PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
HILLS BANCORPORATION
To Be Held on April 16, 201817, 2023
TABLE OF CONTENTS
| Page | |||||
| PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS | 3 | ||||
| INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS | 6 | ||||
| NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION | 8 | ||||
| NON-BINDING ADVISORY VOTE ON THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |||||
| INFORMATION CONCERNING DIRECTORS OTHER THAN NOMINEES | 9 | ||||
| CORPORATE GOVERNANCE AND THE BOARDS OF DIRECTORS | |||||
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | |||||
| DELINQUENT SECTION 16(A) | |||||
| COMPENSATION AND INCENTIVE STOCK COMMITTEE INTERLOCKS AND | |||||
| COMPENSATION DISCUSSION AND ANALYSIS | |||||
| COMPENSATION AND INCENTIVE STOCK COMMITTEE REPORT | |||||
| SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION PAID TO THE NAMED EXECUTIVE OFFICERS | |||||
| RISK MANAGEMENT AND COMPENSATION POLICIES AND PRACTICES | |||||
| AUDIT COMMITTEE | |||||
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |||||
| PROPOSALS BY SHAREHOLDERS | |||||
| BOARD NOMINATING PROCESS | |||||
| COMMUNICATION WITH THE BOARD OF DIRECTORS | |||||
| AVAILABILITY OF FORM 10-K REPORT | |||||
| OTHER MATTERS | |||||
HILLS BANCORPORATION
131 E. Main Street, PO Box 160
Hills, Iowa 52235
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 16, 201817, 2023
This Proxy Statement is furnished to shareholders of Hills Bancorporation (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company for the Annual Meeting of Shareholders to be held at the Hills Community Center, 110 E. Main Street, Hills, Iowa, on Monday, April 16, 2018,17, 2023, at 4:00 p.m. (Central Time), local time, and any adjournments thereof. This Proxy Statement and form of Proxy enclosed herewith are first being sent to the shareholders of the Company entitled to vote at the Annual Meeting on or about March 16, 2018.17, 2023.
General Information about the Meeting and Voting Securities and Procedures
Who may vote at the meeting?
The Board of Directors has fixed the close of business on March 2, 20183, 2023 as the record date for the determination of shareholders who are entitled to notice of and to vote at the meeting. You are entitled to one vote for each share of common stock you held on the record date, including shares:
•held directly in your name; andand/or
•held for you in an account with a broker, bank or other nominee (shares held in “street name”).
How many shares must be present to hold the meeting?
The presence in person or by proxyat the meeting of a majority of the Company’s common shares entitled to vote at the Annual Meeting shall constitute a quorum for purposes of holding the meeting and conducting business. On the record date there were 9,423,4229,219,336 shares of the Company's common stock outstanding, which amount includes unvested shares of restricted stock entitled to voting rights. Each of the holders of the outstanding shares and restricted stock grants, totaling 9,423,4229,219,336 shares, are entitled to one vote per share. Your shares are counted as present at the meeting if you:
•are present and vote in person at the meeting; or
•have properly submitted a proxy card prior to the meeting.meeting via mail, online voting or telephone voting.
Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the meeting.
What proposals will be voted on at the meeting?
There are three proposals scheduled to be voted on at the meeting which include: (i) the election of members to serve on the CompanyCompany's Board of Directors; (ii) an advisory vote to approve the executive compensation programs of the Company and (iii) an advisory vote on the selection of our independent registered accounting firm, which gives you the opportunity to endorse or not endorse the Company’s appointment of the independent registered public accounting firm.
Who is requesting my vote?
The solicitation of proxies on the enclosed form is made on behalf of the Board of Directors of the Company and will be conducted primarily through the mail. Please mail your completed proxy in the envelope included with these proxy materials. You may also vote by phone or online. Instructions for online and phone voting are on page 5 of this Proxy. In addition to the use of the mail, members of the Board of Directors and certain officers and employees of the Company or its subsidiary may solicit the return of proxies by telephone, facsimile, and other electronic media or through personal contact. The directors, officers and employees thatwho participate in such solicitation will not receive additional compensation for such efforts, but will be reimbursed for out-of-pocket expenses. The cost of preparing, assembling and mailing this Proxy Statement, the Notice of Meeting and the enclosed proxy will be borne by the Company.
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How many votes are required to approve each proposal?
Proposal One:
Because the election of Directors is determined by a plurality, the nominees receiving the most votes “FOR” will be elected. Shareholders of the Company do not have cumulative voting rights in the election of Directors.
Proposal Two:Two:
Proposal Two, commonly known as a “Say-on-Pay”“Say on Pay” proposal, gives you as a shareholder the opportunity to endorse or not endorse our executive compensation programs. The affirmative vote of a majority of the votes cast by the holders of the Company’s common stock is required to approve Proposal Two, a non-binding advisory vote on executive compensation.
Proposal Three:
The affirmative vote of a majority of the votes cast by the holders of the Company’s common stock is required to approve Proposal Three, a non-binding advisory vote on the appointment of the independent registered public accounting firm.
What are the effects of abstentions and broker non-votes on each proposal?
If you hold your shares in a trust or brokerage account (sometimes referred to as holding shares in “street name”), please note that your bank or brokerage firm has no discretionary voting authority with respect to Proposals One and Two, and therefore cannot vote on any of such proposal in the absence of your instructions. As a result, unless you direct your broker on how to vote your shares with respect to those proposals, your shares will remain un-voted on Proposals One and Two. Shares held in street name for which no voting instructions have been provided by the beneficial owner (and which are not voted by the broker pursuant to discretionary voting authority) are generally referred to as “broker non-votes.” Although abstentions and broker non-votes will be counted for purposes of determining the presence of a quorum, they are not considered votes cast at the meeting.
Proposal One:
Under Proposal One, Directors will be elected by a plurality of the votes cast at the Annual Meeting. This means that the four nominees who receive the largest number of “FOR” votes cast will be elected as directors. Abstentions from voting and broker non-votes, if any, on Proposal One will have no effect on the outcome on the election of Directors.
Proposal Two:
The approval of Proposal Two requires only the vote of the majority of the “votes cast” at the Annual Meeting. Because abstentions from voting and broker non-votes are not treated as “votes cast,” they will have no effect on the outcome of this proposal.
Proposal Three:
Proposal Three requires only the vote of the majority of the “votes cast” at the Annual Meeting. Because abstentions from voting and broker non-votes are not treated as “votes cast”,cast,” they will have no effect on the outcome of this proposal.
How does the Board recommend that I vote?
The Board of Directors urges you to read the Proxy Statement carefully and then vote your shares for the Annual Meeting. The Board of Directors recommends that you vote FOR each of the Director nominees named in this Proxy Statement, and FOR approval of each of Proposals Two and Three.
How are shares voted?
For proposalProposal One, a shareholder may:
•Vote “FOR” each of the nominees for election to the Company’s Board of Directors
•‘WITHHOLD AUTHORITY” to vote for one or more nominees
For Proposals Two and Three, a shareholder may:
•Vote “FOR” the proposal
•Vote “AGAINST” the proposal
•Abstain from voting on the proposal
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If the accompanying proxy is properly signed and returned, voted by phone, or voted online and is not withdrawn or revoked, the shares represented thereby will be voted in accordance with the specifications thereon. If the manner of voting such shares is not indicated on the proxy, the shares will be voted FOR the election of the nominees for Directors named herein, and FOR the approval of Proposals Two and Three. Your shares will also be voted in the discretion of the proxy committee on any other business properly brought forth at the Annual Meeting
If your shares are held in street name, your bank or broker is not permitted to discretionarily vote on your behalf in the absence of voting instructions from you for any of Proposals One and Two. For your vote to be counted on such proposals, you must communicate your voting decisions to your bank, broker or other holder of record before the date of the Annual Meeting.
How do I vote my shares without attending the meeting?shares?
Whether you hold shares directly or in “street name,”name”, you may direct your vote without attending the Annual Meeting.
If you are a shareholder of record, you may vote by granting a proxy as follows:
•By Mail - You may vote by mail by signing and dating your proxy card and mailing it to the Company in the envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity. Proxies submitted by mail must be received by the Treasurer of the Company prior to the vote taken at the Annual Meeting.
•By Phone - You may vote by phone by calling 1-800-652-VOTE (8683) within the USA, US territories and Canada on a touch tone telephone, and following the instructions given. In order to vote your shares by phone, you will need the access code that appears on your proxy card.Votes submitted electronically must be submitted no later than 11:59 a.m. (Central Time) on April 17, 2023.
•By Internet - You may vote by internet by going to the following web site, following the instructions given and entering the requested information on your computer screen.In order to vote your shares by internet, you will need the access code that appears on your proxy card.Votes submitted electronically must be submitted no later than 11:59 a.m. (Central Time) on April 17, 2023.
https://www.envisionreports.com/HBIA
You can also scan the QR code provided on your proxy card to vote with your smartphone. Once you have accessed the secure website, follow the steps as outlined for electronic voting.
Your vote by phone or internet is valid as authorized by Iowa law.
For shares held in “street name,”name”, you should follow the voting instructions provided by your broker or nominee. You may complete and mail a voting instruction card to your broker or nominee or, in some cases, submit voting instructions to your broker or nominee by telephone or the internet. If you provide specific voting instructions by mail, telephone, or internet, your broker or nominee will vote your shares as you have directed.
election of directors.
Even if you plan to attend the meeting, we encourage you to submit your proxy by mail so your vote will be counted if you later decide not to attend the meeting.
You can also vote by phone or online.
If you choose to vote at the Annual Meeting:
•If you are a shareholder of record, to vote your shares at the meeting you should bring the enclosed proxy card and proof of identity.
•If you hold your shares in “street name,” you must obtain a proxy in your name from your bank, broker or other holder of record in order to vote at the meeting and bring proof of beneficial ownership (such as a recent brokerage statement or a letter from your bank or broker) and proof of identity.
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What does it mean if I receive more than one proxy?
It likely means you hold shares registered in more than one account. To ensure that all of your shares are voted, sign and return each proxy. You may also vote each proxy by telephone or online.
May I change my vote?
Yes. A shareholderYou may revoke his or heryour proxy at any time prior to the voting thereof by filing with the Treasurer of the Company at the Company’s principal office at 131 E. Main Street, PO Box 160, Hills, Iowa 52235, a written revocation or a duly executed proxy bearing a later date. You may also revoke your proxy by phone by calling 1-800-652-VOTE (8683) within the USA, US territories and Canada and following the instructions given, or by internet by going to https://www.envisionreports.com/HBIA, following the instructions given and entering the requested information. Any such revocation must be executed prior to 4:00 p.m. (Central Time) on the day of the Annual Meeting. A shareholder may also withdraw the proxy in person at the meeting at any time before it is exercised. The presence of a shareholder at the Annual Meeting, however, will not automatically revoke such shareholder’s previously submitted proxy.
When will the proxy and annual report be mailed to shareholders?
This Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders and proxyAnnual Report to Shareholders are being mailed to the Company's shareholders on or about March 16, 2018.17, 2023.
How may I view the proxy statement and annual report electronically?
The Proxy Statement, and our Annual Report to Shareholders for the fiscal year ended December 31, 2017,2022, are available online and may be accessed at www.envisionreports.com/HBIA or www.edocumentview.com/HBIA.
PROPOSAL ONE
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
The Company currently has eleven Directors with staggered terms of office. Ms. Lisa A. Shileny, the President and Chief Operating Officer of the Bank, has been nominated to serve a three-year term as a new member of the Board of Directors which would increase the number of Directors to twelve. Each of the other nominees for election presently serves on the Board of Directors and is being nominated to serve a three-year term. The Board of Directors has no reason to believe that any nominee will be unable to serve as a Director, if elected. However, in casethe event any nominee should become unavailable for election, the proxy will be voted for such substitute, if any, as the Board of Directors may designate.
Each Director of the Company also serves as a Director of the Company’s wholly-owned subsidiary, Hills Bank and Trust Company (the “Bank”), which is a commercial bank. The Company anticipates that, following the election of the nominees set forth below, all Directors of the Company will serve, or continue to serve, as Directors of the Bank. The Directors of the Bank are elected by the vote of the Company as the sole shareholder of the Bank.
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Set forth below are the names of the four persons nominated by the Board of Directors for election as Directors of the Company at the 20182023 Annual Meeting, along with certain other information concerning such persons.
| Name and Year First Become Director | Age | Positions & Offices Held With Company | Principal Occupation or Employment During the Past Five Years and Education Pertaining to Board of Director Qualifications | |||||||||||||||||||||||
| Director Serving Until the | ||||||||||||||||||||||||||
2012 - Company 2012 - Bank | 55 | Director | Michigan Law School. | |||||||||||||||||||||||
1993 - Company 1993 - Bank | Director | |||||||||||||||||||||||||
| James C. Schmitt 2019 - Company 2019 - Bank | 67 | Director | Senior Principal Consultant, Expense Reduction Analysts, and Managing Director, James C. Schmitt Consulting, L.L.C., both Cedar Rapids, Iowa businesses. Mr. Schmitt is a graduate of the University of Northern Iowa Iowa. | |||||||||||||||||||||||
2023 - Company 2023 - Bank | Nominee for Director | President and | ||||||||||||||||||||||||
Administration. | ||||||||||||||||||||||||||
Additional information regarding the Directorsfour nominees for election to serve until the 2021 Annual MeetingBoard of Directors is as follows:
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Iowa, provides important insight to the Board of Directors. Ms. Rhodes is a member of the National AssociationAmerican and Iowa Bar Associations. In addition, Ms. Rhodes is involved in leadership roles in several community organizations.
James C. Schmitt: Mr. Schmitt was elected to the Board of Automobile Dealers,Directors in 2019. Mr. Schmitt serves as the Chairperson of the Audit Committee and is considered its financial expert. Mr. Schmitt also serves as a member of the Compensation and Incentive Stock Committee of the Board of Directors. Mr. Schmitt graduated from the University of Northern Iowa Associationwith a Degree in Accounting and is a CPA. Mr. Schmitt also obtained an MBA from the University of Automobile DealersIowa. Mr. Schmitt spent 13 years with RSM US, LLP in Cedar Rapids, Iowa and Charlotte, North Carolina, serving as the Chevrolet SocietyPartner in Charge of Sales Executives.the Charlotte office during his tenure. Mr. Wiele’s business expertiseSchmitt spent 13 years as the president of an electrical distributor in Cedar Rapids, Iowa. Mr. Schmitt has served on the Board of Directors of commercial businesses and not-for-profit organizations in the Cedar Rapids, Iowa area. Mr. Schmitt's financial knowledge areis a valuable contribution to the Board of DirectorsDirectors. Mr. Schmitt is an active member of the Cedar Rapids community. Hills Bank currently has three banking offices in Cedar Rapids and provides important insight intotwo in neighboring Marion; Mr. Schmitt's knowledge and contacts in this area will be invaluable in assisting with the expansion in this market.
