FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-26589, eff. 4/12/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number: 0-12668
Hills Bancorporation
Incorporated in Iowa I.R.S. Employer Identification
No. 42-1208067
131 MAIN STREET, HILLS, IOWA
Telephone number: (319) 679-2291
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING
CLASS AT April 30, 1996
----- ------------------
Common Stock, no par value 1,463,604
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated balance sheets, March 31, 1996 (unaudited)
and December 31, 1995
Consolidated statements of income, (unaudited) for three
months ended March 31, 1996 and 1995
Consolidated statement of stockholders' equity, (unaudited)
for three months ended March 31, 1996 and 1995
Consolidated statements of cash flows (unaudited)
for three months ended March 31, 1996 and 1995
Note to consolidated financial statements
Item 2. Management's discussion and analysis of financial condition
and results of operations
Part II
OTHER INFORMATION
Item 1. Legal proceedings
Item 2. Changes in securities
Item 3. Defaults upon senior securities
Item 4. Submission of matters to vote of security holders
Item 5. Other information
Item 6. Exhibits and reports on Form 8-K
SIGNATURES
HILLS BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31,
1996 December 31,
Unaudited 1995
--------- ------------
ASSETS
Cash and due from banks ............................... $ 10,163 $ 11,883
Investment securities:
Available for sale (amortized cost
March 31, 1996 $103,715;
December 31, 1995 $99,621) ...................... 103,540 100,093
Held to maturity (fair value
March 31, 1996 $22,371;
December 31, 1995 $21,754) ...................... 22,180 21,443
Federal funds sold .................................... 11,345 16,080
Loans, net ............................................ 321,659 318,546
Property and equipment, net ........................... 7,041 6,996
Accrued interest receivable ........................... 4,966 4,446
Deferred income taxes, net ............................ 1,713 1,474
Other assets .......................................... 3,544 3,646
--------- ---------
$ 486,151 $ 484,607
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits .......................... $ 36,300 $ 42,927
Interest-bearing deposits ............................. 357,841 349,330
--------- ---------
Total deposits .................................... $ 394,141 $ 392,257
Federal funds purchased and securities
sold under agreements to repurchase ............... 9,728 10,019
Federal Home Loan Bank notes .......................... 30,727 30,727
Accrued interest payable .............................. 1,835 1,885
Other liabilities ..................................... 1,545 1,171
--------- ---------
$ 437,976 $ 436,059
--------- ---------
REDEEMABLE COMMON STOCK HELD BY
EMPLOYEE STOCK OWNERSHIP PLAN
(ESOP) ............................................ $ 5,719 $ 5,271
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common, no par value;
authorized 2,000,000 shares;
issued 1,463,604 shares ........................... $ 8,925 $ 8,925
Retained earnings ..................................... 39,360 39,325
Unrealized gains (losses) on debt securities, net ..... (110) 298
--------- ---------
$ 48,175 $ 48,548
Less, maximum cash obligation related to ESOP shares .. 5,719 5,271
--------- ---------
$ 42,456 $ 43,277
--------- ---------
$ 486,151 $ 484,607
========= =========
* Derived from audited financial statements.
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1996 and 1995
(In Thousands, Except Per Share Data)
1996 1995
-------------------
Interest income:
Interest and fees on loans .................. $ 6,999 $ 6,371
Interest on investment securities
Taxable ................................... 1,418 1,234
Non-taxable ............................... 277 261
Other interest income ....................... 168 40
-------- ---------
Total interest income ....................... $ 8,862 $ 7,906
-------- ---------
Interest expense:
Interest on deposits ........................ $ 4,243 $ 3,669
Interest on securities sold under
agreements to repurchase ................. 100 92
Interest on FHLB notes ...................... 489 366
-------- ---------
Total interest expense ...................... $ 4,832 $ 4,127
-------- ---------
Net interest income ......................... $ 4,030 $ 3,779
Provision for loan losses ....................... 180 180
-------- --------
Net interest income after
provision for loan losses .............. $ 3,850 $ 3,599
-------- ---------
Other income:
Real estate origination fees ................ $ 111 $ 19
Trust fees .................................. 185 151
Deposit account charges and fees ............ 375 373
Other fees and charges ...................... 281 250
-------- ---------
$ 952 $ 793
-------- ---------
Other expenses:
Salaries and employee benefits .............. $ 1,550 $ 1,340
Occupancy expenses .......................... 212 190
Furniture and equipment ..................... 266 253
F.D.I.C. insurance .......................... 2 209
Office supplies and postage ................. 176 177
Other operating ............................. 601 541
-------- ---------
$ 2,807 $ 2,710
-------- ---------
Income before income taxes ............... $ 1,995 $ 1,682
Federal and state income taxes .................. $ 569 $ 465
-------- ---------
Net income ............................... $ 1,426 $ 1,217
======== =========
Per common share:
Net income $ .97 $ .83
Dividend, January .......................... .95 .87
Weighted average
of common outstanding stock ............. 1,473,069 1,472,397
See Note to Financial Statements
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996 and 1995
(In Thousands)
Capital Retained Unrealized ESOP
Total Stock Earnings Losses Obligations
------- ------- -------- ---------- -----------
