Business Overview: Hills Bancorporation (OTC: HBIA)

---

Executive Summary

Hills Bancorporation is the Iowa holding company for Hills Bank and Trust Company, a full-service commercial bank headquartered in the small town of Hills, Iowa (just south of Iowa City). The Company was incorporated in December 1982 and became owner of the Bank in January 1984; its only subsequent acquisitions — small bank mergers in Lisbon and Kalona — were completed and absorbed by 2001. Notably, Hills Bancorporation has made no acquisitions in nearly 25 years, growing instead almost entirely organically within a tight four-county footprint in eastern Iowa.

With roughly $4.6 billion in total assets and 19 banking offices concentrated around Iowa City, Cedar Rapids, and the surrounding Johnson, Linn, Washington, and Iowa counties, Hills Bancorporation is a large, closely-held community bank — the kind of institution whose relevance comes less from any single product and more from near-century-deep entrenchment as the trusted local bank for individuals, farmers, and businesses in a well-defined corner of eastern Iowa.

Why it matters: Hills Bancorporation is unusually large for a bank that has never made a meaningful acquisition in a generation — it has instead quietly compounded through organic deposit gathering, agricultural and commercial lending, and a trust and wealth management business, making it one of the larger family/community-controlled bank holding companies still trading over-the-counter rather than on a major exchange.

---

1. Core Business Model & How They Work

Hills Bank is a classic community bank: it gathers deposits from individuals, businesses, governmental units, and institutions in its home counties, and redeploys that funding into loans — overwhelmingly real estate-secured — plus a smaller book of agricultural and commercial credit. A trust and wealth management line supplements net interest income with fee revenue.

     Local Depositors                  Trust & Wealth Clients
   (checking, savings,                  (estates, pension plans,
    CDs, money market)                   farm management, custody)
            │                                      │
            ▼                                      ▼
   ┌───────────────────────────────────────────────────┐
   │          Hills Bank and Trust Company               │
   │  19 offices: Johnson, Linn, Washington, Iowa         │
   │  counties, eastern Iowa                              │
   └───────────────────────────────────────────────────┘
            │                                      │
            ▼                                      ▼
   Loan Portfolio                          Trust & Investment
   (86% real estate, plus                  Advisory Fee Income
    commercial, agricultural,
    and consumer lending)
            │
            ▼
   Net Interest Income ➡️ Noninterest/Fee Income ➡️
   Net Income ➡️ Retained Capital (funds continued organic
   loan growth — no acquisitions since 2001)

A distinguishing piece of the model: Hills Bank is "a substantial originator of residential mortgage loans" that it sells on the secondary market without retaining servicing rights, converting origination volume into fee income while keeping the balance sheet from ballooning with long-duration fixed-rate mortgages. The Bank also runs a full trust and wealth management operation — personal trusts, estates, pension plans, farm management, investment advisory, and custody services — which is a meaningfully larger relative business line for Hills than for most banks its size, reflecting the agricultural wealth concentrated in its market.

Hills Bancorporation does not break out separate reporting segments; management runs the Company as a single, integrated community banking business.

---

2. Footprint

Hills Bank and Trust Company — 19 Offices (eastern Iowa)
│
├── Johnson County (Iowa City, Coralville, Hills,
│   North Liberty, Tiffin, University Heights) ──── 8 offices
├── Linn County (Cedar Rapids, Marion,
│   Mount Vernon, Lisbon) ───────────────────────── 7 offices
├── Washington County (Washington, Kalona,
│   Wellman) ────────────────────────────────────── 3 offices
└── Iowa County (Williamsburg — opened Nov. 2024) ── 1 office

The Williamsburg office, opened in November 2024, is the Bank's first new-county entry in years and signals continued organic, adjacent-market expansion rather than any shift toward acquisitions.

---

3. Key Offerings

---

4. Competitive Landscape

Hills Bancorporation describes competition for deposits and loans as "intense," coming from several directions:

• Commercial banks and savings institutions — competitors in Johnson and Linn counties include larger regional and national banks with greater lending capacity and marketing budgets. The Bank notes that the largest competing national bank has 6 branches in Johnson County versus Hills Bank's own 8 — a rare instance of the community bank out-branching a national competitor in its home market.
• Credit unions — the largest local credit union also operates 6 Johnson County branches; credit unions' tax-advantaged structure lets them compete aggressively on deposit and loan rates.
• Nonbank financial providers — securities firms, insurance companies, and money market funds compete for the same household and business deposit dollars, particularly in a higher-rate environment where sweep and brokerage products pull deposits out of banks.
• Trust and wealth management competitors — regional trust companies and investment advisors compete for farm management and estate/trust business, an area where Hills' long local tenure and agricultural expertise is a genuine differentiator.

                  High Branch Density in Home Market
                              │
         Hills Bank (HBIA) •  │
                              │
   Deep Local/              ─┼─              National/Regional
   Relationship                                Scale & Resources
   Focus                      │
                              │  • National bank competitors
          Local credit       │  • Larger regional banks
          union           •  │
                              │
                  Lower Branch Density in Home Market

Hills Bank's edge is not lower cost or greater scale — it is branch density and relationship depth within a tightly defined four-county footprint, reinforced by a trust/wealth franchise tailored to the area's agricultural wealth.

---

5. Strategic Strengths & Risks

Strengths

• Organic growth discipline. No acquisitions since 2001 is a striking data point — Hills has compounded to roughly $4.6 billion in assets purely through deposit gathering and lending in its existing footprint, implying strong organic customer acquisition and retention rather than bought growth.
• Unusually deep trust and wealth franchise. Farm management, estate, and pension services tied to the region's agricultural wealth give Hills a fee-income line and client stickiness that peer banks of similar asset size typically lack.
• Local branch density advantage. Out-branching the largest national bank competitor in its core Johnson County market (8 offices versus 6) is a tangible, defensible local position.
• Conservative credit profile implied by scale and tenure. Decades without a disruptive acquisition suggests a risk-averse underwriting culture, consistent with the Bank's described focus on products, service, and price rather than aggressive growth.

Risks

• Geographic and agricultural concentration. The entire franchise sits in four contiguous eastern Iowa counties; a regional economic downturn, or stress in the farm economy (tied to commodity prices, weather, and now tariff exposure per the 10-K), would hit Hills far harder than a geographically diversified bank.
• Real estate concentration. At 86.4% of loans, real estate exposure is extremely high relative to typical community bank diversification norms, leaving the Bank sensitive to a regional property downturn.
• Uninsured deposit exposure. Roughly 21.8% of deposits were uninsured at year-end 2025 — a meaningful base that could prove flighty in a confidence-driven deposit run scenario, as seen industry-wide in 2023.
• Thin public float / OTC listing. Trading over-the-counter rather than on a major exchange likely means limited liquidity and analyst coverage, which can depress valuation and limit currency for any future strategic moves.
• Scale ceiling without M&A. Having foresworn acquisitions for over two decades, future growth depends entirely on organic expansion (such as the new Williamsburg office) — a slower, more conservative growth path than many publicly traded bank peers pursue.

---

6. Financial Overview

---

Summary Conclusion

Hills Bancorporation's moat, to the extent it has one, is almost entirely local: a dense branch network and deep multi-generational trust relationships built up over more than four decades in a tightly bounded four-county Iowa market, reinforced by an agricultural wealth-management franchise that is unusually strong for a bank its size. The Company's refusal to pursue acquisitions since 2001 is both its defining strength — evidence of real organic customer loyalty and disciplined growth — and its central limiting factor, since that same discipline caps diversification and leaves Hills tightly exposed to real estate and agricultural-economy swings in a single region of Iowa, with a thinly traded OTC stock limiting the Company's flexibility to use equity as acquisition currency if its strategy ever changes.