HBIA 10-Q Quarterly Report June 30, 2025

HILLS BANCORPORATION

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hbia-20250630

Index

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 0-12668

Hills Bancorporation


(State or other jurisdiction of incorporation or organization)			I.R.S. Employer Identification No.
Iowa			42-1208067

131 MAIN STREET , HILLS , Iowa 52235

Telephone number: ( 319 ) 679-2291

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by checkmark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated Filer	☑
Non-accelerated filer	☐	Small Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

Index

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.


		SHARES OUTSTANDING
CLASS		July 31, 2025

Common Stock	No par value	8,849,709

Index

HILLS BANCORPORATION

Index to Form 10-Q

Part I

FINANCIAL INFORMATION


		Page
		Number

Item 1.	Financial Statements

	Consolidated balance sheets, June 3 0 , 2025 (unaudited) and December 31, 2024	4
	Consolidated statements of income (unaudited) for three and six months ended June 30, 2025 and 2024	5
	Consolidated statements of comprehensive income (unaudited) for three and six months ended June 30, 2025 and 2024	6
	Consolidated statements of stockholders' equity (unaudited) for three and six months ended June 30, 2025 and 2024	8
	Consolidated statements of cash flows (unaudited) for six months ended June 30, 2025 and 2024	9
	Notes to consolidated financial statements (condensed)	11

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67

Item 4.	Controls and Procedures	68

	Part II
	OTHER INFORMATION

Item 1.	Legal proceedings	68

Item 1A.	Risk factors	68

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

Item 3.	Defaults upon senior securities	71

Item 4.	Mine safety disclosures	71

Item 5.	Other information	71

Item 6.	Exhibits	72

	Signatures	73

Page 3

Index

HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS (Amounts In Thousands, Except Share Amounts)


	June 30, 2025		December 31, 2024
ASSETS	(Unaudited)
Cash and cash equivalents	$	52,493	$	123,399
Investment securities available for sale at fair value (amortized cost June 30, 2025 $ 970,453 ; December 31, 2024 $ 979,855 )	941,571		944,136
Stock of Federal Home Loan Bank	33,282		28,024
Loans held for sale	5,813		3,971
Loans, net of allowance for credit losses June 30, 2025 $ 54,020 ; December 31, 2024 $ 50,940	3,462,072		3,387,521
Property and equipment, net	35,893		35,868
Tax credit real estate investments	8,911		8,854
Accrued interest receivable	22,787		21,403
Deferred income taxes, net	28,541		21,132
Goodwill	2,500		2,500
Other assets	11,149		11,434
Total Assets	$	4,605,012	$	4,588,242

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Noninterest-bearing deposits	$	590,770	$	581,043
Interest-bearing deposits	2,741,436		2,765,090
Total deposits	$	3,332,206	$	3,346,133
Other short-term borrowings, including Bank Term Funding Program and federal funds purchased	391,448		546,636
Federal Home Loan Bank borrowings	286,833		127,050
Accrued interest payable	3,981		9,912
Allowance for credit losses on off-balance sheet credit exposures	3,730		2,900
Other liabilities	24,699		14,667
Total Liabilities	$	4,042,897	$	4,047,298

Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP)	$	50,927	$	48,257

STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 20,000,000 shares; issued June 30, 2025 10,346,213 shares; December 31, 2024 10,346,920 shares	$	—	$	—
Paid in capital	65,109		64,644
Retained earnings	601,651		578,882
Accumulated other comprehensive loss	( 22,017 )		( 27,300 )
Treasury stock at cost (June 30, 2025 1,471,723 shares; December 31, 2024 1,377,498 shares)	( 82,628 )		( 75,282 )
Total Stockholders' Equity	$	562,115	$	540,944
Less maximum cash obligation related to ESOP shares	50,927		48,257
Total Stockholders' Equity Less Maximum Cash Obligation Related to ESOP Shares	$	511,188	$	492,687
Total Liabilities & Stockholders' Equity	$	4,605,012	$	4,588,242

See Notes to Consolidated Financial Statements.

Page 4

Index

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Amounts In Thousands, Except Per Share Amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Interest income:
Loans, including fees	$	48,719	$	44,415	$	94,849	$	87,865
Investment securities:
Taxable	6,389		3,192		12,724		6,465
Nontaxable	2,728		1,719		5,278		3,207
Federal funds sold	146		377		335		887
Total interest income	$	57,982	$	49,703	$	113,186	$	98,424
Interest expense:
Deposits	$	14,206	$	15,210	$	28,684	$	29,479
Other short-term borrowings	1,994		4,475		4,936		7,947
FHLB borrowings	4,743		2,021		8,365		5,331
Total interest expense	$	20,943	$	21,706	$	41,985	$	42,757
Net interest income	$	37,039	$	27,997	$	71,201	$	55,667
Credit loss expense	1,137		675		5,007		312

Net interest income after credit loss expense	$	35,902	$	27,322	$	66,194	$	55,355
Noninterest income:
Net gain on sale of loans	$	459	$	669	$	703	$	1,042
Trust fees	4,260		3,889		8,305		7,386
Service charges and fees	3,393		3,315		6,448		6,348
Other noninterest income	422		188		1,199		292

	$	8,534	$	8,061	$	16,655	$	15,068

Noninterest expenses:
Salaries and employee benefits	$	11,251	$	11,063	$	22,616	$	22,250
Occupancy	1,086		996		2,236		2,079
Furniture and equipment	1,849		1,686		3,595		3,366
Office supplies and postage	463		442		975		956
Advertising and business development	801		630		1,635		1,441
Outside services	3,917		3,311		7,802		6,761

FDIC insurance assessment	497		486		1,009		967
Other noninterest expense	934		1,109		1,577		1,710
	$	20,798	$	19,723	$	41,445	$	39,530
Income before income taxes	$	23,638	$	15,660	$	41,404	$	30,893
Income taxes	4,986		3,348		8,319		6,481
Net income	$	18,652	$	12,312	$	33,085	$	24,412

Earnings per share:
Basic	$	2.09	$	1.35	$	3.70	$	2.68
Diluted	$	2.09	$	1.35	$	3.70	$	2.68

See Notes to Consolidated Financial Statements.

Page 5

Index

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (Amounts In Thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net income	$	18,652	$	12,312	$	33,085	$	24,412

Other comprehensive income (loss)
Securities:
Net change in unrealized gain (loss) on securities available for sale	$	5,446	$	( 1,045 )	$	6,837	$	( 4,688 )

Income taxes	( 1,295 )		248		( 1,625 )		1,114
Other comprehensive income (loss) on securities available for sale	$	4,151	$	( 797 )	$	5,212	$	( 3,574 )
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain on derivatives	$	35	$	72	$	93	$	339
Income taxes	( 8 )		( 17 )		( 22 )		( 82 )
Other comprehensive income on cash flow hedges	$	27	$	55	$	71	$	257

Other comprehensive income (loss), net of tax	$	4,178	$	( 742 )	$	5,283	$	( 3,317 )

Comprehensive income	$	22,830	$	11,570	$	38,368	$	21,095

See Notes to Consolidated Financial Statements.

Page 6

Index

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited) (Amounts In Thousands, Except Share Amounts)


Three Months Ended June 30, 2025 and 2024
	Paid in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock		Maximum Cash Obligation Related to ESOP Shares		Total
Balance, March 31, 2024	$	64,095	$	543,379	$	( 29,751 )	$	( 65,906 )	$	( 46,375 )	$	465,442
Issuance of 1,157 shares of common stock	47		—		—		31		—		78
Issuance of 1,426 shares of common stock under the employee stock purchase plan	85		—		—		—		—		85
Unearned restricted stock compensation	228		—		—		—		—		228
Forfeiture of 633 shares of common stock	( 44 )		—		—		—		—		( 44 )
Share-based compensation	7		—		—		—		—		7
Change related to ESOP shares	—		—		—		—		977		977
Net income	—		12,312		—		—		—		12,312


Purchase of 28,959 shares of common stock	—		—		—		( 1,975 )		—		( 1,975 )
Other comprehensive loss	—		—		( 742 )		—		—		( 742 )
Balance, June 30, 2024	$	64,418	$	555,691	$	( 30,493 )	$	( 67,850 )	$	( 45,398 )	$	476,368

Balance, March 31, 2025	$	64,838	$	582,999	$	( 26,195 )	$	( 77,566 )	$	( 50,518 )	$	493,558
Issuance of 2,056 shares of common stock	97		—		—		58		—		155
Issuance of 1,251 shares of common stock under the employee stock purchase plan	83		—		—		—		—		83
Unearned restricted stock compensation	169		—		—		—		—		169
Forfeiture of 1,325 shares of common stock	( 85 )		—		—		—		—		( 85 )
Share-based compensation	7		—		—		—		—		7

Change related to ESOP shares	—		—		—		—		( 409 )		( 409 )
Net income	—		18,652		—		—		—		18,652


Purchase of 67,921 shares of common stock	—		—		—		( 5,120 )		—		( 5,120 )
Other comprehensive income	—		—		4,178		—		—		4,178

Balance, June 30, 2025	$	65,109	$	601,651	$	( 22,017 )	$	( 82,628 )	$	( 50,927 )	$	511,188

See Notes to Consolidated Financial Statements.

Page 7

Index

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(Amounts In Thousands, Except Share Amounts)


Six Months Ended June 30, 2025 and 2024
	Paid in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock		Maximum Cash Obligation Related to ESOP Shares		Total
Balance, December 31, 2023	$	63,827	$	541,329	$	( 27,176 )	$	( 62,841 )	$	( 44,853 )	$	470,286


Issuance of 4,496 shares of common stock	178		—		—		123		—		301
Issuance of 3,145 shares of common stock under the employee stock purchase plan	190		—		—		—		—		190
Unearned restricted stock compensation	343		—		—		—		—		343
Forfeiture of 1,926 shares of common stock	( 133 )		—		—		—		—		( 133 )
Share-based compensation	13		—		—		—		—		13
Change related to ESOP shares	—		—		—		—		( 545 )		( 545 )
Net income	—		24,412		—		—		—		24,412
Cash dividends ($ 1.10 per share)	—		( 10,050 )		—		—		—		( 10,050 )

Purchase of 76,111 shares of common stock	—		—		—		( 5,132 )		—		( 5,132 )
Other comprehensive loss	—		—		( 3,317 )		—		—		( 3,317 )
Balance, June 30, 2024	$	64,418	$	555,691	$	( 30,493 )	$	( 67,850 )	$	( 45,398 )	$	476,368

Balance, December 31, 2024	$	64,644	$	578,882	$	( 27,300 )	$	( 75,282 )	$	( 48,257 )	$	492,687
Issuance of 6,075 shares of common stock	274		—		—		172		—		446
Issuance of 2,695 shares of common stock under the employee stock purchase plan	177		—		—		—		—		177
Unearned restricted stock compensation	219		—		—		—		—		219
Forfeiture of 3,402 shares of common stock	( 217 )		—		—		—		—		( 217 )
Share-based compensation	12		—		—		—		—		12

Change related to ESOP shares	—		—		—		—		( 2,670 )		( 2,670 )
Net income	—		33,085		—		—		—		33,085
Cash dividends ($ 1.15 per share)	—		( 10,316 )		—		—		—		( 10,316 )

Purchase of 100,300 shares of common stock	—		—		—		( 7,518 )		—		( 7,518 )
Other comprehensive income	—		—		5,283		—		—		5,283

Balance, June 30, 2025	$	65,109	$	601,651	$	( 22,017 )	$	( 82,628 )	$	( 50,927 )	$	511,188

See Notes to Consolidated Financial Statements.

Page 8

Index

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands)


	Six Months Ended June 30,
	2025		2024
Cash Flows from Operating Activities
Net income	$	33,085	$	24,412
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation	1,198		1,088
Credit loss expense	5,007		312



Forfeiture of common stock	( 217 )		( 133 )
Share-based compensation	12		13
Compensation expensed through issuance of common stock	446		301
Provision for deferred income taxes	( 9,056 )		( 422 )
Net loss (gain) on sale of other real estate owned and other repossessed assets	366		( 121 )
Loss from equity method investments	219		—
Increase in accrued interest receivable	( 1,384 )		( 1,142 )
Accretion of discount on investment securities, net	( 1,450 )		( 336 )
Increase in other assets	( 183 )		( 1,616 )
Amortization of operating lease right-of-use assets	131		128
Amortization of tax credit real estate investments	954		—
Increase in accrued interest payable and other liabilities	( 3,787 )		6,527

Loans originated for sale	( 74,751 )		( 97,923 )
Proceeds on sales of loans	73,612		89,103
Net gain on sales of loans	( 703 )		( 1,042 )
Net cash and cash equivalents provided by operating activities	$	23,499	$	19,149

Cash Flows from Investing Activities
Proceeds from maturities of investment securities available for sale	$	133,112	$	114,472

Purchases of investment securities available for sale	( 114,060 )		( 128,382 )
Proceeds from sale of stock of Federal Home Loan Bank	23,857		5,677
Purchases of stock of Federal Home Loan Bank	( 29,115 )		( 7,390 )
Loans made to customers, net of collections	( 79,243 )		( 1,866 )
Proceeds on sale of other real estate owned and other repossessed assets	486		304
Purchases of property and equipment	( 1,223 )		( 1,652 )
Investment in tax credit real estate	( 1,230 )		—
Net changes from tax credit real estate investment	—		640
Net cash and cash equivalents used in investing activities	$	( 67,416 )	$	( 18,197 )

Cash Flows from Financing Activities
Net decrease in deposits	$	( 13,927 )	$	( 49,286 )
Net (decrease) increase in other short-term borrowings	( 155,188 )		138,414
Principal payments on short-term FHLB borrowings	( 412,396 )		( 155,224 )
Proceeds from the issuance of short-term FHLB borrowings	370,246		54,900
Principal payments on long-term FHLB borrowings	( 103,067 )		—




Proceeds from the issuance of long-term FHLB borrowings	305,000		—
Purchase of common stock	( 7,518 )		( 5,132 )
Proceeds from the issuance of common stock through the employee stock purchase plan	177		190
Dividends paid	( 10,316 )		( 10,050 )
Net cash and cash equivalents used in financing activities	$	( 26,989 )	$	( 26,188 )

Page 9

Index

(Continued)

HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) (Amounts In Thousands)


	Six Months Ended June 30,
	2025		2024
(Decrease) in cash and cash equivalents	$	( 70,906 )	$	( 25,236 )
Cash and cash equivalents:
Beginning of period	123,399		59,482
End of period	$	52,493	$	34,246

Supplemental Disclosures
Cash payments for:
Interest paid to depositors	$	29,755	$	28,316
Interest paid on other obligations	18,161		10,635
Income taxes paid	5,211		4,311


Noncash activities:
Increase in maximum cash obligation related to ESOP shares	$	2,670	$	545
Transfers to other real estate owned	868		63
Sale and financing of other real estate owned	353		208
Purchases of investment securities available for sale not settled	8,200		—

See Notes to Consolidated Financial Statements.

Page 10

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions for Form 10-Q and Regulation S-X. These financial statements include all adjustments (consisting of normal recurring accruals) which in the opinion of management are considered necessary for the fair presentation of the financial position and results of operations for the periods shown. While the chief operating decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Although the loan activity of the Bank is diversified with commercial and agricultural loans, real estate loans, automobile, installment and other consumer loans, the Bank's credit is concentrated in real estate loans. Accordingly, the management of the Company considers that it operates as one business segment, a commercial bank.

Operating results for the six month period ended June 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025. For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K Annual Report of Hills Bancorporation and subsidiary (the “Company”) for the year ended December 31, 2024 filed with the Securities Exchange Commission on March 14, 2025. The consolidated balance sheet as of December 31, 2024, has been derived from the audited consolidated financial statements for that period.

The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.

Accounting Estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain Significant Estimates:

The allowance for credit losses involves certain significant estimates made by management. These estimates are reviewed by management routinely and it is reasonably possible that circumstances that exist at June 30, 2025 may change in the near-term and the effect could be material to the consolidated financial statements. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process.

Revenue Recognition:

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the Company’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit and investment securities. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts.

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606 are the following: Service charges and fees on deposit accounts represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue which includes interchange income, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the

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(Unaudited)

Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied. Trust income represents monthly fees due from wealth management customers as consideration for managing the customers' assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received.

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity's obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. As of June 30, 2025 and December 31, 2024, the Company did not have any significant contract balances.

An entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company has not incurred or capitalized any contract acquisition costs as of June 30, 2025 and December 31, 2024.

Tax credit real estate : Tax credit real estate represents three multi-family rental properties, three assisted living rental properties, a multi-tenant rental property for persons with disabilities, and a multi-family senior living rental property, all of which are affordable housing projects as of June 30, 2025. In addition, in July 2024, the Company made a tax equity investment in an entity to provide for the historic preservation of a mixed use property in Cedar Rapids, Iowa. The Company has a 99 % or greater limited interest in each limited partnership or company. The investment in each was completed after the projects had been developed by the general partner or managing member. On a regular basis, the Company evaluates recoverability of the carrying value of the tax credit real estate investments to determine if there are indications of impairment. This is measured by a comparison of the carrying amount of the investments to the future undiscounted cash flows expected to be generated by the investment properties, including the low-income housing tax credits and any estimated proceeds from eventual disposition. If there is an indication of impairment, a valuation allowance would be established with a charge to expense. There were no indications of impairment based on management's evaluation and therefore no valuation allowance was determined necessary as of June 30, 2025. Depreciation expense is provided on a straight-line basis over the estimated useful life of the assets. Expenditures for normal repairs and maintenance are charged to expense as incurred.

