hbia-20260331

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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 March 31, 2026


☐			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

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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		April 30, 2026

Common Stock	No par value	8,737,858

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HILLS BANCORPORATION

Index to Form 10-Q

Part I

FINANCIAL INFORMATION


		Page
		Number
Item 1.	Financial Statements

	Consolidated balance sheets, March 31, 2026 (unaudited) and December 31, 202 5	4

	Consolidated statements of income (unaudited) for three months ended March 31, 2026 and 202 5	5

	Consolidated statements of comprehensive income (unaudited) for three months ended March 31, 2026 and 202 5	6

	Consolidated statements of stockholders' equity (unaudited) for three months ended March 31, 2026 and 202 5	7

	Consolidated statements of cash flows (unaudited) for th ree months ended March 31, 2026 and 202 5	8

	Notes to consolidated financial statements (condensed)	10

Item 2.	Management Discussion and Analysis of Financial Condition and Results of Operations	49

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	62

	Part II
	OTHER INFORMATION

Item 1.	Legal proceedings	64

Item 1A.	Risk factors	64

Item 2.	Unregistered sales of equity securities and use of proceeds	64

Item 3.	Defaults upon senior securities	65

Item 4.	Mine safety disclosures	65

Item 5.	Other information	65

Item 6.	Exhibits	66

	Signatures	67

Page 3

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HILLS BANCORPORATION CONSOLIDATED BALANCE SHEETS

(Amounts In Thousands, Except Share Amounts)


	March 31, 2026		December 31, 2025
ASSETS	(Unaudited)
Cash and cash equivalents	$	56,079	$	42,114
Investment securities available for sale at fair value (amortized cost March 31, 2026 $969,159; December 31, 2025 $957,295)	958,384		955,584
Stock of Federal Home Loan Bank	22,787		32,063
Loans held for sale	5,215		8,047
Loans, net of allowance for credit losses March 31, 2026 $56,601; December 31, 2025 $58,204	3,522,118		3,506,819
Property and equipment, net	37,234		36,040
Tax credit real estate	7,884		8,241
Accrued interest receivable	25,727		23,404
Deferred income taxes, net	21,244		18,467
Goodwill	2,500		2,500
Other assets	13,887		14,591
Total Assets	$	4,673,059	$	4,647,870

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits	$	615,648	$	596,230
Interest-bearing deposits	2,983,970		2,771,605
Total deposits	3,599,618		3,367,835
Other short-term borrowings, including FHLB daily reset advances	380,187		586,882
Federal Home Loan Bank borrowings	64,083		64,333
Accrued interest payable	3,250		3,453
Allowance for credit losses on off-balance sheet credit exposures	4,340		4,501
Other liabilities	17,503		18,157
Total Liabilities	4,068,981		4,045,161

Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP)	58,521		54,475

STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 20,000,000 shares; issued March 31, 2026 10,340,933 shares; December 31, 2025 10,339,953 shares	$	—	$	—
Paid in capital	65,497		65,183
Retained earnings	640,206		629,068
Accumulated other comprehensive loss	(8,214)		(1,304)
Treasury stock at cost (March 31, 2026 1,590,991 shares; December 31, 2025 1,556,890 shares)	(93,411)		(90,238)
Total Stockholders' Equity	604,078		602,709
Less maximum cash obligation related to ESOP shares	58,521		54,475
Total Stockholders' Equity Less Maximum Cash Obligation Related to ESOP Shares	545,557		548,234
Total Liabilities & Stockholders' Equity	$	4,673,059	$	4,647,870

See Notes to Consolidated Financial Statements.

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HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF INCOME

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


	Three Months Ended March 31,
	2026		2025
Interest income:
Loans, including fees	$	50,270	$	46,130
Investment securities:
Taxable	7,119		6,335
Nontaxable	2,907		2,550
Federal funds sold	91		189
Total interest income	60,387		55,204
Interest expense:
Deposits	12,708		14,478
Other short-term borrowings	3,336		2,942
FHLB borrowings	2,550		3,622
Total interest expense	18,594		21,042
Net interest income	41,793		34,162
Credit loss expense (benefit)	(1,066)		3,870

Net interest income after credit loss expense	42,859		30,292
Noninterest income:
Net gain on sale of loans	515		244
Trust fees	3,966		4,045
Service charges and fees	3,078		3,055
Other noninterest income	987		777
Loss on sale of investment securities	(13)		—
	8,533		8,121
Noninterest expenses:
Salaries and employee benefits	12,546		11,365
Occupancy	912		1,150
Furniture, equipment and software	2,386		1,746
Office supplies and postage	554		512
Advertising and business development	1,018		834
Outside services	4,573		3,885

FDIC insurance assessment	526		512
Other noninterest expense	1,365		643
	23,880		20,647
Income before income taxes	27,512		17,766
Income taxes	5,569		3,333
Net income	$	21,943	$	14,433

Earnings per share:
Basic	$	2.50	$	1.61
Diluted	2.50		1.61

See Notes to Consolidated Financial Statements.

