||||||||||||||||||
| Other noninterest expense | 2,892 | 2,349 | 543 | 23.12 | |||||||||||||||||||
| $ | 70,984 | $ | 62,069 | $ | 8,915 | 14.36 | % | ||||||||||||||||
In the nine months ended September 30, 2026, salaries and employee benefits increased $3.52 million or 10.38%, primarily due to annual merit raises and an increase in full time employees. Furniture, equipment and software increased $1.90 million or 34.45% primarily due to planned technology refresh. Advertising and business development increased $0.34 million or 14.74% primarily due to expanded marketing initiative, increase in charitable contributions and higher promotional activity. Outside services increased $2.25 million or 19.45% primarily due to increases in audit, tax, and accounting fees and expenses related to OREO properties. Other noninterest expense increased $0.54 million or 23.12%, primarily due to increases in ATM losses, and fraud related fees.
Other noninterest expense categories for the nine months ended September 30, 2026 experienced nominal changes compared to the same period in prior year.
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Discussion of operations for the three months ended September 30, 2026 and 2025
Net Income Overview
Net income was $23.47 million in 2026 and $12.91 million in the comparable period in 2025, an increase of $10.56 million or 81.84%. For the three month periods ended September 30, 2026 and 2025 basic earnings per share was $1.34 and $0.73, respectively. Diluted earnings per share was $1.34 for the three months ended September 30, 2026 compared to $0.73 for the same period in 2025.
Net Interest Income
Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $6.70 million for the three months ended September 30, 2026 compared to the comparable period in 2025. The increase was primarily as a result of increased interest income from higher interest rates on real estate and commercial loans and investments as well as higher volume of loans and investments. Also, overall there was a decrease in interest expense compared to the same period in 2025 due to favorable rate variances. The net interest margin for the three months ended September 30, 2026 was 3.87% compared to 3.54% in 2025 for the same period. The measure is shown on a tax-equivalent basis using a tax rate of 21% to make the interest earned on taxable and non-taxable assets more comparable. The change in average balances and average rates between periods and the effect on the net interest income on a tax equivalent basis for the three months ended in 2026 compared to the comparable period in 2025 are shown in the following table:
| Increase (Decrease) in Net Interest Income | |||||||||||||||||||||||||||||
| Change in Average Balance | Change in Average Rate | Volume Changes | Rate Changes | Net Change | |||||||||||||||||||||||||
| (Amounts in Thousands) | |||||||||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||||||||
| Loans, net | $ | 166,989 | 0.11 | % | $ | 2,392 | $ | 1,581 | $ | 3,973 | |||||||||||||||||||
| Taxable securities | 160,869 | 0.28 | 1,880 | 490 | 2,370 | ||||||||||||||||||||||||
| Nontaxable securities | (58,097) | 0.17 | (580) | 150 | (430) | ||||||||||||||||||||||||
| Interest-bearing bank balances | (3,118) | (0.58) | (34) | (4) | (38) | ||||||||||||||||||||||||
| $ | 266,643 | $ | 3,658 | $ | 2,217 | $ | 5,875 | ||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 78,271 | 0.04 | % | $ | (253) | $ | (130) | $ | (383) | |||||||||||||||||||
| Savings deposits | 131,473 | 0.07 | (809) | 145 | (664) | ||||||||||||||||||||||||
| Time deposits | 13,576 | (0.26) | (111) | 495 | 384 | ||||||||||||||||||||||||
| Other short-term borrowings | (111,514) | (0.51) | 1,281 | 299 | 1,580 | ||||||||||||||||||||||||
| FHLB Borrowings | 55,798 | (0.51) | (638) | 547 | (91) | ||||||||||||||||||||||||
| $ | 167,604 | $ | (530) | $ | 1,356 | $ | 826 | ||||||||||||||||||||||
| Change in net interest income | $ | 3,128 | $ | 3,573 | $ | 6,701 | |||||||||||||||||||||||
Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates. Loan fees included in interest income are not material. Interest on nontaxable securities and loans is shown at tax equivalent amounts.
