Financial Analysis

Commitments and Contingencies Concentrations of credit risk : The Banks loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Bank's market area. Investments in securities issued by state and political subdivisions within the state of Iowa had fair value of $162.38 million and $149.47 million for the years ended December 31, 2025 and 2024, respectively. The concentrations of credit by type of loan are set forth in Note 3 to the Consolidated Financial Statements. Outstanding letters of credit were granted primarily to commercial borrowers. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in Johnson, Linn and Washington Counties, Iowa. Contingencies : In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Companys business, financial conditions, or results of operations. Financial instruments with off-balance sheet risk : The Bank is a party to financial instruments with off-balance sheet risk in the normal …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"Employee Benefit Plans The Company has an Employee Stock Purchase Plan (the ESPP). For each quarterly offering period, eligible employees can elect to contribute from 1.00% to 15.00% of their compensation. The purchase price is the lesser of 90.00% of the fair market value on the first day of the offering period or the last day of the offering period. The maximum dollar amount any one employee can elect to contribute in a year is $10,000. Through the ESPP 5,078, 5,864, and 6,550 shares of stock were purchased by employees of the Bank during the years ended December 31, 2025, 2024, and 2023, respectively. The Company has an Employee Stock Ownership Plan (the ""ESOP"") to which it makes discretionary cash contributions. The Company's contribution to the ESOP totaled $1.44 million, $1.37 million and $1.40 million for the years ended December 31, 2025, 2024 and 2023, respectively. The 2025, 2024 and 2023 discretionary contribution rate was 4.50% of qualified salaries. In the event a terminated plan participant desires to sell his or her shares of the Company stock, or for certain employees who elect to diversify their account balances, the Company may be required to purchase the shares from the participant at their fair value. To the extent that shares of common stock held by the ESOP are not readily traded, a sponsor must reflect the maximum cash obligation related to those securities outside of stockholders' equity. The Company obtains a quarterly independent appraisal of the …

CompensationAndEmployeeBenefitPlansTextBlock · excerpt; the full note is in the filing

Fair Value Measurements The carrying value and estimated fair values of the Companys financial instruments as of December 31, 2025 are as follows: December 31, 2025 Carrying Amount Estimated Fair Value Readily Available Market Prices(1) Observable Market Prices(2) Company Determined Market Prices(3) (Amounts In Thousands) Financial instrument assets: Cash and cash equivalents $ 42,114 $ 42,114 $ 42,114 $ $ Investment securities 955,584 955,584 255,527 700,057 Loans held for sale 8,047 8,047 8,047 Loans, net Agricultural 118,506 118,737 118,737 Commercial and financial 283,728 284,244 284,244 Real estate: Construction, 1 to 4 family residential 89,190 89,558 89,558 Construction, land development and commercial 245,127 246,410 246,410 Mortgage, farmland 274,312 268,568 268,568 Mortgage, 1 to 4 family first liens 1,241,209 1,193,847 1,193,847 Mortgage, 1 to 4 family junior liens 137,678 136,911 136,911 Mortgage, multi-family 491,937 477,170 477,170 Mortgage, commercial 555,322 549,177 549,177 Loans to individuals 27,937 27,613 27,613 Obligations of state and political subdivisions 41,873 41,393 41,393 Accrued interest receivable 23,404 23,404 23,404 Total financial instrument assets $ 4,535,968 $ 4,462,777 $ 297,641 $ 731,508 $ 3,433,628 Financial instrument liabilities: Deposits Noninterest-bearing deposits $ 596,230 $ 596,230 $ $ 596,230 $ Interest-bearing deposits 2,771,605 2,563,767 2,563,767 Other short-term borrowings 586,882 585,948 585,948 Federal Home Loan Bank borrowin …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Income Taxes Income taxes for the years ended December 31, 2025 and 2024 are summarized as follows: 2025 2024 2023 (Amounts In Thousands) Current: Federal $ 14,128 $ 9,672 $ 9,575 State 3,561 2,751 2,596 Current expense 17,689 12,423 12,171 Deferred: Federal (2,213) 127 (2,215) State (287) 49 342 Deferred expense (benefit) (2,500) 176 (1,873) $ 15,189 $ 12,599 $ 10,298 Temporary differences between the amounts reported in the consolidated financial statements and the tax basis of assets and liabilities result in deferred taxes. Deferred tax assets and liabilities at December 31, 2025, 2024, and 2023 were as follows: December 31, 2025 2024 2023 (Amounts In Thousands) Deferred income tax assets: Allowance for credit losses $ 14,521 $ 12,106 $ 11,745 Deferred compensation and unearned restricted stock 1,867 1,753 1,671 Allowance for credit losses on off-balance sheet credit exposures 380 689 1,212 Accrued expenses 768 738 932 Unrealized losses on investment securities 407 8,490 8,419 State tax credits 2,940 State net operating loss 1,206 1,364 1,286 Other 210 Gross deferred tax assets $ 22,299 $ 25,140 $ 25,265 Valuation allowance (1,206) (1,364) (1,286) Deferred tax asset, net of valuation allowance $ 21,093 $ 23,776 $ 23,979 Deferred income tax liabilities: Property and equipment 1,647 1,731 1,647 Goodwill 381 388 388 Prepaid expenses 567 499 495 Other 31 26 178 Gross deferred tax liabilities $ 2,626 $ 2,644 $ 2,708 Net deferred tax assets $ 18,467 $ 21,132 $ 21,271 The Compan …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Leases The Bank leases branch offices, parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 1 year to 9 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 4 years. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities. For the years ended December 31, 2025 and 2024, total operating lease expense was $0.48 million and $0.55 million, respectively, and is included in occupancy expenses in the consolidated statement of income. Included in this were $0.44 million and $0.46 million of operating lease costs, respectively, $0.03 million and $0.03 million of short term lease costs, respectively, and $0.01 million and $0.06 million of variable lease costs, respectively. For the years ended December 31, 2025 and 2024, cash paid for amounts included in the measurement of operating lease liabilities was $0.44 million and $0.46 million, respectively, and no right-of-use assets were obtained in exchange for lease obligations. As of December 31, 2025 and 2024, operating lease right-of-use assets included in other assets were $1.60 million and $1.87 million, respectively. Operating lease liabilities included in other liabilities were $1.71 million and $1.97 million, respectively. The weighted average remaining lease term for operating leases was 7.00 years and 7.75 years, r …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

