HBIA 10-K & 10-Q changes, risk factors and insider trading
Hills Bancorporation · OTC · State Commercial Banks · CIK 732417 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “Recent events impacting the financial services industry may negatively affect our financial condition and results of operation.”
Removed heading “Higher interest rates have decreased the value of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.”
Largest changes
“Higher interest rates have decreased the value of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.”see in full comparison
“As a result of inflationary pressures and the resulting rapid increases in interest rates in 2023 and 2022, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios. …”see in full comparison
“Though increases in food, energy and other commodity prices have slowed throughout 2024, core inflation has risen sharply over the prior two year period and has become increasingly persistent. While inflationary pressures related to the cost of goods and services, including labor, generally have minimal direct impact on the Bank's financial condition or results of operation, such pressures do directly impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company. …”see in full comparison
“Recent events impacting the financial services industry, including the failure of Silicon Valley Bank, Signature Bank, and First Republic Bank have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. …”see in full comparison
“These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding or the loss of client deposits could increase our cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. …”see in full comparison
We devote significant resources to implement, maintain, monitor and regularly upgrade our systems and networks with measures such as intrusion detection and prevention and firewalls to safeguard critical business applications. The additional cost to the Company of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting, and legal fees, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on cyber security. In addition, because cyber attacks can change frequently we may be unable to implement effective preventive or proactive measures in time. With the assistance of third-party service providers, we intend to continue to implement security technology and establish procedures to maintain network security, but there is no assurance that these measures will be successful. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Despite these efforts, our cybersecurity measures and those of our third-party service providers may not be effective in preventing, detecting, or mitigating all cybersecurity incidents or breaches.see in full comparison
Full comparison: every changed paragraph (19)
Recent events impacting the financial services industry may negatively affect our financial condition and results of operation.
Recent events impacting the financial services industry, including the failure of Silicon Valley Bank, Signature Bank, and First Republic Bank have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These recent events could adversely impact the market price and volatility of the Company’s common stock.
These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding or the loss of client deposits could increase our cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. Moreover, we may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. In addition, the cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.
Inflationary conditions continue to present risks to the Company, as inflation moderated but remained elevated in key sectors during 2025—with the Consumer Price Index rising 2.7% year‑over‑year in December 2025 and core inflation increasing 2.6%—which may impair borrowers’ ability to meet their obligations. Despite this easing, housing and certain service categories remained above the Federal Reserve’s long‑term target, sustaining pressure on household and business budgets. During 2025, the Federal Reserve cut the federal funds target range from 4.25% to 4.50% to 3.50% to 3.75%. While these reductions eased overall financial conditions, a sustained period of higher interest rates may continue to constrain borrower demand, refinancing activity, and debt‑service capacity into 2026. As a result, ongoing inflationary pressures and evolving interest‑rate policy could adversely affect the Company’s credit performance, funding costs, and overall financial results.
Though increases in food, energy and other commodity prices have slowed throughout 2024, core inflation has risen sharply over the prior two year period and has become increasingly persistent. While inflationary pressures related to the cost of goods and services, including labor, generally have minimal direct impact on the Bank's financial condition or results of operation, such pressures do directly impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company. In addition, while the Federal Reserve’s moves over the 2022 and 2023 fiscal years to raise interest rates in order to quell inflation have slowed the increase in costs and allowed the Federal Reserve to begin reducing interest rates throughout 2024, higher interest rates can have the impact of reducing demand for both the Company’s consumer and commercial products, as well as impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company.
Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The bank failures in 2023 exemplify the potentially catastrophic results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. We continually strive to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition, and results of operations.operations and could, in severe circumstances, adversely affect our ability to operate our business as contemplated.
Higher interest rates have decreased the value of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.
As a result of inflationary pressures and the resulting rapid increases in interest rates in 2023 and 2022, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S. banks’ securities portfolios. While the Company does not currently intend to sell its securities, with the exception of the following, and none of the Company's securities are classified as held-to-maturity, if the Company were required to sell securities to meet liquidity needs, it may incur losses, which could negatively impact its profitability. The Company did complete a balance sheet repositioning related to its investment securities portfolio in December 2024. This consisted of the sale of lower-yielding AFS debt securities, resulting in a pre-tax realized loss on the sale of $5.22 million, which was recorded in December of 2024. All of the proceeds from the sale of these securities were used to purchase AFS debt securities at higher yields to improve income going forward, while maintaining the liquidity provided by the investment portfolio. The sale of securities did not impair the Company's capital position. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.
We may be adversely affected by economic conditions in the local economies in which we conduct our operations, and in the United States in general, including global economic,economic and geopolitical instability, inflationary risks and otherfuture globalwidespread health emergencies or pandemics.
Our income and cash flows depend to a great extent on the difference between the interest rates earned by us on interest-earning assets such as loans and investment securities and the interest rates paid by us on interest-bearing liabilities such as deposits and borrowings. Our net interest margin will be affected by general economic conditions, fiscal and monetary policies of the federal government, and our ability to respond to changes in such rates. Our assets and liabilities are affected differently by a change in interest rates. An increase or decrease in rates, the length of loan terms or the mix of adjustable and fixed rate loans in our portfolio could have a positive or negative effect on our net income, capital and liquidity. We measure interest rate risk under various rate scenarios and using specific criteria and assumptions. A summary of this process is presented under the heading "Quantitative and Qualitative Disclosures about Market Risk" included under Item 7A of Part II of this Form 10-K. The Federal Open Market Committee (FOMC), with particular attention being given to labor market conditions, recognized continued inflation pressures and inflation expectations, and financial and international developments. Prevailing interest rates influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings. If the target range for the federal funds rate remains elevated for an extended period, combined with ongoing geopolitical instability, raise the risk of economic recession. Any such downturn, especially in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations. Also, our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest rate changes on our financial condition and results of operations.
The U.S. government has implemented tariffs on certain products from countries or entities such as Mexico, Canada, China and the European Union. These countries have issued or continue to threaten retaliatory tariffs against products from the United States, including agricultural products. In addition, the ongoing trade policies and potential tariff initiatives being pursued by the U.S. government under the administration of President Trump could present potential risks unique to the markets within which we operate. As a major producer and exporter of agricultural commodities, including corn, soybeans, and pork, Iowa is particularly vulnerable to negative consequences from such policy initiatives. Any changes to trade agreements, the imposition of tariffs on agricultural products, or the escalation of trade disputes with key international trading partners could lead to reduced demand for Iowa’s agricultural exports, increased input costs for local farmers, and disrupted supply chains. This, in turn, could result in financial strain for our agricultural clients, increasing the risk of loan defaults or delinquencies within our loan portfolio. Additionally, any prolonged trade tensions or the implementation of tariffs could negatively impact the broader economic environment in Iowa and the Midwest, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services.
We maintained a balance of $944.14$955.58 million, or 20.58%20.56% of our total assets, in investment securities at December 31, 2024.2025. Changes in market interest rates may affect the value of these investment securities, with increasing interest rates generally resulting in a reduction of value. Although the reduction in value from temporary increases in market rates does not affect our income until the security is sold, it does result in an unrealized loss recorded in other comprehensive income that may reduce our stockholders' equity. Available-for-sale (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. In assessing whether the impairment of investment securities is due to credit losses, we consider if a credit loss exists by monitoring to ensure it has adequate credit support considering the nature of the investment, collectability or delinquency issues, the underlying financial statements of the issuers, credit ratings and subsequent changes thereto, other available relevant information, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then we may not be able to realize the amount of security that we anticipated at the time of originating the loan, which could cause us to increase our provision for loancredit losses and adversely affect our operating results and financial condition.
Our commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Repayment of our commercial loans is often dependent on the cash flows of the borrower, which may be unpredictable. Most often, this collateral isconsists of accounts receivable, inventory, machinery and equipment. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The other types of collateral securing these loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These sources include brokered money markets and certificates of deposit, federal funds purchased, lines of credit, the Bank Term Funding Program through the Federal Reserve, and Federal Home Loan Bank advances. Negative operating results or changes in industry conditions could lead to an inability to replace these additional funding sources at maturity. Our financial flexibility could be constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our results of operations and financial condition would be adversely affected.
Our financial condition has not been materially impacted by the deteriorationDeterioration in the credit quality of third parties exceptcould asadversely relatedaffect toour borrowerfinancial creditcondition quality.and results of operations, including through losses, reduced liquidity, or adverse valuation changes. Management believes that the allowance for credit losses is adequate to absorb probable losses on any existing loans that may become uncollectible but cannot predict loan losses with certainty and cannot assure that our allowance for credit losses will prove sufficient to cover actual losses in the future.