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A summary of the net interest spread and margin three months ended September 30, 2026 and 2025 is as follows:
| Three Months Ended September 30, | ||||||||||||||
| (Tax Equivalent Basis) | 2026 | 2025 | ||||||||||||
| Yield on average interest-earning assets | 5.57 | % | 5.44 | % | ||||||||||
| Rate on average interest-bearing liabilities | 2.26 | 2.48 | ||||||||||||
| Net interest spread | 3.31 | % | 2.96 | % | ||||||||||
| Effect of noninterest-bearing funds | 0.56 | 0.58 | ||||||||||||
| Net interest margin (tax equivalent net interest income divided by average interest-earning assets) | 3.87 | % | 3.54 | % | ||||||||||
Credit Loss Expense (Benefit)
Credit loss expense was $1.02 million for the three months ended September 30, 2026 compared to a credit loss expense of $5.98 million in 2025, a decrease of expense of $4.96 million. Credit loss expense is the amount necessary to adjust the allowance for credit losses to the level considered by management to appropriately account for the estimated current expected credit losses within the Bank's loan portfolio.
Also, under CECL, a significant component in estimating expected credit losses are economic forecasts such as Iowa unemployment and National real gross domestic product (National GDP). For the allowance for credit losses as of September 30, 2026, the key loss drivers were Iowa unemployment and National GDP. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as loss drivers, max loss rates, prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in economic conditions partially offset by changes in management experience, which resulted in a decrease in the ACL.
The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the three months ended September 30, 2026 and 2025, recoveries were $0.79 million and $1.03 million, respectively; and charge-offs were $1.36 million in 2026 and $1.81 million in 2025. The allowance for credit losses totaled $55.62 million at September 30, 2026 compared to $58.20 million as of December 31, 2025. The allowance represented 1.49% and 1.63% of loans held for investment at September 30, 2026 and December 31, 2025.
Noninterest Income
The following table sets forth the various categories of noninterest income for the three months ended September 30, 2026 and 2025.
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||
| Net gain on sale of loans | $ | 493 | $ | 410 | $ | 83 | 20.24 | ||||||||||||||||
| Trust fees | 4,835 | 4,238 | 597 | 14.09 | |||||||||||||||||||
| Service charges and fees | 3,497 | 3,403 | 94 | 2.76 | |||||||||||||||||||
| Other noninterest income | 494 | 490 | 4 | 0.82 | |||||||||||||||||||
| Gain (Loss) on sale of investment securities | — | (4,294) | 4,294 | (100.00) | |||||||||||||||||||
| $ | 9,319 | $ | 4,247 | $ | 5,072 | 119.43 | % | ||||||||||||||||
Net gain on sale of loans was $0.49 million and $0.41 million for the three months ended September 30, 2026 and 2025, respectively, an increase of 20.24%. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The servicing of the loans sold into the secondary market is not retained by the Company, so these do not provide an ongoing stream of income.
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Trust fees was $4.84 million and $4.24 million for the three months ended September 30, 2026 and 2025, respectively, an increase of 14.09%. This is primarily driven by the increase in assets under management of $340.08 million from $3.225 billion as of September 30, 2025 to $3.565 billion as of September 30, 2026.
There was no loss on sale of investments securities for the three months ended September 30, 2026; however there was a loss on sale of investment securities of $4.29 million for a comparable period in 2025 due to the restructure of the investment portfolio in 2025.
Other noninterest income categories experienced nominal changes compared to the same period in prior year.
Noninterest Expenses
The following table sets forth the various categories of noninterest expenses for the three months ended September 30, 2026 and 2025.