Balance, January 1, 1996 ................. $43,277 $ 8,925 $39,325 $ 298 $(5,271)
Net income ............................... 1,426 0 1,426 0 0
Change related to ESOP shares ............ (448) 0 0 0 0
Cash dividends ($.97 per share) .......... (1,391) 0 (1,391) 0 (448)
Unrealized gains (losses) on debt
securities, net ........................ (408) 0 0 (408) 0
------- ------- ------- ------- -------
Balance, March 31, 1996 .................. $42,456 $ 8,925 $39,360 $ (110) $(5,719)
======= ======= ======= ======= =======
Balance, January 1, 1995 ................. $36,447 $ 8,915 $35,336 $(2,594) $(5,210)
Net income ............................... 1,217 0 1,217 0 0
Change related to ESOP shares ............ (55) 0 0 0 (55)
Cash dividends ($.95 per share) .......... (1,268) 0 (1,268) 0 0
Unrealized gains (losses) on
debt securities, net ................... 1,129 0 0 1,129 0
------- ------- ------- ------- -------
Balance, March 31, 1995 .................. $37,470 $ 8,915 $35,285 $(1,465) $(5,265)
======= ======= ======= ======= =======
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(In Thousands)
1996 1995
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 1,426 $ 1,217
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ............................................................... 206 202
Provision for loan losses .................................................. 180 180
(Increase) decrease in accrued interest receivable ......................... (520) (397)
Amortization of bond discount .............................................. 135 138
(Increase) in other assets ................................................. 102 (12)
Increase in accrued interest and other liabilities ......................... 324 451
-------- --------
Net cash provided by operating activities .................................. $ 1,853 $ 1,779
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities:
Available for sale ......................................................... $ 2,000 $ 4,000
Held to maturity ........................................................... 300 330
Purchase of investment securities:
Available for sale ......................................................... (6,214) (3,510)
Held to maturity ........................................................... (1,052) (551)
Federal funds sold, net ........................................................ 4,735 6,712
Loans made to customers, net of collections .................................... (3,293) (6,563)
Purchases of property and equipment ............................................ (251) (379)
-------- --------
Net cash (used in) investing activities .................................... $ (3,775) $ 39
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ........................................ $ 1,884 $ (8,049)
Net increase (decrease) in securities sold
under agreements to repurchase .......................................... (291) 1,498
Borrowings from FHLB ....................................................... - - - - 5,000
Dividends paid ............................................................. (1,391) (1,268)
-------- --------
Net cash provided by financing activities ............................... $ 202 $ (2,819)
-------- --------
Increase in cash and due from banks ..................................... $ (1,720) $ (1,001)
CASH AND DUE FROM BANKS
Beginning .................................................................. $ 11,883 10,805
-------- --------
Ending ..................................................................... $ 10,163 $ 9,804
======== ========
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest paid to depositors and others .................................. $ 4,293 $ 3,698
Interest paid on other obligations ...................................... 589 458
Non-cash financing transactions:
Increase in maximum cash obligation related
to ESOP shares ......................................................... 448 (55)
Net unrealized gains (losses) on debt securities ........................ (647) 1,129
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
The following tables set forth the composition of loans and the
allowance for loan losses:
(In thousands)
March 31
---------------------
1996 1995
---------------------
Agricultural ......................................... $ 18,991 $ 19,000
Commercial and financial ............................. 28,307 26,810
Real estate, construction ............................ 8,510 7,937
Real estate, mortgage ................................ 241,075 239,899
Loans to individual .................................. 31,618 31,640
-------- --------
$328,501 $325,286
Less allowance for loan losses ....................... 6,842 6,740
-------- --------
$321,659 $318,546
======== ========
Transactions in the allowance for loan losses are as follows:
(In thousands)
Three months
ended March 31
-------------------
1996 1995
Balance, beginning ......................... $6,740 $6,210
Provision charged to expense ............. 180 180
Net charge-offs .......................... (78) (72)
------ ------
Balance, ending ............................ $6,842 $6,318
====== ======
The following summarizes the Company's nonaccrual, past due,
restructured and impaired loans:
(In thousands)
March 31
----------------
1996 1995
----------------
Nonaccrual .................................... $ 389 $ 0
Accruing loans, past due 90 days or more ...... 1,475 1,625
Restructured .................................. 0 0
Impaired ...................................... 5,350 5,460
There are no impaired loans as of March 31, 1996
Note 3. Stock Split
On April 17, 1996, the Company affected a three for one stock split in the
form of a stock dividend when it issued a stock dividend of two additional
shares for each share then held. The number of shares outstanding and per share
information has been retroactively restated for all periods presented.