Lisa A. Shileny: Ms. Shileny is a nominee to be elected to the Board of Director’s loan responsibilities. Mr. Wiele has considerableDirectors. Ms. Shileny is the President and Chief Operating Officer of the Bank. Prior to becoming President and Chief Operating Officer of the Bank, Ms. Shileny served as the Company’s General Counsel, Director of Operations, and Director of Administration. Ms. Shileny joined the Bank in 2005. Ms. Shileny is a graduate of Central College, the University of Iowa College of Law, and the Graduate School of Banking at the University of Wisconsin – Madison, and she will graduate in 2023 from the Stonier Graduate School of Banking at the Wharton School of Business of the University of Pennsylvania. In addition, Ms. Shileny is a member of the Iowa bar association. Ms. Shileny's knowledge of the Company’s trade areaCompany and is activethe Bank in community organizations.her various roles will provide valuable contributions to the Board of Directors.
None of the nominees currently serves, or has served in the past five years, as a Director of another company whose securities are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or whose securities are subject to the requirements of Section 15(d) of the Exchange Act or a company registered under the Investment Company Act of 1940, as amended. There are no family relationships among the Company’s Directors, nominees for Director and executive officers.
The Board of Directors unanimously recommends to the Shareholders a vote “FOR” the election of the above-listed persons as Directors for the Company. | ||||||||||||||
PROPOSAL TWO
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Section 14A of the Securities Exchange Act (15 USC 78n-1) and related SEC regulations, the Company is providing shareholders with an advisory (non-binding) vote on compensation programs for our Named Executive Officers (commonly referred to as “Say on Pay”). As approved by its shareholders at the 2017 annual meeting, the Company is submitting this non-binding vote to shareholders on an annual basis. The following resolution is presented for consideration at the Annual Meeting.
“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K of the SEC, including the Compensation Discussion and Analysis, compensation tables, and the related narrative disclosure is hereby APPROVED.”
This vote is non-binding. The Board and the Compensation and Incentive Stock Committee, which is comprised of non-employee Directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.
Shareholders are encouraged to review the Compensation Discussion and Analysis section of this Proxy Statement for a detailed discussion of our executive compensation programs. The affirmative vote of a majority of the shares of common stock cast at the meeting, in person or by proxy, and entitled to vote thereon is required to approve Proposal Two.
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The Board of Directors unanimously recommends that you vote “FOR” the approval, on an advisory basis, of the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure. | ||||||||||||||
PROPOSAL THREE
NON-BINDING ADVISORY VOTE ON THE APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors proposes and recommends that the shareholders approve the selection by the Committee of the firm of FORVIS, LLP (formerly BKD LLPLLP) to serve as the Company’s independent registered public accounting firm for the 20182023 fiscal year. FORVIS, LLP was formed as the merger of BKD LLP and Dixon Hughes Goodman LLP (DHG) effective June 1, 2022. The firm has served as independent auditors for the Company since 2012. Action by the shareholders is not required by law in the appointment of an independent registered public accounting firm, but theirthe firm's appointment is submitted by the Audit Committee of the Board of Directors in order to give the shareholders a voice in the designation of auditors. If the resolution approving BKDFORVIS, LLP as the Company’s independent registered public accounting firm is rejected by the shareholders, the Committee will reconsider its choice of independent auditors. Even if the resolution is approved, the Audit Committee, in its discretion, may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
Proxies in the form solicited hereby which are returned to the Company will be voted in favor of this non-binding proposal unless otherwise instructed by the shareholder. The affirmative vote of a majority of the shares of common stock cast at the meeting, in person or by proxy, and entitled to vote thereon is required to approve Proposal Three.
The Board of Directors unanimously recommends to the Shareholders a vote “FOR” the non-binding advisory proposal to approve the appointment of the Company’s Independent Registered Public Accounting Firm. | ||||||||||||||
INFORMATION CONCERNING DIRECTORS OTHER THAN NOMINEES
The following tables set forth certain information with respect to Directors of the Company who will continue to serve as Directors subsequent to the 20182023 Annual Meeting and who are not nominees for election at the 20182023 Annual Meeting.
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Additional information regarding the Directors to serve until the 20192024 Annual Meeting is as follows:
| Name and Year First Become Director | Age | Positions & Offices Held With Company | Principal Occupation or Employment During the Past Five Years and Education Pertaining to Board of Director Qualifications | |||||||||||||||||
| Director Serving Until the 2024 Annual Meeting | ||||||||||||||||||||
| Michael S. Donovan 2007 - Company 2007 - Bank | 60 | Director | Farmer and President of Donovan & Sons, Ltd., a local Johnson County, Iowa family farm corporation, and partner in PVP1, LLP, a local pork production operation. Mr. Donovan is a graduate of North Iowa Area Community College. | |||||||||||||||||
| Kirsten H. Frey 2019 - Company 2019 - Bank | 54 | Director | Attorney and Senior Vice President, Shuttleworth & Ingersoll, P.L.C., a law firm located in Iowa City, IA. Ms. Frey is an attorney and obtained her law degree and an MBA from the University of Iowa. | |||||||||||||||||
| Dwight O. Seegmiller 1986 - Company 1986 - Bank | 70 | Director and President | President of the Company. Mr. Seegmiller is a graduate of Iowa State University’s Agricultural Business Honors Program and the Stonier Graduate School of Banking at Rutgers University. He joined the Company in 1975 and has been President of the Company since 1986. Prior to 1986, Mr. Seegmiller was the Senior Vice President of Lending. | |||||||||||||||||
| Thomas R. Wiele 2012 - Company 2012 - Bank | 70 | Director | President, Dealer and Operator of Wiele Motor Company, located in West Liberty and Columbus Junction, Iowa. | |||||||||||||||||
Michael S. Donovan: Mr. Donovan was elected to the Board of Directors in 2007. Mr. Donovan serves on the Trust Committee, Loan Committee, and the Compensation and Incentive Stock Committee of the Board of Directors. Mr. Donovan is a farmer and the President and a shareholder of Donovan and Sons, Ltd, an Iowa farm corporation. Mr. Donovan also is a partner in PVP1, LLP, a pork production operation in the Company’s trade area. Mr. Donovan is a graduate of North Iowa Area Community College. Mr. Donovan’s expertise and agricultural knowledge, especially in the area of hog production, is a valuable contribution to the Board of Directors and provides important insight into the Board of Directors’ loan responsibilities.
Kirsten H. Frey: Ms. Frey was elected to the Board of Directors in 2019. Ms. Frey serves on the Trust Committee and the Compensation and Incentive Stock Committee of the Board of Directors. Ms. Frey is an attorney and senior vice president at the law firm Shuttleworth & Ingersoll, P.L.C. located in Coralville, Iowa. Ms. Frey graduated with distinction from the University of Iowa College of Law and obtained a Masters of Business Administration from the University of Iowa Henry B. Tippie School of Management. Ms. Frey has served as an adjunct assistant professor at the University of Iowa Henry B. Tippie College of Business, teaching undergraduate and graduate courses. Ms. Frey is a member of the Johnson County and Iowa State Bar Associations. Ms. Frey is an active member of the Iowa City community, serving on boards of directors of several Iowa City area not-for-profit organizations. Ms. Frey's knowledge of the community and her legal expertise provide valuable insight to the Board of Directors.
Dwight O. Seegmiller: Mr. Seegmiller has served as a Director of the Company since 1986. Mr. Seegmiller is the President and Chief Executive Officer of the Company and the Chief Executive Officer of the Bank. Prior to becoming President of the Company and the Bank in 1986, Mr. Seegmiller was the Senior Vice President of Lending. Mr. Seegmiller joined the Bank in 1975. Mr. Seegmiller graduated from Iowa State University’s Agricultural Business Honors Program. Mr. Seegmiller graduated from the Stonier Graduate School of Banking at Rutgers University in 1981. Mr. Seegmiller’s knowledge of the Company and the Bank provide consistent and valuable contributions to the Board of Directors.
Thomas R. Wiele: Mr. Wiele was elected to the Board of Directors in 2012. Mr. Wiele serves on the Audit Committee and the Compensation and Incentive Stock Committee of the Board of Directors. Mr. Wiele is the President, a dealer and operator of Wiele Motor Company located in West Liberty and Columbus Junction, Iowa. Wiele Motor Company is a local
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Chevrolet automobile dealer. Mr. Wiele has been a partner of Wiele Motor Company since 1978 and President since 1996. Mr. Wiele is a member of the National Association of Automobile Dealers, the Iowa Association of Automobile Dealers and the Chevrolet Society of Sales Executives. Mr. Wiele’s business expertise and knowledge are a valuable contribution to the Board of Directors and provide important insight into the Board of Directors' loan responsibilities. Mr. Wiele has considerable knowledge of the Company’s trade area and is active in community organizations.
Additional information regarding the Directors to serve until the 2025 Annual Meeting is as follows:
| Name and Year First Become Director | Age | Positions & Offices Held With Company | Principal Occupation or Employment During the Past Five Years and Education Pertaining to Board of Director Qualifications | |||||||||||||||||
| Director Nominees Who Will Serve Until the | ||||||||||||||||||||
Michael E. Hodge 2000 - Company 2000 - Bank | Director | President and shareholder of Hodge Construction Company, an Iowa City, Iowa business. Mr. Hodge obtained a BS in civil engineering from the University of Iowa. | ||||||||||||||||||
Casey L. Peck 2019 - Company 2019 - Bank | 48 | Director | General Manager and Chief Financial Officer, Kalona Cooperative Technology Company located in Kalona, Iowa. Ms. Peck is a graduate of Coe College with a BA in accounting and business administration. | |||||||||||||||||
| John W. Phelan 2007 - Company 2007 - Bank | Director | Owner of Phelan Distributing LLC, a wholesale wine distributor in Cedar Rapids, Iowa. | ||||||||||||||||||
Sheldon E. Yoder, D.V.M. 1997 - Company 1997 - | Director | President and shareholder of Kalona Veterinary Clinic, P.C., located in Kalona, Iowa. Dr. Yoder is a graduate of the Iowa State University College of Veterinary Medicine. He has been President of Kalona Veterinary Clinic since 1978. | ||||||||||||||||||
Michael E. Hodge: Mr. Hodge has served as a Directorwas elected to the Board of the Company and the Bank sinceDirectors in 2000. Mr. Hodge presently serves on the Risk Committee, Loan Committee, and the Compensation and Incentive Stock Committee of the Board of Directors. Mr. Hodge is a graduate of the University of Iowa College of Engineering with a BS in civil engineering. He is the President and principal shareholder of Hodge Construction Company founded in Iowa City, Iowa in 1981. Hodge Construction Company is a private company that is involved in real estate development and as a builder primarily in Iowa City, Coralville, North Liberty and the Cedar Rapids area.areas. The Bank has office locations in each of these communities. Mr. Hodge is active in several professional trade associations in the Iowa City area. Mr. Hodge has significant experience in real estate development, including single family, and multi-family and commercial projects and provides important insight to the Board of Directors for the Loan Committee.Directors' loan responsibilities. In addition, Mr. Hodge is actively involved in leadership roles in several non-profit organizations in the Iowa City market.
Casey L. Peck: Ms. Peck was elected to the Board of Directors in 2019. Ms. Peck serves on the Risk Committee, Loan Committee, and the Compensation and Incentive Stock Committee of the Board of Directors. Ms. Peck is the general manager and chief financial officer of Kalona Cooperative Technology Company, located in Kalona, Iowa. Ms. Peck graduated from Coe College obtaining a BA in accounting and business administration. Ms. Peck is the Treasurer of the Kalona Chamber of Commerce and is actively involved in many non-profit organizations in the Kalona community. The Bank has three branch offices in Washington County, Iowa. Ms. Peck's knowledge of the economic and small business environment in Kalona and Washington County provides valuable insight into the Company's southern region and provides important insight into the Board of Directors' loan responsibilities.
John W. Phelan: Mr. Phelan was elected to the Board of Directors in 2007. Mr. Phelan at that time also became a member of the Board of Directors of the Bank. The Board Committees which Mr. Phelan serves on are the Trust Committee and the Compensation and Incentive Stock Committee.Committee of the Board of Directors. Mr. Phelan is the owner of Phelan Distributing LLC, a wholesale wine distributor in Cedar Rapids, Iowa. Mr. Phelan is originally from Iowa City, Iowa and is currently an active member of the Cedar Rapids community. The Bank currently has three branch offices in Cedar Rapids and two in neighboring Marion so Mr. Phelan’s knowledge and contacts in this marketarea have been invaluable in assisting with the expansion of this market. Mr. Phelan is a past president of the State of Iowa Broadcasters Association and a long-term Board member
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of that organization. Mr. Phelan is active as a Board member in two non-profit organizations with connections to the University of Iowa in Iowa City, Iowa as well as involvement in non-profit organizations in Cedar Rapids, Iowa.
Sheldon E. Yoder, D.V.M.: Dr. Yoder was first elected to serve as a Directorthe Board of Directors in 1997 and has also served as a Director of the Bank since 1997. Dr. Yoder presently serves on the Audit Committee and the Compensation and Incentive Stock Committee of the Board of Directors. Dr. Yoder is a graduate of Iowa State University College of Veterinary Medicine. He is the President and the sole shareholder of Kalona Veterinary Clinic, P.C., which he founded in 1978 in Kalona, Iowa. Dr. Yoder is a life-long resident of the Kalona area and, as a community leader and business person, has considerable knowledge that continues to be especially favorable to the Bank’s Kalona and Wellman offices. Dr. Yoder’s small business expertise and agriculture knowledge also continuescontinue to be a valuable contribution to the Board of Directors. Dr. Yoder is active professionally with the American
Veterinary and Iowa Veterinary Associations. Dr. Yoder has demonstrated active involvement in the community’s non-profit organizations in the Kalona community.
None of the Directors currently serves, or has served in the past five years, as a Director of another company whose securities are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or whose securities are subject to the requirements of Section 15(d) of the Exchange Act or a company registered under the Investment Company Act of 1940, as amended. There are no family relationships among the Company’s Directors, nominees for Director and executive officers.