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||
| Salaries and employee benefits | $ | 12,596 | $ | 11,335 | $ | 1,261 | 11.12 | % | |||||||||||||||
| Occupancy | 1,456 | 1,111 | 345 | 31.05 | |||||||||||||||||||
| Furniture and equipment | 2,517 | 1,909 | 608 | 31.85 | |||||||||||||||||||
| Office supplies and postage | 578 | 563 | 15 | 2.66 | |||||||||||||||||||
| Advertising and business development | 743 | 658 | 85 | 12.92 | |||||||||||||||||||
| Outside services | 4,699 | 3,779 | 920 | 24.35 | |||||||||||||||||||
| FDIC insurance assessment | 513 | 497 | 16 | 3.22 | |||||||||||||||||||
| Other noninterest expense | 726 | 772 | (46) | (5.96) | |||||||||||||||||||
| $ | 23,828 | $ | 20,624 | $ | 3,204 | 15.54 | % | ||||||||||||||||
For the three months ended September 30, 2026, salaries and employee benefits increased $1.26 million or 11.12% primarily due to annual merit raises and an increase in full time employees. Occupancy increased $0.35 million or 31.05% primarily due to the Bank entering into a new operating lease as of July 1, 2026. Furniture, equipment and software increased $0.61 million or 31.85% primarily due to planned technology refreshes. Advertising and business development increased $0.09 million or 12.92% primarily due to expanded marketing initiatives, increase in charitable contributions and higher promotional activity. Outside services increased $0.92 million or 24.35% primarily due to increases in audit, tax, and accounting fees and expenses related to OREO properties.
Other noninterest expense categories for the three months ended September 30, 2026 experienced nominal changes compared to the same period in prior year.
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | ||||
The Company's primary market risk exposure is to changes in interest rates. Interest rate risk is the risk to current or anticipated earnings or capital arising from movements in interest rates. Interest rate risk arises from repricing risk, basis risk, yield curve risk and options risk. Repricing risk is the difference between the timing of rate changes and the timing of cash flows. Basis risk is the difference from changing rate relationships among different yield curves affecting Company activities. Yield curve risk is the difference from changing rate relationships across the spectrum of maturities. Option risk is the difference resulting from interest-related options embedded in Company products. The Company’s primary source of interest rate risk exposure arises from repricing risk. To measure this risk the Company uses a static gap measurement system that identifies the repricing gaps across the full maturity spectrum of the Company’s assets and liabilities and an earnings simulation approach. The gap schedule is known as the interest rate sensitivity report. The report reflects the repricing characteristics of the Company’s assets and liabilities. The report details the calculation of the gap ratio. This ratio indicates the amount of interest-earning assets repricing within a given period in comparison to the amount of interest-bearing liabilities repricing within the same period of time. A gap ratio of 1.0 indicates a matched position, in which case the effect on net interest income due to interest rate movements will be minimal. A gap ratio of less than 1.0 indicates that more liabilities than assets reprice within the time period, and a ratio greater than 1.0 indicates that more assets reprice than liabilities.
The Company's asset/liability management, or its management of interest rate risk, is focused primarily on evaluating and managing net interest income given various risk criteria. Factors beyond the Company's control, such as market interest rates and competition, may also have an impact on the Company's interest income and interest expense. In the absence of other factors, the Company's overall yield on interest-earning assets will increase as well as its cost of funds on its interest-bearing liabilities when market interest rates increase over an extended period of time. Inversely, the Company's yields and cost of funds will decrease when market rates decline. The Company is able to manage these swings to some extent by attempting to control the maturity or rate adjustments of its interest-earning assets and interest-bearing liabilities over given periods of time.
The Company maintains an Asset/Liability Committee, which meets at least quarterly to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk within the context of the following factors: 1) capital adequacy, 2) asset/liability mix, 3) economic outlook, 4) market characteristics and 5) the interest rate forecast. In addition, the Company uses a simulation model to review various assumptions relating to interest rate movement. The Company engages a third party that utilizes a modeling program to measure the Company’s exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, this analysis measures the estimated change in net interest income. The simulations allow for ongoing assessment of interest rate sensitivity and can include the impact of potential new business strategies. The modeled scenarios begin with a base case in which rates are unchanged and include parallel and nonparallel rate shocks. The results of these shocks are measured in two forms: first, the impact on the net interest margin and earnings over one and two year time frames; and second, the impact on the theoretical market value of equity. The results of the simulation are compared against approved policy limits. The model attempts to limit rate risk even if it appears the Company’s asset and liability maturities are perfectly matched and a favorable interest margin is present. The Company’s policy is to generally maintain a balance between profitability and interest rate risk.
The Company uses derivative financial instruments, when needed, to manage the impact of changes in interest rates on future interest income or interest expense. The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these derivative instruments but believes the risk of these losses has been minimized by entering into the contracts with large, stable financial institutions.
