Executive Summary

Q1 2022 earnings declined year over year on lower net interest income (PPP fee runoff) and a swing to credit loss expense, while noninterest income fell on weaker mortgage banking; diluted EPS was $1.15 vs $1.63 in Q1 2021, and net income was $10.65M vs $15.20M (-29.9% YoY) .
Net interest margin compressed to 2.64% (tax-equivalent) from 2.90% in Q1 2021, driven by low loan yields and no PPP fee income, partially offset by lower deposit costs; management expects future Fed hikes to help NIM as asset yields reprice upward .
Mortgage activity slowed sharply as rising rates reduced originations/refis; net gain on sale of loans fell 73% YoY to $0.81M, pressuring fee income .
Balance sheet remained solid with deposits up $127.59M since year-end (including ~$100M temporary public funds), loans up $25.87M, and ACL stable at 1.33% of loans; ROA/ROE for the quarter were 1.07%/10.08% (vs 1.60%/14.88% in Q1 2021) .

What Went Well and What Went Wrong

What Went Well
- Deposit and loan growth supported balance sheet scale; deposits +$127.59M since 12/31/21 (with ~$100M temporary public funds), and net loans +$25.87M quarter-to-date .
- Fee categories outside mortgage held up: trust fees rose to $3.27M (from $3.01M), and service charges/fees increased to $2.88M (from $2.54M) YoY, partially offsetting mortgage banking pressure .
- Management expects rate hikes to aid NIM: “The Company believes growth in net interest income will be contingent on the growth of … earning assets, increasing yield on loans and the continued interest rate increases by the Federal Reserve Board.” .
What Went Wrong
- Net interest income declined $1.05M YoY before credit loss expense, largely from the absence of $1.88M in PPP fees recognized in Q1 2021; NIM fell to 2.64% from 2.90% .
- Credit loss swung to a $1.10M expense (vs a $2.98M benefit last year), reflecting higher outstanding loan commitments, loan volume, and qualitative factor increases, dampening earnings .
- Mortgage banking slowed sharply with rising rates; net gain on sale of loans decreased 73% YoY to $0.81M as refi/origination volumes fell materially .

Financial Results

Metric (USD, except per-share; quarter)	Q3 2021	Q4 2021	Q1 2022
Interest income	$31.196M	$28.972M	$28.236M
Interest expense	$4.172M	$3.963M	$3.056M
Net interest income	$27.024M	$25.009M	$25.180M
Credit loss expense (benefit)	$0.082M	$(0.946)M	$1.104M
Noninterest income (“Other income”)	$8.244M	$8.200M	$7.477M
Noninterest expense (“Other expense”)	$18.198M	$26.225M	$18.075M
Income before income taxes	$16.988M	$7.930M	$13.478M
Income taxes	$3.863M	$1.777M	$2.826M
Net income	$13.125M	$6.153M	$10.652M
Diluted EPS	$1.41	$0.66	$1.15

Margins and KPIs

KPI	Q1 2021	Q1 2022
Net interest margin (tax-equivalent)	2.90%	2.64%
ROA (quarter)	1.60%	1.07%
ROE (quarter)	14.88%	10.08%
Net gain on sale of loans	$3.00M	$0.81M

Segment information

Company view	Detail
Operating segments	“The Company considers that it operates as one business segment, a commercial bank.”

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Company financial guidance	FY 2022	N/A	No formal quantitative guidance provided in filings reviewed	N/A

Note: Management commentary indicates expectations that rising Fed funds rates should support NIM as loan yields reprice; no ranges provided .

