Executive Summary

Q1 2023 EPS rose to $1.35 (up 17% YoY) on higher net interest income and lower credit loss expense; net income increased to $12.46M from $10.65M YoY .
Net interest margin expanded to 3.05% vs 2.64% a year ago as rate hikes benefited asset yields; management cautioned that “net interest compression” is likely ahead given deposit competition and higher funding costs .
Balance sheet stable: deposits increased $86.7M in the quarter (boosted by ~$100M temporary public funds), loans grew $92.1M QoQ, and liquidity was reinforced with $220M of FHLB advances by quarter-end .
Potential stock reaction catalysts: NIM expansion and resilient core trends vs. industry stress, tempered by rising funding costs, mortgage banking softness, and cautious outlook on NIM trajectory .

What Went Well and What Went Wrong

What Went Well
- NIM and earnings up: “Net interest margin on a tax-equivalent basis of 3.05%…[vs] 2.64%” and EPS $1.35 vs $1.15; net income $12.46M vs $10.65M .
- Loan growth and healthy returns: Loans rose ~$92.1M QoQ; ROA 1.25% and ROE 11.79% for Q1 2023 .
- Stable deposits and ample liquidity: Deposits up $86.7M QoQ (incl. ~$100M temporary public funds); additional FHLB capacity ~$848.8M .
What Went Wrong
- Mortgage banking revenue down: Net gain on sale of loans fell to $0.15M from $0.81M as higher rates reduced originations/refis .
- Funding costs rising: Interest expense increased with rate hikes and FHLB borrowings; management expects “net interest compression to impact earnings for the foreseeable future” .
- Industry risk backdrop: Management flagged broader banking-sector stresses (recent bank failures), potential regulatory tightening, and higher FDIC costs as risks .

Financial Results

Q1 2023 vs. Q1 2022 (YoY)

Metric	Q1 2022	Q1 2023
Net Interest Income ($M)	$25.18	$29.20
Noninterest Income ($M)	$7.48	$6.38
Noninterest Expense ($M)	$18.08	$19.41
Credit Loss Expense ($M)	$1.10	$0.37
Net Income ($M)	$10.65	$12.46
Diluted EPS ($)	$1.15	$1.35
Net Interest Margin (tax-eq)	2.64%	3.05%

Sequential trend (last two reported quarters available)

Metric	Q2 2022	Q3 2022	Q1 2023
Net Interest Income ($M)	$28.69	$30.32	$29.20
Net Income ($M)	$11.33	$13.74	$12.46
Diluted EPS ($)	$1.22	$1.48	$1.35

Balance sheet and flow metrics (QoQ)

Metric	Dec 31, 2022	Mar 31, 2023	Change
Total Assets ($B)	$3.98	$4.18	+$0.20
Deposits ($B)	$3.36	$3.44	+$0.09
Net Loans ($B)	$3.067	$3.158	+$0.092
FHLB Borrowings ($M)	$40	$220	+$180

KPIs and Credit

KPI	Q1 2023
ROA / ROE	1.25% / 11.79%
NIM (tax-eq)	3.05%
ACL / Loans	1.28% (ACL $41.07M)
Uninsured Deposits	$879.9M (25.6% of total)
Brokered Deposits	$23.87M (0.69% of total)

Estimates vs. actuals

Wall Street consensus estimates (S&P Global) for Q1 2023 EPS and revenue were unavailable; beat/miss analysis cannot be performed based on S&P Global in this instance. Values unavailable from S&P Global.

Segment breakdown

Hills operates as one segment (commercial bank); no segment revenue to report .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Company financial guidance	FY/Quarter	None issued	None issued	N/A

Management did not provide formal revenue/earnings/Opex guidance in the quarter; outlook commentary noted expected NIM compression due to funding pressures and competition .

Earnings Call Themes & Trends

Note: No public earnings call transcript or press release details were available; themes derived from MD&A and risk sections.

Topic	Q2–Q3 2022 Mentions	Q1 2023	Trend
Interest rates & NIM	Rate hikes raised asset yields; inflation uncertainty; NIM expansion in 2H22	NIM up to 3.05%; but “net interest compression” expected ahead with deposit pricing pressure/FHLB usage	NIM improved but forward pressure rising
Deposit behavior/liquidity	Stable with ample cash; rising AOCI pressure; deposit mix shifts	Deposits +$86.7M QoQ; ~$100M temporary public funds; FHLB borrowings raised to $220M; ~$849M FHLB capacity	Liquidity bolstered; higher-wholesale funding
Mortgage banking	Lower gain on sale as rates climbed	Net gain on sale $0.15M vs $0.81M YoY due to higher mortgage rates	Ongoing softness
Credit quality/ACL	ACL increased with loan growth; credit stable	ACL 1.28% of loans; credit loss expense $0.37M (down YoY)	Stable with prudent provisioning
Industry/regulatory	Macro and inflation risks flagged	Cites recent bank failures, possible regulatory tightening and FDIC assessments as risks	Heightened external risk awareness

Management Commentary

“Net income for the three month period ended March 31, 2023 was $12.46 million… The Company achieved a net interest margin… of 3.05% for the three months ended March 31, 2023 compared to 2.64% for the same three months of 2022.”
“Total assets were $4.177 billion… Cash and cash equivalents… increased… The majority of the increase can be attributed to approximately $100 million of temporary public funds.”
“The Company expects net interest compression to impact earnings for the foreseeable future due to competition for loans and deposits.”
“Deposits increased $86.71 million… Brokered deposits were $23.87 million… As of March 31, 2023… FHLB borrowings [were] $220.00 million.”

Q&A Highlights

No public earnings call transcript located; no Q&A disclosures found in filings or listed documents.

Estimates Context

Street consensus for Q1 2023 EPS and revenue was unavailable from S&P Global; therefore we cannot assess beats/misses vs. estimates in this report. Values unavailable from S&P Global.

Key Takeaways for Investors

Earnings quality: EPS and NIM expansion drove strong YoY growth, while credit costs remained low; however, management’s warning on NIM compression suggests near-term earnings may be capped by funding costs .
Funding and liquidity: Deposit growth and elevated FHLB capacity support liquidity; current reliance on $220M FHLB borrowings underscores a higher-cost funding mix as rates stay elevated .
Mortgage banking drag: Higher rates continue to suppress gain-on-sale income; core banking revenue (net interest income) remains primary growth driver .
Credit stable: ACL at 1.28% and modest credit loss expense indicate sound credit metrics amid growth, but macro risks persist .
Risk backdrop: Management highlighted sector stress and potential regulatory/assessment pressures; watch for FDIC premium actions and deposit stability through 2023 .
Trading implications: Near-term sentiment likely tied to NIM trajectory and deposit/funding costs; sustained loan growth and stable credit could support valuation, but a NIM peak and mortgage softness are likely headwinds .

Citations: All financials, KPIs, and commentary reflect Hills Bancorporation’s Q1 2023 Form 10-Q and related sections as cited above. The company’s 8‑K referenced an attached Quarterly Financial Report for March 31, 2023, but no separate press release content or call transcript was available in the document catalog .

HILLS BANCORPORATION (HBIA)·Q1 2023 Earnings Summary