"Effect of New Financial Accounting Standards Accounting guidance adopted in 2025 In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures . The FASB is issuing this ASU to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU require that public business entities on an annual basis disclose specific categories in the rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold, disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes and other disclosures. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company adopted this guidance as of December 31, 2025 on a retrospective basis. See Note 11 Income Taxes for additional information. In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718) Scope Application of Profits Interest and Similar Awards . The FASB is issuing this ASU to improve generally accepted accounting principles by adding an illustrative example to demonstrate how an entity should apply the scope guidance to determine whether profits interest and similar awards (""profit interest awards"") should be accounted for in accordance with Topic 718, Compensation - S …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

Certain directors of the Company and the Bank, companies with which the directors are affiliated, and certain principal officers and immediate family members are customers of, and have banking transactions with, the Bank in the ordinary course of business. Such indebtedness has been incurred on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons. The following is an analysis of the changes in the loans to those the Company has determined to be related parties during the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 (Amounts In Thousands) Balance, beginning $ 74,248 $ 73,337 Net increase due to change in related parties 4,176 4,972 Advances 39,540 18,408 Collections (31,536) (22,469) Balance, ending $ 86,428 $ 74,248 Included in the loans to related parties was one loan on nonaccrual and past due with a balance of $0.05 million and $0.6 million as of December 31, 2025 and 2024. Deposits from these related parties totaled $28.69 million and $13.51 million as of December 31, 2025 and 2024, respectively. Deposits from related parties are accepted subject to the same interest rates and terms as those from nonrelated parties. Letters of credit with these related parties totaled $0.07 million and $1.00 million as of December 31, 2025 and 2024, respectively, and were done under the same terms as those with nonrelated parties. There were no amounts drawn re …

RelatedPartyTransactionsDisclosureTextBlock · excerpt; the full note is in the filing

Segment Reporting The Company conducts operations through one reportable segment which is determined by the Senior Executive Committee, which is designated the chief operating decision maker, based upon information provided about the Company's products and services offered, primarily banking operations. The Executive Committee consists of the Chief Executive Officer and Chief Financial Officer. The segment is also distinguished by the level of information provided to the Executive Committee, who uses such information to review performance of various components of the business (such as branches), which are then aggregated if operating performance, products/services, and customers are similar. The Executive Committee will evaluate the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company's segment and in the determination of allocating resources. The Executive Committee uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The Executive Committee uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessing performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, credit loss expense, and …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