CORPORATE GOVERNANCE AND THE BOARDS OF DIRECTORS
Board of Directors of the Company
The Board of Directors of the Company meets on a regularly scheduled basis. During 2017,2022, the Board of Directors of the Company held an annual meeting, one special meeting and twelve regular meetings. During 2017,2022, all Directors of the Company attended at least seventy-five percent of the total number of meetings of the Board and all of the committees to which such Directors were appointed. Although the Company does not have a formal policy regarding attendance by Directors at annual shareholder meetings, such attendance is encouraged. In 2017,2022, all eleven of the Company’s Directors attended the annual shareholders’ meeting.
The Board of Directors of the Company has established a committee (the "Governance and Nominating Committee") consisting of the ten non-employee Directors (i.e., all(all Directors but Mr. Seegmiller), all of whom are considered to be independent as defined under the rules of NASDAQ, except for Mr. Hodge. The Governance and Nominating Committee assists in identifying individuals qualified to become Board members, and to recommendrecommends nominees for director (including evaluating candidates recommended by shareholders), recommends the corporate governance guidelines applicable to the Company, oversees an annual review of the Board's performance, recommends director nominees for each committee, recommends a determination of each outside director's "independence" under applicable rules and guidelines, oversees the Company's engagement with stockholders and other interested parties concerning governance and other related matters, and oversees reputation risk related to Committee's responsibilities. The Governance and Nominating Committee met on April 17, 2017.18, 2022. Directors are not compensated for meetings of the Governance and Nominating Committee. The Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which is available on the Company's website at www.hillsbank.com under the heading of investor relations."Investor Relations."
The Board of Directors of the Company has established a committee (the “Audit Committee”) consisting of three non-employee Directors, currently consisting of Directors Hughes, NowakWiele, Yoder and Yoder.Schmitt. The Board of Directors has adopted a written charter for the Audit Committee. A copy of the charter is available on the Company’s website at www.hillsbank.com under the heading of investor relations."Investor Relations." The Audit Committee is responsible for the engagement of the independent registered public accounting firm and reviews with the independent registered public accounting firm the scope and results of the audits, the Company’s internal accounting controls and the professional services furnished by the independent registered public accounting firm. All three members of the Audit Committee are “independent” as defined under the rules of NASDAQ. Due to his experience as noted above, the Board has determined that Director NowakSchmitt qualifies as an Audit Committee Financial Expert under applicable regulations. In addition, because the Bank had total assets in excess of $3 billion as of the beginning of fiscal year 2023, our audit committee is also required to have an additional member having "banking or related financial management expertise." The Board has determined that Director Peck qualifies in this respect. The Audit Committee met six times in 2017.2022. Audit Committee members are compensated by the Bank as indicated below under the heading “Schedule of Directors Fees.”
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The Board of Directors of the Company has established a committee (the “Compensation and Incentive Stock Committee”) consisting of the ten non-employee Directors (i.e., all(all Directors but Mr. Seegmiller), all of whom are considered to be independent as defined under the rules of NASDAQ, except for Mr. Hodge. The Compensation and Incentive Stock Committee makes
decisions regarding executive officer salaries, bonuses, grants of awards to all officers pursuant to the Hills Bancorporation 20102020 Stock Option and Incentive Plan (the “Incentive Stock Plan”), contributions to the Hills Bank and Trust Company Employee Stock Ownership Plan (the “ESOP”), and contributions to the Hills Bank and Trust Company 401(k) Profit Sharing Plan (the “Profit Sharing Plan”). The Compensation and Incentive Stock Committee held tennine meetings during 2017.2022. The tennine meetings involved approval of grants of restricted stock to officers. Directors are not compensated for meetings of the Compensation and Incentive Stock Committee. The Board of Directors has adopted a written charter for the Compensation and Incentive Stock Committee, a copy of which is available on the Company's website at www.hillsbank.com under the heading of investor relations."Investor Relations."
The Board of Directors of the Company has established a committee (the "Risk Committee") consisting of three non-employee Directors, currently consisting of Directors Donovan, NowakPeck, Hodge and Rhodes.Hughes. The Board of Directors has adopted a written charter for the Risk Committee. A copy of the charter is available on the Company's website at www.hillsbank.com under the heading of investor relations."Investor Relations." The Risk Committee oversees and approves the Company-wide risk management practices to assist the board in overseeing the management team's identification and assessment of risks facing the organization and establishment of a risk management infrastructure capable of addressing those risks, the division on risk-related responsibilities to each Board committee as clearly as possible to determine that the oversight of risks is not missed, and approvingapproval of the Company's enterprise risk management framework. The Risk Committee held six meetings during 2017.2022. Risk Committee members are compensated by the Bank as indicated below under the heading "Schedule of Directors Fees."
Each of the Company’s Directors, with the exception of Mr. Seegmiller and Mr. Hodge, has been determined by the Board of Directors to be an “Independent Director” as defined by Rule 5605(a)(2) of the Marketplace Rules of the National Association of Securities Dealers Automated Quotation system (“NASDAQ”). Mr. Seegmiller is not considered to be independent since he is the President and CEO of the Company and the Bank. Mr. Hodge is not independent underCEO of the NASDAQ definition based on certain transactions between the Company and Mr. Hodge’s affiliated companies during the prior three fiscal years, including the transactions described in the section of this Proxy Statement captioned “Compensation and Incentive Stock Committee Interlocks and Certain Other Transactions with Executive Officers and Directors.”Bank. In determining Director independence, the Board of Directors considers all relevant facts and circumstances, including the independence standards set forth in the rules of NASDAQ. In order to be considered independent, a Director must be free from any relationship which, in the opinion of the Company’s Board of Directors would interfere with the exercise of independent judgment. The Board of Directors considered certain transactions, relationships or arrangements which are described herein under the heading “Compensation and Incentive Stock Committee Interlocks and Certain Other Transactions with Executive Officers and Directors”Insider Participation” in making its determination of director independence.
Board of Directors of the Bank
The business and affairs of the Bank are managed by the Board of Directors of the Bank, the membership of which is identical to that of the Board of Directors of the Company. The Board of Directors of the Bank holds regular monthly meetings. In 2017,2022, the Board of Directors of the Bank held an annual meeting, one special meeting and twelve regular meetings. The Board of Directors of the Bank has established the Trust Committee, the Audit Committee, the Risk Committee, the Loan Committee and the Employee Stock Ownership Plan (“ESOP”) Committee as standing committees of the Board of Directors of the Bank. Directors Gill,Frey, Phelan, Rhodes, Seegmiller and WieleDonovan serve on the Trust Committee; Directors Hughes, NowakWiele, Yoder and YoderSchmitt serve on the Audit Committee; Directors Donovan, NowakPeck, Hughes and RhodesHodge serve on the Risk Committee; Directors Gill,Donovan, Hodge, Hughes, WielePeck and Seegmiller serve on the Loan Committee; and Director PachaRhodes serves on the ESOP Committee. The sixseven Directors not appointed to the Loan Committee are invited to attend meetings of that committee and are compensated for such attendance at the same rate as members of the Loan Committee for each meeting attended. The Board of Directors of the Bank has established the Governance and Nominating Committee that meets as needed as part of regularly scheduled Board meetings.
The Trust Committee of the Bank is responsible for overseeing and annually reviewing the operations of the Trust Department of the Bank and the status of all trusts for which the Bank’s Trust Department acts in a fiduciary capacity. The Trust Committee met twelve times during 2017.2022. The Audit Committee held six meetings during 20172022 and is responsible for coordinating the audit with BKDFORVIS, LLP and addressing internal audit functions. The Risk Committee held six meetings during 20172022 and is responsible for oversight of the Bank's enterprise risk management program. The Loan Committee held twelve meetings during 20172022 and is responsible for review and oversight of the loan activities of the Bank. The ESOP Committee, which is responsible for overseeing the ESOP in connection with which the Bank’s Trust Department serves as trustee, had three meetings during 2017.2022. During 2017,2022, all of the Directors of the Bank attended at least 75%seventy-five percent of the total number of meetings of the Board of Directors and all of the Directors of the Bank appointed to committees attended at least 75%seventy-five percent of the meetings of the committee to which such Directors were appointed.
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Board Leadership Structure and Role in Risk Oversight
The leadership structure of the Board of Directors leadership structure has historically separated the function of the Chairperson of the Board of the Bank and the Principal Executive Officer. This structure is expected to continue in the future with the Chairperson of the Bank’s Board of Directors being a non-employee Director. This structure promotes good corporate governance by providing a non-management leadership structure and such a leadership structure is encouraged by bank regulators. The Company’s Board of Directors has not designated a Chairperson, and Mr. Seegmiller currently acts as the de facto chair at all meetings thereof, which generally followprecedes meetings of the Bank’s Board of Directors. The Company currently has no designated “lead independent director” with respect to its Board and believes this structure is appropriate because all significant business operations continue to be conducted at the Bank level.
The Company is exposed to risks as part of the normal course of business. Risk exposure requires sound risk management practices that comprise ana comprehensive framework of programs and processes that apply to the Company. The Company has established a risk management framework to manage risks and provide reasonable assurance of the achievement of the Company's strategic objectives. The primary risks identified and managed through the framework are strategic risk, liquidity risk, market risk, credit risk, trust risk, information technology and security risk, operational risk, legal risk and reputational risk.
The principal risk management functions of the Board are to oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance with laws and regulations. The Board, through its Risk Committee, has developed a formal plan to address Enterprise Risk Management ("ERM") within the Company. The Company's ERM includes a formal process to identify and document the key risk to the Company and provides a common framework and terminology to ensure consistency in identification, reporting and management of key risks. The Board annually approves, upon the recommendation of its Risk Committee, a Risk Appetite and Tolerance Statement that reflects core business principles and provides the foundation of the Company's risk appetite, which is the aggregate amount of risk the Company is willing to accept in pursuit of its mission. By establishing boundaries around risk taking and business decisions, and by incorporating the needs and goals of its shareholders, regulators, customers and other stakeholders, the Company's risk appetite is aligned with its priorities and goals.
The Board has formed an Enterprise Risk Management Committee ("ERMC") of the Company comprised of the Company's business unit leaders and led by the Company's Senior Vice President, Director of Risk Management,General Counsel, to help ensure the consistent application of the Company's risk management approach. The primary activities of the ERMC include:
•Annual comprehensive risk assessments for all of the risks identified in the Company's risk management framework;
•Monitoring signals that may indicate possible risk issues for the Company;
•Identifying risks and determining which Company areas and/or products will be affected;
•Ensuring there are mechanisms in place to specifically determine how risks will affect the Company or its products;
•Monitoring and reporting on risk tolerance thresholds approved by the Board; and
•Reviewing the limits, policies, and procedures in place to ensure the continued appropriateness of risk controls.
The Company has also formed an Officers Risk Management Committee ("ORMC") which consists of the next level of management from within the Company. The primary activities of the ORMC include:
•New product and/or service risk assessments;
•Discussion and identification of potential risk issues to report to the ERMC; and
•Tactical working groups to identify additional risk management activities to be pursued by the Company.
As part of the risk assessment process, the ERMC and ORMC each report the results of their evaluations to the Risk Committee of the Board of Directors and make recommendations to the Risk Committee regarding adjustments to controls as conditions or risk tolerances change.
Schedule of Directors Fees
Directors of the Company and the Bank who are not employees of the Company or the Bank (all Directors but Mr. Seegmiller) are compensated for their service as a Directors as indicated in the table below:
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| Compensation Item | Company | Bank | Compensation Item | Company | Bank | |||||||||||||||
| Annual Retainer (paid quarterly): | Annual Retainer (paid quarterly): | |||||||||||||||||||
| Chairperson of the Board | N/A | $ | 19,450 | Chairperson of the Board | N/A | $ | 23,300 | |||||||||||||
| Board Member | N/A | 14,700 | Board Member | N/A | 17,600 | |||||||||||||||
| Meeting Fees: | Meeting Fees: | |||||||||||||||||||
| Board Meetings | $360 | 570 | Board Meetings | $435 | 680 | |||||||||||||||
| Committee: | Committee: | |||||||||||||||||||
| Audit | N/A | 360 | Audit | N/A | 435 | |||||||||||||||
| Risk | N/A | 360 | Risk | N/A | 435 | |||||||||||||||
| Governance | N/A | N/A | Governance | N/A | N/A | |||||||||||||||
| Compensation and Incentive Stock | N/A | N/A | Compensation and Incentive Stock | N/A | N/A | |||||||||||||||
| Employee Stock Ownership Plan / Profit Sharing | N/A | 360 | Employee Stock Ownership Plan / Profit Sharing | N/A | 435 | |||||||||||||||
| Loan | N/A | 360 | Loan | N/A | 435 | |||||||||||||||
| Trust | N/A | 360 | Trust | N/A | 435 | |||||||||||||||
Director Deferral Plan:
Under the Company’s Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which was initiated in 1997, each Director may elect to defer up to 50% of such Director’s cash compensation from retainers and meeting fees. Any amount so deferred is credited to the Director’s deferred compensation account and converted into units equivalent in value to the fair market value of a share of stock in Hills Bancorporation at the time of such conversion. The “stock units” are book entry only and do not represent an actual issuance of stock. The Director’s account is adjusted each year for dividends paid and the change in the market value of Hills Bancorporation stock. The liability for the deferred Directors’ fees is unfunded and unsecured for the participants. The amounts are payable in cash in five annual installments upon the earliest of the following: change of control of the Company, termination of the Director from the Board of Directors of the Company and the Bank, or when the Director reaches the age of seventy-two years.
Director Compensation Table
The following table provides information concerning the compensation of all the Directors other than Mr. Seegmiller for the fiscal year ended December 31, 2017.2022. Compensation information for Mr. Seegmiller is discussed below in the section captioned “Summary of Cash and Certain Other Compensation Paid to the Named Executive Officers.”
