Hills Bancorporation's Net Income Jumps 25.7% Amid Rising Credit Losses

Ticker: HBIA · Form: 10-Q · Filed: Nov 10, 2025 · CIK: 732417

Sentiment: mixed

Topics: Regional Banking, Net Interest Income, Credit Loss Expense, Earnings Per Share, Asset Quality, Investment Securities, Financial Performance

TL;DR

**HBIA is growing net interest income and EPS, but the massive jump in credit loss expense is a red flag for asset quality.**

AI Summary

HILLS BANCORPORATION reported a significant increase in net income for the nine months ended September 30, 2025, reaching $45,990 thousand, up 25.7% from $36,582 thousand in the same period of 2024. This growth was primarily driven by a robust 28.9% increase in net interest income, which rose to $109,711 thousand from $85,095 thousand. Interest income from loans saw a healthy increase to $144,892 thousand in 2025 from $133,627 thousand in 2024. However, the company experienced a substantial rise in credit loss expense, which jumped to $10,982 thousand for the nine months ended September 30, 2025, compared to $2,622 thousand in the prior year, indicating potential asset quality concerns. Noninterest income decreased to $20,902 thousand from $22,948 thousand, largely due to a $4,294 thousand loss on the sale of investment securities in 2025. Total assets grew to $4,653,468 thousand as of September 30, 2025, from $4,588,242 thousand at December 31, 2024, while total liabilities increased to $4,069,092 thousand from $4,047,298 thousand. Diluted earnings per share improved to $5.16 from $4.03 year-over-year.

Why It Matters

Hills Bancorporation's strong net interest income growth and improved earnings per share are positive signals for investors, demonstrating effective asset deployment in a challenging rate environment. However, the significant increase in credit loss expense, up over 300% year-over-year, warrants close attention as it could signal deteriorating loan portfolio quality or a more conservative lending outlook, potentially impacting future profitability. For employees, continued profitability supports job security and potential growth opportunities. Customers may see a stable banking partner, but increased credit loss provisions could lead to tighter lending standards. In the broader market, this regional bank's performance offers a glimpse into the health of local economies and the banking sector's resilience against economic headwinds.

Risk Assessment

Risk Level: medium — The risk level is medium due to the substantial increase in credit loss expense, which surged from $2,622 thousand in the nine months ended September 30, 2024, to $10,982 thousand in the same period of 2025. This 318% increase suggests potential deterioration in loan portfolio quality or a more cautious economic outlook by management. Additionally, the company recorded a $4,294 thousand loss on the sale of investment securities, indicating potential market value declines or strategic portfolio adjustments.

Analyst Insight

Investors should scrutinize the drivers behind the significant increase in credit loss expense and assess the bank's loan portfolio quality. While net income growth is positive, a deeper dive into non-performing assets and specific loan categories is crucial. Consider if the current valuation adequately discounts for potential future credit losses.

Financial Highlights

revenue
$130,613,000
total Assets
$4,653,468,000
net Income
$45,990,000
eps
$5.16
revenue Growth
+22.5%

Revenue Breakdown

SegmentRevenueGrowth
Net Interest Income$109,711,000+28.9%
Noninterest Income$20,902,000-8.9%

Key Numbers

Key Players & Entities

FAQ

What were Hills Bancorporation's net income and net interest income for the nine months ended September 30, 2025?

Hills Bancorporation reported a net income of $45,990 thousand for the nine months ended September 30, 2025, a 25.7% increase from $36,582 thousand in the prior year. Net interest income for the same period was $109,711 thousand, up 28.9% from $85,095 thousand in 2024.

How did Hills Bancorporation's credit loss expense change year-over-year?

Hills Bancorporation's credit loss expense significantly increased to $10,982 thousand for the nine months ended September 30, 2025, compared to $2,622 thousand for the same period in 2024. This represents a substantial increase of 318%.

What was the diluted earnings per share for Hills Bancorporation in the nine months ended September 30, 2025?

For the nine months ended September 30, 2025, Hills Bancorporation's diluted earnings per share was $5.16. This is an increase from $4.03 reported for the same period in 2024.

Did Hills Bancorporation experience any losses on investment securities in 2025?

Yes, Hills Bancorporation reported a loss on the sale of investment securities of $4,294 thousand for the nine months ended September 30, 2025. No such loss was recorded in the comparable period of 2024.

What were Hills Bancorporation's total assets and total liabilities as of September 30, 2025?