In order to minimize the potential effects of adverse material and prolonged increases or decreases in market interest rates on the Company's operations, management has implemented an asset/liability program designed to mitigate the Company's interest rate sensitivity. The program emphasizes the origination of adjustable rate loans, which are held in the portfolio, the investment of excess cash in short or intermediate term interest-earning assets, and the solicitation of transaction deposit accounts, which are less sensitive to changes in interest rates and can be re-priced rapidly.
The Company's interest rate risk is actively monitored through its asset-liability management process, including earnings simulation, economic value of equity analysis, and other risk measurement techniques. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including domestic and local economic conditions and the policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Further increases to prevailing interest rates could influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings. For instance, if our liabilities are positioned to reprice faster than our assets in a rising-rate environment, our net interest income could be detrimentally impacted as a result. Moreover, the
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ongoing geopolitical instability raise the risk of economic recession. Any such downturn, especially in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.
| Item 4. | Controls and Procedures | ||||
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, provides only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, notwithstanding substantial progress as a result of the Company’s remediation efforts during 2025 to correct material weaknesses disclosed in the Company’s prior year Annual Report on Form 10-K (“2024 10-K”), as a result of the material weaknesses in internal control over financial reporting described below, the Company's disclosure controls and procedures were not effective as of September 30, 2026.
Update on Internal Control over Financial Reporting
As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 10-K"), the Company identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.
As of September 30, 2026, the following material weaknesses, which were disclosed in the 2025 10-K, have not been fully remediated:
•Management review and activity-level controls over the period-end financial reporting process and controls to ensure that i) period-end financial statements to be filed are correct, and ii) our independent auditor has completed its procedures prior to the filing of period end financial statements;
•The review, posting, and approval of manual journal entries;
•The identification and disclosure of related party transactions;
•Related to the allowance for credit losses on loans ("ACL"), the design of controls over the framework used to determine the qualitative component of the ACL and the review process to ensure qualitative adjustments are accurately determined and applied;
•Related to property and equipment, the design of controls over the determination of estimated useful lives and the timely identification and recording of dispositions of property and equipment; and
•Management lacks sufficient depth and structure in the oversight of the financial reporting function and insufficient staffing levels with specialized technical accounting and internal control expertise to effectively design controls and perform an adequate level of review over the period‑end financial reporting process.
Notwithstanding the material weaknesses, the Company’s management, including the CEO and CFO, has concluded that the consolidated financial statements, included in this Quarterly Report on Form 10-Q, for the period ended September 30, 2026, fairly present, in all material respects, the Company's financial condition, results of operations and cash-flows for the periods presented in conformity with U.S. generally accepted accounting principles.
Remediation Plan and Status
Throughout 2025 the Company invested substantial resources in remedial measures to strengthen its financial reporting controls and procedures as a result of the material weaknesses disclosed in its 2024 10-K and those disclosed above in its 2025 10-K. These include (i) enhancing the design and documentation of key internal controls, (ii) strengthening management review controls, (iii) engagement of third parties with specialized accounting expertise, and (iv) retention of additional managerial resources with accounting and financial reporting experience and expertise. Management achieved substantial improvements to its financial reporting controls and procedures during 2025 as a result of these changes.
During the nine month period ended September 30, 2026, management continued to execute its remediation plan and implemented several enhancements to the Company's internal control over financial reporting. These activities included the
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continued development and implementation of controls designed to address property and equipment accounting and asset disposition tracking, the identification, evaluation and disclosure of related-party transactions, the Allowance for Credit Losses ("ACL") policy and methodology framework, review process supporting ACL qualitative factor adjustments, formalization of journal entry review and approval workflows, and further improvements to period-end financial reporting processes and management review controls. Additionally, the Company enhanced governance oversight of its financial reporting and remediation activities through the election of a director with significant public company auditing and financial reporting experience at the 2026 Annual Meeting of Shareholders. The Company expects to leverage this experience through the Board's oversight of management's remediation efforts, including the evaluation of remediation plans, progress monitoring, control design enhancements, and financial reporting governance initiatives.
The actions the Company is taking under its remediation plan are subject to ongoing management review and are also subject to Audit Committee oversight. Management remains committed to the full remediation of the identified material weaknesses and will continue to devote significant time, attention, training and resources to these efforts. Management expects to complete the remediation of these material weaknesses by December 31, 2026. However, each material weakness will not be considered remediated until the related controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively.