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||||||||||||
| Michael S. Donovan | $ | 41,020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 41,020 | ||||||||||||||||||||||||||||||
| Kirsten H. Frey | 41,455 | — | — | — | — | — | 41,455 | |||||||||||||||||||||||||||||||||||||
| Michael E. Hodge | 38,860 | — | — | — | — | — | 38,860 | |||||||||||||||||||||||||||||||||||||
| Emily A. Hughes | 38,425 | — | — | — | — | — | 38,425 | |||||||||||||||||||||||||||||||||||||
| Casey L. Peck | 38,860 | — | — | — | — | — | 38,860 | |||||||||||||||||||||||||||||||||||||
| John W. Phelan | 41,020 | — | — | — | — | — | 41,020 | |||||||||||||||||||||||||||||||||||||
| Ann Marie Rhodes | 46,700 | — | — | — | — | — | 46,700 | |||||||||||||||||||||||||||||||||||||
| James C. Schmitt | 38,440 | — | — | — | — | — | 38,440 | |||||||||||||||||||||||||||||||||||||
| Thomas R. Wiele | 38,860 | — | — | — | — | — | 38,860 | |||||||||||||||||||||||||||||||||||||
| Sheldon E. Yoder, D.V.M. | 38,425 | — | — | — | — | — | 38,425 | |||||||||||||||||||||||||||||||||||||
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Michael S. Donovan | $ | 31,905 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 31,905 | ||||||||||||||
| Thomas J. Gill, D.D.S. | 35,685 | — | — | — | — | — | 35,685 | |||||||||||||||||||||
| Michael E. Hodge | 30,485 | — | — | — | — | — | 30,485 | |||||||||||||||||||||
| Emily A. Hughes | 33,565 | — | — | — | — | — | 33,565 | |||||||||||||||||||||
| James A. Nowak | 34,455 | — | — | — | — | — | 34,455 | |||||||||||||||||||||
| Theodore H. Pacha | 36,488 | — | — | — | — | — | 36,488 | |||||||||||||||||||||
| John W. Phelan | 33,125 | — | — | — | — | — | 33,125 | |||||||||||||||||||||
| Ann Marie Rhodes | 32,265 | — | — | — | — | — | 32,265 | |||||||||||||||||||||
| Thomas R. Wiele | 34,655 | — | — | — | — | — | 34,655 | |||||||||||||||||||||
| Sheldon E. Yoder, D.V.M. | 32,315 | — | — | — | — | — | 32,315 | |||||||||||||||||||||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Set forth in the following table is certain information on each person who is known to the Board of Directors to be the beneficial owner as of March 2, 20183, 2023 of more than 5% of the Company’s Common Stock, which is the only class of equity securities that the Company has outstanding.
Amount and Nature of Beneficial Ownership
Name and Address of Beneficial Owner | Total Shares Beneficially Owned | Sole Voting and Investment Power | Shared Voting and Investment Power | Percent of Class | Name and Address of Beneficial Owner | Total Shares Beneficially Owned | Sole Voting and Investment Power | Shared Voting and Investment Power | Percent of Class | |||||||||||||||||||||||||||||
Hills Bank and Trust Company, as trustee of the Hills Bank and Trust Company Employee Stock Ownership Plan (the “ESOP”) 131 Main Street Hills, Iowa 52235 | 802,743 | — | 802,003 | (1) | 8.51 | % | Hills Bank and Trust Company, as trustee of the Hills Bank and Trust Company Employee Stock Ownership Plan (the “ESOP”) 131 Main Street Hills, Iowa 52235 | 708,856 | — | 708,856 | (1) | 7.68 | % | |||||||||||||||||||||||||
NOTE:
(1)Consists of shares of Company Common Stock allocated to the accounts of employees of the Bank who are eligible to participate in the ESOP. Employees are entitled to direct the trustee how to vote shares allocated to their accounts.
The following table sets forth as of March 2, 20183, 2023 the number of shares of the Company’s Common Stock beneficially owned by each Director, nominee for Director, the non-Director executive officers and all the Directors and the non-Director executive officers as a group. The Company has not adopted a share ownership policy or a share retention policy for the Directors or the executive officers.
Amount and Nature of Beneficial Ownership
| Name | Total Shares Beneficially Owned | Sole Voting and Investment Power | Shared Voting and Investment Power | Percent of Class (4) | ||||||||||||||||||||||
| Directors | ||||||||||||||||||||||||||
| Michael S. Donovan | 24,177 | 14,922 | 9,255 | 0.26 | % | |||||||||||||||||||||
| Kirsten H. Frey | 1,935 | (1) | 1,935 | — | 0.02 | % | ||||||||||||||||||||
| Michael E. Hodge | 24,905 | 15,815 | 9,090 | 0.27 | % | |||||||||||||||||||||
| Emily A. Hughes | 242,234 | (3) | 42,234 | 200,000 | 2.60 | % | ||||||||||||||||||||
| Casey L. Peck | 1,935 | (1) | 1,935 | — | 0.02 | % | ||||||||||||||||||||
| John W. Phelan | 16,398 | 11,951 | 4,447 | 0.18 | % | |||||||||||||||||||||
| Ann Marie Rhodes | 1,507 | 1,507 | — | 0.02 | % | |||||||||||||||||||||
| James C. Schmitt | 5,090 | (1) | 5,090 | — | 0.05 | % | ||||||||||||||||||||
| Dwight O. Seegmiller | 256,575 | (2) | 249,375 | 7,200 | 2.76 | % | ||||||||||||||||||||
| Thomas R. Wiele | 8,794 | 8,133 | 661 | 0.09 | % | |||||||||||||||||||||
| Sheldon E. Yoder, D.V.M. | 26,000 | 24,390 | 1,610 | 0.28 | % | |||||||||||||||||||||
| Non-Director Named Executive Officers | ||||||||||||||||||||||||||
| Lisa A. Shileny | 6,067 | (2) | 5,546 | 521 | 0.07 | % | ||||||||||||||||||||
| Timothy D. Finer | 36,563 | (2) | 36,563 | — | 0.39 | % | ||||||||||||||||||||
| Steven R. Ropp | 37,229 | (2) | 37,229 | — | 0.40 | % | ||||||||||||||||||||
| Anthony Roetlin | 825 | 825 | — | 0.01 | % | |||||||||||||||||||||
| All Directors and Non-Director Executive Officers as a Group (22 persons) | 723,401 | (2) | 489,616 | 233,785 | 7.78 | % | ||||||||||||||||||||
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| Name | Total Shares Beneficially Owned | Sole Voting and Investment Power | Shared Voting and Investment Power | Percent of Class (4) | |||||||||
| Directors | |||||||||||||
| Michael S. Donovan | 22,512 | 13,294 | 9,218 | 0.24 | % | ||||||||
| Thomas J. Gill, D.D.S. | 20,256 | 20,256 | — | 0.21 | % | ||||||||
| Michael E. Hodge | 20,930 | 15,164 | 5,766 | 0.22 | % | ||||||||
| Emily A. Hughes | 242,234 | (1)(3) | 42,234 | 200,000 | 2.57 | % | |||||||
| James A. Nowak | 12,123 | 10,190 | 1,933 | 0.13 | % | ||||||||
| Theodore H. Pacha | 26,949 | 26,949 | — | 0.29 | % | ||||||||
| John W. Phelan | 12,460 | 8,210 | 4,250 | 0.13 | % | ||||||||
| Ann Marie Rhodes | 500 | 500 | — | 0.01 | % | ||||||||
| Dwight O. Seegmiller | 254,395 | (2) | 157,144 | 97,251 | 2.70 | % | |||||||
| Thomas R. Wiele | 5,338 | (1) | 4,844 | 494 | 0.06 | % | |||||||
| Sheldon E. Yoder, D.V.M. | 23,000 | 21,390 | 1,610 | 0.24 | % | ||||||||
| Non-Director Executive Officers | |||||||||||||
| Shari J. DeMaris | 12,920 | (1)(2) | 10,988 | 1,932 | 0.14 | % | |||||||
| Timothy D. Finer | 35,183 | (2) | 8,500 | 26,683 | 0.37 | % | |||||||
| Steven R. Ropp | 35,313 | (2) | 15,045 | 20,268 | 0.37 | % | |||||||
| Bradford C. Zuber | 42,292 | (2) | 12,826 | 29,466 | 0.45 | % | |||||||
| All Directors and Non-Director Executive Officers as a Group (15 persons) | 766,405 | (2) | 367,534 | 398,871 | 8.13 | % | |||||||
NOTES:
(1)This figure includes shares subject to currently exercisable stock options granted pursuant to the 2010 Stock Option and Incentive Plan. For Directors, the options will expire ten years after the grant date or two years after the Director’s term of service on the Board of Directors of the Company ends, whichever occurs first. For Non-Director Executive Officers, the options expire ten years after the grant date. Details of the stock options are as follows:
| Name | Grant Date | Number of Options | Exercise Price | Expiration Date | ||||||||||||||||||||||
| Kirsten H. Frey | 5/14/2019 | 1,935 | $ | 62.00 | 5/14/2029 | |||||||||||||||||||||
| Casey L. Peck | 5/14/2019 | 1,935 | 62.00 | 5/14/2029 | ||||||||||||||||||||||
| James C. Schmitt | 5/14/2019 | 1,935 | 62.00 | 5/14/2029 | ||||||||||||||||||||||
(2)This figure includes shares held by the Bank’s ESOP which have been allocated to the named executive officers for voting purposes as follows:
| Name | Grant Date | Number of Options | Exercise Price | Expiration Date | |||||||
| Shari J. DeMaris | 10/9/2012 | 3,000 | $ | 34.50 | 10/9/2022 | ||||||
| Emily A. Hughes | 4/24/2012 | 3,610 | 33.00 | 4/24/2022 | |||||||
| Thomas R.Wiele | 4/24/2012 | 3,610 | 33.00 | 4/24/2022 | |||||||
| Name | ESOP Shares | |||||||
| 1,992 | |||||
| 28,063 | ||||||||
| 21,362 | ||||||||
| Dwight O. Seegmiller | 92,231 | |||||||
(3)This figure includes 200,000 shares owned in a limited partnership of which Director Hughes is a general partner. Ms. Hughes has shared voting and investment power in the limited partnership.
(4)Includes, for each such person, shares that are deemed to be beneficially owned by such person (a) because such shares are subject to options currently exercisable by such person or (b) because such shares are held by the ESOP and have been allocated to such person with shared voting power, as described in Notes 1, 2 and 3.
Hedging Practices
The Company has not adopted any practice or policies regarding the ability of directors or employees (including officers), or their designees, to purchase financial instruments, or otherwise engage in transactions, that are designed to hedge or offset any decrease in the market value of the Company’s stock held by such insiders.
DELINQUENT SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors, executive officers and persons who own more than 10 percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership of such securities with the Securities and Exchange Commission. Directors and executive officers and greater than 10 percent beneficial owners are required by applicable regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons that no other reports were required, the Company believes that all filing requirements applicable to the Directors and executive officers were complied with during 2017.2022.
COMPENSATION AND INCENTIVE STOCK COMMITTEE INTERLOCKS
AND CERTAIN OTHER TRANSACTIONSINSIDER PARTICIPATION
All compensation decisions affecting the executive officers of the Company and the Bank are made by the Compensation and Incentive Stock Committee of the Board of Directors consisting of the ten non-employee Directors (all Directors but Mr. Seegmiller). The Committee makes compensation decisions with respect to each of the Company Named Executive Officers identified in the Summary Compensation Table and other tables on the following pages of this Proxy Statement. The compensation paid to the Bank Named Executive Officers is not directly determined by the Committee, but is determined by Mr. Seegmiller, and Ms. DeMaris, as the senior executivesexecutive of the Company and the Bank, and Ms. Shileny, as President of the Bank, which determinations are then reviewed and ratified by the Committee.
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Michael E. Hodge, in his capacity as a member of the Boards of Directors of the Company and the Bank and of the Compensation and Incentive Stock Committee, participated in deliberations concerning executive compensation matters during 2017.2022. Within
the last three fiscal years, the Bank has had certain business relationships with Hodge Construction Company, a general contractor. In addition, Mr. Hodge is a 17.65% investor in the limited liability corporation, OC Group, L.C. that is the owner of the Old Capitol Town Center, a portion of which is leased by the Bank for a bank office location, and he is a 38%30% owner of Corridor Commercial DevelopmentHodge Construction Company, ("Corridor"), from which the Bank purchased propertiesutilized construction management services in 2016.2022.
The Bank has an agreement with the OC Group, L.C. under which it leased 5,845 square feet of space in Old Capitol Town Center, a two-story building with a total of 99,612 square feet, located in downtown Iowa City. Mr. Hodge holds a 17.65% ownership interest in OC Group, L.C., the owner of Old Capitol Town Center. The ten-year lease began on June 1, 2004 and was extended in 20142019 until 2019,2024, the firstsecond renewal period under the lease. The lease term is subject to threetwo additional five-year renewal options. The Bank’s annual lease payment on this space is currently $23.28$25.54 per square foot and increases 2% per year, plus annual common area maintenance charges of $4.00 per square foot. The Bank is also responsible for payment of the real estate taxes allocated to the leased space. The annual lease cost in 20172022 was $152,388$165,258 before payment of such real estate taxes, which were $20,948$25,236 for the year. In the opinion of management, the cost of the leased space is similar to the cost of leasing comparable commercial property in downtown Iowa City.
The Board of Directors of the Bank does not believe that the participation by Mr. Hodge in the deliberations concerning executive compensation has provided the Company Named Executive Officers with more favorable compensation arrangements than would have been the case absent his participation in such deliberations. As disclosed elsewhere in this proxy statement under the caption "Corporate Governance and the Board of Directors," management has concluded that Mr. Hodge is not an independent Director as defined by NASDAQ's rules.
In addition, certain of the officers and Directors of the Company, their associates or members of their families, were customers of, and have had transactions with, the Bank from time to time in the ordinary course of business, and additional transactions may be expected to take place in the ordinary course of business in the future. Federal Reserve Regulation O requires loans made by the Bank to executive officers and Directors to be made on substantially the same terms, including interest rates and collateral, and following credit-underwriting procedures that are no less stringent than those prevailing at the time for other transactions by the Bank with other unrelated persons. Such loans may not involve more than the normal risk of repayment or present other unfavorable features. Regulation O also requires approval by the Board of Directors for all insider loans in excess of $500,000.
The Company does not have a formal written policy regarding the review and approval of transactions between the Company and its Directors, executive officers and other related interests. However, it is the general practice of the Board of Directors to review and approve any new non-loan transactions that would exceed $120,000.$120,000, with the interested Director recusing him- or herself from deliberations and voting on the proposal. In making a determination to approve a related party transaction the Board of Directors will take into account, among other factors it deems appropriate, whether the proposed transaction is on terms no less favorable to the Company than those generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the proposed transaction. On a yearly basis, the Board of Directors reviews information on any existing and ongoing transactions with the Directors as disclosed under the Compensation and Incentive Stock Committee Interlocks and Certain Other Transactions with Executive Officers and DirectorsInsider Participation section. Management of the Company anticipates that the Bank and the Company will continue to maintain such business relationships in the future on a similar basis to the extent that such goods and services are required by the Bank and the Company.
