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, 1997
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, 1997
- -------------------------- ------------------
Common Stock, no par value 1,465,204
HILLS BANCORPORATION
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated balance sheets, March 31, 1997 (unaudited)
and December 31, 1996
Consolidated statements of income, (unaudited) for three
months ended March 31, 1997 and 1996
Consolidated statement of stockholders' equity, (unaudited)
for three months ended March 31, 1997 and 1996
Consolidated statements of cash flows (unaudited) for three
months ended March 31, 1997 and 1996
Notes 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
COMPUTATION OF EARNINGS PER SHARE
SIGNATURES
HILLS BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31,
1997 December 31,
Unaudited 1996*
--------- --------
ASSETS
Cash and due from banks .............................. $ 12,250 $ 15,036
Investment securities:
Available for sale (amortized cost March 31, 1997
$113,736; December 31, 1996 $109,495) ........... 114,558 110,537
Held to maturity (fair value March 31, 1997
$23,348; December 31, 1996 $22,232) ............. 23,256 22,098
Federal funds sold ................................... 207 1,107
Loans, net ........................................... 382,871 368,264
Property and equipment, net .......................... 8,359 8,409
Accrued interest receivable .......................... 5,149 4,884
Deferred income taxes, net ........................... 1,441 1,359
Other assets ......................................... 7,532 7,758
-------- --------
$555,623 $539,452
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits ......................... $ 46,406 $ 46,154
Interest-bearing deposits ............................ 402,520 403,907
-------- --------
Total deposits .................................... $448,926 $450,061
Federal funds purchased and securities sold under
agreements to repurchase ........................ 12,977 6,071
Federal Home Loan Bank notes ......................... 35,765 25,795
Accrued interest payable ............................. 1,868 1,952
Other liabilities .................................... 2,409 1,822
-------- --------
$501,945 $485,701
-------- --------
REDEEMABLE COMMON STOCK HELD BY EMPLOYEE STOCK
OWNERSHIP PLAN (ESOP) ............................. $ 6,576 $ 6,416
-------- --------
STOCKHOLDERS' EQUITY
Capital stock, common, no par value; authorized
10,000,000 shares; issued March 31, 1997-
1,465,204 shares; issued December 31, 1996 -
1,465,384 shares .................................. $ 8,990 $ 8,997
Retained earnings .................................... 44,150 44,078
Unrealized gains (losses) on debt securities, net .... 538 676
-------- --------
$ 53,678 $ 53,751
Less, maximum cash obligation related to ESOP shares . 6,576 6,416
-------- --------
$ 47,102 $ 47,335
-------- --------
$555,623 $539,452
======== ========
* Derived from audited financial statements.
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1997 and 1996
(In Thousands, Except Per Share Data)
1997 1996
---------- ----------
Interest income:
Interest and fees on loans .................. $ 8,041 $ 6,999
Interest on investment securities
Taxable ................................... 1,673 1,418
Non-taxable ............................... 294 277
Other interest income ....................... 41 168
---------- ---------
Total interest income ....................... $ 10,049 $ 8,862
---------- ---------
Interest expense:
Interest on deposits ........................ $ 4,603 $ 4,243
Interest on securities sold under
agreements to repurchase ................. 89 100
Interest on FHLB notes ...................... 530 489
---------- ----------
Total interest expense ...................... $ 5,222 $ 4,832
---------- ----------
Net interest income ......................... $ 4,827 $ 4,030
Provision for loan losses ....................... 195 180
---------- ----------
Net interest income after
provision for loan losses .............. $ 4,632 $ 3,850
---------- ----------
Other income:
Real estate origination fees ................ $ 59 $ 111
Trust fees .................................. 304 185
Deposit account charges and fees ............ 433 375
Other fees and charges ...................... 329 281
---------- ----------
$ 1,125 $ 952
---------- ----------
Other expenses:
Salaries and employee benefits .............. $ 1,790 $ 1,550
Occupancy expenses .......................... 246 212
Furniture and equipment ..................... 327 266
F.D.I.C. insurance .......................... 31 2
Office supplies and postage ................. 231 176
Other operating ............................. 835 601
---------- ----------
$ 3,460 $ 2,807
---------- ----------
Income before income taxes ............... $ 2,297 $ 1,995
Federal and state income taxes .................. $ 686 $ 569
---------- ----------
Net income ............................... $ 1,611 $ 1,426
========== ==========
Per common share:
Net income ................................ $ 1.09 $ .97
Dividend, January .... 1.05 .95
Weighted average of common outstanding
stock .................................. 1,479,172 1,473,069
See Notes to Financial Statements
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1997 and 1996
(In Thousands)
Capital Retained Unrealized ESOP
Total Stock Earnings Losses Obligations
-------- -------- -------- ---------- -----------
Balance, January 1, 1997 .................... $ 47,335 $ 8,997 $ 44,078 $ 676 $ (6,416)
Redemption of stock ......................... (7) (7) - - - - - - - - -
Net income .................................. 1,611 - - - 1,611 - - - - - -
Change related to ESOP shares ............... (160) - - - - - - - - - (160)
Cash dividends ($1.05 per share) ............ (1,539) - - - (1,539) - - - - - -
Unrealized gains (losses) on
debt securities, net ...................... (138) - - - - - - (138) - - -
-------- -------- -------- -------- --------