Our business depends on the creditworthiness of our customers. As with most financial institutions, we maintain allowances for credit losses for loans and debt securities to provide for defaults and nonperformance, which represent an estimate of expected losses over the remaining contractual lives of the loan and debt security portfolios. This estimate is the result of our continuing evaluation of specific credit risks and loss experience, current loan and debt security portfolio quality, present economic, political and regulatory conditions, industry concentrations, reasonable and supportable forecasts for future conditions and other factors that may indicate losses. The determination of the appropriate levels of the allowances for loan and debt security credit losses inherently involves a high degree of subjectivity and judgment and requires us to make estimates of current credit risks and future trends, all of which may undergo material changes. Generally, our nonperforming loans and OREOother real estate owned reflect operating difficulties of individual borrowers and weaknesses in the economies of the markets we serve. The allowances may not be adequate to cover actual losses, and future allowance for credit losses could materially and adversely affect our financial condition, results of operations and cash flows.
Our industry is susceptible to significant technological changes as there continue to be a high levellevels of new technology driven products and services introduced. Technological advancement aids us in providing customer service and increases efficiency. Our national competitors may have more resources to invest in technological changes. As a result they may be able to offer products and services that are more technologically advanced and that may put us at a competitive disadvantage. Our future may depend on our ability to analyze technological changes to determine the best course of action for our business, customers and shareholders.
We devote significant resources to implement, maintain, monitor and regularly upgrade our systems and networks with measures such as intrusion detection and prevention and firewalls to safeguard critical business applications. The additional cost to the Company of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting, and legal fees, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on cyber security. In addition, because cyber attacks can change frequently we may be unable to implement effective preventive or proactive measures in time. With the assistance of third-party service providers, we intend to continue to implement security technology and establish procedures to maintain network security, but there is no assurance that these measures will be successful. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Despite these efforts, our cybersecurity measures and those of our third-party service providers may not be effective in preventing, detecting, or mitigating all cybersecurity incidents or breaches.
Management's Discussion & Analysis (MD&A)
Largest changes
“Through the end of 2024, incoming economic data per the Beige Book for the Company's region continue to show slight growth in the labor market and consumer spending while construction and real estate activity was flat. Also, prices were up modestly and wages rose moderately. Farm incomes in 2024 were below those of 2023. GDP growth for the fourth quarter of 2.3% was slower than expected with underlying demand from consumers increasing slightly and businesses spending decreasing slighlty, with the national unemployment rate continuing to remain low. …”see in full comparison
•The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. This includes current concerns related to higher inflation, rising energy prices,see in full comparisonthegeopoliticalRussia-Ukraine war, Israeli-Palestinian conflict,conflicts, and supply chainimbalances.imbalances, including tariffs.
The Company completed a balance sheet repositioning related to its investment securities portfoliosee in full comparisoninatDecemberthe2024.end of 2025. This consisted ofthemultiplesalesales of lower-yielding AFS debt securitieswithinan amortized cost of $135.05 million,2025, resulting in a pre-tax realized loss on thesalesales of$5.22$9.63million, which was recordedmillion inDecembertotal.of 2024. All of the proceeds from theThe sale of these securitieswerewasuseddone for the sole purpose of an investment portfolio repositioning. The securities sales executed as part of the Company’s balance sheet repositioning strategy in 2025 resulted in realized losses recognized in earnings, while also contributing topurchase AFS debt securities at higher yields to improve income going forward, while maintainingtheliquidityimprovementprovidedinbyaccumulated other comprehensive loss and positioning the investmentportfolio.portfolio for enhanced yield and reduced interest rate sensitivity in future periods. Management does not currently anticipate additional material balance-sheet repositioning losses of a similar magnitude.
see in full comparisonSuch factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. Management utilizes a qualitative factor framework to provide a qualitative estimate of the expected credit losses inherent in the loan portfolio in relation to potential limitations of the quantitative model.The framework provides for a level of risk approach to measure risk in each loan segment that may not be captured in the quantitative methodology, including improved risk environment, no additional risk, minimal additional risk, moderate risk and major or significant additional risk. The framework also includes a weighting component for management to consider which qualitative factors would have the highest impact on potential loan losses within each loan segment. Management uses the qualitative factor framework within the allowance for credit losses calculation to assess the risk level environment for each qualitative factor and weightings for each loan segment which is supported by various information including publicly available information, internal information specifically developed by management, or other relevant and reliable information.
The component of the allowance for credit losses for loans that share common risk characteristics also considers factors for each loan class to adjust for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in thesee in full comparisonportfolioportfolio.relatedSuch factors are used to:adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast.
The second factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income ofsee in full comparison$115.82$150.18 million for20242025 was derived from the Company’s$4.281$4.461 billion of average earning assets and its tax-equivalent net interest margin of2.78%.3.45%. Average earning assets in20232024 were$4.056$4.281 billion and the tax-equivalent net interest margin was2.86%.2.78%. Net interest income for the Company increased primarily as a result of interest income on higher loan and investment balances andratesrates.offsetInterestbyexpenseincreaseddecreased from decreased interestexpense from increased interest rates, includingrates on borrowings, certificates of deposit, and interest-bearingdeposits as well as higher balances of certificates of deposit and borrowings. The Company expects net interest compression to impact earnings for the foreseeable future due to competition for loans anddeposits. The Company believes growth in net interest income will be contingent on the growth of the Company’s earning assets, increasing yield on loans and the ongoing interest rate stance of the Federal Reserve Board.
Full comparison: every changed paragraph (74)
•The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. This includes current concerns related to higher inflation, rising energy prices, thegeopolitical Russia-Ukraine war, Israeli-Palestinian conflict,conflicts, and supply chain imbalances.imbalances, including tariffs.
•The financial strength of the counterparties with which the Company or the Company’s customers do business and as to which the Company has investment or financial exposure.
•The credit quality and credit agency ratings of the securities in the Company’s investment securities portfolio, a deterioration or downgrade of which could lead to change in the market value, the recognition of an allowance for credit losses on the affected securities and the recognition of a credit loss.
•The effects of, and changes in, laws, regulations and policies affecting banking, securities, insurancesecurities and monetary and financial matters as well as any laws otherwise affecting the Company, including, but not limited to, changes in U.S. tax laws and regulations.
Through the end of 2025, incoming economic data per the Beige Book for the Company's region was little changed over the reporting period with an expected slight decline in activity over the next year. Consumer spending, construction and real estate demand rose slightly; employment was flat; business spending fell slightly; and manufacturing activity declined modestly. Prices rose moderately, wages were up modestly, and financial conditions loosened modestly. Net farm income in 2025 was similar to 2024.
Through the end of 2024, incoming economic data per the Beige Book for the Company's region continue to show slight growth in the labor market and consumer spending while construction and real estate activity was flat. Also, prices were up modestly and wages rose moderately. Farm incomes in 2024 were below those of 2023. GDP growth for the fourth quarter of 2.3% was slower than expected with underlying demand from consumers increasing slightly and businesses spending decreasing slighlty, with the national unemployment rate continuing to remain low. Inflation, however, has been slower to come down than expected after the rapid decline observed in 2023, and the cumulative effect of elevated prices compared with the pre-pandemic era may be weighing on consumer sentiment. While many economists continue to expect U.S. economic conditions consistent with a soft-landing as the economy decelerated over the remainder of 2024, persistent inflation may yet force additional Fed rate hikes, further raising the odds of a mild recession.
Our credit administration continues to closely monitor and analyze the higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. Based on the Company’s capital levels, prudent underwriting policies, loan concentration diversification and our geographic footprint, senior management is cautiously optimistic that the Company is positioned to continue managing the impact of the varied set of risks and uncertainties currently impacting the economy and remain adequately capitalized. However, the Company may be required to make additional credit loss provisions as warranted by the extremely fluid economic conditions and continued migration in the loan portfolio towards the special mention risk rating category.
The Company’s net income for 2024 was $47.60 million compared to $38.18 million in 2023 and $47.75 million in 2022. Diluted earnings per share were $5.26, $4.16, and $5.15 for the years ended December 31, 2024, 2023 and 2022, respectively.
The Bank’s net interest income is the largest component of the Bank’s revenue, and is a function of the average earning assets and the net interest margin percentage. Net interest margin is the ratio of net interest income to average earning assets. For the years ended December 31, 2024 and 2023, the Bank achieved a net interest margin of 2.78% and 2.86%, respectively. For the year ended December 31, 2024, net interest income on a tax equivalent basis increased by $3.08 million. In 2024, interest income increased $10.72 million due to growth of $225.10 million in the Bank's average earning assets and increased $22.94 million due to higher interest rates. This was offset by increased interest expense of $15.16 million due to higher interest rates and $15.42 million due to increased volume of certificates of deposit and borrowings.
Highlights with respect to items on the Company’s balance sheet asstatement of income for the period ended December 31, 20242025 included the following:
•The Company’s net income for 2025 was $60.50 million compared to $47.60 million in 2024 and $38.18 million in 2023.
•Diluted earnings per share were $6.81, $5.26, and $4.16 for the years ended December 31, 2025, 2024 and 2023, respectively.
