FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-26589, eff. 4/12/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995
OR
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-12668
Hills Bancorporation
(Exact name of registrant as specified in its charter)
Iowa 42-1208067
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
131 Main Street, Hills, Iowa 52235
(Address of principal executive offices) (Zip code)
(319) 679-2291
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
SHARES OUTSTANDING
CLASS AT JULY 31, 1995
Common Stock, no par value 487,622
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated balance sheets, June 30, 1995 (unaudited)
and December 31, 1994 3
Consolidated statements of income, (unaudited) for three
and six months ended June 30, 1995 and 1994 4
Consolidated statement of stockholders' equity,
(unaudited) for three and six months ended
June 30, 1995 and 1994 5
Consolidated statements of cash flows (unaudited) for
three and six months ended June 30, 1995 and 1994 6
Note to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 8-9
Part II
OTHER INFORMATION
Item 1. Legal proceedings 10
Item 2. Changes in securities 10
Item 3. Defaults upon senior securities 10
Item 4. Submission of matters to vote of security holders 10
Item 5. Other information 10
Item 6. Exhibits and reports on Form 8-K 10
COMPUTATION OF EARNINGS PER SHARE 11
SIGNATURES 12
HILLS BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30,
1995 December 31,
Unaudited 1994*
ASSETS
Cash and due from banks $ 10,849 $ 10,805
Investment securities:
Available for sale (amortized cost
June 30, 1995 $96,007; December 31,
1994 $94,914) 95,554 90,795
Held to maturity (fair value
June 30, 1995 $18,784;
December 31, 1994 $19,561) 18,578 19,255
Federal funds sold 5,625 7,500
Loans, net 315,988 300,821
Property and equipment, net 6,563 6,350
Accrued interest receivable 4,153 3,776
Deferred income taxes, net 1,578 2,935
Other assets 2,769 2,675
$461,657 $444,912
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits $ 34,843 $ 35,470
Interest-bearing deposits 334,189 337,368
Total deposits $369,032 $372,838
Federal funds purchased and securities
sold under agreements to repurchase 8,819 7,043
Federal Home Loan Bank notes 35,758 20,758
Accrued interest payable 1,682 1,548
Other liabilities 1,285 1,068
$416,576 $403,255
REDEEMABLE COMMON STOCK HELD BY
EMPLOYEE STOCK OWNERSHIP PLAN
(ESOP) $ 5,326 $ 5,210
STOCKHOLDERS' EQUITY
Capital stock, common, no par value;
authorized 2,000,000 shares;
issued 487,773 shares $ 8,915 $ 8,915
Retained earnings 36,451 35,336
Unrealized gains (losses) on debt securities, net (285) (2,594)
$ 45,081 $ 41,657
Less, maximum cash obligation related to ESOP
shares 5,326 5,210
$ 39,755 $ 36,447
$461,657 $444,912
* Derived from audited financial statements.
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 1995 and 1994
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Interest Income:
Interest and fees on loans $ 6,848 $ 5,600 $ 13,259 $ 11,055
Interest on investment
securities:
Taxable 1,210 1,289 2,404 2,580
Non-taxable 260 263 521 530
Other interest income 63 50 103 98
Total interest income $ 8,381 $ 7,202 $ 16,287 $ 14,263
Interest Expense:
Interest on deposits $ 4,061 $ 3,345 $ 7,730 $ 6,673
Interest on securities
sold under agreements
to repurchase 76 32 168 66
Interest on FHLB borrowings 468 247 834 492
Interest portion of
Employee Stock
Ownership Plan
contribution - - 1 - - 3
Total interest
expense $ 4,605 $ 3,625 $ 8,732 $ 7,234
Net interest
income $ 3,776 $ 3,577 $ 7,555 $ 7,029
Provision for loan losses 180 180 360 360
Net interest income
after provision
for loan losses $ 3,596 $ 3,397 $ 7,195 $ 6,669
Other Income:
Real estate origination
fees $ 57 $ 106 $ 76 $ 280
Trust department fees 177 139 328 318
Deposit account charges
and fees 410 372 783 721
Other fees and charges 224 190 474 422
$ 868 $ 807 $ 1,661 $ 1,741
Other Expenses:
Salaries and employee
benefits $ 1,369 $ 1,298 $ 2,709 $ 2,597
Occupancy expenses 186 168 376 343
Furniture and equipment 271 252 524 486
F.D.I.C. insurance 203 194 412 392
Office supplies and
postage 167 151 344 303
Other operating 655 658 1,196 1,199
$ 2,851 $ 2,721 $ 5,561 $ 5,320
Income before income taxes $ 1,613 $ 1,483 $ 3,295 $ 3,090
Federal and state income
taxes 447 380 912 816
Net Income $ 1,166 $ 1,103 $ 2,383 $ 2,274
Per common share:
Net income $ 2.38 $ 2.25 $ 4.86 $ 4.65
Dividend, January - - - - 2.60 2.40
Weighted average
of common outstanding
stock 490,799 488,967 490,799 489,243
See Notes to Financial Statements
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1995 and 1994
(In Thousands)
Total
Balance, January 1, 1995 $ 36,447
Net income 2,383
Change related to ESOP shares (116)