Subsequent Events Subsequent events have been evaluated through

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Commitments and Contingencies Concentrations of credit risk : The Companys loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Company's market area. Investments in securities issued by state and political subdivisions within the state of Iowa totaled approximately $155.93 million. The concentrations of credit by type of loan are set forth in Note 5 to the Consolidated Financial Statements. Outstanding letters of credit were granted primarily to commercial borrowers. Although the Company has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in Johnson, Linn, Washington and Iowa Counties, Iowa. Contingencies : In the normal course of business, the Company and its subsidiaries are subject to pending and threatened legal actions, some of which seek substantial relief or damages. While the ultimate outcome of such legal proceedings cannot be predicted with certainty, after reviewing pending and threatened litigation with counsel, management believes at this time that the outcome of such litigation will not have a material adverse effect on the Companys business, financial conditions, or results of operations. Financial instruments with off-balance sheet risk : The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its cust …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Borrowings The following table sets forth selected information for borrowings as of September 30, 2025 and December 31, 2024: September 30, 2025 December 31, 2024 (Amounts In Thousands) Federal funds purchased, FHLB, interest rate 2025 4.33%; 2024 4.62% $ 588,740 $ 437,636 Bank Term Funding Program, interest rates 2024 4.76% 109,000 $ 588,740 $ 546,636 Federal Home Loan Bank borrowings Due 2025, 4.97% $ 12,000 $ 87,050 Due 2027, 3.87% to 4.58% 40,000 40,000 Due 2030, 4.06% 24,583 $ 76,583 $ 127,050 The Company has federal funds lines available totaling $175.00 million from multiple correspondent banking relationships as of September 30, 2025 and December 31, 2024 that is secured by available for sale securities. The Company also has availability to borrow from the Federal Reserve Bank Discount Window of $100 million as of September 30, 2025 and December 31, 2024 that is secured by available for sale securities. To participate in the FHLB advance program, the Company is required to have an investment in FHLB stock. The Companys investment in FHLB stock was $32.70 million and $28.02 million at September 30, 2025 and December 31, 2024, respectively . Collateral is provided by the Companys 1 to 4 family residential, commercial and agricultural real estate first mortgages equal to various percentages of the total outstanding notes. The Company has the ability to borrow against 1-4 family first mortgages, agricultural real estate, commercial real estate and multi-family loans total …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

Fair Value Measurements The carrying value and estimated fair values of the Company's financial instruments as of September 30, 2025 are as follows: September 30, 2025 Carrying Amount Estimated Fair Value Readily Available Market Prices(1) Observable Market Prices(2) Company Determined Market Prices(3) (Amounts In Thousands) Financial instrument assets: Cash and cash equivalents $ 47,197 $ 47,197 $ 47,197 $ $ Investment securities 962,763 962,763 271,843 690,920 Loans held for sale 3,618 3,618 3,618 Loans, net of allowance for credit losses Agricultural 116,697 116,901 116,901 Commercial and financial 297,123 296,411 296,411 Real estate: Construction, 1 to 4 family residential 84,579 85,045 85,045 Construction, land development and commercial 289,691 290,016 290,016 Mortgage, farmland 269,507 262,707 262,707 Mortgage, 1 to 4 family first liens 1,225,904 1,174,470 1,174,470 Mortgage, 1 to 4 family junior liens 139,991 138,912 138,912 Mortgage, multi-family 491,157 475,030 475,030 Mortgage, commercial 508,845 498,877 498,877 Loans to individuals 31,601 30,760 30,760 Obligations of state and political subdivisions 42,114 41,405 41,405 Accrued interest receivable 25,258 25,258 25,258 Total financial instrument assets $ 4,536,045 $ 4,449,370 $ 319,040 $ 719,796 $ 3,410,534 Financial instrument liabilities Deposits Noninterest-bearing deposits $ 578,133 $ 578,133 $ $ 578,133 $ Interest-bearing deposits 2,800,134 2,802,364 2,802,364 Other short-term borrowings 588,740 588,758 588,75 …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Income Taxes Federal income tax expense for the nine months ended September 30, 2025 and 2024 was computed using the consolidated effective federal tax rate. The Company also recognized income tax expense pertaining to state franchise taxes payable individually by the subsidiary bank. The Company files a consolidated tax return for federal purposes and separate tax returns for State of Iowa purposes. The tax years ended December 31, 2024, 2023, and 2022 remain subject to examination by the Internal Revenue Service. For state tax purposes, the tax years ended December 31, 2024, 2023, and 2022 remain open for examination. There were no material unrecognized tax benefits at September 30, 2025 and December 31, 2024 and therefore no interest or penalties on unrecognized tax benefits has been recorded. As of September 30, 2025, the Company does not anticipate any significant increase in unrecognized tax benefits during the twelve-month period ending September 30, 2026. Income taxes as a percentage of income before taxes were 20.10% for the nine months ended September 30, 2025 and 20.92% for the same period in 2024.