•For the years ended December 31, 2025 and 2024, the Company achieved a net interest margin of 3.45% and 2.78%, respectively.
•For the year ended December 31, 2025, net interest income on a tax equivalent basis increased by $34.53 million.
•In 2025, interest income on a tax equivalent basis increased $30.50 million due to growth of $180.08 million in the Company's average earning assets and increased $19.49 million due to higher interest rates.
•Interest expense decreased $4.02 million primarily due to decrease in interest rates.
Highlights with respect to items on the Company’s balance sheet as of December 31, 2025 included the following:
•Total assets were $4.588$4.648 billion, an increase of $246.58$59.63 million since December 31, 2023,2024, primarily due to increased investment securities as described furtheritems below.
•Cash and cash equivalents were $123.40$42.11 million, ana increasedecrease of $63.92$81.29 million since December 31, 2023.2024.
•Loans, net of allowance for credit losses and unamortized fees and costs, totaling $3.388 billion, a decrease of $1.85 million since December 31, 2023. The decrease is primarily attributable to declines of approximately $35.09 million in construction loans, $47.21 million in 1 to 4 family first mortgages, $2.97 million in junior mortgages, $8.27 million in commercial and financial loans and $5.40 million in farmland mortgages. These decreases were offset by increases of $21.75 million in multi-family mortgages and $81.41 million in commercial mortgages. Increases in multi-family and commercial real estate were primarily due to the completion of large construction projects that were put on permanent financing during 2024. Loans held for sale increased $1.95 million since December 31, 2023.
•DeferredInvestment incomesecurities taxavailable assetsfor sale were $21.13$955.58 million, aan decreaseincrease of $0.14$11.45 million since December 31, 2023.2024.
•Loans, net of allowance for credit losses and unamortized fees and costs, totaling $3.507 billion, an increase of $119.30 million since December 31, 2024. The increase is primarily attributable to increases of $87.79 million in 1 to 4 family first mortgages, $1.77 million in junior mortgages, $1.52 million in multi-family mortgages, $1.02 million in farmland mortgages and $67.10 million in commercial mortgages offset by decreases of $20.94 million in construction loans, and $3.30 million in commercial and financial loans. Loans held for sale increased $4.08 million since December 31, 2024.
•Deferred income tax assets were $18.47 million, a decrease of $2.67 million since December 31, 2024.
•Deposits increased $63.35$21.70 million in 20242025 to $3.346$3.368 billion primarily due to increasesan increase in timenoninterest-bearing deposits of approximately $49.58$15.19 million and increases in savings accounts of $27.35$114.26 million offset by a decrease of $19.36$10.36 million in noninterest-bearingNOW and other demand and $97.38 million in time deposits.
•Short-term borrowings increased $327.64$40.25 million as of December 31, 2024,2025, consistingprimarily due to the increase in FHLB daily reset advances of $149.25 million offset by $109.00 million ofdue to borrowings fromwith the Bank Term Funding Program andbeing $437.64paid million of federal funds purchased, compared to the Bank Term Funding Program borrowings of $219 million as of December 31, 2023.off. FHLB borrowings decreased $169.60$62.72 million as of December 31, 2024.million.
On January 1, 2021, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the allowance for credit losses use the current expected credit loss (CECL) methodology. The following is a discussion of the methodologies used by the Company with the adoption of ASC 326.
The component of the allowance for credit losses for loans that share common risk characteristics also considers factors for each loan class to adjust for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolioportfolio. relatedSuch factors are used to: adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast.
Management utilizes a qualitative factor framework to provide a qualitative estimate of the expected credit losses inherent in the loan portfolio in relation to potential limitations of the quantitative model. The framework considers the following factors:
Such factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management expectation of future conditions based on a reasonable and supportable forecast. Management utilizes a qualitative factor framework to provide a qualitative estimate of the expected credit losses inherent in the loan portfolio in relation to potential limitations of the quantitative model. The framework provides for a level of risk approach to measure risk in each loan segment that may not be captured in the quantitative methodology, including improved risk environment, no additional risk, minimal additional risk, moderate risk and major or significant additional risk. The framework also includes a weighting component for management to consider which qualitative factors would have the highest impact on potential loan losses within each loan segment. Management uses the qualitative factor framework within the allowance for credit losses calculation to assess the risk level environment for each qualitative factor and weightings for each loan segment which is supported by various information including publicly available information, internal information specifically developed by management, or other relevant and reliable information.
The following table presents select lines from the consolidated balance sheets in Item 5, with the addition of the periods ended December 31, 2023, 2022, and 2021.
(1)Investment securities includes stock of FHLB.
Total assets at December 31, 20242025 increased $246.58$59.63 million, or 5.68%,1.30%, from the prior year-end. TheThis largestwas growthprimarily indue assetsto innet 2024 occurred in investment securitiesloans which increased $176.99$119.30 million for the year ended December 31, 20242025 compared to the prior year. Loans held for sale to the secondary market increased $1.95$4.08 million for the year ended December 31, 2024.2025. Loans held for investment represent the largest component of the Bank’s earning assets. Loans held for investment were $3.438$3.565 billion and $3.439$3.438 billion at December 31, 20242025 and 2023,2024, respectively.
Loans held for investment wasincreased downin slightly for 20242025 compared to 2023,2024. withThis significantwas changesprimarily asdue follows:to declinesincreases of approximately $35.09 million in construction loans, $47.21$87.79 million in 1 to 4 family first mortgages, $2.97$1.77 million in junior mortgages, $8.27$1.52 million in multi-family mortgages, $1.02 million in farmland mortgages and $67.10 million in commercial mortgages offset by declines of $20.94 million in construction loans, $3.30 million in commercial and financial loansloans. and $5.40 million in farmland mortgages. These decreases were offset by increases of $21.75 million in multi-family mortgages and $81.41 millionIncreases in commercial mortgages. Increases in multi-familymortgages and commercial real estate were primarily due to the completion of large construction projects that were put on permanent financing during 2024.2025. Given the current economic environment and the potential for lower interest rates, the decreaseincrease in net loans in 20242025 may not continue into 2025, and as a result, may not be indicative of future performance.2026.
On a net basis, the Company originated $3.66$130.48 million in loans to customers for the year ended December 31, 20242025 compared to loans originated of $337.69$3.66 million for the year ended December 31, 2023, a significant slowdown in the local economy.2024. The Company has not historically engaged in significant participation activity and does not purchase participations from outside its established trade area. The Company’s policy allows for the purchase or sale of participations related to existing customers or to participate in community development activity. The Company held participations purchased of $16.52,$15.58 $17.04million, $16.52 million and $16.20$17.04 million as of December 31, 2024,2025, 20232024 and 2022,2023, respectively. The participations purchased were less than one percent of loans held for investment for each of the three years.
The Company did experience minimal change in its loans held for investment in 2024 compared to 2023 though the loan composition in 20242025 changedremained relatively the same compared to 20232024 as follows. Residential real estate loans, including first and junior liens, were $1,316.63$1.405 millionbillion and $1,365.82$1.316 millionbillion as of December 31, 20242025 and 2023,2024, respectively. The dollar total of residentialResidential real estate loans increased 6.81% in 2025 and decreased 3.60% in 2024 and increased 8.75% in 2023.2024. Residential real estate loans were 38.27%39.42% of the loan portfolio at December 31, 20242025 and 39.72%38.27% at December 31, 2023.2024. Agricultural loans, including production and mortgages, were $394.45$395.71 million and $396.95$394.45 million as of December 31, 20242025 and 2023,2024, respectively, aan decreaseincrease of 0.63%0.32% in 20242025 compared to 2023.2024. Agricultural loans represented 11.47%11.10% and 11.54%11.47% of the Company's loan portfolio as of December 31, 20242025 and 2023,2024, respectively. Construction loans were $359.04$338.10 million and $394.13$359.04 million as of December 31, 20242025 and 2023,2024, respectively, ana decrease of 8.90%5.83% in 20242025 compared to 2023.2024. Construction loans represented 10.44%9.48% and 11.46%10.44% of the Company's loan portfolio as of December 31, 20242025 and 2023,2024, respectively. Commercial and financial loans were $298.92$295.62 million and $307.19$298.92 million as of December 31, 20242025 and 2023,2024, respectively, a decrease of 2.69%1.10% in 20242025 compared to 2023.2024. Commercial and financial loans represented 8.69%8.29% and 8.93%8.69% of the Company's loan portfolio as of December 31, 20242025 and 2023,2024, respectively. Multi-family real estate loans were $492.76$494.28 million and $471.01$492.76 million as of December 31, 20242025 and 2023,2024, respectively, an increase of 4.62%0.31% in 20242025 compared to 2023.2024. Multi-family real estate loans represented 14.33%13.87% and 13.70%14.33% of the Company's loan portfolio as of December 31, 20242025 and 2023,2024, respectively. Commercial real estate loans totaled $498.08$565.18 million at December 31, 2024,2025, a 19.54%13.47% increase over the December 31, 20232024 total of $416.67$498.08 million. Commercial real estate loans represented 14.49%15.85% and 12.12%14.49% of the Company’s loan portfolio as of December 31, 20242025 and 2023,2024, respectively. The Company monitors its commercial real estate level so that it does not have a concentration in that category that exceeds 300% of its capital. Commercial real estate loan concentration was 180.49%171.72% of risk based capital as of December 31, 2024.2025.