Each material weakness identified above cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Therefore, management believes these actions have strengthened the Company's control environment and financial reporting processes, the Company has not yet completed sufficient testing of the newly implemented or enhanced controls to conclude that they are operating effectively. Accordingly, the material weaknesses described above continue to exist as of September 30, 2026.
Changes in Internal Control over Financial Reporting
During the nine month period ended September 30, 2026, the Company implemented and enhanced certain controls as part of its ongoing remediation efforts to address the material weaknesses described above. These actions included implementing additional controls over property and equipment accounting, finalizing controls related to the identification and disclosure of related-party transactions, implementing an updated ACL policy and methodology framework and related review controls, formalizing journal entry review and approval workflows, and enhancing management review procedures within the period-end financial reporting process.
With respect to the ACL, activities were limited to enhancements in the design, documentation and operation of controls surrounding the Company's existing ACL methodology, including governance, review procedures and qualitative factor assessments. These activities did not result in a change to the Company's ACL accounting methodology or estimation approach.
During the three months ended September 30, 2026, these controls operated through the Company’s third quarter financial close, and management continued testing their operating effectiveness. As of September 30, 2026, testing of these controls was still in progress.
The newly implemented and enhanced controls have not operated for a sufficient period of time and have not yet been fully tested to determine whether they are operating effectively. Accordingly, management has not concluded that the related material weaknesses have been remediated.
While remediation efforts continued as noted above, there were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2026 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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HILLS BANCORPORATION
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings | ||||
None.
| Item 1A. | Risk Factors | ||||
Except as otherwise supplemented herein, there have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Global Economic and Geopolitical Instability, Trade Policy and Inflationary Risks
Geopolitical instability, terrorist attacks, military conflicts, natural disasters, severe weather, widespread health emergencies and other catastrophic events could materially adversely affect our business. Tensions between China and the United States, the conflicts involving Russia and Ukraine and Israel and Hamas, the conflict involving Iran, and actual or threatened disruptions to shipping through the Strait of Hormuz could escalate or result in broader regional or global conflicts.
These conditions, together with fiscal and monetary policies, tariffs, retaliatory trade measures, economic sanctions and other restrictions on international trade, could disrupt energy, commodity and supply chains; increase the costs of fuel, transportation, raw materials and other goods; contribute to inflation and interest-rate volatility; and reduce consumer spending, business investment and demand for credit. These effects could be particularly significant for our borrowers operating in the agriculture sector. If these developments place financial strain on our borrowers, we could experience reduced loan demand, increased credit risk, higher loan delinquencies and additional provisions for credit losses. Although we monitor these developments, we may not be able to anticipate or fully mitigate their effects on our business, financial condition and results of operations.
Adverse Conditions in the Agricultural Economy Could Adversely Affect Our Agricultural Borrowers and Our Credit Quality
A meaningful portion of our lending activities involves agricultural producers and businesses that depend upon the agricultural sector. The financial condition and repayment capacity of these borrowers are affected by agricultural commodity prices, weather conditions, foreign demand for United States agricultural products, competition from foreign producers, tariffs and trade restrictions, government agricultural programs, interest rates and the costs and availability of fertilizer, fuel, seed, feed, equipment and labor.
Reduced or volatile foreign demand, including demand from China for United States soybeans and other agricultural products, and increased competition from producers in other countries could place downward pressure on commodity prices and reduce the revenues and cash flows of borrowers in our markets. In addition, disruptions or threatened disruptions to shipping through the Strait of Hormuz could increase the cost or reduce the availability of fuel, fertilizer and fertilizer-production inputs, including sulfur.
Lower commodity prices combined with elevated fertilizer, fuel and other input costs could compress agricultural borrowers’ operating margins, increase their need for operating credit and reduce their ability to repay existing indebtedness. These conditions could result in increased loan modifications or restructurings; higher levels of past-due, criticized, classified or nonaccrual loans; reduced agricultural collateral values; and increased provisions for credit losses and charge-offs. Crop insurance, government support programs and other risk-management measures may not fully protect our borrowers or us from these risks.
