Hills Bancorporation

What they do

Through Hills Bank and Trust Company, the Company takes demand, savings and time deposits and makes commercial, real estate, agricultural and consumer loans to individuals, businesses, governmental units and institutional customers. It also administers estates, personal trusts and pension plans and provides farm management, investment advisory and custodial services. The Bank originates residential mortgages that are sold on the secondary market without retaining mortgage servicing rights, which generates fee income. All operations are conducted within the state of Iowa, and the Company has made no acquisitions since 2001.

Revenue drivers

• Real estate lending — Real estate loans totaled $3.080 billion, or 86.39% of the loan portfolio at December 31, 2025, and include construction and mortgage loans.
• Residential mortgage lending and secondary-market sales — Residential 1-4 family real estate loans totaled $1.405 billion, or 39.42% of the loan portfolio at December 31, 2025; the Bank also earns substantial fees originating mortgages sold on the secondary market without retaining servicing.
• Commercial and multi-family real estate lending — Commercial real estate loans totaled $565.18 million (15.85% of the portfolio) and multi-family real estate loans totaled $494.28 million (13.87%) at December 31, 2025, generally with one-to-five-year terms and amortization of 25 years or less.
• Trust, farm management and investment services — The Bank administers estates, personal trusts and pension plans and provides farm management, investment advisory and custodial services for individuals, corporations and nonprofit organizations.

Recent performance

Net income was $60.5 million in 2025, up from $47.6 million in 2024, with diluted EPS of $6.81 versus $5.26. Operating cash flow was $68.8 million in 2025 compared with $55.5 million in 2024. At June 30, 2026, total assets were $4.80 billion, total liabilities $4.17 billion, shareholder equity $568.9 million and cash and equivalents $42.1 million. Dividends per share rose to $1.15 in 2025 from $1.10 in 2024.

Strategy

The Company operates a single full-service commercial bank serving Iowa customers, with no acquisitions completed since 2001. It originates residential mortgages for sale on the secondary market without retaining ownership or servicing rights, an ongoing source of fee income. It holds both fixed- and variable-rate commercial real estate loans, generally with terms of one to five years and amortization of 25 years or less. The 10-K notes that products and services offered through alternative electronic delivery channels are part of its focus, and that technology and information security systems must be developed and maintained.

Risks

• Geographic concentration — All operations are conducted within the state of Iowa, so a deterioration in the local economy would directly affect credit quality and asset values.
• Real estate loan concentration — Real estate loans were $3.080 billion, or 86.39% of the loan portfolio at December 31, 2025, with residential 1-4 family loans alone at 39.42%.
• Inflation and interest rates — The 10-K states the CPI rose 2.7% year over year in December 2025 and core inflation 2.6%, and that sustained higher rates may constrain borrower demand, refinancing activity and debt service capacity into 2026.
• Liquidity and deposit outflow — The 10-K states that the 2023 bank failures exemplify the potentially catastrophic results of an unexpected inability of insured depositors to access funds.

Outlook

Management states in the 10-K that ongoing inflationary pressures and evolving interest rate policy could adversely affect credit performance, funding costs and overall financial results. It notes that while Federal Reserve rate cuts in 2025 eased financial conditions, a sustained period of higher interest rates may continue to constrain borrower demand, refinancing activity and debt service capacity into 2026. The Company also cites higher inflation, rising energy prices, geopolitical conflicts, supply chain imbalances and tariffs among factors that could materially affect results.