FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) |
Incorporated in Iowa | I.R.S. Employer Identification No. 42-1208067 |
131 MAIN STREET, HILLS, IOWA 52235 Telephone number: (319) 679-2291 Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No Indicate by checkmark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934). [X] Yes [_] No APPLICABLE ONLY TO CORPORATE ISSUERS:Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. |
CLASS | SHARES OUTSTANDING At July 31, 2003 |
Common Stock, no par value | 1,515,778 |
1 HILLS BANCORPORATION |
Page Number | ||||
Item 1. | Financial Statements | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
Notes to consolidated financial statements | 8-10 | |||
Item 2. | 11-17 | |||
Item 3. | 18 | |||
Item 4. | 19 |
Part II |
Item 1. | Legal proceedings | 20 | ||
Item 2. | Changes in securities and use of proceeds | 20 | ||
Item 3. | Defaults upon senior securities | 20 | ||
Item 4. | Submission of matters to vote of security holders | 20 | ||
Item 5. | Other information | 20 | ||
Item 6. | Exhibits and reports on Form 8-K | 20 | ||
Signatures and Certifications | 21-23 |
2 HILLS BANCORPORATION |
June 30, 2003 Unaudited | December 31, 2002* | |||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Cash and due from banks | $ | 27,745 | $ | 32,647 | ||||
Investment securities: | ||||||||
Available for sale (amortized cost | ||||||||
June 30, 2003 $198,486; | ||||||||
December 31, 2002 $190,313) | 206,650 | 197,807 | ||||||
Held to maturity (fair value | ||||||||
June 30, 2003 $8,699; | ||||||||
December 31, 2002 $8,303) | 8,502 | 8,022 | ||||||
Stock of Federal Home Loan Bank | 8,774 | 8,382 | ||||||
Federal funds sold | 23,373 | 32,514 | ||||||
Loans, net | 827,596 | 773,973 | ||||||
Loans held for sale | 12,449 | 6,884 | ||||||
Property and equipment, net | 21,888 | 21,500 | ||||||
Accrued interest receivable | 7,068 | 7,278 | ||||||
Deferred income taxes, net | 1,201 | 1,971 | ||||||
Other assets | 8,075 | 7,569 | ||||||
$ | 1,153,321 | $ | 1,098,547 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Noninterest-bearing deposits | $ | 116,628 | $ | 107,833 | ||||
Interest-bearing deposits | 723,730 | 694,488 | ||||||
Total deposits | $ | 840,358 | $ | 802,321 | ||||
Securities sold under agreements to repurchase | 31,928 | 20,798 | ||||||
Federal Home Loan Bank (“FHLB” borrowings | 167,606 | 167,606 | ||||||
Accrued interest payable | 1,911 | 2,134 | ||||||
Other liabilities | 4,696 | 4,653 | ||||||
$ | 1,046,499 | $ | 997,512 | |||||
REDEEMABLE COMMON STOCK HELD BY | ||||||||
EMPLOYEE STOCK OWNERSHIP PLAN | ||||||||
(ESOP) | $ | 14,276 | $ | 12,951 | ||||
STOCKHOLDERS’ EQUITY | ||||||||
Capital stock, common, no par value; | ||||||||
authorized 10,000,000 shares; | ||||||||
issued June 30, 2003 - 1,515,778 shares; | ||||||||
December 31, 2002 - 1,501,054 shares | $ | 11,252 | $ | 10,541 | ||||
Retained earnings | 90,428 | 85,773 | ||||||
Accumulated other comprehensive income | 5,142 | 4,721 | ||||||
$ | 106,822 | $ | 101,035 | |||||
Less unallocated shares of ESOP | 14,276 | 12,951 | ||||||
$ | 92,546 | $ | 88,084 | |||||
$ | 1,153,321 | $ | 1,098,547 | |||||
Three months Ended June 30 | Six Months Ended June 30 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | |||||||||||
Interest income: | ||||||||||||||
Loans, including fees | $ | 13,662 | $ | 13,339 | $ | 27,093 | $ | 26,266 | ||||||
Investment securities: | ||||||||||||||
Taxable | 1,545 | 1,896 | 3,225 | 3,813 | ||||||||||
Nontaxable | 603 | 581 | 1,205 | 1,097 | ||||||||||
Federal funds sold | 116 | 112 | 217 | 273 | ||||||||||