No executive officer of the Company or Bank serves or has served as a member of the Board of Directors or the Compensation Committee of any other company which employs any member of the Company's Board of Directors.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In the following Compensation Discussion and Analysis section, the Company provides information concerning compensation and benefits provided to the two executive officers of the Company (the “Company Named Executive Officers”). The Company’s current Named Executive Officers are Dwight O. Seegmiller, who is the President and Principal Executive Officer (“PEO”) and Shari J. DeMaris,Anthony Roetlin, who joined the Company as Treasurer and PFO effective December 30, 2022. Joseph A. Schueller is the Secretary/former Treasurer and Principal Financial Officer (“PFO”). of the Company who resigned effective
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September 2, 2022. In addition, information is provided concerning compensation and benefits provided to three executive officers of the Bank (the “Bank Named Executive Officers”). The Bank executive officers are Timothy D. Finer, Senior Vice President and Director of Real Estate Lending, Steven R. Ropp, Senior Vice President and Director of Commercial Banking, and Bradford C. Zuber, Senior ViceLisa A. Shileny, President and Director of Trust Services.Chief Operating Officer.
The Company’s overall compensation objectives are to pay salaries and provide benefits that are both fair and reasonable, consistent with the compensation practices of the financial services industry in general, and appropriate and competitive in the Bank’s local marketplace. The Company’s goal is to attract, develop and retain high caliber executives who are capable of increasing the Company’s performance for the benefit of its shareholders while maintaining the philosophy of community banking. Ultimately, the Company desires to base its compensation on individual performance as it affects the overall financial results of the Company. Specifically, the executive compensation program of the Company has been designed to:
•provide a pay-for-performance policy that differentiates compensation amounts based upon corporate and individual performance;
•provide compensation opportunities comparable to those offered by other Iowa-based financial institutions and Midwest banks of similar asset size, thus allowing the Bank to compete for and retain talented executives who are essential to the long-term success of the Company and the Bank;
•align the interest of the officers with the long-term interest of the Company’s shareholders through the ownership of Company Common Stock; and
•maintain a corporate environment which encourages stability and long-term focus for the primary constituencies of the Company, including shareholders, employees, customers, regulatory agencies and the communities it serves.
To achieve its objectives the Company has structured it’sits compensation program: (1) to reward current corporate and individual performance through salary increases and opportunities for cash bonuses; and (2) to reward long-term corporate and individual performance through participation in the ESOP and Profit Sharing Plan, the Deferred Compensation Plan and participation in the Incentive Stock Plan. The amounts and types of compensation paid in 20172022 (as set forth below) fit into the Company’s overall compensation objectives by achieving those two objectives.
Decisions Regarding Composition of Total Compensation
The Compensation and Incentive Stock Committee (the “Committee”), which is comprised of the full Board of Directors with the exception of Director Seegmiller, has responsibility for implementing and overseeing the Company’s executive compensation program. In this respect, the Committee has strategic and administrative responsibility for a broad range of issues, including ensuring that the Company compensates key management employees effectively and in a manner consistent with the Company’s compensation strategy. The Committee also oversees the administration of executive compensation plans, including the design, performance measures, and award opportunities for management compensation programs, and certain employee benefits. The Committee also makes compensation decisions with respect to each of the Company Named Executive Officers identified in the Summary Compensation Table and other tables on the following pages of this Proxy Statement. The compensation paid to the Bank Named Executive Officers is not directly determined by the Committee, but is determined by Mr. Seegmiller, and Ms. DeMaris, as the senior executivesexecutive of the Company and the Bank, and Ms. Shileny, as the President of the Bank, which determinations are then reviewed and ratified by the Committee.
The Committee’s policy is to review management compensation at least annually. The Committee makes these reviews to ensure that management compensation is consistent with the Company’s compensation philosophies articulated above.
The factors the Committee considers in either determining or ratifying, as the case may be, the level and composition of compensation include but are not limited to the following: (1) the Bank’s performance as compared to internally-established goals for the most recently ended fiscal year and to the performance of other Iowa-based financial institutions; (2) the individual officer’s level of responsibility within the Bank; and (3) competitive compensation data. In addition, the Committee considers the financial performance for the current year including the business plan containing the financial performance goals measured primarily in terms of earnings per share, growth of the Company, asset quality, return on assets and return on stockholders’ equity. The Committee also considers the financial budget for the upcoming fiscal year and the Company’s updated strategic plan. While the foregoing factors are not specifically weighted in the decision-making process, primary emphasis is placed on the Bank’s performance during the previous year as compared to the internally-established goals. Although the Committee reviewed a number of objective factors in setting compensation for 2017,2022, its final decision was based on a subjective determination. Details regarding the compensation of each of the Company and Bank Named Executive Officers are set forth in the tables that appear below.
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The internally established goals for purposes of the compensation discussion focus on the financial budget for the year under review compared to the actual results. However, there are no predetermined increases or decreases in the compensation based solely upon the financial results in terms of net income compared to the budget. Any significant variance to the budget is analyzed fully with the Board of Directors to determine the reasons behind the variance and to determine if such variance is a result of
management’s efforts or is driven by factors in the financial area outside of their control. Compensation adjustments are not made based on any predetermined formulas of the financial performance goals established during the financial budget process.
The Committee has not engaged outside consultants, but that option is available to the Committee. However, in evaluating the salary component of the compensation of the Company and Bank Named Executive OfficerOfficers each year, the Committee reviews salaries paid to officers holding similar positions in other Iowa-based financial institutions and compensation data from SNL Financial concerning salaries paid by other Midwest banks having between $1 billion and $3 billion in assets. The Committee also reviews compensation data from the Iowa Bankers’ Association.institutions. The companies included in the peer group are reviewed annually and may change based on size, merger and acquisition activity and other pertinent factors. Review of this information is done primarily to determine that the salarysalaries established isare at a competitive level. The Committee does not set strict parameters using this data. Rather, the Committee uses this data to ensure that the Company and Bank Named Executive Officer’sOfficers' compensation paid by the Bank is not inconsistent with compensation levels at appropriately defined peer organizations.
In determining the compensation to be paid to the Company Named Executive Officers in 2017,2022, the Committee took the actions listed below:
•Reviewed the financial performance of the Company based on a comparison of actual net income to budgeted and prior year net income;
•Reviewed leadership and quality of contribution to the strategic direction of the Company;
•Reviewed peer performance data versus the Company and discussed goals for 20172022 and beyond;
•Reviewed overall contributions by the Company to the communities it serves;
•Reviewed contributions to the management of the Company’s employees and daily operations, the administration of the Company’s policies and procedures and enhancement of long-term relationships with customers;
•Reviewed the current total compensation package for the Company Named Executive Officers to determine market competitiveness;
•Performed an evaluation of Mr. Seegmiller; and
•Recommended annual salary adjustments.
After considering all the compensation paid to the Company and Bank Named Executive Officers, the Committee determined that the compensation paid to the Company and Bank Named Executive Officers is reasonable and not excessive.
Elements of Compensation
The Company provides a competitive mix of pay elements that align executive incentives with shareholder value. The executive compensation program includes salary, cash bonuses and long-term compensation.
The forms of compensation paid in 20172022 are comprised of the following:
Salaries and cash bonuses: Salary is designed to provide competitive levels of compensation to executives based upon their experience, duties and scope of responsibility. The Bank pays salaries because it provides a basic level of compensation and is necessary to recruit and retain executives. An important aspect of salary is the Committee’s ability to use annual base salary adjustments to reflect an individual’s performance or changed responsibilities. Salary levels are also important because the Committee may tie the amount of long-term compensation to an executive’s salary. In making its decisions regarding annual salary adjustments, the Committee reviews quantitative and qualitative performance factors as part of an annual performance appraisal. These are established for each executive position and the performance of the incumbent executive is evaluated annually against these standards. This appraisal is then integrated with market-based adjustments to salary ranges to determine if a base salary increase is merited.
Mr. Ropp received a $5,457 bonus in 2022 and Mr. Finer received a $1,158 bonus in 2022. No other Named Executive Officers received cash bonuses were paid in 2017.2022. The Committee determines cash bonuses, if any, on a discretionary basis. Cash bonuses are utilized as a means to reward and incentivize achieving short-term and annual performance measures.
Participation in the ESOP: The ESOP is a defined contribution plan designed primarily to reward eligible employees for long and loyal service by providing them with retirement benefits. The ESOP is operated in accordance with the provisions of the
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written plan document. The ESOP is designed and intended to invest primarily in Common Stock issued by the Company and, in so doing, to provide for employee participation in the equity ownership of the Company. Any benefits payable under the ESOP will be based solely upon the amounts contributed for the benefit of a participant and any changes in the value of those contributions while they are held in the ESOP. The ESOP does not require or allow contributions by participating employees. Subject to certain exceptions, contributions to the ESOP are fully vested after six (6) years of service with the Bank. In 2017,2022, the Bank, as plan sponsor of the ESOP, made an annual ESOP contribution which was allocated among all participating employees
of the Bank, including the executive officers, based on their annual salaries. In 2017,2022, the Bank, as sponsor of the ESOP, made a 4.5% ESOP contribution.
Participation in the Profit-Sharing Plan: The Bank is the trustee of the Profit Sharing Plan. The Profit Sharing Plan is operated in accordance with the provisions of the written plan document. Employees of the Bank are eligible to participate in the Profit Sharing Plan. The Profit Sharing Plan, like the ESOP, is designed primarily to reward eligible employees for long and loyal service by providing them with retirement benefits. The Profit Sharing Plan is a defined contribution plan and is primarily invested in assets other than equity securities of the Company. Any benefits payable under the Profit Sharing Plan will be based solely upon the amounts contributed by the Bank for the benefit of a participant and any changes in the value of those contributions while they are held in the Profit Sharing Plan. Apart from the qualified 401(k) plan that is part of the Profit Sharing plan,Plan, the Profit Sharing Plan does not require or allow contributions by participating employees. Subject to certain exceptions, contributions to the Profit Sharing Plan are fully vested after six years of service with the Bank. In 2017,2022, the Bank, as sponsor of the Profit Sharing Plan, made a 4.5% Profit Sharing Plan contribution.
As part of the Profit Sharing Plan, the Company offers a qualified 401(k) plan to provide a tax-advantaged savings vehicle. The Company makes matching contributions to the 401(k) plan to encourage employees to save money for their retirement. This 401(k) plan and such matching contributions enhance the range of benefits offered to employees and the Company’s ability to attract and retain employees. The 401(k) segment of the Profit Sharing Plan covers all eligible employees of the Bank. Employees are eligible to participate in elective salary deferrals. Participants may contribute up to 100% of eligible compensation, limited to the maximum amount deductible under the Internal Revenue Code for employee salary reduction. The Plan provides for an employer matching contribution equal to 25% of the employee’s deferral, limited to deferrals of up to 4% of compensation, therefore the maximum Company contribution is 1% of compensation. Subject to certain exceptions, both employee contributions and the Company’s matching contribution are vested immediately.
Amounts and Allocations: The amount of the ESOP contribution and the amount of the Profit Sharing Plan contribution and the allocation between the two plans is based on the recommendations by Bank management each year. The Board of Directors decides whether or not to approve management’s recommendation. The Board of Directors’ decision is based on the achievement of financial performance goals of the Bank as established in the Bank’s annual budget and business plan.
Participation in the 20102020 Stock Option and Incentive Plan: Under the Plan, the Committee is authorized from time to time to grant awards of both restricted stock and stock options as the Committee, in its discretion, selects. The purpose of this plan is to advance the interests of the Company by providing additional incentive to Named Executive Officers to promote the long-term success of the business. Options granted under the plan are exercisable at such times and under such conditions as determined by the Committee and included in the award agreement. However, it has been the Committee’s practice to award options with a vesting period of five years after the date of grant and a term of ten years after the date of grant. Shares of restricted stock are generally subject to such restrictions, including vesting periods, as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, and in such installments, as the Committee may deem appropriate. Awards granted under this Plan constitute “at-risk” compensation and are granted by the Committee when, in the judgment of its members, such awards will create a reasonable incentive for the achievement by the executive officers of the Company’s mid and long-term strategic objective, provided such awards are otherwise justified by the performance of executive officers in relation to the performance of the Company.
Participation in the Deferred Compensation Program: This program allows the Company Named Executive Officers to elect to defer a portion of their salaried compensation for payment by the Company at a subsequent date. The Plan was initiated due to the Internal Revenue Service limits of contributions on the Bank’s 401(k) plan for the Company Named Executive Officers. The Board of Directors approved a non-qualifying Deferred Compensation Program in 1995 when the 401(k) feature was added to the Bank-sponsored Profit Sharing Plan. The Company Named Executive Officers can defer up to 30% of their base compensation and up to 100% of any bonus into the Deferred Compensation Plan. In addition, the Plan provides for additional contributions by the Company that would have been made to a Named Executive Officer under either the ESOP or the Hills Bank and Trust Company Profit Sharing Plan that could not be made because of Internal Revenue Code limits on such contributions.
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Any amount so deferred is credited to the Company Named Executive Officer’s deferred compensation account and converted to units equivalent in value to the fair market value of a share of stock in Hills Bancorporation. The “stock units” are book entry only and do not represent an actual purchase of stock. The Company Named Executive Officer’s account is adjusted each year for dividends paid and the change in the market value of Hills BancorporationCompany stock. The deferrals and earnings grow tax deferred until withdrawn from the plan. Earnings credited to each individual’s account are recorded as compensation expense when earned. The amounts accrued in the Named Executive Officer’s account are payable in five annual installments after the
Participation in the Employee Stock Purchase Plan: The Employee Stock Purchase Plan ("ESPP") allows the Company and Bank Named Executive Officers to elect to purchase shares of common stock in quarterly offerings through payroll deductions. The shares in the ESPP are sold at a 10% discount to market value. The ESPP aligns the interests of the Company's employees with those of its shareholders in general.
Life insurance and accidental death and dismemberment benefits: The Company and Bank Named Executive Officers receive a life insurance benefit of up to two times a maximum salary of $125,000, or $250,000, and an accidental death and dismemberment benefit of up to two times a maximum salary of $125,000, or $250,000. These benefits are part of a non-discriminatory plan available to all full-time employees.employees and constitutes a base-level health and welfare benefit expected in today's market.
Perquisites and other benefits: Perquisites and other benefits represent a very small part of the overall compensation package, and are offered only after consideration of business need. The Committee annually reviews the perquisites and other personal benefits that we provideare provided to senior management.
Stock-Based Compensation - Procedures Regarding Approval and Timing and Pricing of Awards
The terms of the Incentive Stock Plan require that the Committee approve all grants of stock options and that stock options be granted only at current market prices. The exercise price of stock options is set at the stock price on the date of grant. We try to make stock option grants at times when they will not be influenced by a scheduled release of information. We do not otherwise time or plan the release of material, non-public information for the purpose of affecting the value of executive compensation.