The investments in tax credit real estate are recorded for all years presented using the equity method of accounting, with the exception of the investments in the affordable housing project and historic preservation project described below. The operations of the properties are not expected to contribute significantly to the Company’s income before income taxes. However, the properties do contribute in the form of income tax credits, which lowers the Company’s effective tax rate. Once established, the credits on each property last for ten years , five years for the historic preservation property, and are passed through from the limited partnerships or entity to the Company and reduces the consolidated federal tax liability of the Company.

In February 2021, the Company provided construction financing and contributed capital of $ 4.18 million to Del Ray Ridge LP, as limited partner, which owns and operates an affordable housing property in Iowa City, Iowa. The Company accounts for the investment in this tax credit real estate using the proportional amortization method as provided for under Accounting Standards Codification (ASC) 323-740. The investment qualifies for the proportional amortization method as it meets all of the criteria under ASC 323-740-25-1. Substantially all of the projected benefits are from tax credits and other tax benefits due to the minimum buyout clause included in the partnership agreement.

In July 2024, the Company provided construction financing and contributed capital of $ 2.38 million to SLE Iowa Building, LC, as investor member, which owns and operates a historically preserved mixed use property in Cedar Rapids, Iowa. An additional $ 1.23 million of contributions to capital were paid in the quarter ending June 30, 2025. The Company accounts for the investment in this tax credit real estate using the proportional amortization method as provided for under Accounting Standards Codification (ASC) 323-740. The investment qualifies for the proportional amortization method as it meets all of the criteria under ASC 323-740-25-1. Substantially all of the projected benefits are from tax credits and other tax benefits due to the minimum buyout clause included in the operating agreement.

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(Unaudited)

Available-for-sale debt securities and the allowance for credit losses on available-for-sale debt securities : Available-for-sale ("AFS") securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. There were no trading or held to maturity securities as of June 30, 2025 or 2024. Fair value measurement is based upon quoted market prices in active markets, if available. If quoted prices in active markets are not available, fair value is measured using pricing models or other model-based valuation techniques such as present value of future cash flows, which consider prepayment assumptions and other factors such as credit losses and market liquidity. Unrealized gains and losses are excluded from earnings and reported, net of tax, in other comprehensive income ("OCI"). Premiums on debt securities are amortized to the earliest call date and discounts on debt securities are accreted over the period to maturity of those securities. The method of amortization results in a constant effective yield on those securities (the interest method). Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.

Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of whether any decline in fair value is due to a credit loss, all relevant information is considered at the individual security level. For asset-backed securities performance indicators considered related to the underlying assets include default rates, delinquency rates, percentage of nonperforming assets, debt-to-collateral ratios, third-party guarantees, current levels of subordination, vintage, geographic concentration, analyst reports and forecasts, credit ratings and other market data. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis.

If we intend to sell a debt security or more likely than not we will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged against the allowance for credit losses with any incremental impairment reported in earnings.

Accrued interest receivable on AFS debt securities, stock of the Federal Home Loan Bank, and Federal Reserve excess balance account totaled $ 6.34 million and $ 6.10 million at June 30, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses.

Stock of the Federal Home Loan Bank is carried at cost. The Company has evaluated the stock and determined there is no impairment.

Loans held for sale : Loans held for sale are stated at the lower of aggregate cost or estimated fair value. Loans are sold on a non-recourse basis with servicing released and gains and losses are recognized based on the difference between sales proceeds and the carrying value of the loan. The Company has had very few experiences of repurchasing loans previously sold into the secondary market. A specific reserve was not considered necessary based on the Company’s historical experience with repurchase activity.

Loans held for investment : Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses ("ACL"). Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Accrued interest receivable on loans held for investment totaled $ 16.44 million and $ 15.30 million at June 30, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Nonrefundable loan fees and origination costs are deferred and recognized as a yield adjustment over the life of the related loan.

The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the

borrower's ability to meet payments of interest or principal when they become due, which is generally when a loan is 90 days or

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(Unaudited)

more past due unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed against interest income. Loans are returned to an accrual status when all of the principal and interest amounts contractually due are brought current and repayment of the remaining contractual principal and interest is expected. A loan may also return to accrual status if additional collateral is received from the borrower and, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the collection of the amount contractually due. Payment received on nonaccrual loans are applied first to principal. Once principal is recovered, any remaining payments received are applied to interest income.

The policy for charging off loans is consistent throughout all loan categories. A loan is charged off based on criteria that includes but is not limited to: delinquency status, financial condition of the entire customer credit line and underlying collateral coverage, economic or external conditions that might impact full repayment of the loan, legal issues, overdrafts, and the customer’s willingness to work with the Company.

Allowance for credit losses for loans held for investment : The allowance for credit losses is an estimate of the expected losses over the remaining life of the Company's existing loans held for investment portfolio. The allowance for credit losses for loans held for investment, as reported in our consolidated balance sheet, is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The loan loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments which consist of agricultural, 1 to 4 family first and junior liens, commercial, and consumer lending. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these pools, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data. The following provides the credit quality indicators and risk elements that are most relevant and most carefully considered and monitored for each loan portfolio segment.

Agricultural - Agricultural operating loans include loans made to finance agricultural production and other loans to farmers and farming operations. Agricultural loans also include mortgage loans secured by farmland. Agricultural operating loans, most of which are secured by crops and machinery, are provided to finance capital improvement and farm operations as well as acquisitions of livestock and machinery. The ability of the borrower to repay may be affected by many factors outside of the borrower’s control including adverse weather conditions, loss of livestock due to disease or other factors, declines in market prices for agricultural products and the impact of government regulations. The ultimate repayment of agricultural operating loans is dependent upon the profitable operation or management of the agricultural entity. Agricultural operating loans generally have a term of one year and may have a fixed or variable rate. Key economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product (GDP) as of June 30, 2025 and December 31, 2024.

Mortgage loans secured by farmland are made to individuals and businesses within the Company's trade area. The primary source of repayment is the cash flow generated by the collateral underlying the loan. The secondary repayment source would be the liquidation of the collateral. Terms for real estate loans secured by farmland range from one to ten years with an amortization period of 25 years or less. Generally, interest rates are fixed for mortgage loans secured by farmland. Key economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product as of June 30, 2025 and December 31, 2024.

1 to 4 Family First and Junior Liens - The 1 to 4 family first and junior liens portfolio segment is comprised of the single family and home equity loan classes, which are underwritten after evaluating a borrower's capacity to repay, credit, and collateral. Several factors are considered when assessing a borrower's capacity, including the borrower's employment, income, current debt, assets, and level of equity in the property. Credit refers to how well a borrower manages their current and prior debts as documented by a credit report that provides credit scores and the borrower's current and past information about their credit history. Collateral refers to the type and use of property, occupancy, and market value. Property appraisals are obtained to assist in evaluating collateral. Loan-to-property value and debt-to-income ratios, loan amount, and lien position are also considered in assessing whether to originate a loan. These borrowers are particularly susceptible to downturns in economic trends such as conditions that negatively affect

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(Unaudited)

housing prices and demand and levels of unemployment. Key economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate as of June 30, 2025 and December 31, 2024.

Commercial - The commercial loan portfolio segment is comprised of the commercial real estate mortgage including obligations of states and political subdivisions, multifamily residential mortgage, construction/land development and commercial and financial loan classes, whose underwriting standards consider the factors described for single family and home equity loan classes as well as others when assessing the borrower's and associated guarantors or other related party's financial position. These other factors include assessing liquidity, the level and composition of net worth, leverage, considering all other lender amounts and position, an analysis of cash expected to flow through the obligors including the outflow to other lenders, vacancies and prior experience with the borrower. This information is used to assess adequate financial capacity, profitability, and experience. Ultimate repayment of these loans is sensitive to interest rate changes, general economic conditions, liquidity, and availability of long-term financing. Key economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product as of June 30, 2025 and December 31, 2024.

Consumer Lending - The Company offers consumer loans to individuals including personal loans and automobile loans. These consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than real estate-related loans. Consumer collections are dependent on the borrower's continuing financial stability and are more likely to be affected by adverse personal circumstances. Collateral for these loans generally includes automobiles, boats, recreational vehicles and real estate. However, depending on the overall financial condition of the borrower, some loans are made on an unsecured basis. The collateral securing these loans may depreciate over time, may be difficult to recover and may fluctuate in value based on condition. Key economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product as of June 30, 2025 and December 31, 2024.

The allowance level is influenced by loan volumes, loan credit quality indicator migration or delinquency status, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics; and second, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow method or remaining life method to estimate expected credit losses.

Discounted cash flow method : In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and purpose. This model calculates an expected loss percentage for each loan class by considering the probability of default, using life-of-loan analysis periods for all loan segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted 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 portfolio related to: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio; (3) the nature and volume of the loan portfolio including the terms of the loans; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due and adversely classified or graded loans and the volume of nonaccrual loans; (6) the quality of our loan review system; (7) the value of underlying collateral for collateral-dependent loans; (8) the existence and effect of any concentrations of credit and changes in the level of such concentrations; and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. 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

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(Unaudited)

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 Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the economic variables.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve quarters on a straight-line basis. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

Remaining life method: Expected credit losses for credit cards and overdrafts are determined through use of the remaining life method. The remaining life method utilizes average annual charge-off rates and remaining life to estimate the allowance for credit losses. This is done by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting period and applying those principal payments against the balance outstanding as of the reporting period along with the average annual charge-off rate until the expected payments have been fully allocated. Management applies the same qualitative factor framework for the remaining life method loan portfolios as the framework used for the discounted cash flow method loan portfolios.

Collateral dependent financial assets : For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs and deferred loan fees and costs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

The Company’s estimate of the ACL reflects losses expected over the contractual life of the assets, adjusted for estimated prepayments or curtailments. The contractual term does not consider extensions, renewals or modifications unless the Company has identified a modification including a concession to a borrower experiencing financial difficulties. A modification of a loan to a borrower experiencing financial difficulties occurs when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics.

Allowance for credit losses on off-balance sheet credit exposures, including unfunded loan commitments: The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which is disclosed on the balance sheet. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the ACL methodology to the results of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. No credit loss estimate is reported for off-balance-sheet (OBS) credit exposures that are unconditionally cancellable by the Company, such as credit card receivables, or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. The allowance for credit losses on OBS credit exposures is adjusted as credit loss expense. Categories of OBS credit exposures correspond to the loan portfolio segments described previously.

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

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(Unaudited)

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 public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in this Update retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted the ASU on January 1, 2024 for the annual period ending December 31, 2024. See disclosure in Note 13.

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 - Stock Compensation. The illustrative example is intended to reduce 1) complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and 2) existing diversity in practice. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. The adoption of the ASU on a prospective basis by the Company on January 1, 2025 did not have a material impact on the financial statements.

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 amendments in this ASU should be applied on a prospective basis. The Company is in the process of evaluating the impact of this ASU on the financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:

• Disclose the amounts of (a) employee compensation; and (b) depreciation included in each relevant expense caption.

• Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.

• Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.

• Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. A public business entity should apply ASU No. 2024-03 prospectively to financial statements issued for reporting periods beginning after the effective date of ASU No. 2024-03. The disclosures required ASU No. 2024-03 do not need to be included in financial statements for reporting periods beginning before the effective date that are being presented for comparative purposes with financial statements issued for periods after the effective date. The Company is in the process of evaluating the impact of this ASU on the financial statements.

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(Unaudited)

Note 2. Earnings Per Share

Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur from the exercise of common stock options outstanding. ESOP shares are considered outstanding for this calculation unless unearned.

The computation of basic and diluted earnings per share for the periods presented is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Common shares outstanding at the beginning of the period	8,940,429		9,092,333		8,969,422		9,135,720
Weighted average number of net shares redeemed	( 36,853 )		( 11,646 )		( 37,808 )		( 35,987 )
Weighted average shares outstanding (basic)	8,903,576		9,080,687		8,931,614		9,099,733
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method	1,295		476		1,082		488
Weighted average number of shares (diluted)	8,904,871		9,081,163		8,932,696		9,100,221
Net income (In thousands)	$	18,652	$	12,312	$	33,085	$	24,412
Earnings per share:
Basic	$	2.09	$	1.35	$	3.70	$	2.68
Diluted	$	2.09	$	1.35	$	3.70	$	2.68

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(Unaudited)

Note 3. Accumulated Other Comprehensive Loss

The following table summarizes the balances of each component of accumulated other comprehensive loss (AOCI), included in stockholders’ equity, at June 30, 2025 and December 31, 2024:


	June 30, 2025		December 31, 2024
	(amounts in thousands)
Net unrealized loss on available-for-sale securities	$	( 28,882 )	$	( 35,719 )
Net unrealized loss on derivatives used for cash flow hedges	—		( 93 )
Tax effect	6,865		8,512
Net-of-tax amount	$	( 22,017 )	$	( 27,300 )

Note 4. Securities

The carrying values of investment securities at June 30, 2025 and December 31, 2024 are summarized in the following table (dollars in thousands):


	June 30, 2025				December 31, 2024
	Amount		Percent		Amount		Percent
Securities available for sale
U.S. Treasury	$	270,505	28.73	%	$	288,462	30.55	%
Other securities (FHLB, FHLMC, FNMA and SBA)	4,769		0.51		14,848		1.57
State and political subdivisions	381,392		40.51		362,736		38.42
Mortgage-backed securities and collateralized mortgage obligations (MBS and CMO)	284,905		30.25		278,090		29.46
Total securities available for sale	$	941,571	100.00	%	$	944,136	100.00	%

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Available-for-sale securities consist of debt securities not classified as trading or held to maturity. Available-for-sale securities are stated at fair value, and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of stockholders' equity. Municipal bonds are comprised of general obligation bonds and revenue bonds issued by various municipal corporations. As of June 30, 2025 and December 31, 2024, all securities held were rated investment grade based upon external ratings where available and, where not available, based upon management knowledge of the local issuers and their financial situations. There were no trading or held to maturity securities as of June 30, 2025 or December 31, 2024.

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(Unaudited)

The carrying amount of available-for-sale securities, fair values and allowance for credit losses were as follows as of June 30, 2025 and December 31, 2024 (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Estimated Fair Value
June 30, 2025
U.S. Treasury	$	271,058	$	1,866	$	( 2,419 )	$	—	$	270,505
Other securities (FHLB, FHLMC, FNMA and SBA)	4,818		—		( 49 )		—		4,769
State and political subdivisions	406,313		582		( 25,503 )		—		381,392
MBS and CMO	288,264		1,861		( 5,220 )		—		284,905
Total	$	970,453	$	4,309	$	( 33,191 )	$	—	$	941,571
December 31, 2024:
U.S. Treasury	$	294,210	$	215	$	( 5,963 )	$	—	$	288,462
Other securities (FHLB, FHLMC and FNMA)	15,010		—		( 162 )		—		14,848
State and political subdivisions	383,244		832		( 21,340 )		—		362,736
MBS and CMO	287,391		54		( 9,355 )		—		278,090
Total	$	979,855	$	1,101	$	( 36,820 )	$	—	$	944,136

The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities at June 30, 2025, were as follows (in thousands) below. Expected maturities of MBS may differ from contractual maturities because the mortgages underlying the securities may be called or prepaid without any penalties. Therefore, these securities are not included in the maturity categories in the following summary.


	Amortized Cost		Fair Value
Due in one year or less	$	48,348	$	47,678
Due after one year through five years	306,708		303,542
Due after five years through ten years	130,006		117,550
Due over ten years	197,127		187,896
	$	682,189	$	656,666
MBS and CMO	288,264		284,905
	$	970,453	$	941,571

As of June 30, 2025 and 2024, investment securities with a carrying value of $ 136.48 million and $ 354.59 million, respectively, were pledged to collateralize other borrowings. As of June 30, 2025, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity.

There were no sales of available-for-sale securities for the three or six months ended June 30, 2025 and 2024.