Total interest income | $ | 15,926 | $ | 15,928 | $ | 31,740 | $ | 31,449 | ||||||
Interest expense: | ||||||||||||||
Deposits | $ | 4,332 | $ | 5,817 | $ | 8,892 | $ | 11,768 | ||||||
Securities sold under | ||||||||||||||
agreements to repurchase | 117 | 89 | 210 | 212 | ||||||||||
FHLB borrowings | 2,266 | 1,973 | 4,508 | 3,889 | ||||||||||
Total interest expense | $ | 6,715 | $ | 7,879 | $ | 13,610 | $ | 15,869 | ||||||
Net interest income | $ | 9,211 | $ | 8,049 | $ | 18,130 | $ | 15,580 | ||||||
Provision for loan losses | (35 | ) | 251 | 449 | 487 | |||||||||
Net interest income after provision | ||||||||||||||
for loan losses | $ | 9,246 | $ | 7,798 | $ | 17,681 | $ | 15,093 | ||||||
Other income: | ||||||||||||||
Gain on sale of loans | $ | 1,587 | $ | 242 | $ | 2,452 | $ | 619 | ||||||
Trust fees | 559 | 540 | 1,178 | 1,159 | ||||||||||
Deposit account charges and fees | 922 | 791 | 1,795 | 1,521 | ||||||||||
Other fees and charges | 777 | 632 | 1,589 | 1,303 | ||||||||||
$ | 3,845 | $ | 2,205 | $ | 7,014 | $ | 4,602 | |||||||
Other expenses: | ||||||||||||||
Salaries and employee benefits | $ | 3,832 | $ | 3,440 | $ | 7,512 | $ | 6,717 | ||||||
Occupancy | 464 | 429 | 920 | 846 | ||||||||||
Furniture and equipment | 750 | 745 | 1,484 | 1,462 | ||||||||||
Office supplies and postage | 258 | 259 | 584 | 540 | ||||||||||
Other | 1,623 | 1,306 | 2,992 | 2,495 | ||||||||||
$ | 6,927 | $ | 6,179 | $ | 13,492 | $ | 12,060 | |||||||
Income before income taxes | $ | 6,164 | $ | 3,824 | $ | 11,203 | $ | 7,635 | ||||||
Federal and state income taxes | 2,037 | 1,151 | 3,695 | 2,339 | ||||||||||
Net income | $ | 4,127 | $ | 2,673 | $ | 7,508 | $ | 5,296 | ||||||
Earning per share: | ||||||||||||||
Basic | $ | 2.73 | $ | 1.78 | $ | 4.98 | $ | 3.53 | ||||||
Diluted | 2.72 | 1.76 | 4.97 | 3.50 |
See Notes to Consolidated Financial Statements. 4 HILLS BANCORPORATION |
Three months Ended June 30 | Six Months Ended June 30 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | |||||||||||
Net Income | $ | 4,127 | $ | 2,673 | $ | 7,508 | $ | 5,296 | ||||||
Other comprehensive income: | ||||||||||||||
Unrealized holding gains (losses) | ||||||||||||||
arising during the period | $ | 1,221 | $ | 2,390 | $ | 670 | $ | 1,054 | ||||||
Income tax effect of unrealized gains | ||||||||||||||
(losses) | (453 | ) | (884 | ) | (249 | ) | (390 | ) | ||||||
$ | 768 | $ | 1,506 | $ | 421 | $ | 664 | |||||||
Comprehensive Income | $ | 4,895 | $ | 4,179 | $ | 7,929 | $ | 5,960 | ||||||
See Notes to Consolidated Financial Statements. 5 HILLS BANCORPORATION |
Capital Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Maximum Cash Obligation To ESOP Shares | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2002 | $10,541 | $85,773 | $4,721 | $(12,951 | ) | $88,084 | |||||||||||||||
Stock options exercised for | |||||||||||||||||||||
14,724 shares of common stock | 375 | — | — | — | 375 | ||||||||||||||||
Change related to ESOP shares | — | — | — | (1,325 | ) | (1,325 | ) | ||||||||||||||
Net income | — | 7,508 | — | — | 7,508 | ||||||||||||||||
Income tax benefit related to | |||||||||||||||||||||
stock based compensation | 336 | — | — | — | 336 | ||||||||||||||||
Cash dividends ($1.90 per share) | — | (2,853 | ) | — | — | (2,853 | ) | ||||||||||||||
Other comprehensive income | — | — | 421 | — | 421 | ||||||||||||||||
Balance, June 30, 2003 | $11,252 | $90,428 | $5,142 | $(14,276 | ) | $92,546 | |||||||||||||||
Capital Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Maximum Cash Obligation To ESOP Shares | Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2001 | $10,397 | $76,931 | $3,021 | $(12,194 | ) | $78,155 | |||||||||||||||