The following table shows the principalremaining paymentsmaturity due onof loans as of December 31, 2024:2025. Maturities are based upon contractual dates.
(3)Certain adjustable‑rate mortgage loans (“ARMs”) are included in the variable‑rate category in later maturity periods because these loans contractually reprice from fixed to variable interest rates following their initial fixed‑rate periods (generally 3, 5, 7, or 10 years). Prior to repricing, these loans bear fixed interest rates. The table reflects interest rate characteristics based on contractual terms over the remaining maturities rather than interest rates in effect as of the balance‑sheet date.
The overall economy in the Company’s trade area, Johnson, LinnLinn, Washington, and WashingtonIowa Counties, remains in stable condition with levels of unemployment below national and state levels. The following table shows unemployment and estimated median income information as of December 31, 2024,2025, 20232024 and 2022.2023.
Total deposits increased by $21.70 million in 2025 compared to an increase of $63.35 million in 2024. Deposits decreased by $74.59 million in 2023. As of June 30, 20242025 (latest data available from the FDIC), Johnson County total deposits for all financial institutions were $13.546$13.408 billion and the Company’s deposits were $2.196$2.271 billion, which represent a 16.94% market share. At June 30, 2024, the Company’s deposits were $2.196 billion or a 16.21% market share. The Company had eightnine office locations in Johnson County as of June 30, 2024.2025. The total number of banking locations in Johnson County were 47 as of June 30, 2024. At June 30, 2023, the Company’s deposits were $2.213 billion or a 15.96% market share. As of June 30, 2024,2025. Linn County total deposits for all financial institutions were $8.605$8.790 billion as of June 30, 2025 and there were 9997 total banking locations in the county. The seven Linn County offices of the Company had deposits of $704$714.92 million or a 8.18%8.13% share of the market. The Company’s Linn County deposits at June 30, 20232024 were $747$703.72 million and represented a 8.8%8.18% market share. As of June 30, 2024,2025, the Company’s three Washington County offices had deposits of $335$336.77 million which was 34.25%34.04% of the County’scounty’s total deposits of $978$989.42 million. Washington County had a total of 13 banking locations as of June 30, 2024.2025. In 2023,2024, the Company’s Washington County deposits were $324$335.02 million or a 33.9%34.25% market share. The company's one location in Iowa County had deposits of $14.03 million which was 3.22% of the county's total deposits of $435.74 million. Iowa County had a total of 10 banking locations as of June 30, 2025. This branch was opened in November 2024.
Time certificates issued in amounts of $250,000 or more with maturity in:
Investment securities increased $15.49 million in 2025 compared to an increase of $176.99 million in 2024. In 2023, investment securities increased by $12.60 million. The investment portfolio consists of $944.14$955.58 million of securities that are stated at fair value, with any unrealized gain or loss, net of income taxes, reported as a separate component of stockholders’ equity. The securities portfolio is used for liquidity and pledging purposes and to provide a rate of return that is acceptable to management. The Company completed a balance sheet repositioning related to its investment securities portfolio inat Decemberthe 2024.end of 2025. This consisted of themultiple salesales of lower-yielding AFS debt securities within an amortized cost of $135.05 million,2025, resulting in a pre-tax realized loss on the salesales of $5.22$9.63 million, which was recordedmillion in Decembertotal. of 2024. All of the proceeds from theThe sale of these securities werewas useddone to purchase AFS debt securities at higher yields to improve income going forward, while maintainingfor the liquiditysole providedpurpose byof thean investment portfolio.portfolio repositioning.
During 2025 and 2024, the major funding source for loans and other assetsassets, wasaside from deposits within the Company's trade area, were from short-term borrowings, primarily federal funds purchased, in addition to FHLB borrowings.daily Inreset 2023, the major funding source of the growth in loans and other assets was from short-term borrowingsadvances, in addition to FHLB borrowings. Brokered deposits totaled $34.75$35.17 million and $24.22$34.75 million as of December 31, 20242025 and 2023,2024, respectively. Total advances from the FHLB were $127.05$64.33 million at December 31, 20242025 and $296,648$127.05 million in 2023.2024. Total federalFHLB fundsdaily purchasedreset advances were $586.88 million as of December 31, 2025 and $437.64 million as of December 31, 20242024. andThere nonewas as$109.00 ofmillion December 31, 2023. Totalin funds purchasedborrowed from the Bank Term Funding program was $109.00 millionProgram as of December 31, 2024 and $219.00was millionpaid asoff Decemberduring 31,2025. 2023. The federalFederal funds purchased and FHLB funding sources are considered when loan growth exceeds core deposit increases and the interest rates on funds borrowed from the FHLB or other sources are favorable compared to other funding alternatives.
Net income for 20242025 increased by $9.43$12.90 million or 24.70%27.09% and diluted earnings per share increased by 26.44%.29.47%. In 2024,2025, net interest income, before credit loss expense, increased by $1.94$34.36 million due to the following reasons: 1) increase in interest income of $32.52$30.33 million primarily due to higher loan and investment balances and higher interest rates; and 2) increase in interest expense of $30.58 million primarily due to increased interest rates on deposits and higher borrowings balances throughout 2024 compared to 2023.rates. Noninterest income, excluding loss on sale of investment securities, increased by $3.43$1.94 million primarily due to increased trust fees and netother gainnoninterest on sale of loans.income. The credit loss expense decreasedincreased by $13.41$10.12 million and total noninterest expenses increased by $1.84$6.28 million primarily due to an increase in otheroutside noninterestservices, expenses.loss on disposal of property and equipment, and salaries and employee benefits.
Annual fluctuations in the Company's net income are driven primarily by four factors. The first factor is credit loss expense. The majority of the Company's interest earning assets are in loans outstanding, which were $3.565 billion at December 31, 2025. Credit loss expense was $12.33 million in 2025 compared to $2.21 million in 2024. Because the majority of the Company’s interest‑earning assets are comprised of loans, the level of credit loss expense can vary from year to year based on changes in the loan portfolio and the credit environment. In 2025, credit loss expense increased compared to the prior year largely due to updated economic expectations, growth in outstanding loan balances, and movements in model‑driven assumptions. These included shifts in economic outlook, changes in borrower payment behaviors, and adjustments to qualitative considerations reflecting portfolio trends and overall credit conditions. In addition, net charge‑off activity contributed to higher estimated loss rates for the year. The Company expects that future credit loss expense will continue to be influenced by loan growth, changes in economic conditions within its markets, and trends in asset quality.
Annual fluctuations in the Company's net income are driven primarily by four factors. The first factor is credit loss expense. The majority of the Company's interest earning assets are in loans outstanding, which amounted to more than $3.438 billion at December 31, 2024. Credit loss expense was $2.21 million in 2024 compared to $15.62 million in 2023. The decrease in expense when compared to 2023 is primarily attributable to not having significant specific relationships with decreasing credit quality resulting in chargeoffs in 2024 when compared to 2023. Another factor leading to lower credit loss expense was decreased outstanding commitments which resulted in a lower allowance for credit losses on off-balance sheet credit exposures. The Company believes that credit loss expense is expected to be dependent on the Company's loan growth, local economic conditions, and asset quality.
The second factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $115.82$150.18 million for 20242025 was derived from the Company’s $4.281$4.461 billion of average earning assets and its tax-equivalent net interest margin of 2.78%.3.45%. Average earning assets in 20232024 were $4.056$4.281 billion and the tax-equivalent net interest margin was 2.86%.2.78%. Net interest income for the Company increased primarily as a result of interest income on higher loan and investment balances and ratesrates. offsetInterest byexpense increaseddecreased from decreased interest expense from increased interest rates, includingrates on borrowings, certificates of deposit, and interest-bearing deposits as well as higher balances of certificates of deposit and borrowings. The Company expects net interest compression to impact earnings for the foreseeable future due to competition for loans and deposits. The Company believes growth in net interest income will be contingent on the growth of the Company’s earning assets, increasing yield on loans and the ongoing interest rate stance of the Federal Reserve Board.
The third factor affecting the Company’s net income is noninterest income, primarily the increase in trust fees. Trust fees were $15.26$17.14 million and $13.58$15.26 million for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of 12.40%.12.32%. This is primarily driven by the increase in assets under management of $0.267$400.74 billionmillion from $2.645 billion as of December 31, 2023 to $2.912 billion as of December 31, 2024,2024 to $3.313 billion as of December 31, 2025, an increase of 10.09%.13.77%. See the Noninterest Income section later in Item 7.
Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. The factors that have the greatest impact on net interest income are the volume of average earning assets and interest-bearing liabilities and the net interest margin. The volume of average earning assets has continued to grow each year, primarily due to higher loan and investment balances in 2024.2025. The volume of interest-bearing liabilities increased in 20242025 primarily due to increasedan volumeincrease in certificatesdeposits. of deposit and borrowings. Increased interest rates led to increases in interest income as well as interestInterest expense on interest-bearing deposits, certificates of deposit and borrowings.borrowings decreased from 2024. The net interest margin was 3.45% in 2025, 2.78% in 2024,2024 and 2.86% in 20232023. Management believes the increase in net interest income and 3.00%margin in 2022.2025 reflects a combination of balance-sheet repositioning, changes in funding mix, and interest-rate dynamics that may not recur to the same extent in future periods, and future net interest income will depend primarily on loan and deposit growth and pricing, and the direction of market interest rates. The measure is shown on a tax-equivalent basis using a rate of 21% for 2024,2025, 20232024 and 20222023 to make the interest earned on taxable and nontaxable assets more comparable. Interest income and expense for 2024,2025, 20232024 and 20222023 are indicated on the following table:
(2)Net interest spread is the difference between the yield on average interest-earning assets and the yield on average interest-paying liabilities stated on a tax equivalent basis using a federal rate of 21% for 2024,2025, 20232024 and 2022.2023. The net interest spread increased 71 basis points in 2025 compared to 2024 and the net interest spread decreased 23 basis points in 2024 compared to 2023 and the net interest spread decreased 47 basis points compared to 2022.2023.
(3)Net interest margin is net interest income, on a tax equivalent basis, divided by average interest-earning assets. The net interest margin decreasedincreased 867 basis points in 2024.2025. The net interest margin decreased 148 basis points in 20232024 compared to 2022.2023.
The Federal Open Market Committee met eight times during 2024.2025. The federal funds target rate decreased to 3.75% as of December 31, 2025 from 4.50% as of December 31, 2024 from 5.50% as of December 31, 2023.2024. Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally correlate to the Federal Reserve Board federal funds rate. In the pricing of loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates. As of December 31, 2024,2025, the average rate indexes for the one, three and five year indexes were 4.16%,3.48%, 4.27%3.55% and 4.38%,3.73%, respectively. The one year index decreased 13.15%16.35% fromcompared to December 31, 2023,2024, the one, three year index increased 6.48% and the five year indexindexes increasedwere 14.06%.4.16%, 4.27% and 4.38%, respectively.
Current Expected Credit Losses and Allowance for Credit Losses (ACL) Credit loss expense was $2.21$12.33 million for the year ended December 31, 20242025 compared to expense of $15.62$2.21 million in 2023,2024, aan decreaseincrease of expense of $13.41$10.12 million. The credit loss expense includes aan reductionincrease of expense of $2.21$1.60 million related to the ACL on off-balance sheet credit exposures for the year ended December 31, 20242025 compared to $0.68$2.21 million expensebenefit for 2023.2024. Credit loss expense is the amount necessary to adjust the allowance for credit losses to the level considered by management to appropriately account for the estimated current expected credit losses within the Bank's loan portfolio. Also, under CECL, a significant component in estimating expected credit losses are economic forecasts such as Iowa unemployment and National real gross domestic product (GDP). The Company believes that credit loss expense is expected to be dependent on the Company’s loan growth, local economic conditions and asset quality. The percentage of the allowance to outstanding loans was 1.48%1.63% and 1.44%1.48% at December 31, 20242025 and 2023,2024, respectively. The credit loss expense was $12.33 million in 2025, and $2.21 million in 2024,2024 and $15.62 million in 20232023. andLoan $6.34charge-offs net of recoveries were $3.46 million in 2022.2025, Loanloan charge-offs net of recoveries were $2.89 million in 2024, loan charge-offs net of recoveries were $6.97 million in 20232024 and loan recoveries net of charge-offs were $0.21$6.97 million in 2022.2023. Management has determined that the allowance for credit losses was appropriate at December 31, 2024,2025, and that the loan portfolio is diversified and secured, without undue concentration in any specific risk area. This process involves a high degree of management judgment;judgment. however,However, the allowance for credit losses is based on a comprehensive and well-documented applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total nonperforming loans and overall levels of net charge-offs. However, there is no assurance losses will not exceed the allowance, and any growth in the loan portfolio or uncertainty in the general economy will require that management continue to evaluate the adequacy of the ACL and make additional provisions in future periods as deemed necessary.
In certain circumstances, the Bank may modify thevarious terms of a loan to maximize the collection of amounts due. InRefer mostto cases,Note the3 modification is eitherfor a reductionsummary of modifications made to loans in interest2025 rate,and conversion to interest only payments, deferral of payments or extension of the maturity date.2024. Generally, the borrower is experiencing financial difficulties, so concessionary modification is granted to the borrower that otherwise would not be considered.
The extent to which collateral secures collateral-dependent loans is provided in the previous individually analyzed loans table and changes in the extent to which collateral secures its collateral-dependent loans are described below. Collateral-dependent loans decreased $6.85$2.06 million from December 31, 20232024 to December 31, 2024.2025. Collateral-dependent loans include any loan that has been placed on nonaccrual status, accruing loans past due 90 days or more and loans made to borrowers with financial difficulties. Collateral-dependent loans also include loans that, based on management’s evaluation of current information and events, the Company expects to be unable to collect in full according to the contractual terms of the original loan agreement. Collateral-dependent loans were 0.97%0.88% of loans held for investment as of December 31, 20242025 and 1.17%0.97% as of December 31, 2023.2024. The decrease in collateral-dependent loans is primarily due to a decrease in nonaccrual loans of $6.96$6.31 million. There were no significant changes noted in the extent to which collateral secures collateral-dependent loans. A description of the Bank's credit quality indicators are discussed in Note 3 to the Company's Consolidated Financial Statements.
(2)Total TDR loans were $7.66,$7.66 $10.20,million and $13.22$10.20 million as of December 31, 2022, 2021,2022 and 2020,2021, respectively. Included in the total nonaccrual loans were $1.75,$1.75 $2.28,million and $2.97$2.28 million of TDR loans as of December 31, 2022,2022 and 2021, and 2020, respectively.
The ratio of allowance for credit losses to non-performing loans increased to 197.54% as of December 31, 2025 compared to 152.08% as of December 31, 2024 compared to 122.47% as of December 31, 2023.2024. The increase in 20242025 is primarily due to the slight increase in the allowance for credit losses and the decrease in nonaccrual loans compared to 2023.2024. The ratio of non-performing loans to total gross loans was 0.97%0.83% and 1.17%0.97% at December 31, 20242025 and 2023,2024, respectively. The decrease in the 20242025 ratio is primarily due to the decrease in nonaccrual loans.
The residential rental vacancy rates in 2023 and 2024 in Johnson and Linn County were estimated between 6.0% and 8.0%. The State of Iowa vacancy rate is 8.4%7.30% and the national rate is 6.9%7.20% with the Midwest rate at 7.2%.7.20%. These vacancy rates one year ago were 7.9%,8.40%, 6.6%6.90% and 6.8%,7.20%, respectively, so are slightly elevatedlowered compared to the prior year. The Company continues to consider those vacancy rates among other factors in its current evaluation of the real estate portion of its loan portfolio. Vacancy rates may continue to rise in 20252026 and affect the overall quality of the loan portfolio.
The net gain on the sale of loans was $2.34$1.64 million and $1.54$2.34 million for the years ended December 31, 20242025 and 2023,2024, respectively, ana increasedecrease of 51.98%30.10% for the year ended December 31, 20242025 compared to the same period in 2023.2024. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The servicing of the loans sold into the secondary market is not retained by the Company so these loans do not provide an ongoing stream of income.
Trust fees were $15.26$17.14 million and $13.58$15.26 million for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of 12.40%12.32% for the year ended December 31, 20242025 compared to the same period in 2023.2024. This is primarily driven by the increase in assets under management of $0.267$400.74 billionmillion from $2.645 billion as of December 31, 2023 to $2.912 billion as of December 31, 2024 to $3.313 billion as of December 31, 2025 and increased investment transaction activity. The trust assets that are the most volatile are those that are held in common stocks, which amount to approximately 68%65% of assets under management. In 2024,2025, the Dow Jones Industrial Average increased 12.88%.12.97%.
Other noninterest income increased $0.97 million in 2024 primarily due to the recognition of approximately $1.1 million of incentive and marketing bonuses from the VISA payment network growth agreement.