Page 20

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table shows the fair value, gross unrealized losses and the percentage of fair value represented by gross unrealized losses of applicable investment securities owned by the Company, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2025 and December 31, 2024 (in thousands):


	Less than 12 months							12 months or more							Total
June 30, 2025 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	13	$	57,469	$	( 444 )	0.77	%	27	$	65,235	$	( 1,975 )	3.03	%	40	$	122,704	$	( 2,419 )	1.97	%

Other securities (FHLB, FHLMC, FNMA and SBA)	1	4,769		( 49 )		1.03		—	—		—		—		1	4,769		( 49 )		1.03

State and political subdivisions	477	177,016		( 8,296 )		4.69		628	162,858		( 17,207 )		10.57		1,105	339,874		( 25,503 )		7.50

MBS and CMO	8	30,356		( 357 )		1.18		18	40,493		( 4,863 )		12.01		26	70,849		( 5,220 )		7.37

Total	499	$	269,610	$	( 9,146 )	3.39	%	673	$	268,586	$	( 24,045 )	8.95	%	1,172	$	538,196	$	( 33,191 )	6.17	%


	Less than 12 months							12 months or more							Total
December 31, 2024 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	32	$	115,094	$	( 2,555 )	2.22	%	44	$	125,590	$	( 3,408 )	2.71	%	76	$	240,684	$	( 5,963 )	2.48	%

Other securities (FHLB, FHLMC and FNMA)	—	—		—		—		6	14,848		( 162 )		1.09		6	14,848		( 162 )		1.09

State and political subdivisions	369	140,021		( 2,844 )		2.03		663	163,330		( 18,496 )		11.32		1,032	303,351		( 21,340 )		7.03

MBS and CMO	35	225,680		( 2,904 )		—		18	41,222		( 6,451 )		15.65		53	266,902		( 9,355 )		3.51

Total	436	$	480,795	$	( 8,303 )	1.73	%	731	$	344,990	$	( 28,517 )	8.27	%	1,167	$	825,785	$	( 36,820 )	4.46	%

The Company considered the following information in reaching the conclusion that the unrealized losses disclosed in the table above are not attributable to credit losses. None of the unrealized losses in the above table was due to the deterioration in the credit quality of any of the issues that might result in the non-collection of contractual principal and interest. The unrealized losses are due to changes in interest rates. The Company has not recognized any unrealized loss in income because management does not have the intent to sell the securities included in the previous table. Management has concluded that it is more likely than not that the Company will not be required to sell these securities prior to recovery of the amortized cost basis. The securities are of high credit quality (investment grade credit ratings) and principal and interest payments are made timely with no payments past due as of June 30, 2025. The fair value is expected to recover as the securities approach maturity. The U.S. Treasury and other securities are issued and guaranteed by U.S. government-sponsored entities and agencies. The MBS and CMOs have implied U.S. government guarantees of the agency securities. The Company evaluates if a credit loss exists by monitoring to ensure it has adequate credit support considering the nature of the investment, number and significance of investments in an unrealized loss position, collectability or delinquency issues, the underlying financial statements of the issuers, credit ratings and subsequent changes thereto, and other available relevant information. Considering the above factors, management has determined that no allowance for credit losses is necessary for the securities portfolio as of June 30, 2025.

Page 21

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 5. Loans

Classes of loans are as follows:


	June 30, 2025		December 31, 2024
	(Amounts In Thousands)
Agricultural	$	117,141	$	118,678
Commercial and financial	312,692		298,917
Real estate:
Construction, 1 to 4 family residential	85,736		79,451
Construction, land development and commercial	278,076		279,589
Mortgage, farmland	273,022		275,768
Mortgage, 1 to 4 family first liens	1,220,939		1,174,083
Mortgage, 1 to 4 family junior liens	142,561		141,550
Mortgage, multi-family	493,791		492,762
Mortgage, commercial	516,050		498,078
Loans to individuals	33,629		35,301
Obligations of state and political subdivisions	42,173		43,994
	$	3,515,810	$	3,438,171
Net unamortized fees and costs	282		290
	$	3,516,092	$	3,438,461
Less allowance for credit losses	54,020		50,940
	$	3,462,072	$	3,387,521

Page 22

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Changes in the allowance for credit losses (ACL) for the three and six months ended June 30, 2025 and 2024 were as follows:


	Three Months Ended June 30, 2025
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL on loans:
March 31, 2025	$	783	$	10,901	$	2,467	$	3,469	$	23,281	$	11,067	$	982	$	52,950

Charge-offs	—		( 302 )		—		—		( 140 )		( 200 )		( 318 )		( 960 )
Recoveries	44		433		9		1		229		89		118		923
Credit loss expense (benefit)	( 63 )		( 356 )		116		( 140 )		1,221		229		100		1,107

June 30, 2025	$	764	$	10,676	$	2,592	$	3,330	$	24,591	$	11,185	$	882	$	54,020




	Six Months Ended June 30, 2025
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL on loans:
December 31, 2024	$	674	$	10,217	$	2,393	$	3,252	$	22,929	$	10,353	$	1,122	$	50,940
Charge-offs	( 35 )		( 553 )		( 251 )		—		( 525 )		( 637 )		( 692 )		( 2,693 )
Recoveries	150		681		35		14		391		113		212		1,596
Credit loss expense (benefit)	( 25 )		331		415		64		1,796		1,356		240		4,177

June 30, 2025	$	764	$	10,676	$	2,592	$	3,330	$	24,591	$	11,185	$	882	$	54,020

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Three Months Ended June 30, 2024
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL on loans:
March 31, 2024	$	2,918	$	7,901	$	6,098	$	3,161	$	18,188	$	9,122	$	2,442	$	49,830
Charge-offs	( 16 )		( 412 )		( 341 )		( 2 )		( 349 )		( 4 )		( 286 )		( 1,410 )
Recoveries	31		184		2		2		221		29		66		535
Credit loss expense (benefit)	( 100 )		735		( 415 )		( 61 )		211		42		363		775

June 30, 2024	$	2,833	$	8,408	$	5,344	$	3,100	$	18,271	$	9,189	$	2,585	$	49,730

	Six Months Ended June 30, 2024
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL on loans:
December 31, 2023	$	2,516	$	8,750	$	6,482	$	3,429	$	18,552	$	8,156	$	1,525	$	49,410

Charge-offs	( 17 )		( 843 )		( 429 )		( 2 )		( 621 )		( 42 )		( 636 )		( 2,590 )
Recoveries	54		595		286		24		424		194		171		1,748
Credit loss expense (benefit)	280		( 94 )		( 995 )		( 351 )		( 84 )		881		1,525		1,162

June 30, 2024	$	2,833	$	8,408	$	5,344	$	3,100	$	18,271	$	9,189	$	2,585	$	49,730

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Changes in the allowance for credit losses (ACL) for off-balance sheet credit exposures for the three and six months ended June 30, 2025 and 2024 were as follows:


	Three Months Ended June 30, 2025
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
March 31, 2025	$	148	$	2,319	$	471	$	42	$	526	$	147	$	47	$	3,700

Credit loss expense (benefit)	22		( 112 )		110		10		( 36 )		27		9		30
(Charge-offs), net recoveries	—		—		—		—		—		—		—		—

June 30, 2025	$	170	$	2,207	$	581	$	52	$	490	$	174	$	56	$	3,730

	Six Months Ended June 30, 2025
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
December 31, 2024	$	147	$	1,753	$	486	$	13	$	412	$	46	$	43	$	2,900

Credit loss expense (benefit)	23		454		95		39		78		128		13		830
(Charge-offs), net recoveries	—		—		—		—		—		—		—		—

June 30, 2025	$	170	$	2,207	$	581	$	52	$	490	$	174	$	56	$	3,730

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Three Months Ended June 30, 2024
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
March 31, 2024	$	552	$	1,183	$	2,102	$	31	$	425	$	14	$	53	$	4,360

Credit loss expense (benefit)	54		( 15 )		( 138 )		( 2 )		7		( 7 )		1		( 100 )
(Charge-offs), net recoveries	—		—		—		—		—		—		—		—

June 30, 2024	$	606	$	1,168	$	1,964	$	29	$	432	$	7	$	54	$	4,260

	Six Months Ended June 30, 2024
	Agricultural		Commercial and Financial		Real Estate: Construction and land development		Real Estate: Mortgage, farmland		Real Estate: Mortgage, 1 to 4 family		Real Estate: Mortgage, multi- family and commercial		Other		Total
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
December 31, 2023	$	283	$	1,407	$	2,841	$	73	$	363	$	88	$	55	$	5,110

Credit loss expense (benefit)	323		( 239 )		( 877 )		( 44 )		69		( 81 )		( 1 )		( 850 )
(Charge-offs), net recoveries	—		—		—		—		—		—		—		—

June 30, 2024	$	606	$	1,168	$	1,964	$	29	$	432	$	7	$	54	$	4,260

Credit loss expense for off-balance sheet credit exposures is included in credit loss expense on the consolidated statement of income for the six months ended June 30, 2025 and 2024.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification and grading in accordance with applicable bank regulations. The Company's risk rating methodology assigns risk ratings ranging from 1 to 6, where a higher rating represents higher risk. The Company differentiates its lending portfolios into loans sharing common risk characteristics for which expected credit loss is measured on a pool basis and loans not sharing common risk characteristics for which credit loss is measured individually.

The below are descriptions of the credit quality indicators:

Excellent – Excellent rated loans are prime quality loans covered by highly liquid collateral with generous margins or supported by superior current financial conditions reflecting substantial net worth, relative to total credit extended, and based on assets of a stable and non-speculative nature whose values can be readily verified. Identified repayment source or cash flow is abundant and assured. Loans are secured with cash, cash equivalents, or collateral with very low loan to values. The borrower would qualify for unsecured debt and guarantors provide excellent secondary support to the relationship. The borrower has a long-term relationship with the Company, maintains high deposit balances and has an established payment history with the Company and an established business in an established industry.

Good – Good rated loans are adequately secured by readily marketable collateral or good financial condition characterized by liquidity, flexibility and sound net worth. Loans are supported by sound primary and secondary payment sources and timely

Page 26

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

and accurate financial information. The relationship is not quite as strong as a borrower that is assigned an excellent rating but still has a very strong liquidity position, low leverage, and track record of strong performance. These loans have a strong collateral position with limited risk to bank capital. The collateral will not materially lose value in a distressed liquidation. Guarantors provide additional secondary support to mitigate possible bank losses. The borrower has a long-term relationship with the Company with an established track record of payments; loans with shorter remaining loan amortization; deposit balances are consistent; loan payments could be made from cash reserves in the interim period; and source of income is coming from a stable industry.

Satisfactory – Satisfactory rated loans are loans to borrowers of average financial means not especially vulnerable to changes in economic or other circumstances, where the major support for the extension is sufficient collateral of a marketable nature, and the primary source of repayment is seen to be clear and adequate. The borrower's financial performance is consistent, ratios and trends are positive and the primary repayment source can clearly be identified and supported with acceptable financial information. The loan relationship could be vulnerable to changes in economic or industry conditions but have the ability to absorb unexpected issues. The loan collateral coverage is considered acceptable and guarantors can provide financial support but net worth might not be as liquid as a 1 or 2 rated relationship. The borrower has an established relationship with the Company. The relationship is making timely loan payments, any operating line is revolving and deposit balances are positive with limited to no overdrafts. Management and industry is considered stable.

Monitor – Monitor rated loans are identified by management as warranting special attention for a variety of reasons that may bear on ultimate collectability. This may be due to adverse trends, a particular industry, loan structure, or repayment that is dependent on projections, or a one-time occurrence . The relationship l iquidity levels are minimal and the borrower’s leverage position is brought into question. The primary repayment source is showing signs of being stressed or is not proven. If the borrower performs as planned, the loan will be repaid. The collateral coverage is still considered acceptable but there might be some concern with the type of real estate securing the debt or highly dependent on chattel assets. Some loans may be better secured than others. Guarantors still provide some support but there is not an abundance of financial strength supporting the guaranty. A monitor credit may be appropriate when the borrower is experiencing rapid growth which is impacting liquidity levels and increasing debt levels. Other attributes to consider would include if the business is a start-up or newly acquired, if the relationship has significant financing relationships with other financial institutions, the quality of financial information being received, management depth of the company, and changes to the business model. The track history with the Company has some deficiencies such as slow payments or some overdrafts.

Special Mention – Special mention rated loans are supported by a marginal payment capacity and are marginally protected by collateral. There are identified weaknesses that if not monitored and corrected may adversely affect the Company’s credit position. A special mention credit would typically have a weakness in one of the general categories (cash flow, collateral position or payment history) but not in all categories. Potential indicators of a special mention would include past due payments, overdrafts, management issues, poor financial performance, industry issues, or the need for additional short-term borrowing. The ability to continue to make payments is in question; there are “red flags” such as past due payments, non-revolving credit lines, overdrafts, and the inability to sell assets. The borrower is experiencing delinquent taxes, legal issues, etc., obtaining financial information has become a challenge, collateral coverage is marginal at best, and the value and condition could be brought into question. Collateral document deficiencies have been noted and if not addressed, could become material. Guarantors provide minimal support for this relationship. The credit may include an action plan or follow up established in the asset quality process. There is a change in the borrower’s communication pattern. Industry issues may be impacting the relationship. Adverse credit scores or history of payment deficiencies could be noted.

Substandard – Substandard loans are not adequately supported by the paying capacity of the borrower and may be inadequately collateralized. These loans have a well-defined weakness or weaknesses. Full repayment of the loan(s) according to the original terms and conditions is in question or not expected. For these loans, it is more probable than not that the Company could sustain some loss if the deficiency(ies) is not corrected. There are identified shortfalls in the primary repayment source such as carry over debt, past due payments, and overdrafts. Obtaining quality and timely financial information is a weakness. The loan is under secured with exposure that could impact the Company's capital. It appears the liquidation of collateral has become the repayment source. The collateral may be difficult to foreclose or have little to no value. Collateral documentation deficiencies have been noted during the review process. Guarantor(s) provide minimal to no support of the relationship. The borrower’s communication with the Company continues to decrease and the borrower is not addressing the situation. There is some concern about the borrower’s ability and willingness to repay the loans. Problems may be the result of external issues such as economic or industry related issues.

Page 27

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present total loans by risk categories and gross charge-offs by year of origination as of June 30, 2025 (amounts in thousands):


June 30, 2025	Agricultural
	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total

Excellent	$	300	$	620	$	64	$	653	$	—	$	7	$	4,554	$	6,198
Good	1,111		1,468		1,103		1,259		186		79		10,328		15,534
Satisfactory	7,863		6,555		2,104		5,188		998		457		21,857		45,022
Monitor	6,955		1,685		1,444		704		480		69		18,807		30,144
Special Mention	3,105		1,456		663		1,169		108		443		6,768		13,712
Substandard	1,817		814		451		323		56		—		3,070		6,531
Total	$	21,151	$	12,598	$	5,829	$	9,296	$	1,828	$	1,055	$	65,384	$	117,141
Current-period gross write offs	$	—	$	35	$	—	$	—	$	—	$	—	$	—	$	35




	Commercial and Financial
Excellent	$	561	$	387	$	150	$	190	$	74	$	—	$	11,048	$	12,410
Good	6,772		8,743		6,145		8,379		1,832		33		19,389		51,293
Satisfactory	21,063		16,046		17,608		39,795		8,396		1,939		43,119		147,966
Monitor	13,553		13,913		8,114		8,697		2,720		405		29,851		77,253
Special Mention	2,129		4,469		2,030		542		131		423		5,398		15,122
Substandard	1,774		3,124		671		148		1,225		481		1,225		8,648
Total	$	45,852	$	46,682	$	34,718	$	57,751	$	14,378	$	3,281	$	110,030	$	312,692

Current-period gross write offs	$	293	$	183	$	53	$	—	$	—	$	—	$	24	$	553


	Real Estate: Construction, 1 to 4 Family Residential



Excellent	$	—	$	277	$	—	$	—	$	—	$	—	$	10,368	$	10,645
Good	—		—		—		—		—		—		7,404		7,404
Satisfactory	219		2,082		—		—		—		—		44,176		46,477
Monitor	626		127		—		—		—		—		17,123		17,876
Special Mention	250		—		—		—		—		—		2,861		3,111
Substandard	—		223		—		—		—		—		—		223
Total	$	1,095	$	2,709	$	—	$	—	$	—	$	—	$	81,932	$	85,736

Current-period gross write offs	$	—	$	183	$	—	$	—	$	—	$	—	$	49	$	232


	Real Estate: Construction, Land Development and Commercial



Excellent	$	187	$	427	$	—	$	—	$	—	$	138	$	1,962	$	2,714
Good	1,616		983		—		361		28		92		14,516		17,596
Satisfactory	16,937		9,827		2,057		1,777		3,114		168		77,909		111,789
Monitor	2,921		3,174		1,162		780		1,566		20		131,471		141,094
Special Mention	425		1,510		—		28		16		44		180		2,203
Substandard	241		154		290		1,995		—		—		—		2,680
Total	$	22,327	$	16,075	$	3,509	$	4,941	$	4,724	$	462	$	226,038	$	278,076

Current-period gross write offs	$	8	$	—	$	11	$	—	$	—	$	—	$	—	$	19

Page 28

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Mortgage, Farmland



June 30, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	1,224	$	1,671	$	1,668	$	4,588	$	1,603	$	353	$	70	$	11,177
Good	3,881		4,541		3,702		13,128		10,422		2,766		5,061		43,501
Satisfactory	17,578		15,666		24,004		44,738		29,442		14,215		13,724		159,367
Monitor	4,037		2,228		9,570		15,340		3,448		2,934		4,209		41,766
Special Mention	1,052		251		3,162		3,345		1,492		646		3,115		13,063
Substandard	2,433		—		1,304		67		—		344		—		4,148
Total	$	30,205	$	24,357	$	43,410	$	81,206	$	46,407	$	21,258	$	26,179	$	273,022