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 March 31, 1996
reflects total assets of $486.2 million which is an increase of $1.5 million
from December 31, 1995. Net loans are $321.7 million which represents an
increase of $3.1 million from December 31, 1995. Compared to one year ago, total
assets have increased from $444.9 million to $486.2 million for an increase of
$41.3 million. Also during this time, net loans increased $14.5 million to
$321.7 million as of March 31, 1996. These loan increases were primarily single
family residential loans in the Iowa City and Coralville area. Investment
securities total $125.7 million as of March 31, 1996, an increase of $4.2
million from December 31, 1995 and a $14.3 million increase in investment
securities since March 31, 1995. Federal funds sold decreased during the first
quarter of 1996 by $4.7 million and have increased from March 31, 1995 to March
31, 1996 by $10.6 million. Interest rates on investment securities increased
during the last part of the quarter ending March 31, 1996 resulting in a net
change in unrealized losses on investment securities of $647,000. This had the
effect of decreasing stockholders' equity by $408,000 at March 31, 1996.
Comparing the change in unrealized losses between March 31, 1995 to March 31,
1996 an increase in equity of $1,355,000 was shown.
Deposits (when federal funds purchased and securities sold under agreements to
repurchase are included) as of March 31, 1996 totaled $403.9 million, an
increase of $1.6 million for the first three months. March 31, 1996 deposits,
including repos, have grown $30.6 million from March 31, 1995. Borrowings from
the FHLB have increased from $25,758,000 to $30,727,000 during the last twelve
months with no increase in borrowings occurring in the first quarter of 1996.
Asset-liability management encompasses both the management of interest rate
sensitivity and the maintenance of adequate liquidity. Management attempts to
provide the optimal 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 1996, Hills Bancorporation paid a dividend of $.95 per share, a
9.62% increase from the $.87 paid in January 1995. The total dividend of
$1,391,000 is deducted from stockholders' equity and is reflected in the
resulting stockholders' equity as of March 31, 1996 of $42,456,000.
Stockholders' equity at March 31, 1996 and December 31, 1995 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 9.91%. Under risk-based capital
rules, total capital is 14.59% of risk-adjusted assets, compared to the current
8% requirement.
The consolidated net income for the three months ended March 31, 1996 was
$1,426,000 compared to $1,217,000 for the same period ended March 31, 1995. This
is an increase of $209,000 representing earnings per share for the three
months of $.97 compared to $.83 for the same three months in 1995. Net
interest income for 1996 is up by $251,000 over 1995 and is primarily the result
of earning assets being $34.9 million higher in 1996 compared to 1995. The
provisions for loan losses are the same for both 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 March 31,
1996.
Other income of the bank was $952,000 compared to $793,000 for the three months
ended March 31, 1996 and 1995, respectively. Loan origination fees amounted to
$111,000 for the three month period ended March 31, 1996 compared to only
$19,000 in 1995. The Trust Department fees were $185,000 and $151,000 for the
three months ending March 31, 1996 and 1995, respectively and represents
primarily an increase in accounts under management.
Other expenses have increased from $2,710,000 for the three months ended March
31, 1995 to $2,807,000 for the period ended March 31, 1996. Of this net increase
of $97,000, salaries and employee benefits accounted for a $210,000 increase.
This is a combination of salary increases and the number of full-time equivalent
employees increasing from March 31, 1995 to March 31, 1996 by ten employees. For
the quarter ending March 31, 1996 compared to the same period in 1995, the major
increase in net income is accounted for by a reduction of F.D.I.C. insurance
premiums. The premium for 1996 will be $2,000 for the year compared to $424,000
for 1995. The occupancy, furniture and equipment, office supplies and the other
operating expenses totaled $1,255,000 for the three months ending March 31, 1996
compared to $1,161,000 for the same period in 1995. Federal and state income
taxes for 1996 are more than in 1995, 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.
In February 1996, the Company announced the stock purchase of a Lisbon, Iowa
bank holding company and the purchase of certain assets and assumption of
deposits of the Kalona, Iowa branch office of Boatmen's Bank of Iowa, Inc. The
Lisbon bank has approximately $16.5 million in assets. The Kalona office has
deposits of about $22 million. It is expected that both banks will be owned by
the Company and operated as separately chartered banks. Both acquisitions are
subject to various regulatory approvals, including a separate state bank charter
for the Kalona Bank since it is presently an office location of Boatmen's Bank.
It is anticipated that both acquisitions will be completed in the third quarter
of 1996.
The acquisitions of the two banks is expected to require an investment of
approximately $6,000,000 and the funds for the acquisitions are expected to be
provided by deposit growth and the maturities of investment securities.
Other than the previously mentioned acquisitions, the Company has no material
commitments or plans which will materially affect its liquidity or capital
resources. The acquisition of property and equipment may be in cash purchases,
or they may be financed if favorable terms are available.
HILLS BANCORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings.
Item 2. Changes in Securities
There were no changes in securities.
Item 3. Defaults upon Senior Securities
Hills Bancorporation has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1996.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
See exhibit 11 - Statement Re Computation of Earnings Per
Common Share
See exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended March 31, 1996.
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)
May 14, 1996 /s/ Dwight O. Seegmiller
- ------------------------------ -------------------------------
Date Dwight O. Seegmiller, President
(Duly authorized officer of the registrant)
/s/ James G. Pratt
-------------------------------------------
James G. Pratt, Treasurer
(Principal Financial Officer)