What changed in the latest 10-Q
Risk Factors
New heading “Global Economic and Geopolitical Instability, Trade Policy and Inflationary Risks”
New heading “Adverse Conditions in the Agricultural Economy Could Adversely Affect Our Agricultural Borrowers and Our Credit Quality”
Largest changes
“These conditions, together with fiscal and monetary policies, tariffs, retaliatory trade measures, economic sanctions and other restrictions on international trade, could disrupt energy, commodity and supply chains; increase the costs of fuel, transportation, raw materials and other goods; contribute to inflation and interest-rate volatility; and reduce consumer spending, business investment and demand for credit. These effects could be particularly significant for our borrowers operating in the agriculture sector. …”see in full comparison
“A meaningful portion of our lending activities involves agricultural producers and businesses that depend upon the agricultural sector. The financial condition and repayment capacity of these borrowers are affected by agricultural commodity prices, weather conditions, foreign demand for United States agricultural products, competition from foreign producers, tariffs and trade restrictions, government agricultural programs, interest rates and the costs and availability of fertilizer, fuel, seed, feed, equipment and labor.”see in full comparison
“Geopolitical instability, terrorist attacks, military conflicts, natural disasters, severe weather, widespread health emergencies and other catastrophic events could materially adversely affect our business. Tensions between China and the United States, the conflicts involving Russia and Ukraine and Israel and Hamas, the conflict involving Iran, and actual or threatened disruptions to shipping through the Strait of Hormuz could escalate or result in broader regional or global conflicts.”see in full comparison
“Global Economic and Geopolitical Instability, Trade Policy and Inflationary Risks”see in full comparison
“Adverse Conditions in the Agricultural Economy Could Adversely Affect Our Agricultural Borrowers and Our Credit Quality”see in full comparison
“Reduced or volatile foreign demand, including demand from China for United States soybeans and other agricultural products, and increased competition from producers in other countries could place downward pressure on commodity prices and reduce the revenues and cash flows of borrowers in our markets. In addition, disruptions or threatened disruptions to shipping through the Strait of Hormuz could increase the cost or reduce the availability of fuel, fertilizer and fertilizer-production inputs, including sulfur.”see in full comparison
Full comparison: every changed paragraph (8)
ThereExcept as otherwise supplemented herein, there have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Global Economic and Geopolitical Instability, Trade Policy and Inflationary Risks
Geopolitical instability, terrorist attacks, military conflicts, natural disasters, severe weather, widespread health emergencies and other catastrophic events could materially adversely affect our business. Tensions between China and the United States, the conflicts involving Russia and Ukraine and Israel and Hamas, the conflict involving Iran, and actual or threatened disruptions to shipping through the Strait of Hormuz could escalate or result in broader regional or global conflicts.
These conditions, together with fiscal and monetary policies, tariffs, retaliatory trade measures, economic sanctions and other restrictions on international trade, could disrupt energy, commodity and supply chains; increase the costs of fuel, transportation, raw materials and other goods; contribute to inflation and interest-rate volatility; and reduce consumer spending, business investment and demand for credit. These effects could be particularly significant for our borrowers operating in the agriculture sector. If these developments place financial strain on our borrowers, we could experience reduced loan demand, increased credit risk, higher loan delinquencies and additional provisions for credit losses. Although we monitor these developments, we may not be able to anticipate or fully mitigate their effects on our business, financial condition and results of operations.
Adverse Conditions in the Agricultural Economy Could Adversely Affect Our Agricultural Borrowers and Our Credit Quality
A meaningful portion of our lending activities involves agricultural producers and businesses that depend upon the agricultural sector. The financial condition and repayment capacity of these borrowers are affected by agricultural commodity prices, weather conditions, foreign demand for United States agricultural products, competition from foreign producers, tariffs and trade restrictions, government agricultural programs, interest rates and the costs and availability of fertilizer, fuel, seed, feed, equipment and labor.
Reduced or volatile foreign demand, including demand from China for United States soybeans and other agricultural products, and increased competition from producers in other countries could place downward pressure on commodity prices and reduce the revenues and cash flows of borrowers in our markets. In addition, disruptions or threatened disruptions to shipping through the Strait of Hormuz could increase the cost or reduce the availability of fuel, fertilizer and fertilizer-production inputs, including sulfur.
Lower commodity prices combined with elevated fertilizer, fuel and other input costs could compress agricultural borrowers’ operating margins, increase their need for operating credit and reduce their ability to repay existing indebtedness. These conditions could result in increased loan modifications or restructurings; higher levels of past-due, criticized, classified or nonaccrual loans; reduced agricultural collateral values; and increased provisions for credit losses and charge-offs. Crop insurance, government support programs and other risk-management measures may not fully protect our borrowers or us from these risks.
Management's Discussion & Analysis (MD&A)
New heading “Discussion of operations for the six months ended June 30, 2026 and 2025”
New heading “Discussion of operations for the three months ended June 30, 2026 and 2025”
New heading “Net Income Overview”
New heading “Net Interest Income”
New heading “Credit Loss Expense (Benefit)”
New heading “Noninterest Income”
New heading “Noninterest Expenses”
Removed heading “Discussion of operations for the three months ended March 31, 2026 and 2025”
Largest changes
“The Company’s net income experienced an increase in comparison to prior year for the period and was driven primarily by two factors. The first factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $85.87 million for the first six months of 2026 was derived from the Company’s $4.543 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.89%. …”see in full comparison
“The Company’s net income for the period was driven primarily by three primary factors. The first factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $41.79 million for the first three months of 2026 was derived from the Company’s $4.504 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.84%. …”see in full comparison
“Discussion of operations for the three months ended March 31, 2026 and 2025”see in full comparison
“Discussion of operations for the three months ended June 30, 2026 and 2025”see in full comparison
“Discussion of operations for the six months ended June 30, 2026 and 2025”see in full comparison
Full comparison: every changed paragraph (108)
An overview of threesix month period ended MarchJune 31,30, 2026 is presented following the section discussing a special note regarding forward looking statements.
For the firstsecond quarter of 2026, per the Beige Book, economic activity for the Company's region slightly increased overmodestly thein reportinglate periodMay withand anJune, and contacts expected noa changeslight increase in activity in the coming year. Manufacturing demand rose moderately; employment rose modestly; consumer spending increased slightly; employment,spending, business spendingspending, and construction and real estate wereactivity flat.increased slightly; and nonbusiness contacts saw a small increase in economic activity. Prices rose moderately, wages rosewere up modestly, and financial conditions tightened modestly.slightly. Farm income expectations for 2026 declinededged somewhat.down.
Our credit administration continues to closely monitor and analyze the higher risk segments within the loan portfolio, tracking loan payment deferrals, customer liquidity and providing timely reports to senior management and the board of directors. Based on the Company’s capital levels, prudent underwriting policies, loan concentration diversification and our geographic footprint, senior management is cautiously optimistic that the Company is positioned to continue managing the impact of the varied set of risks and uncertainties currently impacting the economy and remain adequately capitalized. However, the Company may be required to make additional credit loss provisions as warranted by the economic conditions and continued migration in the loan portfolio towards the special mention risk rating category.
Highlights with respect to items on the Company's statement of income for the threesix month period ended MarchJune 31,30, 2026 included the following:
•Net income for the threesix month period ended MarchJune 31,30, 2026 was $21.94$47.96 million compared to $14.43$33.09 million for the same threesix months of 2025, an increase of $7.51$14.87 million or 52.03%.44.94%. The principal factors in the increase in net income for the first threesix months of 2026 were an increase in net interest income of $7.63$14.67 million, a decreasebenefit in credit loss expensebenefit of $4.94$7.53 million, and an increase in noninterest income of $0.41$2.81 million, primarily due to net gain on salesales of loans.VISA B Shares of $1.69 million. The increase in net income was offset by an increase in noninterest expenses of $3.23$5.71 million, primarily due to an increase in salaries and employee benefits expense.and outside services.
•The Company achieved a return on average assets of 1.48%1.62% and a return on average equity of 12.97%13.97% for the twelve months ended MarchJune 31,30, 2026, compared to the twelve months ended MarchJune 31,30, 2025, which were 1.13%1.26% and 10.33%,11.46%, respectively. The return on average assets and return on average equity for the threesix months ended MarchJune 31,30, 2026 were 1.92%2.07% and 16.29%,17.54%, respectively, compared to the threesix months ended MarchJune 31,30, 2025, which were 1.30%1.48% and 11.91%,13.50%, respectively. DividendsOn ofa $1.23split-adjusted perbasis, sharecash weredividends paid in January 2026 increased to 2,643$0.615 shareholders.per Theshare dividendfrom paid$0.575 per share in January 2025 was $1.15 per share.2025.
•The Company’s net interest income is the largest component of revenue and it is primarily a function of the average earning assets and the net interest margin percentage. The Company achieved a net interest margin on a tax-equivalent basis of 3.84%3.89% for the threesix months ended MarchJune 31,30, 2026 compared to 3.25%3.36% for the same threesix months of 2025. Average earning assets were $4.504$4.543 billion year to date in 2026 and $4.405$4.415 billion in 2025.