Cash dividends ($2.60 per share) (1,268)
Unrealized gains (losses) on debt securities, net 2,309
Balance, June 30, 1995 $ 39,755
Balance, January 1, 1994 $ 35,943
Net income 2,274
Payment on debt of ESOP 131
Change related to ESOP shares (508)
Cash dividends ($2.40 per share) (1,170)
Unrealized gains (losses) on debt securities, net (1,787)
Balance, June 30, 1994 $ 34,883
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In Thousands)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,383 $ 2,274
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 405 357
Provision for loan losses 360 360
(Increase) decrease in accrued interest
receivable (377) 113
Amortization of bond discount 257 428
(Increase) in other assets (94) (397)
Increase in accrued interest and other
liabilities 351 287
Net cash provided by operating
activities $ 3,285 $ 3,422
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities:
Available for sale $ 8,000 $ 16,000
Held to maturity 2,127 1,542
Purchase of investment securities Available
for sale (9,319) (14,044)
Held to maturity (1,481) (1,404)
Federal funds sold, net 1,875 2,296
Loans made to customers, net of collections (15,527) (11,421)
Purchases of property and equipment (618) (213)
Net cash (used in) investing
activities $(14,943) $ (7,244)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (3,806) $ 5,071
Net increase (decrease) in securities sold
under agreements to repurchase 1,776 (67)
Borrowings from FHLB 15,000 - - -
Dividends paid (1,268) (1,170)
Net cash provided by financing
activities $ 11,702 $ 3,834
Increase in cash and due from banks $ 44 $ 12
CASH AND DUE FROM BANKS
Beginning 10,805 10,107
Ending $ 10,849 $ 10,119
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid to depositors and others $ 7,596 $ 6,684
Interest paid on other obligations 1,002 561
Income taxes 1,019 1,023
Non-cash financing transactions:
Increase in maximum cash obligation related
to ESOP shares 116 508
Increase in stockholders' equity related
to ESOP debt - - 132
Net unrealized gains (losses) on debt
securities 2,309 (1,787)
See Notes to Financial Statements.
HILLS BANCORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Interim Financial Statements
Interim consolidated financial statements have not been examined
by independent public accountants, but include all adjustments
(consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of
the results for these periods. The results of operation for the
interim periods are not necessarily indicative of the results
for a full year.
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from demand deposits,
NOW accounts, savings accounts, and federal funds purchased and
sold are reported net since their original maturities are less
than three months. Cash flows from loans and time deposits are
presented as net increases or decreases.
Note 2. Loans
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan,"
was adopted January 1, 1995. Under this statement, loans
considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral,
by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses
to require an increase, such increase is reported as provision
for loan losses. Adopting this standard resulted in no increase
to either the allowance for loan losses or the provision for
loan losses.
PART I, ITEM 2.
HILLS BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATION
The consolidated balance sheet of Hills Bancorporation as of June 30, 1995
reflects total assets of $461,657,000 which is an increase of $16,745,000
from December 31, 1994. Net loans are $315,988,000 which represents an
increase of $15,167,000 from December 31, 1994. Compared to one year ago,
total assets have increased from $421,650,000 to $461,657,000 for an
increase of $40,007,000. Also during this time, net loans increased
$41,951,000 to $315,988,000 as of June 30, 1995. These loan increases
were primarily single family residential loans in the Iowa City and
Coralville area. By June 30, 1995, the U.S. Government bond interest
rates, after increasing during 1994, have decreased back to yields similar
to mid-1994. Due to these falling interest rates on investment securities,
the unrealized loss on investment securities that was $4,119,000 at
December 31, 1994 has been reduced to an unrealized loss of $453,000 at
June 30, 1995. This also had the effect of increasing stockholders'
equity by $2,309,000 from December 31, 1994 to June 30, 1995. The changes
in interest rates have a direct effect on secondary market financing and
also on other income for the Bank in terms of loan origination fees. As
of July, 1995, loan demand for in-house real estate loans appears to be
strong and the funding of these loans will come from deposit growth and/or
FHLB advances.