Current-period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Real Estate: Mortgage, 1 to 4 Family First Liens


Excellent	$	6,710	$	3,540	$	6,449	$	8,860	$	1,298	$	639	$	220	$	27,716
Good	3,505		3,656		2,981		9,792		6,293		17,335		4,597		48,159
Satisfactory	123,896		80,123		151,294		263,605		142,611		208,238		12,421		982,188
Monitor	13,309		8,669		13,322		28,971		13,068		22,241		8,732		108,312
Special Mention	802		3,627		4,430		11,135		5,343		7,141		2,549		35,027
Substandard	490		869		3,152		3,282		4,236		7,282		226		19,537
Total	$	148,712	$	100,484	$	181,628	$	325,645	$	172,849	$	262,876	$	28,745	$	1,220,939

Current-period gross write offs	$	—	$	97	$	63	$	107	$	98	$	24	$	—	$	389


	Real Estate: Mortgage, 1 to 4 Family Junior Liens



Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	20	$	20
Good	21		—		—		253		—		752		3,466		4,492
Satisfactory	9,361		3,508		7,065		10,353		7,130		11,484		78,707		127,608
Monitor	120		730		370		576		463		607		3,224		6,090
Special Mention	15		122		215		383		231		229		1,133		2,328
Substandard	—		232		391		95		117		391		797		2,023
Total	$	9,517	$	4,592	$	8,041	$	11,660	$	7,941	$	13,463	$	87,347	$	142,561

Current-period gross write offs	$	—	$	1	$	53	$	21	$	17	$	27	$	17	$	136


	Real Estate: Mortgage, Multi-Family



Excellent	$	5,497	$	—	$	—	$	6,218	$	586	$	4,616	$	—	$	16,917
Good	1,584		444		29,790		54,513		18,205		24,751		21,291		150,578
Satisfactory	46,178		19,957		26,357		50,158		19,029		8,169		11,885		181,733
Monitor	25,279		5,595		5,226		29,756		24,418		3,974		29,370		123,618
Special Mention	—		1,805		2,959		—		8,549		3,119		1,644		18,076
Substandard	—		143		—		1,773		953		—		—		2,869
Total	$	78,538	$	27,944	$	64,332	$	142,418	$	71,740	$	44,629	$	64,190	$	493,791

Current-period gross write offs	$	—	$	—	$	—	$	100	$	100	$	—	$	—	$	200

Page 29

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Mortgage, Commercial



June 30, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	12,887	$	1,325	$	—	$	—	$	2,312	$	113	$	3,956	$	20,593
Good	21,640		15,982		6,415		18,064		17,018		9,908		9,241		98,268
Satisfactory	35,440		32,146		23,746		31,695		22,914		22,962		48,851		217,754
Monitor	14,601		45,701		7,563		19,425		12,556		12,307		34,334		146,487
Special Mention	827		7,966		1,231		8,695		3,222		1,081		1		23,023
Substandard	1,361		2,100		1,882		1,031		1,698		1,557		296		9,925
Total	$	86,756	$	105,220	$	40,837	$	78,910	$	59,720	$	47,928	$	96,679	$	516,050

Current-period gross write offs	$	29	$	—	$	—	$	—	$	408	$	—	$	—	$	437


	Loans to Individuals



Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Good	140		99		8		3		—		—		2		252
Satisfactory	19,494		4,679		4,778		2,131		876		183		210		32,351
Monitor	48		63		92		49		25		—		6		283
Special Mention	189		141		160		25		—		—		4		519
Substandard	9		52		30		40		85		7		1		224
Total	$	19,880	$	5,034	$	5,068	$	2,248	$	986	$	190	$	223	$	33,629

Current-period gross write offs	$	548	$	58	$	73	$	8	$	—	$	—	$	5	$	692


	Obligations of State and Political Subdivisions


Excellent	$	—	$	—	$	—	$	—	$	—	$	2,850	$	—	$	2,850
Good	—		—		—		—		—		15,787		3,061		18,848
Satisfactory	—		821		1,341		1,408		759		6,930		1,483		12,742
Monitor	—		433		—		714		—		893		1		2,041
Special Mention	—		—		—		312		—		458		—		770
Substandard	—		—		—		59		—		1,997		2,866		4,922
Total	$	—	$	1,254	$	1,341	$	2,493	$	759	$	28,915	$	7,411	$	42,173

Current-period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

	Totals



Excellent	$	27,366	$	8,247	$	8,331	$	20,509	$	5,873	$	8,716	$	32,198	$	111,240
Good	40,270		35,916		50,144		105,752		53,984		71,503		98,356		455,925
Satisfactory	298,029		191,410		260,354		450,848		235,269		274,745		354,342		2,064,997
Monitor	81,449		82,318		46,863		105,012		58,744		43,450		277,128		694,964
Special Mention	8,794		21,347		14,850		25,634		19,092		13,584		23,653		126,954
Substandard	8,125		7,711		8,171		8,813		8,370		12,059		8,481		61,730
Total	$	464,033	$	346,949	$	388,713	$	716,568	$	381,332	$	424,057	$	794,158	$	3,515,810

Current-period gross write offs	$	878	$	557	$	253	$	236	$	623	$	51	$	95	$	2,693

Page 30

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present total loans by risk categories and gross charge-offs by year of origination as of December 31, 2024 (amounts in thousands):


	Agricultural
December 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	1,039	$	74	$	683	$	—	$	35	$	—	$	3,935	$	5,766
Good	3,418		1,537		1,141		227		187		—		8,431		14,941
Satisfactory	10,494		3,343		4,978		1,694		926		304		33,609		55,348
Monitor	4,418		2,008		3,157		498		222		177		15,275		25,755
Special Mention	3,085		985		1,203		140		59		495		4,556		10,523
Substandard	2,610		407		456		56		—		—		2,816		6,345
Total	$	25,064	$	8,354	$	11,618	$	2,615	$	1,429	$	976	$	68,622	$	118,678

Gross write-offs for period	$	652	$	7	$	4	$	1	$	—	$	—	5		$	669


	Commercial and Financial



Excellent	$	781	$	131	$	220	$	120	$	266	$	—	$	7,438	$	8,956
Good	5,983		17,751		8,831		3,932		550		1,277		16,137		54,461
Satisfactory	21,092		22,891		22,225		9,804		3,706		384		55,701		135,803
Monitor	19,828		9,350		11,985		3,559		2,034		84		28,135		74,975
Special Mention	5,875		3,187		932		353		48		1		3,721		14,117
Substandard	4,972		1,173		188		1,309		582		358		2,023		10,605
Total	$	58,531	$	54,483	$	44,381	$	19,077	$	7,186	$	2,104	$	113,155	$	298,917
Gross write-offs for period	$	1,109	$	1,029	$	202	$	117	$	36	$	—	$	75	$	2,568


	Real Estate: Construction, 1 to 4 Family Residential



Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	10,366	$	10,366
Good	—		—		—		—		—		—		7,657		7,657
Satisfactory	430		—		—		—		—		—		35,078		35,508
Monitor	757		1,246		—		—		—		—		19,669		21,672
Special Mention	310		1,351		—		—		—		—		1,432		3,093
Substandard	384		740		—		—		—		—		31		1,155
Total	$	1,881	$	3,337	$	—	$	—	$	—	$	—	$	74,233	$	79,451
Gross write-offs for period	$	38	$	552	$	44	$	—	$	—	$	—	$	—	$	634


	Real Estate: Construction, Land Development and Commercial



Excellent	$	910	$	—	$	—	$	—	$	—	$	87	$	880	$	1,877
Good	1,464		1,346		548		—		947		243		1,721		6,269
Satisfactory	18,468		7,649		3,043		4,525		263		744		109,998		144,690
Monitor	5,433		2,214		525		1,387		129		—		111,813		121,501
Special Mention	1,768		—		79		—		45		—		667		2,559
Substandard	164		456		2,073		—		—		—		—		2,693
Total	$	28,207	$	11,665	$	6,268	$	5,912	$	1,384	$	1,074	$	225,079	$	279,589
Gross write-offs for period	$	18	$	76	$	—	$	—	$	—	$	11	$	—	$	105

Page 31

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Mortgage, Farmland
December 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	1,805	$	1,770	$	3,734	$	1,734	$	127	$	—	$	80	$	9,250
Good	4,444		5,313		15,354		13,357		4,323		540		7,030		50,361
Satisfactory	20,496		26,971		45,687		30,119		14,971		7,944		13,616		159,804
Monitor	7,066		7,689		17,987		2,365		3,577		298		2,629		41,611
Special Mention	—		3,243		2,581		1,389		104		193		3,211		10,721
Substandard	2,188		1,353		67		—		205		208		—		4,021
Total	$	35,999	$	46,339	$	85,410	$	48,964	$	23,307	$	9,183	$	26,566	$	275,768
Gross write-offs for period	$	—	$	37	$	2	$	—	$	—	$	—	$	—	$	39


	Real Estate: Mortgage, 1 to 4 Family First Liens



Excellent	$	3,575	$	6,675	$	9,533	$	1,324	$	209	$	562	$	1	$	21,879
Good	2,730		3,070		9,977		4,325		8,648		11,667		3,887		44,304
Satisfactory	91,334		168,690		284,347		151,680		102,050		139,948		11,639		949,688
Monitor	10,389		13,992		28,998		17,758		14,004		12,974		10,236		108,351
Special Mention	2,253		3,333		11,620		5,163		3,900		4,147		2,467		32,883
Substandard	887		2,143		2,536		4,360		1,618		5,091		343		16,978
Total	$	111,168	$	197,903	$	347,011	$	184,610	$	130,429	$	174,389	$	28,573	$	1,174,083
Gross write-offs for period	$	41	$	209	$	238	$	167	$	27	$	31	$	27	$	740


	Real Estate: Mortgage, 1 to 4 Family Junior Liens



Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	13	$	13
Good	—		—		259		—		393		413		3,411		4,476
Satisfactory	6,394		8,103		11,301		7,857		5,692		8,055		80,822		128,224
Monitor	678		363		561		514		276		134		3,176		5,702
Special Mention	251		128		322		175		94		193		830		1,993
Substandard	27		166		98		124		29		123		575		1,142
Total	$	7,350	$	8,760	$	12,541	$	8,670	$	6,484	$	8,918	$	88,827	$	141,550
Gross write-offs for period	$	—	$	152	$	84	$	87	$	25	$	56	$	7	$	411


	Real Estate: Mortgage, Multi-Family



Excellent	$	—	$	—	$	5,541	$	2,857	$	8,048	$	79	$	1	$	16,526
Good	—		30,128		52,477		15,370		18,459		8,104		10,561		135,099
Satisfactory	22,149		22,371		62,472		31,371		15,644		9,854		17,865		181,726
Monitor	7,742		23,638		25,064		26,454		17,641		1,078		25,928		127,545
Special Mention	1,819		2,979		968		9,771		3,172		—		5,479		24,188
Substandard	634		—		6,994		50		—		—		—		7,678
Total	$	32,344	$	79,116	$	153,516	$	85,873	$	62,964	$	19,115	$	59,834	$	492,762
Gross write-offs for period	$	—	$	—	$	—	$	21	$	—	$	—	$	—	$	21


	Real Estate: Mortgage, Commercial



Excellent	$	1,529	$	1,389	$	—	$	2,066	$	12,428	$	248	$	3,858	$	21,518
Good	12,665		6,703		19,335		17,547		16,848		6,463		16,962		96,523
Satisfactory	39,520		25,770		33,941		25,819		33,124		15,714		40,798		214,686
Monitor	50,909		7,483		18,613		13,887		9,519		7,853		27,534		135,798
Special Mention	4,792		3,199		8,843		2,658		527		320		968		21,307
Substandard	3,050		74		1,053		2,121		1,571		81		296		8,246
Total	$	112,465	$	44,618	$	81,785	$	64,098	$	74,017	$	30,679	$	90,416	$	498,078
Gross write-offs for period	$	61	$	3	$	8	$	109	$	5	$	—	$	17	$	203

Page 32

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Loans to Individuals
December 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	1	$	1
Good	147		70		4		22		—		—		1		244
Satisfactory	21,312		6,988		3,265		1,413		397		41		246		33,662
Monitor	119		287		96		33		—		—		12		547
Special Mention	279		124		34		11		—		—		1		449
Substandard	80		68		48		5		—		192		5		398
Total	$	21,937	$	7,537	$	3,447	$	1,484	$	397	$	233	$	266	$	35,301
Gross write-offs for period	$	1,084	$	356	$	45	$	5	$	—	$	—	$	—	$	1,490


	Obligations of State and Political Subdivisions



Excellent	$	—	$	—	$	—	$	—	$	—	$	3,138	$	—	$	3,138
Good	—		—		—		—		1,631		15,853		3,103		20,587
Satisfactory	1,274		1,352		1,481		759		1,756		4,375		1,734		12,731
Monitor	—		—		1,038		—		505		406		—		1,949
Special Mention	—		—		—		—		—		490		—		490
Substandard	—		—		76		—		275		1,821		2,927		5,099
Total	$	1,274	$	1,352	$	2,595	$	759	$	4,167	$	26,083	$	7,764	$	43,994
Gross write-offs for period	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Totals



Excellent	$	9,639	$	10,039	$	19,711	$	8,101	$	21,113	$	4,114	$	26,573	$	99,290
Good	30,851		65,918		107,926		54,780		51,986		44,560		78,901		434,922
Satisfactory	252,963		294,128		472,740		265,041		178,529		187,363		401,106		2,051,870
Monitor	107,339		68,270		108,024		66,455		47,907		23,004		244,407		665,406
Special Mention	20,432		18,529		26,582		19,660		7,949		5,839		23,332		122,323
Substandard	14,996		6,580		13,589		8,025		4,280		7,874		9,016		64,360
Total	$	436,220	$	463,464	$	748,572	$	422,062	$	311,764	$	272,754	$	783,335	$	3,438,171

Gross write-offs for period	$	3,002	$	2,421	$	627	$	508	$	93	$	98	131		$	6,880

Page 33

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Past due loans as of June 30, 2025 and December 31, 2024 were as follows:


	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Accruing Loans Past Due 90 Days or More
	(Amounts In Thousands)
June 30, 2025
Agricultural	$	893	$	87	$	1,552	$	2,532	$	114,609	$	117,141	$	—
Commercial and financial	958		448		1,153		2,559		310,133		312,692		164
Real estate:
Construction, 1 to 4 family residential	127		—		223		350		85,386		85,736		—
Construction, land development and commercial	1,772		—		1,993		3,765		274,311		278,076		46
Mortgage, farmland	592		1,209		67		1,868		271,154		273,022		—
Mortgage, 1 to 4 family first liens	1,998		2,565		2,463		7,026		1,213,913		1,220,939		1,001
Mortgage, 1 to 4 family junior liens	238		26		157		421		142,140		142,561		20
Mortgage, multi-family	183		—		—		183		493,608		493,791		—
Mortgage, commercial	1,767		—		1,596		3,363		512,687		516,050		—
Loans to individuals	358		124		—		482		33,147		33,629		—
Obligations of state and political subdivisions	—		—		—		—		42,173		42,173		—
	$	8,886	$	4,459	$	9,204	$	22,549	$	3,493,261	$	3,515,810	$	1,231

December 31, 2024
Agricultural	$	289	$	—	$	881	$	1,170	$	117,508	$	118,678	$	—
Commercial and financial	831		51		704		1,586		297,331		298,917		147
Real estate:
Construction, 1 to 4 family residential	1,803		205		714		2,722		76,729		79,451		—
Construction, land development and commercial	2,497		—		1,947		4,444		275,145		279,589		—
Mortgage, farmland	203		—		67		270		275,498		275,768		—
Mortgage, 1 to 4 family first liens	11,701		4,583		3,206		19,490		1,154,593		1,174,083		719
Mortgage, 1 to 4 family junior liens	426		75		2		503		141,047		141,550		—
Mortgage, multi-family	186		—		—		186		492,576		492,762		—
Mortgage, commercial	416		3,195		2,223		5,834		492,244		498,078		—
Loans to individuals	372		101		—		473		34,828		35,301		—
Obligations of state and political subdivisions	—		—		—		—		43,994		43,994		—
	$	18,724	$	8,210	$	9,744	$	36,678	$	3,401,493	$	3,438,171	$	866

Page 34

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Certain nonaccrual loan information by loan type at June 30, 2025 and December 31, 2024, was as follows:


	June 30, 2025				December 31, 2024
	Total Non-accrual loans		Nonaccrual with no ACL			Total Non- accrual loans		Nonaccrual with no ACL
	(Amounts In Thousands)				(Amounts In Thousands)
Agricultural	$	1,552	$	1,552		$	909	$	909
Commercial and financial	2,975		2,975			1,326		1,326
Real estate:
Construction, 1 to 4 family residential	778		778			714		651
Construction, land development and commercial	2,587		2,587			2,111		2,111
Mortgage, farmland	1,195		1,195			1,225		1,225
Mortgage, 1 to 4 family first liens	6,716		6,716			6,361		5,958
Mortgage, 1 to 4 family junior liens	267		267			236		236
Mortgage, multi-family	1,851		1,851			7,195		7,195
Mortgage, commercial	3,140		3,140			3,849		3,849
Loans to individuals	—		—			—		—
Obligations of state and political subdivisions	—		—			—		—
	$	21,061	$	21,061		$	23,926	$	23,460