Net income | — | 5,296 | — | — | 5,296 | ||||||||||||||||
Change related to ESOP shares | — | — | — | (299 | ) | (299 | ) | ||||||||||||||
Cash dividends ($1.75 per share) | — | (2,622 | ) | — | — | (2,622 | ) | ||||||||||||||
Other comprehensive income | — | — | 664 | — | 664 | ||||||||||||||||
Balance, June 30, 2002 | $10,397 | $79,605 | $3,685 | $(12,493 | ) | $81,194 | |||||||||||||||
See Notes to Consolidated Financial Statements. 6 HILLS BANCORPORATION |
2003 | 2002 | |||||||
---|---|---|---|---|---|---|---|---|
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 7,508 | $ | 5,296 | ||||
Adjustments to reconcile net income to | ||||||||
net cash provided by operating activities: | ||||||||
Depreciation | 1,130 | 1,140 | ||||||
Amortization | — | 85 | ||||||
Provision for loan losses | 449 | 487 | ||||||
Deferred income taxes | 521 | 88 | ||||||
Decrease (increase) in accrued interest receivable | 210 | (238 | ) | |||||
Amortization of bond discount | 374 | 160 | ||||||
(Increase) in other assets | (506 | ) | (576 | ) | ||||
Decrease (increase) in accrued interest and other liabilities | (180 | ) | 388 | |||||
Loans originated for sale | (185,525 | ) | (58,244 | ) | ||||
Proceeds on sales of loans | 182,412 | 58,781 | ||||||
Net gain on sales of loans | (2,452 | ) | (619 | ) | ||||
Income tax benefits related to stock based compensation | 336 | — | ||||||
Net cash provided by operating activities | $ | 4,277 | $ | 6,748 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from maturities of investment securities: | ||||||||
Available for sale | $ | 42,910 | $ | 23,354 | ||||
Held to maturity | 3,090 | 2,901 | ||||||
Purchase of investment securities: | ||||||||
Available for sale | (51,849 | ) | (47,071 | ) | ||||
Held to maturity | (3,570 | ) | — | |||||
Federal funds sold, net | 9,141 | 5,780 | ||||||
Loans made to customers, net of collections | (54,072 | ) | (55,823 | ) | ||||
Purchases of property and equipment | (1,518 | ) | (1,770 | ) | ||||
Net cash (used in) investing activities | $ | (55,868 | ) | $ | (72,629 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net increase in deposits | $ | 38,037 | $ | 30,556 | ||||
Net increase (decrease) in federal funds purchased | ||||||||
and securities sold under agreements to repurchase | 11,130 | (2,172 | ) | |||||
Borrowings from FHLB | — | 30,000 | ||||||
Stock options exercised | 375 | — | ||||||
Dividends paid | (2,853 | ) | (2,622 | ) | ||||
Net cash provided by financing activities | $ | 46,689 | $ | 55,762 | ||||
Decrease in cash and due from banks | $ | (4,902 | ) | $ | (10,119 | ) | ||
CASH AND DUE FROM BANKS | ||||||||
Beginning | 32,647 | 37,070 | ||||||
Ending | $ | 27,745 | $ | 26,951 | ||||
SUPPLEMENTAL DISCLOSURES | ||||||||
Cash payments for: | ||||||||
Interest paid to depositors | $ | 9,115 | $ | 11,941 | ||||
Interest paid on other obligations | 4,718 | 4,101 | ||||||
Income taxes | 4,208 | 2,597 | ||||||
Non-cash financing activity, | ||||||||
Increase in unallocated ESOP shares | 1,325 | 299 |
See Notes to Consolidated Financial Statements. 7 HILLS BANCORPORATION |
Note 1. | Interim Financial Statements |
Interim consolidated financial statements have not been examined by independent public accountants, but include all adjustments (consisting only of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the results for these periods. The results of operations for the interim periods are not necessarily indicative of the results for a full year. |