As of September 30, 2025, Hills Bancorporation's total assets were $4,653,468 thousand, an increase from $4,588,242 thousand at December 31, 2024. Total liabilities stood at $4,069,092 thousand, up from $4,047,298 thousand at December 31, 2024.

How much did Hills Bancorporation's loans, net of allowance for credit losses, increase?

Hills Bancorporation's loans, net of allowance for credit losses, increased to $3,497,209 thousand as of September 30, 2025, from $3,387,521 thousand as of December 31, 2024. This represents a growth of $109,688 thousand.

What was the change in Hills Bancorporation's total deposits?

Total deposits for Hills Bancorporation increased to $3,378,267 thousand as of September 30, 2025, from $3,346,133 thousand at December 31, 2024. This is a net increase of $32,134 thousand.

What is the significance of the increase in the allowance for credit losses for Hills Bancorporation?

The allowance for credit losses for Hills Bancorporation increased to $59,097 thousand as of September 30, 2025, from $50,940 thousand at December 31, 2024. This increase, coupled with the higher credit loss expense, suggests management is anticipating or has recognized a greater risk of loan defaults within its portfolio.

How many shares of common stock were outstanding for Hills Bancorporation as of October 31, 2025?

As of October 31, 2025, Hills Bancorporation had 8,849,709 shares of common stock outstanding. This figure is important for calculating per-share metrics and understanding ownership structure.

What was the total comprehensive income for Hills Bancorporation for the nine months ended September 30, 2025?

Hills Bancorporation reported a total comprehensive income of $64,095 thousand for the nine months ended September 30, 2025. This is a significant increase from $45,806 thousand for the same period in 2024, partly driven by other comprehensive income on securities available for sale.

Risk Factors

Industry Context

Hills Bancorporation operates as a commercial bank, with its primary credit concentration in real estate loans. The banking industry is subject to interest rate fluctuations, credit risk, and regulatory oversight. Growth in net interest income, as seen by HBIA, is often tied to the net interest margin, which is influenced by the yield curve and funding costs.

Regulatory Implications

As a financial institution, Hills Bancorporation is subject to stringent regulatory requirements. The significant increase in credit loss expense may attract closer scrutiny from regulators regarding asset quality and risk management practices. Compliance with capital adequacy and liquidity regulations remains paramount.

What Investors Should Do

  1. Monitor credit quality trends closely.
  2. Analyze the drivers of noninterest income decline.
  3. Evaluate the sustainability of net interest income growth.

Key Dates

Glossary

Available-for-sale (AFS) securities
Debt securities not classified as trading or held to maturity, reported at fair value with unrealized gains and losses in other comprehensive income. (The company experienced a loss on the sale of these securities, impacting noninterest income.)
Allowance for Credit Losses
An estimate of expected credit losses on loans and certain other financial instruments. (A significant increase in this allowance indicates potential asset quality concerns for Hills Bancorporation.)
Net Interest Income
The difference between interest income generated by a bank and the interest paid out to its depositors and lenders. (This was the primary driver of the company's net income growth.)
Noninterest Income
Revenue generated from sources other than traditional lending, such as fees, service charges, and trading income. (This category was negatively impacted by a loss on investment securities sales.)
Other Comprehensive Income (OCI)
Unrealized gains and losses on certain investments (like AFS securities) that are not included in net income but are reported separately in equity. (Unrealized gains/losses on AFS securities are reported here, net of tax.)

Year-Over-Year Comparison

Compared to the prior year's nine-month period, Hills Bancorporation has demonstrated strong top-line growth with net interest income increasing by 28.9% to $109.71M, driving a 25.7% rise in net income to $45.99M. However, this performance is tempered by a significant deterioration in asset quality, evidenced by a 318% surge in credit loss expense to $10.98M. Noninterest income saw a decline, primarily due to a loss on investment securities, contrasting with the previous period's performance.