Loans 90 days or more past due that are still accruing interest increased $ 0.37 million from December 31, 2024 to June 30, 2025. As of June 30, 2025, there were 10 accruing loans past due 90 days or more with an average loan balance of $ 0.12 million. There were 5 accruing loans past due 90 days or more as of December 31, 2024 with an average loan balance of $ 0.17 million. The accruing loans past due 90 days or more balances are believed to be adequately collateralized and the Company expects to collect all principal and interest as contractually due under these loans. There was no interest income recognized on nonaccrual loans for the six months ended June 30, 2025 and year ended December 31, 2024.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

Page 35

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted (numbers in thousands):


Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Three months ended June 30, 2025				Three months ended June 30, 2024
	Amortized Cost Basis			% of Total Class of Financing Receivable	Amortized Cost Basis			% of Total Class of Financing Receivable
Loan Type
Mortgage, 1 to 4 family first liens	$	177	Term extension	0.01 %	$	—	None	— %




Commercial and financial	152		Term extension	0.05 %	260		Term extension	0.08 %
Total	$	329			$	260

	Six months ended June 30, 2025				Six months ended June 30, 2024
	Amortized Cost Basis			% of Total Class of Financing Receivable	Amortized Cost Basis			% of Total Class of Financing Receivable
Loan Type
Mortgage, farmland	$	—	None	— %	$	2,274	6 month payment deferral	0.81 %
Construction, 1 to 4 family residential	150		Term extension	0.17 %	—		None	— %
Mortgage, 1 to 4 family first liens	177		Term extension	0.01 %	—		None	— %
Mortgage, commercial	—		None	— %	432		Term extension	0.09 %
Construction, land development and commercial	196		Term extension	0.07 %	—		None	— %
Commercial and financial	767		Term extension	0.25 %	675		Term extension	0.21 %
Total	$	1,290			$	3,381

Page 36

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Three months ended June 30, 2025

Three months ended June 30, 2024

Loan Type

Financial Effect

Loan Type

Financial Effect

Mortgage, 1 to 4 family first liens

Added a weighted-average 0.59 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Mortgage, 1 to 4 family first liens

None

Commercial and financial

Added a weighted-average 0.90 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Commercial and financial

Added a weighted-average 3.07 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Six months ended June 30, 2025

Six months ended June 30, 2024

Loan Type

Financial Effect

Loan Type

Financial Effect

Mortgage, farmland

None

Mortgage, farmland

Provided a payment deferral, which temporarily reduced monthly payment amounts for the borrowers.

Mortgage, 1 to 4 family first liens

Added a weighted-average 0.59 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Mortgage, 1 to 4 family first liens

None

Construction, 1 to 4 family residential

Added a weighted-average 0.82 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Construction, 1 to 4 family residential

None

Construction, land development and commercial

Added a weighted-average 0.92 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Construction, land development and commercial

None

Mortgage, commercial

None

Mortgage, commercial

Provided interest only payments, which temporarily reduced monthly payment amounts for the borrowers.

Commercial and financial

Added a weighted-average 1.01 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Commercial and financial

Added a weighted-average 1.63 years to the life of loans, which reduced monthly payment amounts for the borrowers.

Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

There were no financing receivables that had a payment default during the period and were modified in the 12 months before default to borrowers experiencing financial difficulty as of June 30, 2025 and for the six months ending June 30, 2024.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (numbers in thousands):

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


June 30, 2025 Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Mortgage, 1 to 4 family first liens	$	177	$	—	$	—
Agricultural	2,600		—		—
Mortgage, commercial	763		—		—
Construction, 1 to 4 family residential	150		—		—
Construction, land development and commercial	1,725		—		—
Commercial and financial	1,171		—		—
	$	6,586	$	—	$	—

June 30, 2024 Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Mortgage, farmland	$	2,274	$	—	$	—
Agricultural	2,488		—		—
Mortgage, commercial	744		—
Commercial and financial	259		416		—
	$	5,765	$	416	$	—

Page 38

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


	Primary Type of Collateral
	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
	(Amounts In Thousands)
June 30, 2025
Agricultural	$	3,369	$	—	$	162	$	—	$	3,531	$	—
Commercial and financial	4,306		—		—		—		4,306		—
Real estate:
Construction, 1 to 4 family residential	928		—		—		—		928		—
Construction, land development and commercial	4,009		—		—		—		4,009		—
Mortgage, farmland	3,778		—		—		—		3,778		—
Mortgage, 1 to 4 family first liens	7,894		—		—		—		7,894		—
Mortgage, 1 to 4 family junior liens	287		—		—		—		287		—
Mortgage, multi-family	1,851		—		—		—		1,851		—
Mortgage, commercial	4,393		—		—		—		4,393		—
Loans to individuals	—		—		—		—		—		—
Obligations of state and political subdivisions	—		—		—		—		—		—
	$	30,815	$	—	$	162	$	—	$	30,977	$	—


	Primary Type of Collateral
	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
	(Amounts In Thousands)
December 31, 2024
Agricultural	$	2,709	$	—	$	200	$	—	$	2,909	$	—
Commercial and financial	2,370		—		26		—		2,396		—
Real estate:
Construction, 1 to 4 family residential	714		—		—		—		714		—
Construction, land development and commercial	3,502		—		—		—		3,502		—
Mortgage, farmland	3,820		—		—		—		3,820		—
Mortgage, 1 to 4 family first liens	7,080		—		—		—		7,080		30
Mortgage, 1 to 4 family junior liens	236		—		—		—		236		—
Mortgage, multi-family	7,195		—		—		—		7,195		—
Mortgage, commercial	5,451		—		—		—		5,451		—
Loans to individuals	192		—		—		—		192		192
Obligations of state and political subdivisions	—		—		—		—		—		—
	$	33,269	$	—	$	226	$	—	$	33,495	$	222

Page 39

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The changes in the ACL in 2025 compared to December 31, 2024 is the result of the following factors: changes in the economic factors used, specifically management's Iowa unemployment forecast, resulted in increases to the ACL with Iowa unemployment increasing throughout the second quarter; increase in loan volume which resulted in an increase; changes in prepayment and curtailment rates resulting in an increase; decreases in the individually analyzed loans reserve; changes in qualitative factors determined necessary by management which resulted in a decrease, primarily due to improving past due and nonaccrual loans compared to the first quarter; and an increase due to significant charge-offs, primarily in the first quarter, leading to higher loss rates.

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 $ 2.52 million from December 31, 2024 to June 30, 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 0.88 % of loans held for investment as of June 30, 2025 and 0.97 % as of December 31, 2024. The decrease in collateral-dependent loans is due to a decrease in loans with a specific reserve of $ 0.19 million and a decrease in nonaccrual loans of $ 2.87 million, offset by an increase in 90 days or more accruing loans of $ 0.37 million from December 31, 2024 to June 30, 2025. There were no significant changes noted in the extent to which collateral secures collateral-dependent loans.

The Company regularly reviews a substantial portion of the loans in the portfolio and assesses whether the loans share common risk characteristics for which expected credit loss is measured on a pool basis or if the loans do not share common risk characteristics and therefore expected credit loss is measured on an individual loan basis. If the loans are assessed for credit losses on an individual basis, the Company determines if a specific allowance is appropriate. In addition, the Company's management also reviews and, where determined necessary, provides allowances for particular loans based upon (1) reviews of specific borrowers and (2) management’s assessment of areas that management considers are of higher credit risk, including loans that have been restructured or modified to a borrower experiencing financial difficulties. Loans that are determined not to be collateral-dependent and for which there are no specific allowances are classified into one or more risk categories and expected credit loss is measured on a pool basis. See Note 1 for further discussion of the allowance for credit losses for loans held for investment.

Specific allowances for credit losses on loans assessed individually are established if the loan balances exceed the net present value of the relevant future cash flows or the fair value of the relevant collateral based on updated appraisals and/or updated collateral analysis for the properties if the loan is collateral dependent. The Company may recognize a charge off or record a specific allowance related to an individually analyzed loan if there is a collateral shortfall or it is unlikely the borrower can make all principal and interest payments as contractually due.

For loans that are collateral-dependent, losses are evaluated based on the portion of a loan that exceeds the fair market value of the collateral. In general, this is the amount that the carrying value of the loan exceeds the related appraised value less estimated costs to sell the collateral. Generally, it is the Company’s policy not to rely on appraisals that are older than one year prior to the date the credit loss is being measured. The most recent appraisal values may be adjusted if, in the Company’s judgment, experience and other market data indicate that the property’s value, use, condition, exit market or other variables affecting its value may have changed since the appraisal was performed. The charge off or loss adjustment supported by an appraisal is considered the minimum charge off. Any adjustments made to the appraised value are to provide an additional charge off or specific reserve based on the applicable facts and circumstances. In instances where there is an estimated decline in value, a specific reserve may be provided or a charge off taken pending confirmation of the amount of the loss from an updated appraisal. Upon receipt of the new appraisals, an additional specific reserve may be provided or charge off taken based on the appraised value of the collateral. On average, appraisals are obtained within one month of order.

Note 6. 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.

Page 40

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

For the six months ended June 30, 2025 and 2024, total operating lease expense was $ 0.24 million and $ 0.28 million respectively, and is included in occupancy expenses in the consolidated statements of income. Included in this for the six months ended June 30, 2025 and 2024 were $ 0.22 million and $ 0.24 million, respectively, of operating lease costs, $ 0.01 million and $ 0.01 million, respectively, of short term lease costs, and $ 0.01 million and $ 0.03 million, respectively, of variable lease costs.

For the six months ended June 30, 2025 and 2024, cash paid for amounts included in the measurement of operating lease liabilities was $ 0.22 million and $ 0.24 million, respectively.

As of June 30, 2025 and December 31, 2024, operating lease right-of-use assets included in other assets was $ 1.74 million and $ 1.87 million respectively. Operating lease liabilities included in other liabilities were $ 1.84 million and $ 1.97 million as of June 30, 2025 and December 31, 2024. As of June 30, 2025 and December 31, 2024, the weighted average remaining lease term for operating leases was 7.38 years and 7.75 years, respectively, and the weighted average discount rate for operating leases was 3.68 % and 3.68 %, respectively. Discount rates used were determined from FHLB borrowing rates for comparable terms.

As of June 30, 2025, maturities of lease liabilities were as follows:


Year ending December 31:	(Amounts In Thousands)
2025 (excluding the six months ended June 30, 2025)	$	165
2026	335
2027	333
2028	295
2029	172
Thereafter	812
Total lease payments	2,112
Less imputed interest	( 271 )
Total operating lease liabilities	$	1,841

Page 41

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 7. Fair Value Measurements

The carrying value and estimated fair values of the Company's financial instruments as of June 30, 2025 are as follows:


	June 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	$	52,493	$	52,493	$	52,493	$	—	$	—
Investment securities	941,571		941,571		270,505		671,066		—
Loans held for sale	5,813		5,813		—		5,813		—
Loans, net of allowance for credit losses
Agricultural	116,377		116,409		—		—		116,409
Commercial and financial	302,016		300,628		—		—		300,628
Real estate:
Construction, 1 to 4 family residential	85,416		85,870		—		—		85,870
Construction, land development and commercial	275,804		276,016		—		—		276,016
Mortgage, farmland	269,692		260,716		—		—		260,716
Mortgage, 1 to 4 family first liens	1,201,660		1,141,834		—		—		1,141,834
Mortgage, 1 to 4 family junior liens	137,531		135,774		—		—		135,774
Mortgage, multi-family	490,857		472,136		—		—		472,136
Mortgage, commercial	507,799		495,045		—		—		495,045
Loans to individuals	32,759		31,915		—		—		31,915
Obligations of state and political subdivisions	42,161		40,955		—		—		40,955
Accrued interest receivable	22,787		22,787		—		22,787		—
Total financial instrument assets	$	4,484,736	$	4,379,962	$	322,998	$	699,666	$	3,357,298
Financial instrument liabilities
Deposits
Noninterest-bearing deposits	$	590,770	$	590,770	$	—	$	590,770	$	—
Interest-bearing deposits	2,741,436		2,744,762		—		2,744,762		—
Other short-term borrowings	391,448		391,333		—		391,333		—
Federal Home Loan Bank borrowings	286,833		284,898		—		284,898		—
Interest rate swaps	—		—		—		—		—
Accrued interest payable	3,981		3,981		—		3,981		—
Total financial instrument liabilities	$	4,014,468	$	4,015,744	$	—	$	4,015,744	$	—

	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	631,578	$	—	$	—	$	—	$	—
Letters of credit	12,846		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	644,424	$	—	$	—	$	—	$	—

(1) Considered Level 1 under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”).

(2) Considered Level 2 under ASC 820.

(3) Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Page 42

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The carrying value and estimated fair values of the Company's financial instruments as of December 31, 2024 are as follows:


	December 31, 2024
	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	$	123,399	$	123,399	$	123,399	$	—	$	—
Investment securities	944,136		944,136		288,462		655,674		—
Loans held for sale	3,971		3,971		—		3,971		—
Loans, net of allowance for credit losses
Agricultural	118,004		118,030		—		—		118,030
Commercial and financial	288,700		286,047		—		—		286,047
Real estate:
Construction, 1 to 4 family residential	79,171		79,730		—		—		79,730
Construction, land development and commercial	277,476		277,116		—		—		277,116
Mortgage, farmland	272,516		260,578		—		—		260,578
Mortgage, 1 to 4 family first liens	1,156,163		1,088,033		—		—		1,088,033
Mortgage, 1 to 4 family junior liens	136,831		133,501		—		—		133,501
Mortgage, multi-family	489,934		464,745		—		—		464,745
Mortgage, commercial	490,553		468,119		—		—		468,119
Loans to individuals	34,192		33,358		—		—		33,358
Obligations of state and political subdivisions	43,981		41,715		—		—		41,715
Accrued interest receivable	21,403		21,403		—		21,403		—
Total financial instrument assets	$	4,480,430	$	4,343,881	$	411,861	$	681,048	$	3,250,972
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	581,043	$	581,043	$	—	$	581,043	$	—
Interest-bearing deposits	2,765,090		2,767,730		—		2,767,730		—
Other short-term borrowings	546,636		547,530		—		547,530		—
Federal Home Loan Bank borrowings	127,050		126,127		—		126,127		—
Interest rate swaps	93		93				93
Accrued interest payable	9,912		9,912		—		9,912		—
Total financial instrument liabilities	$	4,029,824	$	4,032,435	$	—	$	4,032,435	$	—

	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	586,775	$	—	$	—	$	—	$	—
Letters of credit	13,867		—		—		—		—
Total financial instrument liabilities with off-balance-sheet risk	$	600,642	$	—	$	—	$	—	$	—

Considered Level 1 under ASC 820.

(1) Considered Level 2 under ASC 820.

(2) Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

Page 43

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Fair value of financial instruments : FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a single definition for fair value, a framework for measuring fair value and expanded disclosures concerning fair value. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company determines the fair market value of its financial instruments based on the fair value hierarchy established in ASC 820. There are three levels of inputs that may be used to measure fair value as follows:


			Level 1			Quoted prices in active markets for identical assets or liabilities.


			Level 2			Observable inputs other than quoted prices included within Level 1. Observable inputs include the quoted prices for similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability.


			Level 3			Unobservable inputs supported by little or no market activity for financial instruments. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. The Company is required to use observable inputs, to the extent available, in the fair value estimation process unless that data results from forced liquidations or distressed sales.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Investment securities available for sale : Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If a quoted price is not available, the fair value is obtained from benchmarking the security against similar securities. U.S. Treasury securities are considered Level 1 with the remaining securities considered Level 2.

The pricing for investment securities is obtained from an independent source. There are no Level 3 investment securities owned by the Company. The Company obtains an understanding of the independent source’s valuation methodologies used to determine fair value by level of security. The Company validates assigned fair values on a sample basis using an additional third-party provider pricing service to determine if the fair value measurement is reasonable. Due to the nature of our investment portfolio, we do not expect significant and unusual fluctuations as fair value changes primarily relate to interest rate changes. No unusual fluctuations were identified during the six months ended June 30, 2025. If a fluctuation requiring investigation was identified, the Company would research the change with the independent source or other available information.

Individually analyzed loans under ASC 326 CECL : See Note 1 for further discussion of individually analyzed loans under CECL.

A loan is considered to be non-performing when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a loan is considered non-performing, the amount of reserve is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material loans deemed non-performing using the fair value of the collateral for collateral dependent loans or based on the present value of the estimated future cash flows of interest and principal discounted at the loans effective interest rate or the fair value of the loan if determinable. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. All appraised values are adjusted for market-related trends based on the Company's experience in sales and other appraisals of similar property types as well as estimated selling costs. These loans are considered Level 3 as the instruments used to determine fair market value require significant management judgment and estimation.