Earnings Call Themes & Trends

No Q1 2022 earnings call transcript was found for HBIA; we searched and found none. We relied on the 10-Q MD&A and 2021 10-K/10-Q for thematic continuity. [Search 0 results for earnings-call-transcript; ListDocuments showed none]

Topic	Previous Mentions (Q3 2021, Q4 2021)	Current Period (Q1 2022)	Trend
Interest rates / NIM	NIM compression through 2021 (2.83% tax-equivalent for 9M’21) as low rates weighed on asset yields .	NIM 2.64% vs 2.90% YoY; compression tied to low loan rates and PPP fee runoff; management expects Fed hikes to help NIM as 2022 progresses .	Modestly negative YoY in Q1; potential improvement as rates rise .
Mortgage banking	Strong in 2021, but cooling late-year with rate volatility; other income steady (Q3: $8.244M; Q4: $8.200M) .	Net gain on sale of loans down 73% YoY to $0.81M due to higher rates curbing origination/refi activity .	Negative with higher rates .
Credit quality / CECL	Reversals in 2021 (Q3 credit loss +$0.082M; Q4 benefit $(0.946)M) aided earnings .	Credit loss expense $1.10M on higher commitments, loan growth, and qualitative factors; ACL 1.33% of loans (unchanged vs YE21) .	Normalizing toward expense with growth/uncertainty .
Macro backdrop	COVID-19 recovery with ongoing supply/labor frictions; deposit inflows persisted through 2021 .	Elevated inflation, higher energy, and Russia-Ukraine war increased uncertainty; Fed hiked 25 bps in March; index rates up significantly YoY .	Macro headwinds intensifying Q1’22 .
Deposits/liquidity	Large liquidity build in 2021; temporary public funds bolstered balances .	Deposits +$127.59M since YE (incl. ~$100M temporary public funds); cash down as securities purchases increased .	Stable funding base; redeploying liquidity .

Management Commentary

Macro tone: “The U.S. economy continued its recovery during the first quarter of 2022 despite pressures from higher inflation and rising energy prices as well as concerns over the Russia-Ukraine war...” .
NIM outlook: “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 continued interest rate increases by the Federal Reserve Board.” .
Credit normalization: “Credit loss expense was $1.10 million… attributable to increases in outstanding loan commitments, loan volume and qualitative factor increases determined by management.” .
Risk posture: Management remains “cautiously optimistic” given capital levels, underwriting, diversification, and footprint, while acknowledging uncertainty and potential for additional provisions .

Q&A Highlights

No earnings call transcript was available for Q1 2022; therefore, no Q&A themes or clarifications were disclosed in a call setting. We searched for an earnings call and found none in the document catalog. [ListDocuments earnings-call-transcript returned 0 results]

Estimates Context

We attempted to retrieve S&P Global consensus for Q1 2022 EPS and revenue but were unable to due to a daily request limit; as a result, Street consensus comparisons are unavailable in this report. Treat estimates as unavailable for Q1 2022 for HBIA in this recap.

Key Takeaways for Investors

Earnings compression in Q1 2022 stemmed from NIM pressure and mortgage fee normalization; as rates rise, asset yields should reprice upward and support NIM over time, partially offsetting deposit betas .
Credit normalization and growth (higher commitments/volume) drove a return to provision expense; ACL remained 1.33% of loans, indicating stable reserve coverage as of quarter end .
Fee diversification matters: trust and service fees grew YoY, providing partial ballast against mortgage banking cyclicality .
Funding franchise remains strong with continued deposit growth (including temporary public funds), supporting balance sheet capacity for loan growth and securities deployment .
Macro watch items: inflation, energy prices, and geopolitics elevated uncertainty; management emphasized cautious optimism but flagged potential for additional provisioning if conditions warrant .
Absent formal guidance and no earnings call, focus on monitored metrics: NIM trajectory, loan/deposit growth mix, fee income run-rate ex-mortgage, and provision trends through 2022 .

Appendix: Source Documents and Availability Notes

Q1 2022 Form 10-Q (full MD&A and financials) –.
8-K 2.02 (Q1 2022) filed April 18, 2022; Exhibit 99.1 referenced as the Quarterly Financial Report; exhibit retrieval was unavailable in the repository, but the 10-Q provides the unaudited quarterly statements .
Prior-quarter data sourced from 2021 10-K Note 16 (quarterly results) and Q3 2021 10-Q .

Search/availability disclosures:

No Q1 2022 earnings call transcript or other Q1 2022 press releases were found in the document catalog (we searched explicitly; 0 results for transcripts/press releases for the period) [ListDocuments earnings-call-transcript=0; press-release=0].

HILLS BANCORPORATION (HBIA)·Q1 2022 Earnings Summary