In reviewing these financial statements, reference should be made to the Notes to Financial Statements contained in the audited Financial Statements for the year ended December 31, 2002, included in Hills Bancorporation (the “Company”) Form 10-K filed with the Securities Exchange Commission on March 24, 2003. |
There were no changes in accounting policies, which had a significant effect on the interim consolidated financial statements for the periods presented except as disclosed in Note 3 to the financial statements. |
For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from demand deposits, NOW accounts, savings accounts, and federal funds purchased and sold are reported net since their original maturities are less than three months. Cash flows from loans and time deposits are presented as net increases or decreases. |
Note 2. | Earnings Per Share |
Basic earnings per share amounts are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce the loss or increase the income per common share from continuing operations. |
The computation of earnings per common share for the periods presented are as follows: |
Three months Ended June 30 | Six Months Ended June 30 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 | 2002 | 2003 | 2002 | |||||||||||
Weighted average number of shares | ||||||||||||||
outstanding (basic) | 1,512,097 | 1,498,558 | 1,507,364 | 1,498,558 | ||||||||||
Weighted average of potential dilutive shares | ||||||||||||||
attributable to stock options granted computed | ||||||||||||||
under the treasury stock method | 3,575 | 12,955 | 3,199 | 13,030 | ||||||||||
Weighted average number of shares (diluted) | 1,515,672 | 1,511,513 | 1,510,563 | 1,511,588 | ||||||||||
Earnings Per Share: | ||||||||||||||
Net income (in thousands) | $ | 4.127 | $ | 2,673 | $ | 7,508 | $ | 5,296 | ||||||
Earnings per common share: | ||||||||||||||
Basic | $ | 2.73 | $ | 1.78 | $ | 4.98 | $ | 3.53 | ||||||
Diluted | 2.72 | 1.76 | 4.97 | 3.50 | ||||||||||
8 HILLS BANCORPORATION |
Note 3. | Recent Accounting Pronouncements |
The FASB has issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The provisions of the Statement are effective for exit or disposal activities that are initiated after December 31, 2002. Implementation of the Statement is not expected to have a material impact on the Company’s financial statements. |
The FASB has issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” – an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Implementation of these provisions of the Interpretation is not expected to have a material impact on the Company’s consolidated financial statements. The disclosure requirements of the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of Interpretation No. 45’s measurement and recognition provisions did not have a material impact to the Company’s financial position or results of operations. |
In October 2002, the FASB issued Statement of Financial Accounting Standards No.147, “Acquisition of Certain Financial Institutions, an Amendment to FASB Statements No.72 and 144 and FASB Interpretation No.9. The statement removes acquisitions of financial institutions from the scope of the previous issued statements and interpretation and requires that those transactions be accounted for in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” and Statement of Financial Accounting Standards No. 142, “Goodwill and Intangible Assets.” Thus, the requirement to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this statement. The Company adopted FASB No. 147 on October 1, 2002 and the adoption resulted in no reclassification or revisions to prior period financial statements. |