Foreclosed assets : The Company does not record foreclosed assets at fair value on a recurring basis. Foreclosed assets consist mainly of other real estate owned but may include other types of assets repossessed by the Company. Foreclosed assets are

Page 44

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

adjusted to the lower of carrying value or fair value less the cost of disposal. Fair value is generally based upon independent market prices or appraised values of the collateral, and may include a marketability discount as deemed necessary by management based on its experience with similar types of real estate. The value of foreclosed assets is evaluated periodically as a nonrecurring fair value adjustment. Foreclosed assets are classified as Level 3.

Off-balance sheet instruments : Fair values for outstanding letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of the outstanding letters of credit is not significant. Unfunded loan commitments are not valued since the loans are generally priced at market at the time of funding (Level 2).

Interest rate swap agreements : The fair value is estimated using forward-looking interest rate curves and is calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below represents the balances of assets and liabilities measured at fair value on a recurring basis:


	June 30, 2025
Assets	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	270,505	$	—	$	—	$	270,505
State and political subdivisions	—		381,392		—		381,392
Mortgage-backed securities and collateralized mortgage obligations	—		284,905		—		284,905
Other securities (FHLB, FHLMC, FNMA and SBA)	—		4,769		—		4,769
Total	$	270,505	$	671,066	$	—	$	941,571
Liabilities
Interest rate swaps	$	—	$	—	$	—	$	—


	December 31, 2024
Assets	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
Securities available for sale	(Amounts In Thousands)
U.S. Treasury	$	288,462	$	—	$	—	$	288,462
State and political subdivisions	—		362,736		—		362,736
Mortgage-backed securities and collateralized mortgage obligations	—		278,090		—		278,090
Other securities (FHLB, FHLMC and FNMA)	—		14,848		—		14,848
Total	$	288,462	$	655,674	$	—	$	944,136
Liabilities
Interest rate swaps	$	—	$	93	$	—	$	93

Considered Level 1 under ASC 820.

(1) Considered Level 2 under ASC 820.

(2) Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

There were no transfers between Levels 1, 2 or 3 during the six months ended June 30, 2025 and the year ended December 31, 2024.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company is required to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The valuation methodologies used to measure these fair value adjustments are described above. The following tables present the Company’s assets that are measured at fair value on a nonrecurring basis.


	June 30, 2025
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	—	$	—
Commercial and financial	—		—		989		989
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—
Construction, land development and commercial	—		—		—		—
Mortgage, farmland	—		—		—		—
Mortgage, 1 to 4 family first liens	—		—		1,144		1,144
Mortgage, 1 to 4 family junior liens	—		—		45		45
Mortgage, multi-family	—		—		—		—
Mortgage, commercial	—		—		1,300		1,300
Loans to individuals	—		—		—		—
Foreclosed assets (5)	—		—		—		—
Total	$	—	$	—	$	3,478	$	3,478

(1) Considered Level 1 under ASC 820.

(2) Considered Level 2 under ASC 820.

(3) Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4) Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5) Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis (continued)


	December 31, 2024
	Readily Available Market Prices(1)		Observable Market Prices(2)		Company Determined Market Prices(3)		Total at Fair Value
	(Amounts in Thousands)
Loans (4)
Agricultural	$	—	$	—	$	1,837	$	1,837
Commercial and financial	—		—		324		324
Real Estate:
Construction, 1 to 4 family residential	—		—		637		637
Construction, land development and commercial	—		—		—		—
Mortgage, farmland	—		—		2,707		2,707
Mortgage, 1 to 4 family first liens	—		—		1,420		1,420
Mortgage, 1 to 4 family junior liens	—		—		—		—
Mortgage, multi-family	—		—		50		50
Mortgage, commercial	—		—		1,708		1,708
Loans to individuals	—		—		—		—
Foreclosed assets (5)	—		—		—		—
Total	$	—	$	—	$	8,683	$	8,683

(1) Considered Level 1 under ASC 820.

(2) Considered Level 2 under ASC 820.

(3) Considered Level 3 under ASC 820 and are based on valuation models that use significant assumptions that are not observable in an active market.

(4) Represents carrying value and related write-downs of loans for which adjustments are based on the value of the collateral. The carrying value of loans fully-charged off is zero.

(5) Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 8. Stock Repurchase Program

On July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to a total of 1,500,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”). On August 9, 2022, the Company’s 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 Company’s 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 Board’s assessment of the Company’s 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 1,916,418 shares of its common stock in privately negotiated transactions from August 1, 2005 through June 30, 2025. Of these 1,916,418 shares, 67,921 shares were purchased during the quarter ended June 30, 2025, at an average price per share of $ 75.38 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 9. Commitments and Contingencies

Concentrations of credit risk : The Company’s 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 $ 147.34 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 Company’s 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 customers. These financial instruments include commitments to extend credit, credit card participations and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, credit card participations and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Company’s commitments at June 30, 2025 and December 31, 2024 is as follows:


	June 30, 2025		December 31, 2024
	(Amounts In Thousands)
Firm loan commitments and unused portion of lines of credit:
Home equity loans	$	86,113	$	84,715
Credit cards	78,953		76,671
Commercial, real estate and home construction	150,100		153,208
Commercial lines and real estate purchase loans	316,412		272,181
Outstanding letters of credit	12,846		13,867

Note 10. Income Taxes

Federal income tax expense for the six months ended June 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 June 30, 2025 and December 31, 2024 and therefore no interest or penalties on unrecognized tax benefits has been recorded. As of June 30, 2025, the Company does no t anticipate any significant increase in unrecognized tax benefits during the twelve-month period ending June 30, 2026. Income taxes as a percentage of income before taxes were 20.09 % for the six months ended June 30, 2025 and 20.98 % for the same period in 2024.

Note 11. Derivative Financial Instruments

In the normal course of business, the Bank may use derivative financial instruments to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate and market or liquidity risks. Derivative instruments are recognized as either assets or liabilities in the accompanying consolidated financial statements and are measured at fair value. The Bank’s

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amount to be exchanged between the counterparties. The Bank is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. The Bank minimizes this risk by entering into derivative contracts with large, stable financial institutions. The Bank has not experienced any losses from nonperformance by counterparties. The Bank monitors counterparty risk in accordance with the provisions of ASC 815. In addition, the Bank’s interest rate-related derivative instruments contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty. The Bank entered into one interest rate swap agreement in November 2023 and was required to pledge a US Treasury in the amount of none and $ 250 thousand of collateral as of June 30, 2025 and December 31, 2024, respectively, due to the agreement expiring May 15, 2025.

Cash Flow Hedges: The Bank executed one forward-starting interest rate swap transaction on November 28, 2023. The interest rate swap transaction had an effective date of December 15, 2023, and an expiration date of May 15, 2025, effectively converting variable rate debt to fixed rate debt. For accounting purposes, this swap transaction was designated as a cash flow hedge of the changes in cash flows attributable to changes in the effective federal funds rate, the benchmark interest rate being hedged, associated with the interest payments made on an amount of the Bank’s debt principal equal to the then-outstanding swap notional amount. The underlying principal balance was matched to future advances related to a large customer construction project, however, the FHLB advances remained equal to the notional amount of the swap making it probable that sufficient effective federal funds rate based interest payments would exist through the maturity date of the swap.

The table below identifies the balance sheet category and fair value of the Bank’s derivative instrument designated as a cash flow hedge as of June 30, 2025 and December 31, 2024:

Notional
Amount

Fair
Value

Balance
Sheet
Category

Maturity

(Amounts in Thousands)

June 30, 2025

Interest rate swap

—

N/A

5/15/2025

December 31, 2024

Interest rate swap

42,150

( 93 )

Other Liabilities

5/15/2025

The table below identifies the gains and losses recognized on the Bank’s derivative instrument designated as cash flow hedges for the six months ended June 30, 2025 and year ended December 31, 2024:



	Recognized in Other Comprehensive Income (Loss)		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
	(Amounts in Thousands)

June 30, 2025
Interest rate swap	$	71	Interest Expense	$	—	Other Income	$	—

December 31, 2024
Interest rate swap	$	106	Interest Expense	$	—	Other Income	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 12. Borrowings

The following table sets forth selected information for borrowings as of June 30, 2025 and December 31, 2024:


	June 30, 2025		December 31, 2024
	(Amounts In Thousands)
Federal funds purchased, FHLB, interest rate 2025 4.55 %; 2024 4.62 %	$	391,448	$	437,636

Bank Term Funding Program, interest rates 2024 4.76 %	—		109,000
	$	391,448	$	546,636

Federal Home Loan Bank borrowings
Due 2025, 4.40 % to 4.97 %	$	222,000	$	87,050
Due 2027, 3.87 % to 4.58 %	40,000		40,000
Due 2030, 4.06 %	24,833		—
	$	286,833	$	127,050

The Company has federal funds lines available totaling $ 175.00 million from multiple correspondent banking relationships as

of June 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 June 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 Company’s investment in FHLB stock was $ 33.28 million and $ 28.02 million at June 30, 2025 and December 31, 2024, respectively . Collateral is provided by the Company’s 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 totaling $ 1,032.96 million and $ 996.70 million as of June 30, 2025 and December 31, 2024, respectively.

Note 13. 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 expense, and payroll provide the significant expenses in the banking operation. All operations are domestic.

Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using consolidated net income from the consolidated statements of income. Significant income and expenses are included on the consolidated statements of income. These include interest income, interest expense, net interest income, and noninterest income. Significant expenses used in evaluating Company performance are credit loss expense and salaries and employee benefits which are included on the consolidated statements of income.

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

The following is management’s discussion and analysis of the financial condition of Hills Bancorporation (“Hills Bancorporation” or “the Company”) and its banking subsidiary Hills Bank and Trust Company (“the Bank”) for the dates and periods indicated. The discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying footnotes.

Special Note Regarding Forward Looking Statements

This report contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, the following:

• 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 implementation of tariffs, inflation, rising energy prices, the Russia-Ukraine war, Middle East conflicts, and supply chain imbalances.

• The effects of recent financial market disruptions and/or an economic recession, and monetary and other governmental actions designed to address such disruptions, recession, or pandemics.

• 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 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, insurance and monetary and financial matters as well as any laws otherwise affecting the Company, including, but not limited to, potential changes in U.S. tax laws and regulations.

• The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.

• The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.

• The ability of the Company to obtain new customers and to retain existing customers.

• The timely development and acceptance of products and services, including products and services offered through alternative electronic delivery channels.

• Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.

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• The ability of the Company to develop and maintain secure and reliable technology systems, including to detect and prevent the occurrence of fraudulent activity, breaches, or failures of our information security controls or cyber-security related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools.

• The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.

• Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.

• The economic impact of natural disasters, diseases and/or pandemics, and terrorist attacks and military actions.

• Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected.

• The costs, effects and outcomes of existing or future litigation.

• Changes in accounting policies and practices that may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

• The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

Economic Environment

Economic data for the second quarter from the Midwest, as reported in the Federal Reserve System’s “Beige Book,” continues to show slight employment increases in the region over the most recently completed period, with a similar pace of growth anticipated by employers operating in the region over the next 12 months, with the manufacturing sector continuing to experience the most difficulty in filling open positions. Prices rose modestly in the Midwest in late May and June, with continued increases anticipated over the next 12 months. The manufacturing sector in particular faces heightened uncertainty about both input costs and selling prices attributed primarily to uncertainties surrounding changing tariff policies. In the retail sector, some industry analysts are projecting that any price impacts from higher tariffs will largely be felt in the second half of 2025. Reflecting this outlook, consumer spending was flat over the reporting period, offsetting the growth earlier in the year from consumers hoping to buy ahead of the increase in costs on higher ticket consumer goods anticipated for later in the year. Conversely, business spending was unchanged in late May and June, with many sectors anticipating hesitancy in capital purchases over the foreseeable future due to increased uncertainty surrounding tariffs and the economic outlook. On the agricultural front, income expectations from growers and other producers for 2025 have remained largely unchanged for the remainder of 2025. However, increased uncertainty regarding future growing seasons is now percolating the industry segment as a result of recent trade policy announcements.

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 and substandard risk rating categories.

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Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within these financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policies to be those which are related to the allowance for credit losses. Information about our critical accounting policies is included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 14, 2025, and there have been no material changes in these critical accounting policies since December 31, 2024.

Overview

This overview highlights selected information and may not contain all of the information that is important to you in understanding our performance during the period. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should carefully read this entire report.

The Company is a holding company engaged in the business of commercial banking. The Company’s subsidiary is Hills Bank and Trust Company, Hills, Iowa (the “Bank”), which is wholly-owned. The Bank was formed in Hills, Iowa in 1904. The Bank is a full-service commercial bank extending its services to individuals, businesses, governmental units and institutional customers primarily in the communities of Hills, Iowa City, Coralville, North Liberty, Lisbon, Mount Vernon, Kalona, Wellman, Cedar Rapids, Marion, Washington and Williamsburg, Iowa. At June 30, 2025, the Bank has nineteen full-service locations.

Net income for the six month period ended June 30, 2025 was $33.09 million compared to $24.41 million for the same six months of 2024, an increase of $8.67 million or 35.53%. The principal factors in the increase in net income for the first six months of 2025 were an increase in net interest income of $15.53 million offset by an increase in credit loss expense of $4.70 million and an increase in noninterest income of $1.59 million.

The Company achieved a return on average assets of 1.26% and a return on average equity of 11.46% for the twelve months ended June 30, 2025, compared to the twelve months ended June 30, 2024, which were 0.90% and 8.42%, respectively. The return on average assets and return on average equity for the six months ended June 30, 2025 were 1.48% and 13.50%, respectively, compared to the six months ended June 30, 2024, which were 1.13% and 10.53%, respectively. Dividends of $1.15 per share were paid in January 2025 to 2,681 shareholders. The dividend paid in January 2024 was $1.10 per share.

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 3.36% for the six months ended June 30, 2025 compared to 2.70% for the same six months of 2024. Average earning assets were $4.415 billion year to date in 2025 and $4.248 billion in 2024.

Highlights noted on the balance sheet as of June 30, 2025 for the Company included the following:

• Total assets were $4.605 billion, an increase of $16.77 million since December 31, 2024.

• Cash and cash equivalents were $52.49 million, a decrease of $70.91 million since December 31, 2024 reflecting the growth in loans since December 31, 2024.

• Net loans were $3.468 billion, an increase of $76.39 million since December 31, 2024, primarily due to increases in the following loan segments: commercial and financial, 1 to 4 family residential construction, 1 to 4 family first lien mortgages and commercial real estate mortgages. Loans held for sale increased $1.84 million since December 31, 2024.

• Deposits decreased $13.93 million since December 31, 2024.

Refer to Note 7 for a discussion of fair value measurements which relate to methods used by the Company in recording assets and liabilities on its financial statements.

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Financial Condition

Loan demand has started to return in the first half of 2025. The lingering inflationary pressures have created significant uncertainty regarding projecting loan demand throughout the remainder of 2025.

The following table sets forth the composition of the loan portfolio as of June 30, 2025 and December 31, 2024:


	June 30, 2025				December 31, 2024
	Amount		Percent		Amount		Percent
	(Amounts In Thousands)				(Amounts In Thousands)
Agricultural	$	117,141	3.33	%	$	118,678	3.45	%
Commercial and financial	312,692		8.89		298,917		8.69
Real estate:
Construction, 1 to 4 family residential	85,736		2.44		79,451		2.31
Construction, land development and commercial	278,076		7.91		279,589		8.13
Mortgage, farmland	273,022		7.77		275,768		8.02
Mortgage, 1 to 4 family first liens	1,220,939		34.73		1,174,083		34.15
Mortgage, 1 to 4 family junior liens	142,561		4.05		141,550		4.12
Mortgage, multi-family	493,791		14.04		492,762		14.33
Mortgage, commercial	516,050		14.68		498,078		14.49
Loans to individuals	33,629		0.96		35,301		1.03
Obligations of state and political subdivisions	42,173		1.20		43,994		1.28
	$	3,515,810	100.00	%	$	3,438,171	100.00	%
Net unamortized fees and costs	282				290
	$	3,516,092			$	3,438,461
Less allowance for credit losses	54,020				50,940
	$	3,462,072			$	3,387,521

The Bank has an established formal loan origination policy. In general, the loan origination policy attempts to reduce the risk of credit loss to the Company by requiring, among other things, maintenance of minimum loan to value ratios, evidence of appropriate levels of insurance carried by borrowers and documentation of appropriate types and amounts of collateral and sources of expected payment. The collateral relied upon in the loan origination policy is generally the property being financed by the Company. The source of expected payment is generally the income produced from the property being financed. Personal guarantees are required of individuals owning or controlling at least 20% of the ownership of an entity. Limited or proportional guarantees may be accepted in circumstances if approved by the Company’s Board of Directors. Financial information provided by the borrower is verified as considered necessary by reference to tax returns, or audited, reviewed or compiled financial statements. The Company does not originate subprime loans. In order to modify, restructure or otherwise change the terms of a loan, the Company’s policy is to evaluate each borrower situation individually. Modifications, restructures, extensions and other changes are done to improve the Company’s position and to protect the Company’s capital. If a borrower is not current with its payments, any additional loans to such borrowers are evaluated on an individual borrower basis.