Changes in Funding Sources May Increase Liquidity and Funding Risk
Since December 31, 2025, the Company's funding profile has changed as a result of increased reliance on wholesale funding sources and a higher proportion of uninsured deposits. Although management believes available liquidity sources remain adequate to meet anticipated funding needs, changes in depositor behavior, reduced availability of wholesale funding, or increases in funding costs could adversely affect liquidity, net interest income, and earnings.
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Market Interest Rates Have Increased Unrealized Losses in the Securities Portfolio
Changes in market interest rates during 2026 have resulted in a significant increase in unrealized losses within the Company's available-for-sale securities portfolio and corresponding reductions in accumulated other comprehensive income. While management believes these unrealized losses primarily reflect market interest rate movements rather than credit deterioration, continued changes in interest rates, liquidity needs, or balance sheet management strategies could adversely affect earnings, liquidity, capital levels, and the value of pledged collateral.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||||
The following table sets forth information about the Company’s stock purchases, all of which were made pursuant to the 2005 Stock Repurchase Program, for the three months ended September 30, 2026:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (1) | ||||||||||
| July 1 to July 31 | 36,665 | $ | 44.96 | 36,665 | 320,182 | |||||||||
| August 1 to August 31 | 11,697 | 45.60 | 11,697 | 308,485 | ||||||||||
| September 1 to September 30 | 8,335 | 47.00 | 8,335 | 300,150 | ||||||||||
| Total | 56,697 | $ | 45.39 | 56,697 | 300,150 | |||||||||
(1) On July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”). On August 9, 2022, the Company’s Board of Directors authorized the expansion of the 2005 Stock Repurchase Program to allow an additional 1,500,000 shares for repurchase and the continuation through December 31, 2027. The Company expects the purchases pursuant to the 2005 Stock Repurchase Program to be made from time to time in private transactions at a price equal to the most recent quarterly independent appraisal of the shares of the Company’s common stock and with the Board reviewing the overall results of the 2005 Stock Repurchase Program on a quarterly basis. All purchases made pursuant to the 2005 Stock Repurchase Program since its inception have been made on that basis. The amount and timing of stock repurchases will be based on various factors, such as the Board’s assessment of the Company’s capital structure and liquidity, the amount of interest shown by shareholders in selling shares of stock to the Company at their appraised value, and applicable regulatory, legal and accounting factors. The most recent independent current quarterly appraisal value of the stock performed as of June 30, 2026 is $47.00 a share.
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| Item 3. | Defaults upon Senior Securities | ||||
Hills Bancorporation has no senior securities.
| Item 4. | Mine Safety Disclosure | ||||
Not applicable.
| Item 5. | Other Information | ||||
Director or Officer Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
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| Item 6. | Exhibits | ||||
| 3.1 | Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 8-K Filed with the Commission on May 20, 2026. | ||||
| 3.2 | Amended and Restated Bylaws of Hills Bancorporation, incorporated by reference to Exhibit 3.2 to the Company's Form 8-K Filed with the Commission on May 18, 2026. | ||||
| 4.1 | Description of Registered Securities, incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed with the Commission on March 18, 2026. | ||||
| 10.1 | Agreement of Purchase and Sale, dated May 11, 2026, by and between JNB Campus, LLC and Hills Bank and Trust Company, incorporated by reference to Exhibit 10.1 to the Company's Form 8-K Filed with the Commission on May 15, 2026 | ||||
| 31 | Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
| 32 | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 | ||||
| 101.INS | XBRL Instance Document (1), (2) | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document (1) | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (1) | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (1) | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (1) | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (1) | ||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | ||||
(1)Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, and are otherwise not subject to liability under these sections.
(2)The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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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 thereunto duly authorized.
| HILLS BANCORPORATION | |||||||||||
| Date: | November 6, 2026 | By: /s/ Lisa A. Shileny | |||||||||
| Lisa A. Shileny, Director, President and Chief Executive Officer | |||||||||||
| Date: | November 6, 2026 | By: /s/ Anthony V. Roetlin | |||||||||
| Anthony V. Roetlin, Treasurer, Chief Financial Officer and Chief Accounting Officer | |||||||||||
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