Highlights noted on the balance sheet as of MarchJune 31,30, 2026 for the Company included the following:
•Cash and cash equivalents were $56.08$42.11 million, ancompared increaseto of $13.97$42.11 million sinceat December 31, 2025.
•Loans net of allowance for credit losses was $3.522$3.594 billion, an increase of $15.30$87.54 million since December 31, 2025, primarily due to increases in construction,mortgage - multi-family, mortgage - 1 to 4 family residentialfirst liens, mortgage - commercial, and construction, land development and commercial. This was offset by decreases in mortgage, 1 to 4 family first liensagricultural and mortgage,commercial farmlandand financial loans.
•Loans held for sale were $5.22$8.61 million, aan decreaseincrease of $2.83$0.56 million since December 31, 2025.
•On May 11, 2026, the Company entered into a material definitive agreement for the acquisition of land and improvements consisting of approximately 19.2 acres with a purchase price of $20.70 million. The Company intends to use the property to consolidate operational teams in a single location and to address long-term operational needs. The Company has paid $2.00 million in earnest money for this project, which is scheduled to close in the first quarter of 2027.
Loan demand hasis stabilizedstable and grown through the firstsecond quarter of 2026 and loan demand is expected to remain consistent throughout the remainder of 2026.
The following table shows the composition of the loans (before deducting the allowance for credit losses) as of MarchJune 31,30, 2026 and December 31, 2025. The table does not include loans held for sale to the secondary market.
Overall credit quality in the loan portfolio remained stable during the first quarter of 2026, with certain metrics reflecting modest improvement compared to December 31, 2025. Nonperforming assets declined during the quarter,last six months, driven primarily by reductions in nonaccrual loans across several loan categories. Accruing loans past due 90 days or more also decreased during the quarterlast six months, and represented a low percentage of total loans at MarchJune 31,30, 2026. Management believes loans that remained accruing while past due were generally well‑collateralized. Delinquency levels declined during the quarter, reflecting improvements in customer payment performance and continued proactive credit monitoring. Trends in early‑stage delinquencies remained stable, and the Company did not experience material deterioration in any specific loan segment. NetGross charge‑offs during the first quarterhalf of 2026 wereare consistent withbelow historical experienceaverages and were partiallyalmost completely offset by recoveries. Charge‑off activity remained concentrated in isolated credits and did not reflect broader portfolio‑level stress. Management continues to closely monitor credit quality indicators, including trends in nonperforming loans, delinquencies, loan risk‑rating migration, and charge‑offs, particularly in light of ongoing economic uncertainty and higher interest rate sensitivity for certain borrowers. While credit metrics were stable during the quarter, future credit performance may be affected by changes in economic conditions, borrower cash flows, collateral values, and interest rate levels.
Accruing loans past due 90 days or more decreased $1.88$1.74 million from December 31, 2025 to MarchJune 31,30, 2026. As of MarchJune 31,30, 2026 and December 31, 2025, accruing loans past due 90 days or more were 0.02% and 0.07% of total loans, respectively. The average balance of the accruing loans past due 90 days or more decreased in MarchJune 31,30, 2026 compared to December 31, 2025. The average 90 days or more past due accruing loan balance per loan was $0.13$0.11 million as of MarchJune 31,30, 2026 compared to $0.23 million as of December 31, 2025.
Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to nonaccrual status, a charge-off or the establishment of a specific reserve. In the event a collateral shortfall is identified during the credit review process, the Company will work with the borrower for a principal reduction payment and/or a pledge of additional collateral and/or additional guarantees. In the event that these options are not available, the loan may be subject to a downgrade of the credit risk rating. If wethe determineCompany determines that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded and the uncollectible amount is charged-off. The Bank's credit and legal departments undertake a thorough and ongoing analysis to determine if an additional specific reserve and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize realized loss.
The following table presents the allowance for credit losses by type of loans, the percentage of the allocation for each category to the total allowance and the percentage of all loans in each category to total loans as of MarchJune 31,30, 2026 and December 31, 2025:
The allowance for credit losses (ACL) totaled $56.60$54.92 million at MarchJune 31,30, 2026 compared to the allowance of $58.20 million at December 31, 2025. The percentage of the allowance to outstanding loans was 1.58%1.50% and 1.63% at MarchJune 31,30, 2026 and December 31, 2025, respectively. The allowance was based on management’s consideration of a number of factors, including composition of the loan portfolio, loans with higher credit risks and the overall amount of loans outstanding. The changes in the ACL during the first quarter of 2026 compared to December 31, 2025 reflect updates made during the period based on new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.
Management has determined that the allowance for credit losses was adequate at MarchJune 31,30, 2026, and that the loan portfolio is diversified and secured without undue concentration in any specific risk area. The process of estimating the allowance for credit losses involves a high degree of management judgment; however, the ACL is based on a comprehensive, well‑documented, and consistently applied analysis of the Company’s loan portfolio. The ACL is highly sensitive to changes in certain key assumptions and inputs used in the Company’s credit loss estimation process. These assumptions include, among others, economic forecasts (most notably the Iowa unemployment rate and national real gross domestic product), prepayment speeds, curtailment rates, probability of default, loss given default, time to recovery, and qualitative factors applied by management to address risks not fully captured by quantitative models.
Changes in these assumptions can result in materially different estimates of expected credit losses. For example, adverse changes in economic conditions, including increases in unemployment or deterioration in macroeconomic indicators used in the Company’s reasonable and supportable forecast, could result in higher modeled probabilities of default and loss severity, which would increase the ACL and related credit loss expense. Conversely, improvements in economic forecasts, loan performance trends, or reductions in portfolio risk could decrease the estimated ACL. The ACL is also sensitive to changes in management judgment applied through qualitative factors, including assessments of loan portfolio composition, credit quality migration, delinquency trends, concentrations of credit, collateral values, and emerging risks within certain loan segments. Because these qualitative adjustments are based in part on judgment, actual credit losses may differ materially from estimated amounts. While management regularly evaluates the reasonableness of the assumptions and inputs used in estimating the ACL and believes the allowance was appropriate as of MarchJune 31,30, 2026, future changes in economic conditions, portfolio characteristics, or other factors may require material changes to the allowance in subsequent periods.
Investment securities available for sale held by the Company increased by $2.80$56.65 million from December 31, 2025 to MarchJune 31,30, 2026. The fair value of securities available for sale was $10.78$10.38 million less than the amortized cost of such securities as of MarchJune 31,30, 2026. At December 31, 2025, the fair value of the securities available for sale was $1.71 million less than the amortized cost of such securities.
Deposits increased $231.78$149.64 million in the first threesix months of 2026. The Company continues to have sufficient liquidity resources available to fund expected additional loan growth.
Brokered deposits are included in total deposits and totaled $35.24$35.33 million as of MarchJune 31,30, 2026 with ana weighted average rate of 4.25%.4.12%. Brokered deposits were $35.17 million as of December 31, 2025 with a weighted average interest rate of 4.12%. As of MarchJune 31,30, 2026 and December 31, 2025, brokered deposits were 0.98%1.00% and 1.04% of total deposits, respectively.
There were $64.08$323.83 million and $64.33 million of Federal Home Loan Bank (FHLB) borrowings as of MarchJune 31,30, 2026 and December 31, 2025, respectively. There were $380.19$297.28 million of FHLB daily reset advances as of MarchJune 31,30, 2026 and $586.88 million as of December 31, 2025. It is expected that the FHLB and Federal Funds funding sources will be considered in the future if loan growth exceeds core deposit increases and the interest rates on funds borrowed from the FHLB and Federal Funds are favorable compared to other funding alternatives.
In January 2026, Hills Bancorporation paid a dividend of 10.81 million or $1.23 per share. The dividend paid in January 2025 was $1.15 per share. After payment of the dividend and the adjustment for accumulated other comprehensive income (loss), stockholders’ equity as of March 31, 2026 totaled $545.56 million.
The Bank elected to use the Community Bank Leverage Ratio (CBLR) framework as provided for in the Economic Growth, Regulatory Relief and Consumer Protection Act. Under the CBLR framework, the Bank is required to maintain a CBLR of greater than 9.00%, as measured by dividing the Bank's Tier 1 capital by its average total consolidated assets. As of March 31, 2026 and December 31, 2025, the Company had regulatory capital in excess of the Federal Reserve’s minimum and well-capitalized definition requirements. The actual amounts and capital ratios as of March 31, 2026 and December 31, 2025 are presented below (amounts in thousands):
(1)The community bank leverage ratio for the holding company is only included for informational purposes
Discussion of operations for the three months ended March 31, 2026 and 2025
Total net income was $21.94 million in 2026 and $14.43 million in the comparable period in 2025, an increase of $7.51 million or 52.03%. The change in net income in 2026 from the first three months of 2025 was primarily the result of the following:
•Net interest income before credit loss expense increased by $7.63 million or 22.34%.
•For the three months ended March 31, 2026, credit loss benefit was $1.07 million. This represents a decrease in expense of $4.94 million from the credit loss expense of $3.87 million for the three months ended March 31, 2025.