Role of Executive Officers in Determining Executive Compensation
The Committee oversees the administration of executive compensation plans, including the design, performance measures, award opportunities and certain employee benefits that are included in the Company’s compensation program. Each year the Company Named Executive Officers make recommendations to the Committee concerning the amount of the ESOP contribution and the amount of the Profit Sharing Plan contribution. The Committee has the authority to determine, and approves all compensation and awards to Mr. Seegmiller without his participation. Mr. Seegmiller makesand Ms. Shileny made recommendations to the Committee concerning the compensation of Ms. DeMaris.Mr. Schueller and Mr. Roetlin. The Committee annually reviews and makes determinations concerning the elements of such compensation. The Company Named Executive Officers do not otherwise determine or make recommendations regarding the amount or form of executive or Director compensation. The compensation for the Bank Named Executive Officers is not directly determined by the Committee, but is determined by Mr. Seegmiller, and Ms. DeMaris as the senior executivesexecutive of the Company and the Bank, and Ms. Shileny, as the President of the Bank, which determinations are then reviewed and ratified by the Committee.
Tax Considerations
The accounting and tax treatment of particular forms of compensation do not materially affect the Committee’s compensation decisions. However, the Committee evaluates the effect of such accounting and tax treatment on an ongoing basis and may make appropriate modifications to its compensation policies if appropriate.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code places limits on the deductibility of compensation in excess of $1 million paid to executive officers of publicly held companies. The Committee does not believe that Section 162(m) has had or will have any impact on the compensation policies followed by the Company. It has been and continues to be the Committee’s intent that all incentive payments be deductible unless maintaining such deductibility would undermine the Company’s ability to meet its primary compensation objectives or is
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otherwise not in the Company’s best interest. All compensation paid to the Named Executive Officers is deductible under Section 162(m) of the Internal Revenue Code.
Incentive Stock Options: Under current federal tax law, the holder of an option that qualifies as an incentive stock option under Section 422 of the Code generally does not recognize income for federal income tax purposes at the time of the grant or exercise of an incentive stock option (but the spread between the exercise price and the fair market value of the underlying shares on the date of exercise generally will constitute a tax preference item for purposes of the alternative minimum tax). The optionee generally will be entitled to long-term capital gain treatment upon the sale of shareshares acquired pursuant to the exercise of an incentive stock option if the shares have been held for more than two years from the date of grant of the option and for more than one year after exercise, and the Company will not be entitled to any deduction for federal income tax purposes. If the optionee disposes of the stock before the expiration of either of these holding periods (a “disqualifying disposition”), the gain realized on the disposition will be compensation income to the optionee to the extent the fair market value of the underlying
stock on the date of exercise (or, if less, the amount realized on disposition of the underlying stock) exceeds the applicable exercise price and a corresponding deduction will be allowed to the Company.
Nonqualified Stock Options: Under current federal tax law, an optionee does not recognize income for federal income tax purposes upon the grant of a nonqualified stock option but must recognize ordinary income upon exercise to the extent of the excess of the fair market value of the underlying shares on the date of exercise over the exercise price of the option. The Company generally will be entitled to a deduction in the same amount and at the same time as ordinary income is recognized by the optionee. A subsequent disposition of the shares acquired pursuant to the exercise of a nonqualified option typically will give rise to capital gain or loss to the extent the amount realized from the sale differs from the fair market value of the shares on the date of exercise. This capital gain or loss will be long-term gain or loss if the shares sold had been held for more than one year after the date of exercise.
Restricted Stock and other stock-based awards: Amounts received by the participant upon the grant of other stock-based awards are ordinarily taxed as ordinary income when received. However, if such other stock-based awards consist of property subject to restrictions, the amounts generally will not be taxed until the restrictions lapse or until the participant makes an election under Section 83(b) of the Code. The Company is generally allowed an income tax deduction at the same time and in the same amount recognized as ordinary income by the Participant.
Deferred Compensation Plan: Amounts deferred under the Deferred Compensation Plan after December 31, 2004 are subject to Internal Revenue Code Section 409A, which governs when elections for deferrals of compensation may be made, the form and timing permitted for payment of such deferred amounts, and the ability to change the form and timing of payments initially established. Section 409A imposes sanctions for failure to comply, including accelerated income inclusion, a 20% penalty and an interest penalty. In December 2008, the Deferred Compensation Plan was amended as necessary to satisfy the requirements of Section 409A to allow for deferral without immediate taxation, penalty or interest.
Consideration of Most Recent Advisory Vote on Executive Compensation and Summary
We conducted our first advisory vote on executive compensation at our 2011 Annual Meeting, and it is the Company's policy to provide shareholders with an advisory vote on compensation at each Annual Meeting. While the "Say on Pay" vote is not binding on the Company, its Board of Directors or the Committee, we believe that it is important for our shareholders to have an opportunity to vote on this proposal on an annual basis as a means to express their views regarding our executive compensation philosophy, our compensation policies and programs, and our decisions regarding executive compensation, all as disclosed in our proxy statement. Our Board of Directors and the Committee value the opinions of our shareholders and, to the extent there is any significant vote against the compensation of our Named Executive Officers as disclosed in the proxy statement, we will consider our shareholders’ concerns and the Committee will evaluate whether any actions are necessary to address those concerns. In addition to our annual advisory vote on executive compensation, we are committed to ongoing engagement with our shareholders on executive compensation and corporate governance issues. These engagement efforts take place throughout the year through meetings, telephone calls and correspondence involving senior management, Directors and representatives of our shareholders.
At the 20172022 Annual Meeting, 96% of the votes cast on the advisory vote on executive compensation proposal (Proposal 2) were in favor of our Named Executive Officer compensation as disclosed in the proxy statement, and as a result our Named Executive Officer compensation was approved. The Board of Directors and the Committee reviewed these final vote results and determined that, given the significant level of support, no changes to our executive compensation policies and decisions were necessary at this time to address shareholder concerns based on the vote results.
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In summary, the Committee believes the mix of compensation elements described above motivates management to produce strong returns for shareholders. The Committee believes this program strikes an appropriate balance between the interests and needs of the Company in operating its business and appropriate employee rewards based on shareholder value creation.
COMPENSATION AND INCENTIVE STOCK COMMITTEE REPORT
The Compensation and Incentive Stock Committee of the Board of Directors has reviewed and discussed with management the “Compensation Discussion and Analysis” included in this Proxy Statement, and based on such review and discussion, the Compensation and Incentive Stock Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement.
Members of the Compensation and Incentive Stock Committee | |||||
| Michael S. Donovan | |||||
| John W. Phelan | |||||
| Kirsten H. Frey | Ann Marie Rhodes, Chairperson | ||||
| Michael E. Hodge | |||||
| Emily A. Hughes | Thomas R. Wiele | ||||
| Sheldon E. Yoder, D.V.M. | |||||
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
PAID TO THE NAMED EXECUTIVE OFFICERS
Overview
The following sections provide a summary of cash and certain other compensation the Company paid for the year ended December 31, 20172022 to the Named Executive Officers. Except where noted, the information in the Summary Compensation Table generally pertains to compensation to the Named Executive Officers for the year ended December 31, 2017.2022.
The compensation we disclose below is presented in accordance with SEC regulations. According to those regulations we are required in some cases to include:
•amounts paid in previous years;
•amounts that may be paid in future years, including amounts that will be paid only upon the occurrence of certain events, such as a change in control of the Company;
•amounts we paid to the Named Executive Officers which might not be considered “compensation” (for example, distributions of deferred compensation earned in prior years, and at-market earnings, dividends, or interest on such amounts); and
•an assumed value for share-based compensation equal to the fair value of the grant as presumed under accounting regulations, even though such value presumes the option will not be forfeited or exercised before the end of its 10-year life, and even though the actual realization of cash from the award depends on whether our stock price appreciates above its price on the date of grant, whether the executive will continue histheir employment with us, and when the executive chooses to exercise the option.
Therefore, you are encouraged to read the following tables closely. The narratives preceding the tables and the footnotes accompanying each table are important parts of each table. Also, you are encouraged to read this section in conjunction with the Compensation Discussion and Analysis above.
CEO Pay Ratio
The Securities and Exchange Commission adopted a rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requiring annual disclosure of the ratio of the median employee's annual total compensation to the annual total compensation of the chief executive officer ("CEO"). The purpose of the new required disclosure is to provide a measure of the equitability of pay within the Company. We believe that our executive compensation program must be consistent and internally equitable to motivate our employees to perform in ways that enhance shareholder value. We are committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay of our executive officers and the pay of our non-executive officers.
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The Compensation Committee reviewed a comparison of our CEO's total annual compensation in fiscal year 20172022 to that of all other Company employees for the same period.
In determining the median employee, a listing was prepared of all employees as of December 31, 2017.2022. As of that date, the Company employed 505525 persons. The median employee was selected from the list of all employees.
The calculation of annual total compensation of all employees was determined in the same manner as the Total Compensation shown for our CEO in the Summary Compensation Table on page 2426 of this Proxy Statement. Pay elements that were included in the total annual compensation for each employee are:
•Grant-date fair value of stock options granted in fiscal year 20172022
•Company-paid contributions to deferred compensation plan in 20172022
•Company-paid 401(k) Plan match made during fiscal year 20172022
•Company-paid ESOP and Profit Sharing contribution made during fiscal year 20172022
•Company-paid life insurance premium during fiscal year 20172022
The total annual compensation for fiscal year 20172022 for our CEO was $506,180,$527,713, and for the median employee was $39,111.$48,394. The resulting ratio of our CEO's pay to the pay of the median employee for fiscal year 20172022 was 12.910.90 to 1.
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the Named Executive Officers for the last three fiscal years. The Company has not entered into any employment agreements with any of the Named Executive Officers.Officers, except as follows. Mr. Schueller executed an employment agreement, effective March 29, 2021, which provided for a base salary of $285,000 per year and a cash retention bonus payable in one lump sum within 30 days of the third anniversary of the effective date of employment. The cash retention bonus was equal to 9% of Mr. Schueller’s base salary on the effective date of the employment agreement, plus 9% of his base on the first anniversary of the effective date, plus 9% of the base salary on the second anniversary of the effective date. The employment agreement also provided for an award of 1,500 restricted shares of Hills Bancorporation common stock, which, pursuant to the terms of a separately executed restricted stock award agreement effective March 29, 2021, vests three years from the date of grant. Mr. Schueller resigned effective September 2, 2022 and the restricted stock was forfeited. When setting the total compensation for each of the Named Executive Officers, the Committee reviews information concerning the executive’s current compensation and all other compensation.
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Name / Age / Position with Company for last five years (1) | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($)(4) | Total ($) | |||||||||||||
| Company | ||||||||||||||||||||
| Dwight O. Seegmiller | 2017 | 460,000 | (2) | — | — | — | 46,180 | 506,180 | ||||||||||||
| 65, President and | 2016 | 435,000 | (2) | — | — | — | 43,680 | 478,680 | ||||||||||||
| Principal Executive | 2015 | 420,000 | (2) | — | — | — | 42,182 | 462,182 | ||||||||||||
| Officer | ||||||||||||||||||||
| Shari J. DeMaris | 2017 | 275,000 | (2) | — | 25,500 | (3) | — | 31,520 | 332,020 | |||||||||||
| 48, Secretary, | 2016 | 245,000 | (2) | — | 68,250 | (3) | — | 27,211 | 340,461 | |||||||||||
| Treasurer and | 2015 | 220,000 | (2) | — | 62,625 | (3) | — | 23,744 | 306,369 | |||||||||||
| Principal Financial | ||||||||||||||||||||
| Officer | ||||||||||||||||||||
| Bank | ||||||||||||||||||||
| Timothy D. Finer, | 2017 | 179,645 | — | — | — | 18,046 | 197,691 | |||||||||||||
| 56, Senior Vice | 2016 | 173,570 | — | — | — | 17,425 | 190,995 | |||||||||||||
| President, Director | 2015 | 167,700 | — | — | — | 16,888 | 184,588 | |||||||||||||
| of Home Mortgage | ||||||||||||||||||||
| Lending | ||||||||||||||||||||
| Steven R. Ropp, | 2017 | 193,529 | — | — | — | 19,168 | 212,697 | |||||||||||||
| 57, Senior Vice | 2016 | 173,570 | — | — | — | 17,397 | 190,967 | |||||||||||||
| President, Director | 2015 | 167,700 | — | — | — | 16,859 | 184,559 | |||||||||||||
| of Commercial | ||||||||||||||||||||
| Banking | ||||||||||||||||||||
| Bradford C. Zuber, | 2017 | 202,255 | — | — | — | 20,256 | 222,511 | |||||||||||||
| 61, Senior Vice | 2016 | 193,545 | — | — | — | 19,377 | 212,922 | |||||||||||||
| President, Director | 2015 | 187,000 | — | — | — | 18,793 | 205,793 | |||||||||||||
| of Trust Services | ||||||||||||||||||||
| Name / Age / Position with Company for last five years (1) | Year | Salary ($) (2) | Bonus ($) | Stock Awards ($) (3) | Option Awards ($) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||||||||||||||||||
| Company | ||||||||||||||||||||||||||||||||||||||||||||
| Dwight O. Seegmiller | 2022 | $ | 500,000 | $ | — | $ | — | $ | — | $ | 27,713 | $ | 527,713 | |||||||||||||||||||||||||||||||
| 70, President and Principal | 2021 | 499,668 | 25,000 | — | — | 50,338 | 575,006 | |||||||||||||||||||||||||||||||||||||
| Executive Officer (PEO) | 2020 | 487,600 | 24,000 | — | — | 48,178 | 559,778 | |||||||||||||||||||||||||||||||||||||
| Joseph A. Schueller | 2022 | 214,731 | — | — | — | 23,258 | 237,989 | |||||||||||||||||||||||||||||||||||||
| 45, Former Treasurer and | 2021 | 213,750 | — | 95,250 | — | 12,914 | 321,914 | |||||||||||||||||||||||||||||||||||||
| Principal Financial Officer | ||||||||||||||||||||||||||||||||||||||||||||
| Anthony Roetlin * | 2022 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| 55, Treasurer and Principal | ||||||||||||||||||||||||||||||||||||||||||||
| Financial Officer | ||||||||||||||||||||||||||||||||||||||||||||
| Bank | ||||||||||||||||||||||||||||||||||||||||||||
| Timothy D. Finer, | 2022 | 218,289 | 1,158 | — | — | 31,726 | 251,173 | |||||||||||||||||||||||||||||||||||||
| 61, Senior Vice President | 2021 | 209,181 | — | — | — | 25,917 | 235,098 | |||||||||||||||||||||||||||||||||||||
| Director of Lending | 2020 | 207,270 | — | — | — | 36,575 | 243,845 | |||||||||||||||||||||||||||||||||||||
| Steven R. Ropp, | 2022 | 235,635 | 5,457 | — | — | 24,583 | 265,675 | |||||||||||||||||||||||||||||||||||||
| 61, Senior Vice President | 2021 | 217,300 | 12,450 | — | — | 23,508 | 253,258 | |||||||||||||||||||||||||||||||||||||
| Director of Commercial | 2020 | 224,049 | — | — | — | 41,325 | 265,374 | |||||||||||||||||||||||||||||||||||||
| Banking | ||||||||||||||||||||||||||||||||||||||||||||
| Lisa A. Shileny | 2022 | 281,192 | — | — | — | 30,593 | 311,785 | |||||||||||||||||||||||||||||||||||||
| 46, Chief Operating Officer | 2021 | 200,174 | — | — | — | 31,420 | 231,594 | |||||||||||||||||||||||||||||||||||||
| and President | 2020 | 191,495 | — | — | — | 29,803 | 221,298 | |||||||||||||||||||||||||||||||||||||
NOTES:
(1)Mr. Schueller held his position as Named Executive Officer of the Company from March 2021 to September 2022. Mr Roetlin has held his position as Named Executive Officer of the Company since December 30, 2022. Ms. Shileny, a Named Executive Officer of the Bank, has held her respective position since December 2021. Ms. Shileny held her previous position of Director of Administration since 2019.