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Leases The Bank leases certain of its branch offices, parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 2 years to 9 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 3 years. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities. For the three months ended September 30, 2025 and 2024 total operating lease expense was $0.11 million and $0.14 million respectively and for the nine months ended September 30, 2025 and 2024, total operating lease expense was $0.35 million and $0.42 million respectively, and is included in occupancy expenses in the consolidated statements of income. Included in this for the nine months ended September 30, 2025 and 2024 were $0.33 million and $0.35 million, respectively, of operating lease costs, $0.01 million and $0.02 million, respectively, of short term lease costs, and $0.01 million and $0.05 million, respectively, of variable lease costs. For the nine months ended September 30, 2025 and 2024, cash paid for amounts included in the measurement of operating lease liabilities was $0.33 million and $0.35 million, respectively. As of September 30, 2025 and December 31, 2024, operating lease right-of-use assets included in other assets was $1.67 million and $1.87 million respectively. Operating lease liabilities included in other …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

"Effect of New Financial Accounting Standards: In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323) Accounting for Investments in Tax Credit Structures Using Proportional Amortization Method . The FASB is issuing this ASU to allow reporting entities to consistently account for equity investments made primarily for the purposes of receiving income tax credits and other income tax benefits. The ASU permits reporting entities to elect to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. If an entity adopts the amendments in an interim period, it shall adopt them as of the beginning of the fiscal year that includes that interim period. The adoption of the ASU on a prospective basis by the Company on January 1, 2024 did not have a material impact on the financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures . The FASB is issuing this ASU to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. For pub …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

Segment Reporting The Company conducts operations through one reportable segment which is determined by the Senior Executive Committee, which is designated the chief operating decision maker, based upon information provided about the Company's products and services offered, primarily banking operations. The Executive Committee consists of the President/Chief Executive Officer and the Chief Financial Officer. The segment is also distinguished by the level of information provided to the Executive Committee, who uses such information to review performance of various components of the business (such as branches), which are then aggregated if operating performance, products/services, and customers are similar. The Executive Committee will evaluate the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company's segment and in the determination of allocating resources. The Executive Committee uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The Executive Committee uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessing performance and in establishing compensation. Loans, investments, and deposits provide the revenues in the banking operation. Interest expense, credit loss …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

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

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

Stock Repurchase Program On July 26, 2005, the Companys Board of Directors authorized a program to repurchase up to a total of 1,500,000 shares of the Companys common stock (the 2005 Stock Repurchase Program). On August 9, 2022, the Companys Board of Directors authorized the expansion of the 2005 Stock Repurchase Program to allow an additional 750,000 shares for repurchase and the continuation through December 31, 2027. The Company expects the purchases pursuant to the 2005 Stock Repurchase Program to be made from time to time in private transactions at a price equal to the most recent quarterly independent appraisal of the shares of the Companys common stock and with the Board reviewing the overall results of the 2005 Stock Repurchase Program on a quarterly basis. All purchases made pursuant to the 2005 Stock Repurchase Program since its inception have been made on that basis. The amount and timing of stock repurchases will be based on various factors, such as the Boards assessment of the Companys capital structure and liquidity, the amount of interest shown by shareholders in selling shares of stock to the Company at their appraised value, and applicable regulatory, legal and accounting factors. The Company has purchased 1,962,471 shares of its common stock in privately negotiated transactions from August 1, 2005 through September 30, 2025. Of these 1,962,471 shares, 46,055 shares were purchased during the quarter ended September 30, 2025, at an average price per share of $ …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing