Name: HILLS BANCORPORATION Q1 2024 Earnings Call
Start: 2024-04-16T00:00:00.000Z

Executive Summary

Q1 2024 net income was $12.10M and diluted EPS was $1.33, down modestly year over year from $12.46M and $1.35, as higher funding costs offset strong loan interest income growth; sequentially stronger vs Q3 2023 ($7.24M, $0.79) as credit loss expense normalized and pre-tax income recovered .
Total interest income rose 25.6% YoY to $48.72M, but interest expense more than doubled to $21.05M, compressing net interest income to $27.67M from $29.20M YoY; noninterest income improved YoY to $7.01M, led by trust fees .
Liquidity mix shifted: other short-term borrowings (including BTFP/fed funds purchased) increased to $329.0M while FHLB borrowings declined to $152.4M; deposits grew to $3.36B with a higher interest-bearing mix, reflecting disciplined funding management amid rates volatility .
No formal guidance or earnings call transcript was published; a forward-starting interest rate swap implemented in late 2023 to fix a portion of variable-rate debt (current notional $11.5M) signals proactive interest rate risk management and may support net interest margin stability near term .

What Went Well and What Went Wrong

What Went Well
- Loan interest income increased by $8.74M YoY, reflecting asset growth and repricing in a higher-rate environment .
- Noninterest income rose to $7.01M YoY, with trust fees at $3.50M (+$0.23M YoY), supporting diversified revenue streams .
- Management proactive hedging: “The Bank executed one forward-starting interest rate swap… effectively converting variable rate debt to fixed rate debt,” with $11.5M notional and favorable OCI in Q1 2024 (+$202k) .
What Went Wrong
- Interest expense surged to $21.05M (vs $9.59M YoY), compressing net interest income to $27.67M (vs $29.20M YoY), a clear funding cost headwind .
- Basic/diluted EPS declined slightly YoY to $1.33 (vs $1.35), as deposit repricing outpaced asset yields .
- Accumulated other comprehensive loss worsened to $(29.75)M from $(27.18)M at year-end, largely from AFS securities unrealized losses due to rates; management noted unrealized losses were interest-rate driven, with no ACL needed on securities .

Metric (USD)	Q1 2023	Q3 2023	Q1 2024
Total Interest Income ($M)	$38.787	$44.201	$48.721
Interest Expense ($M)	$9.586	$15.899	$21.051
Net Interest Income ($M)	$29.201	$28.302	$27.670
Noninterest Income ($M)	$6.381	$7.370	$7.007
Noninterest Expenses ($M)	$19.410	$19.666	$19.807
Income Before Taxes ($M)	$15.804	$9.079	$15.233
Net Income ($M)	$12.462	$7.244	$12.100
EPS (Basic)	$1.35	$0.79	$1.33
EPS (Diluted)	$1.35	$0.79	$1.33

Segment/Balance Mix

Loans by Class ($M)	Dec 31, 2023	Mar 31, 2024
Mortgage, 1–4 Family First Liens	$1,221.296	$1,203.944
Mortgage, Commercial	$416.670	$452.115
Mortgage, Multi-family	$471.009	$478.507
Commercial & Financial	$307.190	$311.828
Construction, Land Dev & Commercial	$313.878	$288.024
Agricultural	$115.786	$110.621
Total Loans (Gross)	$3,438.423	$3,442.419
Allowance for Credit Losses (ACL) on Loans	$49.410	$49.830

KPIs and Balance Sheet

KPI	Q3 2023	Q1 2024
Total Assets ($M)	$4,245.734	$4,388.047
Total Deposits ($M)	$3,363.298	$3,362.091
Noninterest-bearing Deposits ($M)	$605.697	$572.838
Interest-bearing Deposits ($M)	$2,757.601	$2,789.253
Other Short-term Borrowings ($M)	$0.000	$329.000
FHLB Borrowings ($M)	$364.000	$152.400
Stockholders’ Equity ($M)	$490.151	$511.816
Nonaccrual Loans ($M)	$35.877 (Sep’23)	$30.127 (Mar’24)
Accruing 90+ Days Past Due ($M)	$0.828 (Sep’23)	$0.129 (Mar’24)
Effective Tax Rate (%)	21.16% (9M’23)	20.57% (Q1’24)

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue/EPS/Margins	FY/Qtr	Not provided	Not provided	Maintained: no formal guidance in filings
Dividends	Q1 2024	Historical cadence	Cash dividends $10.051M in Q1 (aggregate)	Informational (no forward guidance)
Capital Actions	Q1 2024	Ongoing repurchase program	Repurchased 47,152 shares at $66.96 avg	Activity disclosed (no forward guidance)

Note: No Q1 2024 earnings call transcript found. Themes derived from 10-Q commentary and prior 10-Q.

Topic	Q3 2023 Mentions	Q1 2024 Current Period	Trend
Funding costs & deposit repricing	Interest expense climbed; deposits mix shifting; FHLB borrowings up	Interest expense further up YoY; higher interest-bearing deposit mix; shift into short-term borrowings/BTFP	Funding cost pressure persists; tactical use of wholesale lines
Credit quality & CECL	Nonaccruals increased, largely two relationships; ACL rose with higher charge-offs	Nonaccruals decreased vs Dec’23; ACL stable; charge-offs and recoveries roughly offset	Stabilizing; monitoring collateral-dependent exposures
Interest rate risk management	No hedge disclosure in Q3	New cash flow hedge: forward-starting swap, $11.5M notional; positive OCI	Enhanced IRR management likely supportive to NIM
Securities AFS & OCI	Large unrealized losses tied to rate moves; no ACL on AFS	Unrealized losses remain rate-driven; management again sees no ACL needed	OCI sensitive to rates; credit quality of AFS remains high
Liquidity posture	Deposits stable; FHLB reliance higher	Deposits flat YoY; mix shift; FHLB down but other short-term borrowings up	Rebalancing liquidity channels as projects/funding needs evolve

“The Bank executed one forward-starting interest rate swap… effectively converting variable rate debt to fixed rate debt,” notional $11.5M as of March 31, 2024; OCI gain of $202k in Q1 .
“Considering the above factors, management has determined that no allowance for credit losses is necessary for the securities portfolio as of March 31, 2024.” .
“Income taxes as a percentage of income before taxes were 20.57% for the three months ended March 31, 2024.” .
In prior period commentary: “The increase in nonaccrual loans… is primarily due to two significant relationships accounting for approximately 85% of the increase.” (Sep 30, 2023) .

No Q1 2024 earnings call transcript was available; no Q&A published in filings [first-half 2024 document catalog lacked transcripts].

Wall Street consensus estimates (S&P Global) were not available due to data access limits during this session. As a result, beats/misses versus consensus cannot be assessed here. Coverage for HBIA appears limited, and management did not provide formal guidance in filings .

Rate-driven funding cost pressure narrowed net interest income YoY despite strong loan interest growth; watch deposit repricing velocity and wholesale funding usage as primary earnings drivers .
Sequential earnings recovery versus Q3 2023 reflects normalization of credit loss expense and stronger pre-tax income; monitor whether this momentum sustains as rates evolve .
Proactive IRR management via the cash flow hedge should dampen variability in funding costs for the hedged portion through 2025, potentially supporting NIM resilience .
Credit metrics stable: nonaccrual balances declined vs year-end; ACL held steady; total charge-offs and recoveries nearly offset—continue monitoring collateral-dependent loans and commercial real estate exposures .
Liquidity rebalanced: FHLB borrowings reduced while other short-term borrowings (incl. BTFP) increased; deposits were flat with a higher interest-bearing mix—keep an eye on cost of funds and deposit mix shifts .
OCI remains sensitive to market rates; management continues to view AFS unrealized losses as rate-driven with high credit quality—rate cuts or curve shifts could be tailwinds to AOCI over time .
With no formal guidance or call transcript, near-term stock catalysts likely hinge on rate path, funding mix, and credit quality updates in subsequent quarters; repurchase activity continues to provide capital return support .