The Company has not experienced any significant time lapses in recognizing the required provisions for collateral dependent loans, nor has the Company delayed appropriate charge offs. When an updated appraisal value has been obtained, the Company has used the appraisal amount in determining the appropriate charge off or required reserve. The Company also evaluates any changes in the financial condition of the borrower and guarantors (if applicable), economic conditions, and the Company’s loss experience with the type of property in question. Any information utilized in addition to the appraisal is intended to identify additional charge offs or provisions, not to override the appraised value.

In accordance with Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues, and Staff Accounting Bulletin No. 119, which aligns the staff's guidance with FASB ASC Topic 326, or CECL, the Company determines and assigns ratings to loans using factors that include the following: an assessment of the financial condition of the

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borrower; a realistic determination of the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; an analysis of the levels and trends of loan categories; and a review of delinquent and classified loans.

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 non-accrual 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 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 the Company determines a loan amount or portion thereof, is uncollectible, the loan’s credit risk rating may be downgraded and the uncollectible amount charged-off or recorded as a specific allowance for losses. The Company’s credit and legal departments undertake a thorough and ongoing analysis to determine if additional specific reserves and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize actual losses.

The following table presents the allowance for credit losses as of June 30, 2025 and December 31, 2024 by loan category, the percentage of the allowance for each category to the total allowance, and the percentage of all loans in each category to total loans:


	June 30, 2025						December 31, 2024
	Amount		% of Total Allowance		% of Loans to Total Loans		Amount		% of Total Allowance		% of Loans to Total Loans
	(In Thousands)						(In Thousands)
Agricultural	$	764	1.41	%	3.33	%	$	674	1.32	%	3.45	%
Commercial and financial	10,676		19.77		8.89		10,217		20.06		8.69
Real estate:
Construction, 1 to 4 family residential	320		0.59		2.44		280		0.55		2.31
Construction, land development and commercial	2,272		4.21		7.91		2,113		4.15		8.13
Mortgage, farmland	3,330		6.16		7.77		3,252		6.38		8.02
Mortgage, 1 to 4 family first liens	19,561		36.22		34.73		18,210		35.75		34.15
Mortgage, 1 to 4 family junior liens	5,030		9.31		4.05		4,719		9.26		4.12
Mortgage, multi-family	2,934		5.43		14.04		2,828		5.55		14.33
Mortgage, commercial	8,251		15.27		14.68		7,525		14.77		14.49
Loans to individuals	870		1.61		0.96		1,109		2.18		1.03
Obligations of state and political subdivisions	12		0.02		1.20		13		0.03		1.28
	$	54,020	100.00	%	100.00	%	$	50,940	100.00	%	100.00	%

The allowance for credit losses (ACL) totaled $54.02 million at June 30, 2025 compared to the allowance of $50.94 million at December 31, 2024. The percentage of the allowance to outstanding loans was 1.54% and 1.48% at June 30, 2025 and December 31, 2024, 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 in 2025 compared to December 31, 2024 is the result of the following factors: changes in the economic factors used, specifically management's Iowa unemployment forecast, resulted in increases to the ACL with Iowa unemployment increasing throughout the second quarter; increase in loan volume which resulted in an increase; changes in prepayment and curtailment rates resulting in an increase; decreases in the individually analyzed loans reserve; changes in qualitative factors determined necessary by management which resulted in a decrease, primarily due to improving past due and nonaccrual loans compared to the first quarter; and an increase due to significant charge-offs, primarily in the first quarter, leading to higher loss rates.

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The adequacy of the allowance is reviewed quarterly and adjusted as appropriate after consideration has been given to the impact of economic conditions on the borrowers’ ability to repay, loan collateral values, past collection experience, the risk characteristics of the loan portfolio and such other factors that deserve current recognition. The growth of the loan portfolio and the trends in nonperforming loans are significant elements in the determination of the allowance for credit losses. Quantitative factors include the Company’s historical loss experience, which is then adjusted for levels and trends in past due, levels and trends in charged-off and recovered loans, trends in volume growth, trends in nonperforming loans, trends in modified loans, local economic trends and conditions, and industry and other conditions.

Management has determined that the allowance for credit losses was adequate at June 30, 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; however, the allowance for credit losses is based on a comprehensive, well documented, and consistently 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 data. This review encompasses levels of total collateral-dependent loans, portfolio mix, portfolio concentrations, current geographic risks and overall levels of net charge-offs.

Investment securities available for sale held by the Company decreased by $2.57 million from December 31, 2024 to June 30, 2025. The fair value of securities available for sale was $28.88 million less than the amortized cost of such securities as of June 30, 2025. At December 31, 2024, the fair value of the securities available for sale was $35.72 million less than the amortized cost of such securities.

Deposits decreased $13.93 million in the first six months of 2025. In the opinion of the Company’s management, the Company continues to have sufficient liquidity resources available to fund expected additional loan growth.

Brokered deposits are included in total deposits and totaled $34.96 million as of June 30, 2025 with an average rate of 4.51%. Brokered deposits were $34.75 million as of December 31, 2024 with an average interest rate of 4.51%. As of June 30, 2025 and December 31, 2024, brokered deposits were 1.05% and 1.04% of total deposits, respectively.

There were $286.83 million and $127.05 million of Federal Home Loan Bank (FHLB) borrowings as of June 30, 2025 and December 31, 2024, respectively. There were $391.45 million of Federal Funds purchased as of June 30, 2025 and $437.64 million as of December 31, 2024. Total funds purchased from the Bank Term Funding program was none as of June 30, 2025, and $109.00 million as of December 31, 2024. 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.

Dividends and Equity

In January 2025, Hills Bancorporation paid a dividend of $10.32 million or $1.15 per share. The dividend paid in January 2024 was $1.10 per share. After payment of the dividend and the adjustment for accumulated other comprehensive income (loss), stockholders’ equity as of June 30, 2025 totaled $511.19 million.

The Company 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 Company is required to maintain a CBLR of greater than 9%, as measured by dividing the Bank's Tier 1 capital by its average total consolidated assets. As of June 30, 2025 and December 31, 2024, 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 June 30, 2025 and December 31, 2024 are presented below (amounts in thousands):

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	Actual
	Amount of Tier 1 Capital		Ratio
As of June 30, 2025:
Company:
Community Bank Leverage ratio	$	581,632	12.86	%

Bank:
Community Bank Leverage ratio	580,696		12.85


	Actual
	Amount of Tier 1 Capital		Ratio
As of December 31, 2024:
Company:
Community Bank Leverage ratio	$	565,744	12.69	%

Bank:
Community Bank Leverage ratio	566,359		12.71

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Discussion of operations for the six months ended June 30, 2025 and 2024

Net Income Overview

Total net income was $33.09 million in 2025 and $24.41 million in the comparable period in 2024, an increase of $8.67 million or 35.53%. The change in net income in 2025 from the first six months of 2024 was primarily the result of the following:

• Net interest income before credit loss expense increased by $15.53 million or 27.91%.

• For the six months ended June 30, 2025, credit loss expense was $5.01 million. This represents an increase in expense of $4.70 million from the credit loss expense of $0.31 million for the six months ended June 30, 2024.

• Noninterest income increased by $1.59 million, or 10.53%.

• Noninterest expenses increased by $1.92 million, or 4.84%.

For the six month period ended June 30, 2025 and June 30, 2024 basic earnings per share was $3.70 and $2.68, respectively. Diluted earnings per share was $3.70 for the six months ended June 30, 2025 compared to $2.68 for the same period in 2024.

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 $71.20 million for the first six months of 2025 was derived from the Company’s $4.415 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.36%. Average earning assets in the six months ended June 30, 2024 were $4.248 billion and the tax-equivalent net interest margin was 2.70%. 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 2024 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. The majority of the Company’s interest-earning assets are in loans outstanding, which amounted to more than $3.468 billion at June 30, 2025. Credit loss expense was $5.01 million in 2025 compared to $0.31 million in 2024. The increase in expense when compared to the same period in 2024 is primarily attributable to the following: continued higher charge-offs in the first quarter of 2025 leading to higher loss rates with lower levels of chargeoffs in the second quarter of 2025; changes in the economic factors used, specifically management's Iowa unemployment forecast, resulted in increases to the ACL with Iowa unemployment increasing from 3.4% to 3.7% throughout the second quarter; increase in loan volume which resulted in an increase of approximately $940,000; and changes in prepayment and curtailment rates resulting in an increase. 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 third factor affecting the Company’s net income is noninterest income, primarily the increase in trust fees and other noninterest income. Trust fees were $8.31 million and $7.39 million for the six months ended June 30, 2025 and 2024, respectively, an increase of 12.44%. This is primarily driven by the increase in assets under management of $0.027 billion from $2.805 billion as of June 30, 2024 to $3.076 billion as of June 30, 2025 with increased market activity and performance compared to the prior year period. Other noninterest income was $1.20 million and $0.29 million for the six months ended June 30, 2025 and 2024, respectively, an increase of 310.62%, primarily due to incentive and marketing bonuses from the VISA payment network growth agreement and amortization of tax credit real estate investments recorded with federal income tax expense.

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Net Interest Income

Net interest income is the excess of the interest and fees earned on interest-earning assets over the interest expense of the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $16.25 million for the six months ended June 30, 2025 compared to the comparable period in 2024. 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 investments. Also, overall interest expense was slightly lower than the same period in 2024 due to favorable rate variances. The net interest margin for the first six months of 2025 was 3.36% compared to 2.70% in 2024 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 six months ended in 2025 compared to the comparable period in 2024 are shown in the following table:


					Increase (Decrease) in Net Interest Income
	Change in Average Balance		Change in Average Rate		Volume Changes		Rate Changes		Net Change
	(Amounts in Thousands)
Interest income:
Loans, net	$	25,463	0.40	%	$	470	$	6,542	7,012
Taxable securities	59,620		1.88		2,671		3,588		6,259
Nontaxable securities	96,071		0.61		1,580		1,181		2,761
Interest-bearing bank balances	(14,782)		(1.53)		(444)		(108)		(552)
	$	166,372			$	4,277	$	11,203	$	15,480

Interest expense:
Interest-bearing demand deposits	$	10,055	(0.06)	%	$	(36)	$	266	$	230
Savings deposits	72,851		0.25		(1,268)		(340)		(1,608)
Time deposits	(9,531)		(0.42)		292		1,881		2,173
Other short-term borrowings	(99,167)		(0.48)		1,964		1,047		3,011
FHLB Borrowings	176,048		(0.96)		(4,816)		1,782		(3,034)
	$	150,256			$	(3,864)	$	4,636	$	772
Change in net interest income					$	413	$	15,839	$	16,252

Rate/volume variances are allocated on a consistent basis using the absolute values of changes in volume compared to the absolute values of the changes in rates. Interest on nontaxable securities and loans is shown on a tax-equivalent basis.

A summary of the net interest spread and margin is as follows:


(Tax Equivalent Basis)	2025		2024
Yield on average interest-earning assets	5.27	%	4.72	%
Rate on average interest-bearing liabilities	2.50		2.66
Net interest spread	2.77	%	2.06	%
Effect of noninterest-bearing funds	0.59		0.64
Net interest margin (tax equivalent net interest income divided by average interest-earning assets)	3.36	%	2.70	%

In pricing loans and deposits, the Company considers the U.S. Treasury indexes as benchmarks in determining interest rates. The Federal Open Market Committee met four times during the first six months of 2025. The federal funds target rate decreased to 4.50% as of June 30, 2025 from 5.50% as of the same period in 2024. Interest rates on loans are generally affected

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by the federal funds target rate since interest rates for the U.S. Treasury market normally increase or decrease when the Federal Reserve Board raises or lowers the federal funds rate. As of June 30, 2025, the rate indexes for the one, three and five year indexes were 3.96%, 3.68% and 3.79%, respectively. The one year index decreased 22.20% from 5.09% at June 30, 2024, the three year index decreased 18.58% and the five year index decreased 12.47%. The three year index was 4.52% and the five year index was 4.33% at June 30, 2024.

Credit Loss Expense

Credit loss expense was $5.01 million for the six months ended June 30, 2025 compared to $0.31 million in 2024, an increase of expense of $4.70 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 Company's loan portfolio.

A significant component of the Company's approach to 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 June 30, 2025, the key loss drivers were Iowa unemployment and National GDP. The increase in expense when compared to the same period in 2024 is primarily attributable to the following: continued higher charge-offs in the first quarter of 2025 leading to higher loss rates with lower levels of chargeoffs in the second quarter of 2025; changes in the economic factors used, specifically management's Iowa unemployment forecast, resulted in increases to the ACL with Iowa unemployment increasing from 3.4% to 3.7% throughout the second quarter; increase in loan volume which resulted in an increase of approximately $940,000; and changes in prepayment and curtailment rates resulting in an increase.

The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the six months ended June 30, 2025 and 2024, recoveries were $1.60 million and $1.75 million, respectively; and charge-offs were $2.69 million in 2025 and $2.59 million in 2024. The allowance for credit losses totaled $54.02 million at June 30, 2025 compared to $50.94 million as of December 31, 2024. The allowance represented 1.54% and 1.48% of loans held for investment at June 30, 2025 and December 31, 2024.

Noninterest Income

The following table sets forth the various categories of noninterest income for the six months ended June 30, 2025 and 2024.


	Six Months Ended June 30,
	2025		2024		$ Change		% Change
	(Amounts in thousands)
Net gain on sale of loans	$	703	$	1,042	$	(339)	(32.53)	%
Trust fees	8,305		7,386		919		12.44
Service charges and fees	6,448		6,348		100		1.58
Other noninterest income	1,199		292		907		310.62

	$	16,655	$	15,068	$	1,587	10.53

Trust fees were $8.31 million and $7.39 million for the six months ended June 30, 2025 and 2024, respectively, an increase of 12.44%. This is primarily driven by the increase in assets under management of $0.027 billion from $2.805 billion as of June 30, 2024 to $3.076 billion as of June 30, 2025 with increased market activity and performance compared to the prior year period.

Other noninterest income was $1.20 million and $0.29 million for the six months ended June 30, 2025 and 2024, respectively, an increase of 310.62%, primarily due to annual incentive and marketing bonuses from the VISA payment network growth agreement and amortization of tax credit real estate investments recorded with federal income tax expense.

Net gain on sale of loans was $0.70 million and $1.04 million for the six months ended June 30, 2025 and 2024, respectively, a decrease of 32.53%. This is primarily driven by decreased activity compared to the same period in 2024.

Other noninterest income categories experienced marginal period-to-periods fluctuations for the six months ended June 30, 2025.

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Noninterest Expenses

The following table sets forth the various categories of noninterest expenses for the six months ended June 30, 2025 and 2024.


	Six Months Ended June 30,
	2025		2024		$ Change		% Change
	(Amounts in thousands)
Salaries and employee benefits	$	22,616	$	22,250	$	366	1.64	%
Occupancy	2,236		2,079		157		7.55
Furniture and equipment	3,595		3,366		229		6.80
Office supplies and postage	975		956		19		1.99
Advertising and business development	1,635		1,441		194		13.46
Outside services	7,802		6,761		1,041		15.40
FDIC insurance assessment	1,009		967		42		4.34
Other noninterest expense	1,577		1,710		(133)		(7.78)
	$	41,445	$	39,530	$	1,915	4.84

In the six months ended June 30, 2025, outside services expense increased $1.04 million due to an increase in professional fees of $0.35 million from increased audit, legal and other professional expenses and OREO related loss and expenses of $0.48 million from increased OREO volume compared to the same period in 2024.

Other noninterest expense categories experienced marginal period-to-periods fluctuations for the six months ended June 30, 2025.

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Discussion of operations for the three months ended June 30, 2025 and 2024

Net Income Overview

Net income increased $6.34 million for the three months ended June 30, 2025 compared to the same period in 2024. Total net income was $18.65 million in 2025 and $12.31 million in the comparable period in 2024, an increase of 51.49%. For the three month periods ended June 30, 2025 and 2024 basic earnings per share was $2.09 and $1.35, respectively. Diluted earnings per share was $2.09 for the three months ended June 30, 2025 compared to $1.35 for the same period in 2024.