•Noninterest income increased by $0.41 million, or 5.07%.
•Noninterest expenses increased by $3.23 million, or 15.66%.
For the three month period ended March 31, 2026 and March 31, 2025 basic earnings per share was $2.50 and $1.61, respectively. Diluted earnings per share was $2.50 for the three months ended March 31, 2026 compared to $1.61 for the same period in 2025.
The Company’s net income for the period was driven primarily by three primary factors. The first factor affecting the Company’s net income is the interaction between changes in net interest margin and changes in average volumes of the Company's earnings assets. Net interest income of $41.79 million for the first three months of 2026 was derived from the Company’s $4.504 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.84%. Average earning assets in the three months ended March 31, 2025 were $4.405 billion and the tax-equivalent net interest margin was 3.25%. Net interest income for the Company increased primarily as a result of increased interest income from higher interest rates on real estate and commercial loans and investments as well as higher volume of investments. Also, overall interest expense was slightly lower than the same period in 2025 due to favorable rate variances. The Company expects net interest margin compression to impact earnings for the foreseeable future due to competition for loans and deposits. The Company believes growth in net interest income will be contingent on the growth of the Company’s earning assets, increasing yield on loans and the ongoing interest rate stance of the Federal Reserve Board.
The second factor is credit loss expense (benefit). The majority of the Company’s interest-earning assets are in loans outstanding, which amounted to $3.522 billion at March 31, 2026. Credit loss benefit was $1.07 million in 2026 compared to an expense of $3.87 million in 2025. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.
The third factor affecting the Company’s net income is noninterest income, primarily the increase in net gain on sale of loans. The net gain on sale of loans was $0.52 million and $0.24 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 111.07%. Other noninterest income was $0.99 million and $0.78 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 27.03%, primarily due to incentive and marketing bonuses from the VISA payment network growth agreement.
Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $7.44 million for the three months ended March 31, 2026 compared to the comparable period in 2025. The increase was primarily as a result of increased interest income from higher interest rates on real estate and commercial loans and investments as well as higher volume of loans and investments. Also, overall interest expense was slightly lower than the same period in 2025 due to favorable rate variances. The net interest margin for the first three months of 2026 was 3.84% compared to 3.25% in 2025 for the same period. The measure is shown on a tax-equivalent basis using a tax rate of 21% to make the interest earned on taxable and non-taxable assets more comparable. The change in average balances and average rates between periods and the effect on the net interest income on a tax equivalent basis for the three months ended in 2026 compared to the comparable period in 2025 are shown in the following table:
A summary of the net interest spread and margin three months ended March 31, 2026 and 2025 is as follows:
The Federal Open Market Committee met two times during the first three months of 2026. The federal funds target rate decreased to 3.75% as of March 31, 2026 from 4.50% as of the same period in 2025. Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally correlate to the Federal Reserve Board federal funds rate. In the pricing of loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates. As of March 31, 2026, the average rate indexes for the one, three and five year indexes were 3.68%, 3.81% and 3.92%, respectively. The one year index decreased 8.68% compared to March 31, 2025, the one, three and five year indexes were 4.03%, 3.89%, and 3.96%, respectively.
Credit loss benefit was $1.07 million for the three months ended March 31, 2026 compared to credit loss expense of $3.87 million in 2025, a decrease of expense of $4.94 million. Credit loss expense is the amount necessary to adjust the allowance for credit losses to the level considered by management to appropriately account for the estimated current expected credit losses within the Bank's loan portfolio.
Also, under CECL, a significant component in estimating expected credit losses are economic forecasts such as Iowa unemployment and National real gross domestic product (National GDP). For the allowance for credit losses as of March 31, 2026, the key loss drivers were Iowa unemployment and National GDP. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.
The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the three months ended March 31, 2026 and 2025, recoveries were $0.77 million and $0.67 million, respectively; and charge-offs were $1.47 million in 2026 and $1.73 million in 2025. The allowance for credit losses totaled $56.60 million at March 31, 2026 compared to $58.20 million as of December 31, 2025. The allowance represented 1.58% and 1.63% of loans held for investment at March 31, 2026 and December 31, 2025.
The following table sets forth the various categories of noninterest income for the three months ended March 31, 2026 and 2025.
Net gain on sale of loans was $0.52 million and $0.24 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 111.07%. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The servicing of the loans sold into the secondary market is not retained by the Company, so these do not provide an ongoing stream of income.
Other noninterest income was $0.99 million and $0.78 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 27.03%. This is primarily due to annual incentive and marketing bonuses from the VISA payment network growth agreement.
Trust fees, service charges and fees, and loss on sale of investment securities experienced nominal changes compared to the same period in prior year.
The following table sets forth the various categories of noninterest expenses for the three months ended March 31, 2026 and 2025.
In the three months ended March 31, 2026, salaries and employee benefits increased $1.18 million or 10.39%, primarily due to annual merit raises and an increase in full time employees.
Advertising and business development increased $0.18 million or 22.06% primarily due to expanded marketing initiatives and higher promotional activity.
Furniture, equipment and software increased $0.64 million or 36.66% primarily due to planned technology refresh.
Other noninterest expense increased $0.72 million or 112.29%, primarily due to increase in value of director deferred compensation expense from the increase in shareholder price and ATM losses.
Other noninterest expense categories experienced marginal period-to-period fluctuations for the three months ended March 31, 2026.
Federal and state income tax expenses were $5.57$12.75 million and $3.33$8.32 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Income taxes as a percentage of income before taxes were 20.24%21.01% in 2026 and 18.76%20.09% in 2025. See Note 10 Income Taxes for additional information.
Investment securities available for sale comprised 20.51%21.10% of the Company’s total assets at MarchJune 31,30, 2026 compared to 20.56% at December 31, 2025. As of MarchJune 31,30, 2026, investment securities with a market value of $153.29$152.73 million were pledged to collateralize public and trust deposits and other borrowings. As of December 31, 2025, investment securities with a market value of $154.03 million were pledged.
The Company has historically maintained a stable deposit base and a relatively low level of large deposits, which has mitigated the volatility in the Company’s liquidity position. Deposit inflows and outflows can vary widely based on prevailing market interest rates, competition, economic conditions, our business customers' liquidity needs and by recent developments in the financial services industry. Uninsured deposits as of MarchJune 31,30, 2026 and December 31, 2025 were approximately $936.22$839.34 million and $733.97 million, respectively, which comprised 26.01%23.86% and 21.79% of total deposits.
As of MarchJune 31,30, 2026, the Company had additional borrowing capacity available from the Federal Home Loan Bank (“FHLB”) of $1.055$491.33 billion.million. The Company had $64.08$323.83 million and $64.33 million outstanding in FHLB borrowings as of MarchJune 31,30, 2026 and December 31, 2025, respectively, with maturities through 2030. The Company also had $380.19$297.28 million and $586.88 million outstanding in FHLB daily reset advances as of MarchJune 30, 2026 and December 31, 2026.2025, respectively. In addition, the Company had $175.00 million in borrowing capacity available through secured and unsecured lines of credit with correspondent banks with no borrowings under those federal fund lines as of MarchJune 31,30, 2026. Finally, the Company had $105.11$104.81 million in borrowing capacity available through the Federal Reserve Discount Window, with no borrowings as of MarchJune 31,30, 2026 Other liquidity sources include various sources of brokered deposits.2026.
Other liquidity sources include various sources of brokered deposits.
On May 11, 2026, the Company entered into a material definitive agreement for the acquisition of land and improvements consisting of approximately 19.2 acres with a purchase price of $20.70 million. The Company intends to use the property to consolidate operational teams in a single location and to address long-term operational needs. The Company has paid $2.00 million in earnest money for this project. Closing is subject to customary conditions and is expected to occur during the first quarter of 2027. There have been no other material changes with regard to contractual obligations disclosed in the Company’s Form 10-K for the year ended December 31, 2025.
HBIA insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-02 | Roetlin Anthony V |
Grant/award | 56 | $40.50 | $2.2K |
| 2026-10-02 | Shileny Lisa A |
Grant/award | 56 | $40.50 | $2.2K |
| 2026-10-02 | Globokar Brian R. |
Grant/award | 56 | $40.50 | $2.2K |
| 2026-10-02 | Nelson Kenza Bemis |
Grant/award | 42 | $40.50 | $1.7K |
| 2026-07-02 | Shileny Lisa A |
Grant/award | 57 | $39.37 | $2.2K |
| 2026-07-02 | Roetlin Anthony V |
Grant/award | 57 | $39.37 | $2.2K |
| 2026-07-02 | Globokar Brian R. |
Grant/award | 57 | $39.37 | $2.2K |
| 2026-07-02 | Nelson Kenza Bemis |
Grant/award | 50 | $39.37 | $2.0K |
Well-known investors holding HBIA (13F)
None of the 59 investors we track reported a position in their latest 13F.