Balance, March 31, 1997 ..................... $ 47,102 $ 8,990 $ 44,150 $ 538 $ (6,576)
======== ======== ======== ======== ========
Balance, January 1, 1996 .................... $ 43,277 $ 8,925 $ 39,325 $ 298 $ (5,271)
Net income .................................. 1,426 - - - 1,426 - - - - - -
Change related to ESOP shares ............... (448) - - - - - - - - - (448)
Cash dividends ($.95 per share) ............. (1,391) - - - (1,391) - - - - - -
Unrealized gains (losses) on debt
securities, net ........................... (408) - - - - - - (408) - - -
-------- -------- -------- -------- --------
Balance, March 31, 1996 ..................... $ 42,456 $ 8,925 $ 39,360 $ (110) $ (5,719)
======== ======== ======== ======== ========
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
(In Thousands)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 1,611 $ 1,426
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ............................................................... 268 206
Provision for loan losses 195 180
(Increase) decrease in accrued interest receivable ......................... (265) (520)
Amortization of bond discount .............................................. 98 135
(Increase) in other assets ................................................. 140 102
Amortization of intangibles ................................................ 86 - - -
Increase in accrued interest and other liabilities ......................... 503 324
-------- --------
Net cash provided by operating activities .................................. $ 2,636 $ 1,853
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities
of investment ecurities:
Available for sale ......................................................... $ 2,270 $ 2,000
Held to maturity ........................................................... 276 300
Purchase of investment securities
Available for sale ......................................................... (6,591) (6,214)
Held to maturity ........................................................... (1,452) (1,052)
Federal funds sold, net ........................................................ 900 4,735
Loans made to customers, net of collections .................................... (14,802) (3,293)
Purchases of property and equipment ............................................ (218) (251)
-------- --------
Net cash (used in) investing activities .................................... $(19,617) $ (3,775)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits ........................................ $ (1,135) $ 1,884
Net increase (decrease) in fed funds purchased and
securities sold under agreements to repurchase .......................... 6,906 (291)
Borrowings from FHLB ....................................................... 10,000 - - -
Payments on FHLB ........................................................... (30) - - -
Redemption of common stock ................................................. (7) - - -
Dividends paid ............................................................. (1,539) (1,391)
-------- --------
Net cash provided by financing activities ............................... $ 14,195 $ 202
-------- --------
Increase in cash and due from banks ..................................... $ (2,786) $ (1,720)
CASH AND DUE FROM BANKS
Beginning .................................................................. $ 15,036 11,883
-------- --------
Ending ..................................................................... $ 12,250 $ 10,163
======== ========
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest paid to depositors and others .................................. $ 4,687 $ 4,293
Interest paid on other obligations ...................................... 619 589
Non-cash financing transactions:
Increase in maximum cash obligation related
to ESOP shares ......................................................... 160 448
Net unrealized gains (losses) on debt securities ........................ (138) (647)
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
-------------------------
1997 1996
-------- --------
Agricultural ................................. $ 23,974 $ 18,991
Commercial and financial ..................... 31,314 28,307
Real estate, construction .................... 9,622 8,510
Real estate, mortgage ........................ 292,068 241,075
Loans to individual .......................... 33,189 31,618
-------- --------
$390,167 $328,501
Less allowance for loan losses ............... 7,296 6,842
-------- --------
$382,871 $321,659
======== ========
Transactions in the allowance for loan losses are as follows:
(In thousands)
Three months
ended March 31
------------------------
1997 1996
------- -------
Balance, beginning ........................... $ 7,311 $ 6,740
Provision charged to expense ............... 195 180
Net charge-offs ............................ (210) (78)
------- -------
Balance, ending .............................. $ 7,296 $ 6,842
======= =======
The following summarizes the Company's nonaccrual, past due, restructured and
impaired loans:
(In thousands)
March 31
-------------------
1997 1996
------ ------
Nonaccrual ........................................... $ 376 $ 389
Accruing loans, past due 90 days or more ............. 929 1,475
Restructured loan .................................... - - - - - -
Impaired loans ....................................... 6,435 5,765
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, 1997
reflects total assets of $555.6 million which is an increase of $16.2 million
from December 31, 1996. Net loans are $382.9 million which represents an
increase of $14.6 million from December 31, 1996. Compared to one year ago,
total assets have increased from $486.2 million to $555.6 million for an
increase of $69.4 million. Also during this time, net loans increased $61.2
million to $382.9 million as of March 31, 1997. These loan increases were
primarily single family residential loans in the Iowa City and Coralville area.