Deposits (when federal funds purchased and securities sold under
agreements to repurchase are included) as of June 30, 1995 totaled
$377,851,000, a decrease of $3,806,000 for the first six months. June 30,
1995 deposits, including repos, have grown $14,872,000 from June 30, 1994.
Also during the last twelve months, borrowings from the FHLB have
increased from $15,790,000 to $35,758,000. Asset-liability management
encompasses both the management of interest rate sensitivity and the
maintenance of adequate liquidity. Interest rate sensitivity management
attempts to provide the optimal level of net interest income while
managing exposure to risks associated with interest rate movements.
Liquidity management involves planning to meet anticipated funding needs.
Management monitors the rate sensitivity and liquidity positions on an on-
going basis and, when necessary, appropriate action is taken to minimize
any adverse effects of rapid interest rate movements or any unexpected
liquidity concerns.
In January 1995, Hills Bancorporation paid a dividend of $2.60 per share,
an 8.33% increase from the $2.40 paid in January 1994. The total dividend
of $1,268,000 is deducted from stockholders' equity and is reflected in
the resulting stockholders' equity as of June 30, 1995 of $39,755,000.
Stockholders' equity at June 30, 1995 and December 31, 1994 reflects an
adjustment for unrealized gain (losses) on debt securities, net of income
taxes.
The total stockholders' equity of Hills Bancorporation before the
reduction for the ESOP shares as a percent of total assets is 9.77%.
Under risk-based capital rules, total capital is 14.8% of risk-adjusted
assets, compared to the current 8% requirement.
The consolidated net income for the three months ended June 30, 1995 was
$1,166,000 compared to $1,103,000 for the same period ended June 30, 1994.
This is an increase of $63,000 representing an earnings per share for the
three months of $2.38 compared to $2.25 for the same three months in 1994.
For the six months ending June 30, 1995 and 1994, the net income was
$2,383,000 and $2,274,000; respectively. Net interest income for 1995 is
up by $603,000 over 1994 and is primarily the result of earning assets
being $27.5 million higher in 1995 compared to 1994. The provisions for
loan losses are the same for all quarters presented and is reflective of
management's overall opinion of the loan portfolio at this time, the
growth of the loan portfolio, and the level of the reserve as of June 30,
1995.
Other income of the bank was $1,661,000 compared to $1,741,000 for the six
months ended June 30, 1995 and 1994, respectively. Loan origination fees
amounted to $76,000 for the six month period ended June 30, 1995 and
$280,000 for the six months ended June 30, 1994. Due to raising interest
rates, loan origination fees are not expected to continue at the prior
year's pace and the Bank will see a drop for 1995 in loan origination
fees. The Trust Department fees were $328,000 and $318,000 for the six
months ending June 30, 1995 and 1994, respectively and represents
primarily an increase in accounts under management.
Other expenses have increased from $5,320,000 for the six months ended
June 30, 1994 to $5,561,000 for the period ended June 30, 1995. Of this
increase of $241,000, $20,000 is from increases in F.D.I.C. insurance and
salary and employee benefits have increased compared to one year ago by
$112,000. This is a combination of salary increases and the number of
full-time equivalent employees increasing from June 30, 1994 to June 30,
1995 by four employees. Occupancy and furniture and equipment expenses
are up $71,000 for the six months ending June 30, 1995 compared to one
year ago. This increase is primarily in property taxes, rent, and repairs
and maintenance on buildings. Federal and state income taxes for 1995 are
more than in 1994, primarily the result of increased income before taxes.
The Bank's principal sources of funds continues to be prepayment of loan
principal and current amortized loan payments. In addition, funds are
provided from current operations. All of the funds are used to fulfill
loan commitments, make short-term investments, and fund any deposit
withdrawals needed. The Company has no material commitments or plans
which will affect its liquidity or capital resources. The acquisition of
property and equipment may be in cash purchases, or they may be financed
if favorable terms are available.
HILLS BANCORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings.
Item 2. Changes in Securities
There were no changes in securities.
Item 3. Defaults upon Senior Securities
Hills Bancorporation has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
The only matter to be submitted to a vote of security holders
during the quarter ended June 30, 1995 was the election of the
following individuals to the Board of Directors at the Annual
Meeting held on April 17, 1995 to three-year terms:
Richard W. Oberman
Earlis Rohret
Earl M. Yoder
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See exhibit II - Statement Re Computation of Earnings Per
Common Share
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
HILLS BANCORPORATION
(Registrant)
/s/ Dwight O. Seegmiller
Date 8/10/95 Dwight O. Seegmiller,
President (Duly authorized
officer of the registrant)
/s/ James G. Pratt
Date 8/10/95 James G. Pratt, Treasurer
(Principal Financial
Officer)