Filing Stats: 4,765 words · 19 min read · ~16 pages · Grade level 20 · Accepted 2025-11-10 17:19:38

Filing Documents

Financial Statements

Item 1. Financial Statements Consolidated balance sheets, September 30, 2025 (unaudited) and December 31, 2024 4 Consolidated statements of income (unaudited) for three and nine months ended September 30, 2025 and 2024 5 Consolidated statements of comprehensive income (unaudited) for three and nine months ended September 30, 2025 and 2024 6 Consolidated statements of stockholders' equity (unaudited) for three and nine months ended September 30, 2025 and 2024 8 Consolidated statements of cash flows (unaudited) for nine months ended September 30, 2025 and 2024 9

Notes to consolidated financial statements (condensed)

Notes to consolidated financial statements (condensed) 11

Management Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 52

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 67

Controls and Procedures

Item 4. Controls and Procedures 68 Part II OTHER INFORMATION

Legal proceedings

Item 1. Legal proceedings 68

Risk factors

Item 1A. Risk factors 68

Unregistered sales of equity securities and use of proceeds

Item 2. Unregistered sales of equity securities and use of proceeds 70

Defaults upon senior securities

Item 3. Defaults upon senior securities 71

Mine safety disclosures

Item 4. Mine safety disclosures 71

Other information

Item 5. Other information 71

Exhibits

Item 6. Exhibits 72

Signatures

Signatures 73 Page 3 Index HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (Amounts In Thousands, Except Share Amounts) September 30, 2025 December 31, 2024 ASSETS (Unaudited) Cash and cash equivalents $ 47,197 $ 123,399 Investment securities available for sale at fair value (amortized cost September 30, 2025 $ 974,824 ; December 31, 2024 $ 979,855 ) 962,763 944,136 Stock of Federal Home Loan Bank 32,698 28,024 Loans held for sale 3,618 3,971 Loans, net of allowance for credit losses September 30, 2025 $ 59,097 ; December 31, 2024 $ 50,940 3,497,209 3,387,521 Property and equipment, net 35,942 35,868 Tax credit real estate investments 9,704 8,854 Accrued interest receivable 25,258 21,403 Deferred income taxes, net 24,998 21,132 Goodwill 2,500 2,500 Other assets 11,581 11,434 Total Assets $ 4,653,468 $ 4,588,242 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Noninterest-bearing deposits $ 578,133 $ 581,043 Interest-bearing deposits 2,800,134 2,765,090 Total deposits $ 3,378,267 $ 3,346,133 Other short-term borrowings, including Bank Term Funding Program and federal funds purchased 588,740 546,636 Federal Home Loan Bank borrowings 76,583 127,050 Accrued interest payable 3,658 9,912 Allowance for credit losses on off-balance sheet credit exposures 3,849 2,900 Other liabilities 17,995 14,667 Total Liabilities $ 4,069,092 $ 4,047,298 Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP) $ 53,147 $ 48,257 STOCKHOLDERS' EQUITY Common stock, no par value; authorized 20,000,000 shares; issued September 30, 2025 10,340,961 shares; December 31, 2024 10,346,920 shares $ — $ — Paid in capital 65,114 64,644 Retained earnings 614,556 578,882 Accumulated other comprehensive loss ( 9,195 ) ( 27,300 ) Treasury stock at cost (September 30, 2025 1,513,262 shares; December 31, 2024 1,377,498 shares) ( 86,099 ) ( 75,282 ) Total Stockholders' Equity $ 584,376 $ 540,944 Less maximum cash obligation related to ESOP shares 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Summary of Significant Accounting Policies Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown. While the chief operating decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Although the loan activity of the Bank is diversified with commercial and agricultural loans, real estate loans, automobile, installment and other consumer loans, the Bank's credit is concentrated in real estate loans. Accordingly, the management of the Company considers that it operates as one business segment, a commercial bank. Operating results for the nine month period ended September 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the "Company") for the year ended December 31, 2024 filed with the Securities Exchange Commission on March 14, 2025. The consolidated balance sheet as of December 31, 2024, has been derived from the audited consolidated financial statements for that period. The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC. Accounting Estimates: The preparation of consolidated financial statements in confor

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Company's performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received. A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of September 30, 2025 and December 31, 2024, the Company did not have any significant contract balances. An entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company has not incurred or capitalized any contract acquisition costs as o

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Available-for-sale debt securities and the allowance for credit losses on available-for-sale debt securities : Available-for-sale ("AFS") securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. There were no trading or held to maturity securities as of September 30, 2025 or 2024. Fair value measurement is based upon quoted market prices in active markets, if available. If quoted prices in active markets are not available, fair value is measured using pricing models or other model-based valuation techniques such as present value of future cash flows, which consider prepayment assumptions and other factors such as credit losses and market liquidity. Unrealized gains and losses are excluded from earnings and reported, net of tax, in other comprehensive income ("OCI"). Premiums on debt securities are amortized to the earliest call date and discounts on debt securities are accreted over the period to maturity of those securities. The method of amortization results in a constant effective yield on those securities (the interest method). Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of ap

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