(2)Compensation deferred at the election of the Named Executive Officer pursuant to the Company’s 401(k) plan and deferred compensation plan is included in salary and bonus totals.
(3)This figure represents compensation expense related to the restricted shares awarded computed in accordance with FASB ASC Topic 718 awarded under the 2010 and 2020 Stock Option and Incentive Plans.
(4)For each of the Company and Bank Named Executive Officers, the figures shown consist of contributions in the following amounts made by the Bank to the Profit Sharing Plan, Deferred Compensation Plan, ESOP and bank matching contributions to the 401(k) Plan for the last three fiscal years, payout of earned paid time off, dividends paid on restricted shares and the dollar value of life insurance premiums paid for the last three fiscal years which amounts are quantified in the table below.
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Defined Contribution Profit Sharing Plan | Employee Stock Ownership Plan | 401(k) Plan | Deferred Compensation Plan | Life Insurance and ADD Premiums | Dividends on Unvested Restricted Stock Grants | Total All Other Compensation | ||||||||||||||||||||||
| Company | ||||||||||||||||||||||||||||
| Dwight O. Seegmiller | ||||||||||||||||||||||||||||
| 2017 | $ | 12,150 | $ | 12,150 | $ | — | $ | 21,700 | (1) | $ | 180 | $ | — | $ | 46,180 | |||||||||||||
| 2016 | 11,925 | 11,925 | — | 19,650 | (1) | 180 | — | 43,680 | ||||||||||||||||||||
| 2015 | — | 23,850 | — | 18,152 | (1) | 180 | — | 42,182 | ||||||||||||||||||||
| Shari J. DeMaris | ||||||||||||||||||||||||||||
| 2017 | 12,150 | 12,150 | 2,740 | 450 | (1) | 180 | 3,850 | 31,520 | ||||||||||||||||||||
| 2016 | 10,994 | 10,994 | 2,443 | — | 180 | 2,600 | 27,211 | |||||||||||||||||||||
| 2015 | — | 19,801 | 2,200 | — | 180 | 1,563 | 23,744 | |||||||||||||||||||||
| Bank | ||||||||||||||||||||||||||||
| Timothy D. Finer | ||||||||||||||||||||||||||||
| 2017 | 8,040 | 8,040 | 1,787 | — | 180 | — | 18,047 | |||||||||||||||||||||
| 2016 | 7,760 | 7,760 | 1,725 | — | 180 | — | 17,425 | |||||||||||||||||||||
| 2015 | — | 15,037 | 1,671 | — | 180 | — | 16,888 | |||||||||||||||||||||
| Steven R. Ropp | ||||||||||||||||||||||||||||
| 2017 | 8,544 | 8,544 | 1,899 | — | 180 | — | 19,167 | |||||||||||||||||||||
| 2016 | 7,748 | 7,748 | 1,722 | — | 180 | — | 17,398 | |||||||||||||||||||||
| 2015 | — | 15,011 | 1,668 | — | 180 | — | 16,859 | |||||||||||||||||||||
| Bradford C. Zuber | ||||||||||||||||||||||||||||
| 2017 | 9,034 | 9,034 | 2,008 | — | 180 | — | 20,256 | |||||||||||||||||||||
| 2016 | 8,639 | 8,639 | 1,920 | — | 180 | — | 19,378 | |||||||||||||||||||||
| 2015 | — | 16,751 | 1,861 | — | 180 | — | 18,792 | |||||||||||||||||||||
| Defined Contribution Profit Sharing Plan | Employee Stock Ownership Plan | 401(k) Plan | Deferred Compensation Plan | Payout of Paid Time Off | Life Insurance and ADD Premiums | Dividends on Unvested Restricted Stock Grants | Total All Other Compensation | |||||||||||||||||||||||||||||||||||||||||||
| Company | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dwight O. Seegmiller | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | $ | 13,725 | $ | 13,725 | $ | — | $ | — | $ | — | $ | 263 | $ | — | $ | 27,713 | ||||||||||||||||||||||||||||||||||
| 2021 | 13,050 | 13,050 | — | 23,900 | (1) | — | 338 | — | 50,338 | |||||||||||||||||||||||||||||||||||||||||
| 2020 | 12,825 | 12,825 | — | 22,190 | (1) | — | 338 | — | 48,178 | |||||||||||||||||||||||||||||||||||||||||
| Joseph A. Schueller | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 9,667 | 9,667 | 2,148 | — | — | 276 | 1,500 | 23,258 | ||||||||||||||||||||||||||||||||||||||||||
| 2021 | — | — | 1,652 | — | 10,962 | 300 | — | 12,914 | ||||||||||||||||||||||||||||||||||||||||||
| Bank | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Timothy D. Finer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 10,293 | 10,293 | 2,288 | — | 8,462 | 390 | — | 31,726 | ||||||||||||||||||||||||||||||||||||||||||
| 2021 | 9,633 | 9,633 | 2,141 | — | 4,060 | 450 | — | 25,917 | ||||||||||||||||||||||||||||||||||||||||||
| 2020 | 9,991 | 9,991 | 2,220 | — | 13,923 | 450 | — | 36,575 | ||||||||||||||||||||||||||||||||||||||||||
| Steven R. Ropp | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 10,887 | 10,887 | 2,419 | — | — | 390 | — | 24,583 | ||||||||||||||||||||||||||||||||||||||||||
| 2021 | 10,376 | 10,376 | 2,306 | — | — | 450 | — | 23,508 | ||||||||||||||||||||||||||||||||||||||||||
| 2020 | 10,872 | 10,872 | 2,416 | — | 16,715 | 450 | — | 41,325 | ||||||||||||||||||||||||||||||||||||||||||
| Lisa A. Shileny | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 12,691 | 12,691 | 2,821 | — | — | 390 | 2,000 | 30,593 | ||||||||||||||||||||||||||||||||||||||||||
| 2021 | 9,394 | 9,394 | 2,087 | — | 7,745 | 450 | 2,350 | 31,420 | ||||||||||||||||||||||||||||||||||||||||||
| 2020 | 8,982 | 8,982 | 1,996 | — | 7,168 | 450 | 2,225 | 29,803 | ||||||||||||||||||||||||||||||||||||||||||
NOTE:
(1) Consists of additional compensation paid in lieu of Company contributions to the ESOP and the Hills Bank and Trust Company Profit Sharing Plan (the “Profit Sharing Plan”) that could not be made by the Bank because of Internal Revenue Code limits on such contributions which is then allocated to the Company's Named Executive Officer's account under the Deferred Compensation Plan.
* Anthony Roetlin joined the Company as Treasurer and PFO effective December 30, 2022, therefore, no compensation was paid in 2022.
Grants of Plan-Based Awards
| All Other Awards: | |||||||||||||||||||||||||||||||||||||
| Estimated Future Payments Under Non-Equity Incentive Plan Awards | Estimated Future Payments Under Equity Incentive Plan Awards | # of Shares of Stock or | # of Securities | Exercise or Base Price of Option | Grant Date Fair Value of Stock | ||||||||||||||||||||||||||||||||
| Name | Grant Date | Threshhold ($) | Target ($) | Maximum ($) | Threshhold (#) | Target (#) | Maximum (#) | Units (#) | Underlying Options (#) | Awards($/share) | Options and Awards ($) | ||||||||||||||||||||||||||
Shari J. DeMaris | 04/11/17 | $ | — | $ | — | $ | — | — | — | — | 500 | — | $ | — | $ | 25,500 | |||||||||||||||||||||
$95,250. The shares granted to Ms. DeMaris will vest on April 11, 2022 and are entitled to dividends prior to the vesting date. Mr. Seegmiller was not granted any stock, stock options or other equity awards in 2017. Mr. Seegmiller does not have any options vested nor unvested as of year-end 2017.Schueller were forfeited upon his resignation effective September 2, 2022. None of the Bank Named Executive Officers were granted any stock, stock options or other equity awards in 2017. No Named Executive Officer of the Bank has any options vested nor unvested as of December 31, 2017.2022. As noted above, the compensation paid to the Company Named Executive Officers and Bank Named Executive Officers consists of base salary, cash bonuses, where appropriate, and participation in the salary deferral planprofit sharing and the Bank’s ESOP.ESOP plans.
Outstanding Equity Awards at Fiscal Year-End Table
Ms. Shileny, a Named Executive Officer of the Bank, has unvested shares of restricted stock totaling 1,600 shares. The value of the unvested shares of restricted stock based on the closing price of the Company’s common stock on December 31, 2022
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| Option Awards | Stock Awards | ||||||||||||||||||||||||||||
| Name | # of Securities Underlying Options (#) Exercisable | # of Securities Underlying Unexercisable Options (#) Unexercisable | Equity Incentive Plan Awards # of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | # of Shares or Units of Stock That Have Not Been Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested ($) | Equity Incentive Plan Awards: # of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||
| Shari J. DeMaris | 3,000 | — | — | $ | 34.50 | 10/09/22 | 5,000 | $ | 270,000 | — | $ | — | |||||||||||||||||
Options Exercised and Stock Vested
Pension Benefits
The Company and the Bank do not have any qualified or non-qualified defined benefit plans.
Nonqualified Deferred Compensation Table
The following table provides information with respect to the Deferred Compensation Plan for the Company Named Executive Officers.Officer. The amounts shown on the table include (1) compensation earned and deferred in the prior years, andfiscal year; (ii) Company contributions during the prior fiscal year; (iii) aggregate earnings on oramounts held in the Plan during the prior fiscal year; and (iv) any distributions of, such amounts.under this Plan during the prior fiscal year. The Bank Named Executive Officers are not eligible to participate in the Deferred Compensation Plan. A discussion of the general terms of this Plan is located in the section of this Proxy Statement captioned "Compensation Discussion and Analysis - Elements of Compensation."
| Name | Executive Contributions in 2017 ($)(1) | Registrant Contributions in 2017 ($)(1) | Aggregate Earnings in 2017 ($) | Aggregate Withdrawals/ Distributions during 2017 ($) | Aggregate Vested Balance at December 31, 2017 ($) | |||||||||||||
| Dwight O. Seegmiller | $ | 45,922 | $ | 21,700 | $ | 764,296 | None | $ | 6,245,705 | |||||||||
| Shari J. DeMaris | 27,403 | 450 | 9,497 | None | 93,303 | |||||||||||||
| Executive Contributions in | Registrant Contributions in | Aggregate Earnings in | Aggregate Withdrawals/ Distributions during 2022 ($) | Aggregate Vested Balance at December 31, 2022 ($) | ||||||||||||||||||||||||||||
| Dwight O. Seegmiller | $ | — | $ | — | $ | — | $ | (1,810,968) | $ | — | ||||||||||||||||||||||
NOTES:
(1)The amounts included in the "Executive Contributions" columns are also included in the “Salary” column and the “Bonus” columns, respectively, in the Summary Compensation Table. Amounts shown as Executive Contributions represent voluntary salary or bonus deferral elections by the named executive. Amounts included in the "Registrant Contribution" column are also included in the "All Other Compensation" column in the Summary Compensation Table.
Pay Versus Performance Table
| Value of Initial Fixed $100 Investment Based On: | ||||||||||||||||||||||||||
| Year | Summary Compensation Table Total for PEO (1) | Compensation Actually Paid (CAP) to PEO (1) (3) | Average Summary Compensation Table Total for Non-PEO NEOs (2) | Average Compensation Actually Paid to Non-PEO NEOs (2) (3) | Total Shareholder Return | Midwest Community Banks Peer Group Total Shareholder Return (4) | Net Income (in thousands) | |||||||||||||||||||
| 2022 | $ | 527,713 | $ | 527,713 | $ | 266,656 | $ | 241,406 | $ | 115.69 | $ | 104.86 | $ | 47,753 | ||||||||||||
| 2021 | 575,006 | 575,006 | 260,466 | 267,841 | 105.27 | 117.09 | 48,085 | |||||||||||||||||||
| 2020 | 559,778 | 559,778 | 264,564 | 213,501 | 97.47 | 89.17 | 38,647 | |||||||||||||||||||
(1) The PEO for the periods presented is Dwight O. Seegmiller.
(2) The Non-PEO NEOs for 2020 were Shari J. DeMaris, Mr. Finer, Mr. Ropp and Ms. Shileny. The NEOs for the years 2021 and 2022 were Mr. Schueller, Mr. Finer, Mr. Ropp and Ms. Shileny.
28
(3) The amounts disclosed reflect the following adjustments to the amounts reported in the Summary Compensation Table.