Net Interest Income

Net interest income is the excess of the interest and fees earned on interest-earning bearing assets over the interest expense of the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $9.40 million for the three months ended June 30, 2025 compared to the comparable period in 2024. The increase was a result of higher loan and investments volume and interest rates as well as favorable rates on time deposits and borrowings, partially offset by higher interest expense attributable to higher volume of borrowings. The net interest margin for the three months ended June 30, 2025 was 3.46% compared to 2.72% in 2024 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 2025 compared to the comparable period in 2024 are shown in the following table:


					Increase (Decrease) in Net Interest Income
	Change in Average Balance		Change in Average Rate		Volume Changes		Rate Changes		Net Change
	(Amounts in Thousands)
Interest income:
Loans, net	$	43,580	0.43	%	$	805	$	3,505	$	4,310
Taxable securities	60,160		1.93		1,404		1,793		3,197
Nontaxable securities	92,169		0.64		758		596		1,354
Interest-bearing bank balances	(10,798)		(1.87)		(170)		(61)		(231)
	$	185,111			$	2,797	$	5,833	$	8,630

Interest expense:
Interest-bearing demand deposits	$	(1,623)	(0.12)	%	$	6	$	260	$	266
Savings deposits	111,600		0.35		(843)		(292)		(1,135)
Time deposits	(30,791)		(0.70)		320		1,553		1,873
Other short-term borrowings	(171,305)		(0.60)		1,901		583		2,484
FHLB Borrowings	260,185		(0.59)		(3,345)		623		(2,722)

	$	168,066			$	(1,961)	$	2,727	$	766
Change in net interest income					$	836	$	8,560	$	9,396

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A summary of the net interest spread and margin is as follows:


(Tax Equivalent Basis)	2025		2024
Yield on average interest-earning assets	5.35	%	4.77	%
Rate on average interest-bearing liabilities	2.48		2.71
Net interest spread	2.87	%	2.06	%
Effect of noninterest-bearing funds	0.59		0.66
Net interest margin (tax equivalent net interest income divided by average interest-earning assets)	3.46	%	2.72	%

Credit Loss Expense

Credit loss expense was $1.14 million for the three months ended June 30, 2025 compared to a credit loss expense of $0.68 million in 2024, an increase of expense of $0.46 million. The increase in credit loss expense compared to the prior year period is primarily due to shifts in economic factors, including Iowa unemployment increasing and estimated loan volume increasing which is partially offset by decreases due to qualitative factors and smaller changes from prepayment and curtailment rates. 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.

The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the three months ended June 30, 2025 and 2024, recoveries were $0.92 million and $0.54 million, respectively; and charge-offs were $0.96 million in 2025 and $1.41 million in 2024.

Noninterest Income

The following table sets forth the various categories of noninterest income for the three months ended June 30, 2025 and 2024.


	Three Months Ended June 30,
	2025		2024		$ Change		% Change
	(Amounts in thousands)
Net gain on sale of loans	$	459	$	669	$	(210)	(31.39)	%
Trust fees	4,260		3,889		371		9.54
Service charges and fees	3,393		3,315		78		2.35
Other noninterest income	422		188		234		124.47

	$	8,534	$	8,061	$	473	5.87

Net gain on sale of loans were $0.46 million and $0.67 million for the three months ended June 30, 2025 and 2024, respectively, a decrease of (31.39)%. This is primarily driven by decreased activity compared to the same period in 2024.

Trust fees were $4.26 million and $3.89 million for the three months ended June 30, 2025 and 2024, respectively, an increase of 9.54%. This is primarily driven by the increase in assets under management of $0.027 billion from $2.805 billion as of June 30, 2024 to $3.076 billion as of June 30, 2025.

Other noninterest income for the three months ended June 30, 2025 experienced marginal period-to-periods fluctuations.

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Noninterest Expenses

The following table sets forth the various categories of noninterest expenses for the three months ended June 30, 2025 and 2024.


	Three Months Ended June 30,
	2025		2024		$ Change		% Change
	(Amounts in thousands)
Salaries and employee benefits	$	11,251	$	11,063	$	188	1.70	%
Occupancy	1,086		996		90		9.04
Furniture and equipment	1,849		1,686		163		9.67
Office supplies and postage	463		442		21		4.75
Advertising and business development	801		630		171		27.14
Outside services	3,917		3,311		606		18.30
FDIC insurance assessment	497		486		11		2.26
Other noninterest expense	934		1,109		(175)		(15.78)
	$	20,798	$	19,723	$	1,075	5.45

In the three months ended June 30, 2025 , outside services expense increased $0.61 million due to an increase in professional fees of $0.17 million from increased audit, legal and other professional expenses and OREO related loss and expenses of $0.34 million from increased OREO volume compared to the same period in 2024.

Other noninterest expense categories experienced marginal period-to-periods fluctuations for the three months ended June 30, 2025 .

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Income Taxes

Federal and state income tax expenses were $8.32 million and $6.48 million for the six months ended June 30, 2025 and 2024, respectively. Income taxes as a percentage of income before taxes were 20.09% in 2025 and 20.98% in 2024.

Liquidity

The Company actively monitors and manages its liquidity position with the objective of maintaining sufficient cash flows to fund operations, meet commitments, take advantage of market opportunities and provide a margin against unforeseeable liquidity needs. Federal funds sold and investment securities available for sale are readily marketable assets. Maturities of all investment securities are managed to meet the Company’s normal liquidity needs, to respond to market changes or to adjust the Company’s interest rate risk position. Investment securities available for sale comprised 20.45% of the Company’s total assets at June 30, 2025 compared to 20.58% at December 31, 2024. As of June 30, 2025, investment securities with a carrying value of $136.48 million were pledged to collateralize public and trust deposits and other borrowings. As of December 31, 2024, investment securities with a carrying value of $250.65 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 June 30, 2025 and December 31, 2024 were approximately $721.38 million and $719.62 million, respectively, which comprised 21.65% and 21.51% of total deposits.

As of June 30, 2025, the Company had $286.83 million of outstanding borrowings from the Federal Home Loan Bank (“FHLB”) of Des Moines compared to $127.05 million as of December 31, 2024. The Company had $391.45 million Fed Funds purchased as of June 30, 2025 compared to $437.64 million of Fed Funds purchased as of December 31, 2024. The Company had no Bank Term Funding Program borrowings as of June 30, 2025 and $109.00 million as of December 31, 2024. These borrowings are used as a means of providing both long and short-term funding for certain assets and for managing interest rate risk.

The Company had additional borrowing capacity available from the FHLB of approximately $746.13 million at June 30, 2025. As additional sources of liquidity, the Company has the ability to borrow up to $100.00 million from the Federal Reserve Bank of Chicago, and has lines of credit with three banks totaling $175.00 million. The borrowings under these credit lines would be secured by the Company’s investment securities. In addition, the Company has the option of issuing short-, medium-, and long-term debt, should the Company decide to do so. The combination of high levels of potentially liquid assets, low dependence on volatile liabilities, positive cash flows from operations, and both additional borrowing and brokered deposits capacity provided sources of liquidity for the Company which management considered sufficient at June 30, 2025.

Contractual Obligations

There have been no material changes with regard to contractual obligations disclosed in the Company’s Form 10-K for the year ended December 31, 2024.

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HILLS BANCORPORATION


Item 3.			Quantitative and Qualitative Disclosures about Market Risk

The Company's primary market risk exposure is to changes in interest rates. Interest rate risk is the risk to current or anticipated earnings or capital arising from movements in interest rates. Interest rate risk arises from repricing risk, basis risk, yield curve risk and options risk. Repricing risk is the difference between the timing of rate changes and the timing of cash flows. Basis risk is the difference from changing rate relationships among different yield curves affecting Bank activities. Yield curve risk is the difference from changing rate relationships across the spectrum of maturities. Option risk is the difference resulting from interest-related options embedded in Company products. The Company’s primary source of interest rate risk exposure arises from repricing risk. To measure this risk the Company uses a static gap measurement system that identifies the repricing gaps across the full maturity spectrum of the Company’s assets and liabilities and an earnings simulation approach. The gap schedule is known as the interest rate sensitivity report. The report reflects the repricing characteristics of the Company’s assets and liabilities. The report details the calculation of the gap ratio. This ratio indicates the amount of interest-earning assets repricing within a given period in comparison to the amount of interest-bearing liabilities repricing within the same period of time. A gap ratio of 1.0 indicates a matched position, in which case the effect on net interest income due to interest rate movements will be minimal. A gap ratio of less than 1.0 indicates that more liabilities than assets reprice within the time period, and a ratio greater than 1.0 indicates that more assets reprice than liabilities.

The Company's asset/liability management, or its management of interest rate risk, is focused primarily on evaluating and managing net interest income given various risk criteria. Factors beyond the Company's control, such as market interest rates and competition, may also have an impact on the Company's interest income and interest expense. In the absence of other factors, the Company's overall yield on interest-earning assets will increase as will its cost of funds on its interest-bearing liabilities when market interest rates increase over an extended period of time. Inversely, the Company's yields and cost of funds will decrease when market rates decline. The Company is able to manage these swings to some extent by attempting to control the maturity or rate adjustments of its interest-earning assets and interest-bearing liabilities over given periods of time.

The Company maintains an Asset/Liability Committee, which meets at least quarterly to review the interest rate sensitivity position and to review and develop various strategies for managing interest rate risk within the context of the following factors: 1) capital adequacy, 2) asset/liability mix, 3) economic outlook, 4) market characteristics and 5) the interest rate forecast. In addition, the Company uses a simulation model to review various assumptions relating to interest rate movement. The Company engages a third party that utilizes a modeling program to measure the Company’s exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, this analysis measures the estimated change in net interest income. The simulations allow for ongoing assessment of interest rate sensitivity and can include the impact of potential new business strategies. The modeled scenarios begin with a base case in which rates are unchanged and include parallel and nonparallel rate shocks. The results of these shocks are measured in two forms: first, the impact on the net interest margin and earnings over one and two year time frames; and second, the impact on the market value of equity. The results of the simulation are compared against approved policy limits. The model attempts to limit rate risk even if it appears the Company’s asset and liability maturities are perfectly matched and a favorable interest margin is present. The Company’s policy is to generally maintain a balance between profitability and interest rate risk.

In order to minimize the potential effects of adverse material and prolonged increases or decreases in market interest rates on the Company's operations, management has implemented an asset/liability program designed to mitigate the Company's interest rate sensitivity. The program emphasizes the origination of adjustable rate loans, which are held in the portfolio, the investment of excess cash in short or intermediate term interest-earning assets, and the solicitation of transaction deposit accounts, which are less sensitive to changes in interest rates and can be re-priced rapidly.

The Company's interest rate risk, as monitored by management, has not significantly increased since year-end. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including domestic and local economic conditions and the policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Further increases to prevailing interest rates could influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings. For instance, if our liabilities are positioned to reprice faster than our assets in a rising-rate environment, our net interest income could be detrimentally impacted as a result. Moreover, additional increases to the target range for the federal funds rate, combined with recent bank failures and 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.

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HILLS BANCORPORATION


Item 4.			Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s Principal Executive Officer and Chief Financial Officer concluded that as a result of the material weaknesses in internal control over financial reporting initially identified in “Management’s Report on Internal Control over Financial Reporting” for the year ended December 31, 2024, and described below, the Company's disclosure controls and procedures were not effective as of June 30, 2025. Material weaknesses in internal controls over financial reporting, which impacted managements' determination regarding the Company's disclosure controls and procedures, were identified in the following areas:

• management review and activity-level controls over the period-end financial reporting process;

• the segregation of duties, review, posting, and approval of manual journal entries; and

• the identification, prior approval, and disclosure of related party transactions.

Changes in Internal Control over Financial Reporting

Except as otherwise discussed above, there were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, including any corrective actions with regard to the control deficiencies that led to the material weaknesses in the Company’s internal controls over financial reporting identified above.

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, any system of disclosure controls and procedures or internal controls over financial reporting may not be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

Remediation Plan

The Company has initiated certain remedial measures to strengthen its controls as a result of the material weaknesses noted above. These include continued review of the overall design of its internal control environment, as well as the design and implementation of additional internal controls over the specific areas where material weaknesses were identified as detailed above. The Company has engaged a third party consultant to assist in performing a gap analysis of the control environment and enhancing the design and operation of controls related to financial reporting. The actions the Company is taking under its remediation plan are subject to ongoing management review and are also subject to Audit Committee oversight.

Each material weakness identified above cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

HILLS BANCORPORATION

PART II - OTHER INFORMATION


Item 1.			Legal Proceedings

None.


Item 1A.			Risk Factors

Other than provided 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, 2024.

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Changes in U.S. trade policies, such as the implementation of tariffs, and other factors beyond the Company’s control may adversely impact our business, financial condition and results of operations.

The ongoing trade policies and 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. As a result, the recent imposition of tariffs on a significant portion of imported goods, the increasing potential for ongoing retaliatory tariffs by foreign governments such as China, or other similar restrictions on international trade could lead to increased costs for domestic producers and consumers alike, as well as reduce demand abroad for U.S. exports, including those produced in the Bank’s primary markets. Ultimately, prolonged trade tensions carry the potential to result in significant reductions in consumer spending, reduced economic growth, and decreased demand for other banking products and services. If these factors lead to financial strain on our borrowers, we may experience increased credit risk, higher loan delinquencies, and a potential decline in loan demand.

As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes. While we actively monitor these developments and work closely with our agricultural customers, there is no assurance that we can fully mitigate the risks posed by tariff initiatives or other trade-related disruptions. These factors could materially affect our business, financial condition, and results of operations.

Emerging financial technologies such as digital assets, stablecoins, and distributed ledger systems may reduce the demand for traditional banking services and create new competitive pressures that adversely affect our business.

The rapid development and increasing regulatory acceptance of financial technologies such as digital assets (including cryptocurrencies and tokenized money), stablecoins, and distributed ledger technologies (DLT) could materially alter the landscape of financial services in the coming years. These technologies enable near-instantaneous value transfer, programmable money, and peer-to-peer settlement mechanisms, many of which may operate outside the traditional banking system.

Large technology companies, fintech platforms, and digital asset service providers—some of which are not subject to the same regulatory or capital constraints as depository institutions—are increasingly offering products that compete with core banking functions, such as payments, custody, lending, and liquidity management. The adoption of digital financial infrastructure by governments or central banks, such as central bank digital currencies (CBDCs), or by major corporate platforms could accelerate these shifts.

As a relatively small financial institution, we may be disproportionately impacted by these developments. Our ability to compete with larger institutions or well-capitalized technology entrants in developing or integrating such technologies is limited by our size, risk appetite, and regulatory obligations. A failure to adapt to or participate in these emerging ecosystems—either directly or through strategic partnerships—could erode our relevance in key banking functions, reduce our share of customer deposits and fee income, and adversely affect our long-term growth prospects and financial condition.

Risks related to regulation of payment stablecoins and digital assets

Recent federal legislation, including the GENIUS Act enacted in mid-2025, established new regulatory requirements for payment stablecoins issued by banking organizations and their subsidiaries. Compliance with these requirements involves maintaining adequate asset reserves, extensive reporting obligations, independent audits, and increased supervisory oversight. Our potential involvement in issuing or supporting payment stablecoins could expose us to regulatory compliance risks, increased operational costs, and evolving legal uncertainties. Additionally, rapid changes in digital asset regulation or adverse regulatory interpretations could adversely affect our business strategies and prospects in this emerging market, which could materially impact our financial condition and results of operations.

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Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information about the Company’s stock purchases, all of which were made pursuant to the 2005 Stock Repurchase Program, for the three months ended June 30, 2025 :


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs (1)
April 1 to April 30	24,304	$	75.00	24,304	377,199
May 1 to May 31	32,142	75.10		32,142	345,057
June 1 to June 30	11,475	77.00		11,475	333,582
Total	67,921	$	75.38	67,921	333,582

(1) On July 26, 2005, the Company’s Board of Directors authorized a program to repurchase up to 1,500,000 shares of the Company’s common stock (the “2005 Stock Repurchase Program”). On August 9, 2022, the Company’s 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 Company’s 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 Board’s assessment of the Company’s 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.

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Item 3.			Defaults upon Senior Securities

Hills Bancorporation has no senior securities.


Item 4.			Mine Safety Disclosure

Not applicable.


Item 5.			Other Information

Director or Officer Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements

None .

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Item 6.			Exhibits


3.1			Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 10-K Filed with the Commission on May 5, 2024.
3.2			Amended and Restated Bylaws of Hills Bancorporation, incorporated by reference to Exhibit 3.2 to the Company's Form 10-K Filed with the Commission on May 5, 2024.
4.1			Description of Registered Securities, incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed with the Commission on March 6, 2020.
31			Certifications under Section 302 of the Sarbanes-Oxley Act of 2002
32			Certifications under Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document (1), (2)
101.SCH			XBRL Taxonomy Extension Schema Document (1)
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB			XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document (1)
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(1) Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, and are otherwise not subject to liability under these sections.

(2) The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		HILLS BANCORPORATION

Date:	August 8, 2025	By: /s/ Lisa A. Shileny
		Lisa A. Shileny, Director, President and Chief Executive Officer

Date:	August 8, 2025	By: /s/ Anthony V. Roetlin
		Anthony V. Roetlin, Treasurer, Chief Financial Officer and Chief Accounting Officer

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TABLE OF CONTENTS

Part I Note 1. Summary Of Significant Accounting Policies Note 2. Earnings Per Share Note 3. Accumulated Other Comprehensive Loss Note 4. Securities Note 5. Loans Note 6. Leases Note 7. Fair Value Measurements Note 8. Stock Repurchase Program Note 9. Commitments and Contingencies Note 10. Income Taxes Note 11. Derivative Financial Instruments Note 12. Borrowings Note 13. Segment Reporting Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosure Item 5. Other Information Item 6. Exhibits

Exhibits

3.1 Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Company's Form 10-K Filed with the Commission on May 5, 2024. 3.2 Amended and Restated Bylaws of Hills Bancorporation, incorporated by reference to Exhibit 3.2 to the Company's Form 10-K Filed with the Commission on May 5, 2024. 4.1 Description of Registered Securities, incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed with the Commission on March 6, 2020. 31 Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 32 Certifications under Section 906 of the Sarbanes-Oxley Act of 2002

HBIA 10-Q Quarter ended June 30, 2025

Exhibits