Investment securities total $137.8 million as of March 31, 1997, an increase of
$5.2 million from December 31, 1996 and a $12.4 million increase in investment
securities since March 31, 1996. Federal funds sold decreased during the first
quarter of 1997 by $.9 million and have decreased from March 31, 1996 to March
31, 1997 by $11.1 million. As discussed in previous reports, the addition of a
location in Lisbon, Iowa in July of 1996 and Kalona, Iowa in September, 1996
accounted for approximately $40 million in asset growth; $22 million in loans;
$18 million in investment securities and other assets; and approximately $40
million in deposit growth.
Deposits (when federal funds purchased and securities sold under agreements to
repurchase are included) as of March 31, 1997 totaled $461.9 million, an
increase of $5.8 million for the first three months. March 31, 1997 deposits,
including repos, have grown $58.0 million from March 31, 1996. Borrowings from
the FHLB have increased from $30,727,000 to $35,765,000 during the last twelve
months with $5 million of the borrowings occurring in the first quarter of 1997
after a payment of $5 million in August of 1996. 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 1997, Hills Bancorporation paid a dividend of $1.05 per share, a
10.53% increase from the $.95 paid in January 1996. The total dividend of
$1,539,000 is deducted from stockholders' equity and is reflected in the
resulting stockholders' equity as of March 31, 1997 of $47,102,000.
Stockholders' equity at March 31, 1997 and December 31, 1996 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 9.66%. Under risk-based capital
rules, total capital is 15.17% of risk-adjusted assets, compared to the current
8% requirement.
The consolidated net income for the three months ended March 31, 1997 was
$1,611,000 compared to $1,426,000 for the same period ended March 31, 1996. This
is an increase of $185,000 representing an earnings per share for the three
months of $1.09 compared to $.97 for the same three months in 1996. Net interest
income for 1997 is up by $390,000 over 1996 and is primarily the result of
earning assets being $57.3 million higher in 1997 compared to 1996. The
provisions for loan losses are $195,000 and $180,000 for the 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, 1997.
Other income of the bank was $1,125,000 compared to $952,000 for the three
months ended March 31, 1997 and 1996, respectively. Loan origination fees
amounted to $59,000 for the three month period ended March 31, 1997 compared to
only $111,000 in 1996. The Trust Department fees were $304,000 and $185,000 for
the three months ending March 31, 1997 and 1996, respectively and represents
primarily an increase in accounts under management. Deposit account charges and
other fees were $762,000 compared to $656,000 one year ago. These increases are
the result of more accounts and increased activity in existing accounts.
Other expenses have increased from $2,807,000 for the three months ended March
31, 1997 to $3,460,000 for the period ended March 31, 1997. Of this net increase
of $653,000, salaries and employee benefits accounted for a $240,000 increase.
This is a combination of salary increases and the number of full-time equivalent
employees increasing from March 31, 1996 to March 31, 1997 by twenty-four
employees. The occupancy, furniture and equipment, office supplies and the other
operating expenses totaled $1,670,000 for the three months ending March 31, 1997
compared to $1,257,000 for the same period in 1996. These expenses are up
$413,000 as a result of the two new banks acquired with the resulting occupancy
and furniture and equipment increases and increases in marketing, other
professional fees, and other data processing charges related to the
acquisitions. Federal and state income taxes for 1997 are more than in 1996,
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 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, 1997.
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 March 31, 1997.
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, 1997 /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)