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Adjustment | PEO ($) | Non-PEO NEOs ($) | PEO ($) | Non-PEO NEOs ($) | PEO ($) | Non-PEO NEOs ($) | ||||||||||||||
| Less grant date value of equity awards | $— | $— | $— | $(23,813) | $— | $— | ||||||||||||||
| Year-end fair value of current year award | — | — | — | 25,500 | — | — | ||||||||||||||
| Year-over-year change in fair value of unvested awards | — | 800 | — | 5,688 | — | (1,563) | ||||||||||||||
| Change in value of awards vesting during the current year | — | 200 | — | — | — | — | ||||||||||||||
| Less the value of awards forfeited during the year | — | (26,250) | — | — | — | (49,500) | ||||||||||||||
| Dividends paid on unvested awards | — | — | — | — | — | — | ||||||||||||||
| Total adjustments | $— | $(25,250) | $— | $7,375 | $— | $(51,063) | ||||||||||||||
(4) The Midwest Community Banks peer group reflects the performance of bank holding companies operating principally in the Midwest in the following states: Iowa, Illinois, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wisconsin.
29
| Financial Performance Measures | ||||||||||||||
| Net Income | ||||||||||||||
| Net Interest Margin | ||||||||||||||
| Return on Average Assets | ||||||||||||||
| Return on Average Equity | ||||||||||||||
| Efficiency Ratio | ||||||||||||||
Termination and Change in Control Payments
Under the terms of the Incentive Stock Plan, in the event of the death or total disability of a participant or a change in control of the Company, any outstanding restrictions on awards will lapse and all awards will become immediately vested. Unvested awards will generally be forfeited in connection with a termination of employment with the Company or Bank for any other reason. As of December 31, 2017, as indicated above, Ms. DeMaris, aInformation regarding potential payouts to Named Executive Officer of the Company, has outstanding stock options totaling 3,000 shares and unvested shares of restricted stock totaling 5,000 shares. The value of the option shares, based on the spread between the closing price ofOfficers under the Company’s common stock on December 31, 2017 andIncentive Stock Plan is provided above under the option exercise price was $58,500. The value of the unvested shares of restricted stock based on the closing price of the Company’s common stock on December 31, 2017 was $270,000.section captioned “Outstanding Equity Awards at Fiscal Year-End.”
Information regarding potential payouts to Named Executive Officers under the Company’s nonqualified deferred compensation plan is provided above in the Nonqualified Deferred Compensation Table. Both the contributions of the Named Executive Officers and of the Company to this plan are fully vested, and each NEONamed Executive Officer would be entitled to receive his/her accrued balances in these plans upon termination of employment for any reason.
30
All benefits payable to the Named Executive Officers in connection with a change in control or termination of service pursuant to the Company’s qualified retirement plans would be paid in accordance with plan terms applicable to all employees of the Company.
RISK MANAGEMENT AND COMPENSATION POLICIES AND PRACTICES
The compensation policies and practices of the Company and the Bank are not believed to create risks that are reasonably likely to have a material adverse effect on operations or financial results. The compensation policies and practices of the Company and the Bank are not designed to provide enormous bonuses and do not encourage employees to take undue amounts of risk. The incentives provided to employees are designed to encourage sound performance over time rather than the pursuit of immediate high-risk profits. The policies and practices of the Company and the Bank include controls that mitigate the potential impact of compensation policies that might otherwise create unacceptable levels of risk.
The Committee will consider adjusting future awards or recovering past awards in the event of a material restatement of the Company’s financial results. If, in the exercise of its business judgment, the Committee believes that it is in the Company’s best interests to do so, the Committee will seek recovery or cancellation of any bonus or other incentive payments made to an executive on the basis of having met or exceeded performance targets during a period of fraudulent activity or a material misstatement of financial results where the Committee determines that such recovery or cancellation is appropriate due to intentional misconduct by the executive officer that resulted in such performance targets being achieved which would not have been achieved absent such misconduct.
AUDIT COMMITTEE
Audit Committee Report
March 13, 201814, 2023
To the Board of Directors:
The Audit Committee consists of the following members of the Board of Directors: Emily A. Hughes, James A. Nowak andThomas R. Wiele, Sheldon E. Yoder D.V.M.and James C. Schmitt. As noted above, the Board of Directors has determined that Mr. Nowak,Schmitt, Chairperson of the Audit Committee, is a “financial expert” as defined under SEC regulations. Each of the members of the Audit Committee is independent as defined under the rules of NASDAQ. The Company has determined to appoint Director Peck as a financial expert to the Audit Committee effective April 17, 2023.
The Audit Committee has:
•reviewed and discussed the Company’s audited financial statements as of and for the year ended December 31, 20172022 with its management and BKDFORVIS, LLP, the Company’s independent registered public accounting firm;
•discussed with BKDFORVIS, LLP the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and the Commission; and
•received and reviewed the written disclosures and letter from BKDFORVIS, LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and we have discussed with the auditors the auditors’ independence.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20172022 for filing with the Securities and Exchange Commission.
| Audit Committee | |||||
| James | |||||
| Sheldon E. Yoder | |||||
31
Audit and Other Fees
Aggregate fees billed to the Company for the years ending December 31, 20172022 and 20162021 by the Company’s independent registered public accounting firm are presented in the table below.
| Years Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Audit fees | $ | 235,520 | $ | 228,660 | ||||
| Audit-related fees (2) | 4,500 | 4,375 | ||||||
| Tax fees (3) | 28,500 | 27,700 | ||||||
| $ | 268,520 | $ | 260,735 | |||||
| Years Ended December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Audit fees | $ | 311,344 | $ | 299,208 | ||||||||||
| Tax fees (2) | 30,000 | 28,015 | ||||||||||||
| $ | 341,344 | $ | 327,223 | |||||||||||
(1) Audit fees related to the audit of the Company’s annual financial statements, internal control over financial reporting conducted in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and services related to evaluation of the |
Company’s internal controls as required by the Federal Deposit Insurance Corporation Improvement Act, as amended, for the fiscal years 20172022 and 20162021 and for its required reviews of the Company’s unaudited interim financial statements included in its Form 10-Q for the years 20172022 and 2016.2021. Also included in 2021 are audit fees of $23,265 for additional time incurred related to the implementation of the new current expected credit loss (CECL) standard, ASU 2016-13.
(2) Tax fees generally related to professional service rendered for tax compliance, tax advice and tax planning. Tax fees for 2022 and 2021 were paid to RSM US LLP.
Audit Committee Pre-Approval Policy
The Company’s Audit Committee pre-approves all audit, audit-related, tax and other services proposed to be provided by the Company’s independent registered public accounting firm prior to engaging the independent registered public accounting firm for that purpose. The charter of the Audit Committee sets forth this approval requirement. All of the audit fees and audit-related fees and the tax fees for 20172022 and 20162021 were pre-approved by the Audit Committee.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected BKDFORVIS, LLP as the Company’s independent registered public accounting firm for 2018.2023. Representatives of BKDFORVIS, LLP are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
Shareholder proposals intended to be presented at the Annual Meeting of Shareholders to be held in 20192024 must be received by the Company no later than November 16, 201817, 2023 for inclusion in the Company’s proxy statement and form of proxy relating to that meeting. Proposals should be submitted to the Company at its principal executive offices at 131 East Main Street, PO Box 160, Hills, Iowa 52235. Proposals from shareholders for next year’s annual meeting received by the Company after January 31, 20192024 will be considered untimely. With respect to such proposals, the Company will vote all shares for which it has received proxies in the interest of the Company as determined in the sole discretion of its Board of Directors. The Company also retains its authority to discretionarily vote proxies with respect to shareholder proposals received by the Company after November 16, 201817, 2023 but prior to January 31, 2019,2024, unless the proposing shareholder takes the necessary steps outlined in Rule 14a-4(c)(2) under the Securities Exchange Act of 1934 to ensure the proper delivery of proxy materials related to the proposal.
BOARD NOMINATING PROCESS
The Company has a Governance and Nominating Committee. In connection with its performance of such nominating functions, the Board of Directors has adopted a written charter, a copy of which is available on the Company's website at www.hillsbank.com under the heading of Hills"Hills Bancorporation."
The Governance and Nominating Committee is responsible for the consideration of Director nominees. Each of the Directors, with the exception of Mr. Seegmiller and Mr. Hodge, is independent as defined under the rules of NASDAQ. If one or more positions on the Board of Directors were to become vacant for any reason, the vacancy would be filled by the
32
Governance and Nominating Committee, and the Governance and Nominating Committee would participate in the selection of a person to fill each such vacancy.
The process by which the the Governance and Nominating Committee identifies and evaluates nominees for Director is described below. The size of the Board is established by the Company’s Bylaws. In the event any vacancy would reduce the number of Directors to less than eleven, the Committee will consider various potential candidates for Director. Candidates may come to the attention of the Committee through current Board members, shareholders, or other persons. The Committee has no formal policy for the consideration of candidates recommended by shareholders but will do so.consider such recommended candidates. Shareholders who wish to recommend an individual for consideration by the Committee as a nominee for election to the Board of Directors should submit a written notice to the Secretary of the Corporation containing information sufficient for the Committee to fully evaluate the experience and chartercharacter of the potential candidate. In that respect, the Committee recommends that shareholders submit information substantially equivalent to what is required in connection with an outright nomination, as discussed more thoroughly below. Individuals recommended by shareholders for nomination will be evaluated in the same manner as other nominees, and the Board of Directors retains absolute discretion to either approve for nomination or reject any person recommended for consideration by a shareholder.
The Board is not obligated to nominate any particular candidate for election. Candidates will be evaluated at meetings of the Board. In evaluating possible candidates for membership on the Board of Directors, the Board will seek to achieve a balance of knowledge, experience, and capability on the Board and will consider the qualifications of possible candidates based on the criteria described below. Members of the Board should have the highest professional and personal ethics and values, excellent personal and professional reputations, and must satisfy any necessary regulatory requirements to serve as Directors. They should have broad experience at the policy-making level in business, government, education, technology, or public interest. They should be committed to furthering the long-term as well as short-term interest of the Company and its shareholders, and in doing so they should be willing to consider the effect of any action on the Company’s shareholders, employees, suppliers, creditors and customers, and on the communities in which the Company and its subsidiary operate. They should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all Directors’ duties for the Company. The Board deems it a requirement that members of the Board reside within the trade area of the Bank and the Company. The Board of Directors reserves the right to modify these qualifications from time to time. The Board nominating process has no formal diversity policy. However,
In addition, pursuant to the Charter of the Governance and Nominating Committee, the Board of Directors is committeddirects the Governance and Nominating Committee to consideringtake into consideration Board diversity when evaluating candidates, including but not limited to business and industry skills and experience, gender and ethnicity, on the basis that the benefits of increased corporate diversity are manifestly apparent, including an increased variety of fresh perspectives, improved decision making and oversight, and strengthened internal controls. In that respect, it is the Board’s position that having a Board comprised of individuals with gender, racial, and ethnic diversity, as well as skills, experience, backgrounds, and perspectives provides for:
•the inclusion of different concepts and ideas that enhance decision-making;
•robust evaluation of opportunities, issues, and risks;
•broader relationships within a competitive foot print;
•heightened capacity for oversight and governance of the Company; and
•improved competitive advantage
In evaluating the current Board composition, as well as potential candidates, based on their skills, experience, independence, and knowledge, it is the belief that the Board should also collectively reflect the diverse nature of the business environment in which the nomination process.Company operates. In its evaluation of potential director nominees, the Governance and Nominating Committee gives significant consideration to racial, gender and ethnic diversity in conjunction with business and industry skills, leadership experience, and the added value to the Company and its stakeholders. The Board of Directors aspires to attain levels of Board composition in which females and underrepresented minorities are adequately represented.
Shareholders who wish to nominate an individual for election to the Board of Directors may do so only pursuant to a timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 calendar days before the first anniversary of the mailing date of the proxy statement sent to shareholders in connection with the previous year’s annual meeting of shareholders. Such shareholder’s notice shall set forth (a) as to each person who is not an incumbent director whom the shareholder proposes to nominate for election as a director, (i) the name, age, business address and residence address of such person; (ii) the principal occupation or employment of such person; (iii) the class and number of shares of the Corporation
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which are beneficially owned by such person; and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice, (i) the name and record address of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. Such notice shall be accompanied by the written consent of each proposed nominee to serve as a director of the Corporation, if elected.
To comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees for the 2024 Annual Meeting of Shareholders, other than the nominees of the Corporation’s Board of Directors, must also comply with the additional requirements of Rule 14a-19 under the Exchange Act, including providing a statement that such shareholder intends to solicit the holders of shares representing at least 67% of the voting power of shares of the Corporation entitled to vote on the election of directors in support of director nominees other than the Corporation’s nominees. To be effective, such notice must be postmarked or electronically submitted to the Secretary of the Corporation no later than February 18, 2024.
COMMUNICATION WITH THE BOARD OF DIRECTORS
The Board of Directors has established a process for shareholders of the Company to send communications to the Board. Any shareholder desiring to communicate with the Board or one or more individual Board members may write to the Treasurer of the Company at the following address:
| Hills Bancorporation | |||||
| Board of Directors | |||||
| c/o Treasurer | |||||
| 131 E. Main Street | |||||
| PO Box 160 | |||||
| Hills, IA 52235 | |||||
The Treasurer of the Company has been instructed to forward all such communications to all Board members. The Board of Directors has adopted a policy requiring that a copy of all communications addressed to any member of the Board of Directors in his or her capacity as a Director be promptly provided to the Treasurer of the Company for distribution to all other members of the Board of Directors. All Directors will review any communication from a shareholder directed to the Board of Directors or to any one or more individual Board members in such capacity. The President and Chief Executive Officer of the Company will determine if any shareholder communication not addressed to Board members should be reviewed by the Board.
AVAILABILITY OF FORM 10-K REPORT
Copies of the Company’s Annual Report to the Securities and Exchange Commission (Form 10-K), including the financial statements and schedules thereto, for the fiscal year of the Company ended December 31, 2017,2022, are made available by the Company, through its internet website (www.hillsbank.com) free of charge.
OTHER MATTERS
Management of the Company knows of no other matters which will be presented for consideration at the 20182023 Annual Meeting of Shareholders other than those stated in the Notice of 20182023 Annual Meeting, which is part of this Proxy Statement, and management does not intend to present any such other business. If any other matters do properly come before the meeting, it is intended that the persons named in the accompanying proxy will vote thereon in accordance with their judgment. The proxy will also have the power to vote for the adjournment of the meeting from time to time.
A copy of the Annual Report of the Company for the year ended December 31, 2017,2022, is being mailed to shareholders together with this Proxy Statement. Such report is not incorporated in this Proxy Statement and is not to be considered a part of the proxy soliciting material.
By Order of the Board of DirectorsDirector
/s/ Dwight O. Seegmiller
| March | Dwight O. Seegmiller | ||||
| Hills, Iowa | President and CEO | ||||