In January 2003, the FASB issued Interpretation No.46, “Consolidation of Variable Interest Entities,” which addresses consolidation by business enterprises of variable interest entities which have certain characteristics by requiring that if a business enterprise has a controlling interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity be included in the consolidated financial statements with those of the business enterprise. This statement applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. The Company has, and will continue to, adopt the various provisions of this statement but presently does not have any variable interest entities that would be required to be included in its consolidated financial statements. |
9 HILLS BANCORPORATION |
Note 3. | Recent Accounting Pronouncements (continued) |
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or asset in some circumstances). Many of those instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company will adopt the statement on July 1, 2003 and such adoption is not expected to have a material effect on its financial position or results of operations. |
June 30 | ||||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(Amounts in thousands) | ||||||||
Agricultural | $ | 42,376 | $ | 36,442 | ||||
Commercial and financial | 52,951 | 40,444 | ||||||
Real estate: | ||||||||
Construction | 57,738 | 45,015 | ||||||
Mortgage | 652,762 | 588,250 | ||||||
Loans to individuals | 34,509 | 32,652 | ||||||
$ | 840,336 | $ | 742,803 | |||||
Less allowance for loan losses | 12,740 | 10,350 | ||||||
$ | 827,596 | $ | 732,453 | |||||
Changes in the allowance for loan losses are as follows: |
Six Months Ended June 30 | ||||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(Amounts in thousands) | ||||||||
Balance, beginning | $ | 12,125 | $ | 9,950 | ||||
Provision charged to expense | 449 | 487 | ||||||
Net recoveries | 809 | 795 | ||||||
Loans charged off | (643 | ) | (882 | ) | ||||
Balance, ending | $ | 12,740 | $ | 10,350 | ||||
Non-performing loan information at June 30, was as follows: |
2003 | 2002 | |||||||
---|---|---|---|---|---|---|---|---|
(Amounts in thousands) | ||||||||
Impaired loans, non-accrual | $ | 4,450 | $ | 2,492 | ||||
Loans past due ninety days or more and still accruing | 1,356 | 1,482 | ||||||
Restructured loans | — | — |
Item 1. | Legal Proceedings |
There are no materials pending legal proceedings. |
Item 2. | Changes in Securities |
There were no changes in securities. |
Item 3. | Defaults upon Senior Securities |
Hills Bancorporation has no senior securities. |
Item 4. | Submission of Matters to a Vote of Security Holders |
At the Annual Meeting held on April 21, 2003, the security holders approved the following: |
1. | Election of Willis M. Bywater, Thomas J. Gill D.D.S., Donald H. Gringer and Dwight O. Seegmiller to three-year terms to the Board of Directors expiring at the 2006 Annual Meeting. |
Item 5. | Other Information |
None |
Item 6. | Exhibits and Reports on Form 8-K |
(a) | Exhibits Exhibit II – Statement Re Computation of Earnings Per Common Share |
(b) | Reports on Form 8-K Form 8-K was filed by Hills Bancorporation on May 14, 2003. The 8-K was filed to change the Registrant’s certifying accountant from McGladrey and Pullen, LLP to KPMG LLP, effective May 14, 2003. |
20 SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
HILLS BANCORPORATION | ||||
Date | 8/12/2003 | By | /s/ Dwight O. Seegmiller | |
Dwight O. Seegmiller, President | ||||
Date | 8/12/2003 | By | /s/ James G. Pratt | |
James G. Pratt, Treasurer and Chief Accounting Officer |