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HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (Amounts In Thousands)


	Three Months Ended March 31,
	2026		2025
Net income	$	21,943	$	14,433

Other comprehensive income (loss)
Securities:
Net change in unrealized gain (loss) on securities available for sale	(9,077)		1,391
Reclassification adjustment for net losses realized in net income	13		—
Income taxes	2,154		(330)
Other comprehensive income (loss) on securities available for sale	(6,910)		1,061
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain on derivatives	—		58
Income taxes	—		(14)
Other comprehensive income on cash flow hedges	—		44

Other comprehensive income (loss), net of tax	(6,910)		1,105

Comprehensive income	$	15,033	$	15,538

See Notes to Consolidated Financial Statements.

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HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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


Three Months Ended March 31, 2026 and 2025
	Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Maximum Cash Obligation Related to ESOP Shares		Total
Balance, December 31, 2024	$	64,644	$	578,882	$	(27,300)	$	(75,282)	$	(48,257)	$	492,687
Issuance of 4,019 shares of common stock	177		—		—		114		—		291
Issuance of 1,444 shares of common stock under the employee stock purchase plan	94		—		—		—		—		94
Unearned restricted stock compensation	50		—		—		—		—		50
Forfeiture of 2,077 shares of common stock	(132)		—		—		—		—		(132)
Share-based compensation	5		—		—		—		—		5
Change related to ESOP shares	—		—		—		—		(2,261)		(2,261)
Net income	—		14,433		—		—		—		14,433
Cash dividends (1.15 per share)	—		(10,316)		—		—		—		(10,316)

Purchase of 32,379 shares of common stock	—		—		—		(2,398)		—		(2,398)
Other comprehensive income (loss)	—		—		1,105		—		—		1,105
Balance, March 31, 2025	$	64,838	$	582,999	$	(26,195)	$	(77,566)	$	(50,518)	$	493,558

Balance, December 31, 2025	$	65,182	$	629,068	$	(1,304)	$	(90,237)	$	(54,475)	$	548,234
Issuance of 2,993 shares of common stock	154		—		—		93		—		247
Issuance of 1,310 shares of common stock under the employee stock purchase plan	101		—		—		—		—		101
Unearned restricted stock compensation	72		—		—		—		—		72
Forfeiture of 330 shares of common stock	(24)		—		—		—		—		(24)
Share-based compensation	12		—		—		—		—		12

Change related to ESOP shares	—		—		—		—		(4,046)		(4,046)
Net income	—		21,943		—		—		—		21,943
Cash dividends ($1.23 per share)	—		(10,805)		—		—		—		(10,805)

Purchase of 37,094 shares of common stock	—		—		—		(3,130)		—		(3,130)
Excise tax on shares repurchased							(137)				(137)
Other comprehensive income (loss)	—		—		(6,910)		—		—		(6,910)

Balance, March 31, 2026	$	65,497	$	640,206	$	(8,214)	$	(93,411)	$	(58,521)	$	545,557

See Notes to Consolidated Financial Statements.

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HILLS BANCORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands)	Three Months Ended March 31,
	2026		2025
Cash Flows from Operating Activities
Net income	$	21,943	$	14,433
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation	396		602
Credit loss expense (benefit)	(1,066)		3,870


Loss on sale of investment securities available for sale	13		—
Forfeiture of common stock	(24)		(132)
Share-based compensation	12		5
Compensation expensed through issuance of common stock	247		291
(Provision) benefit for deferred income taxes	1,342		(793)
Purchase of state tax credits	(1,363)		—
Net loss on sale of other real estate owned and other repossessed assets	6		125
Loss from equity method investments	78		115
Net loss on the disposal of property	6		—
Increase in accrued interest receivable	(2,323)		(2,386)
Net accretion of discount on investment securities	(1,019)		(696)
(Increase) decrease in other assets	700		(1,459)
Amortization of operating lease right of use assets	64		65
Amortization of tax credit real estate investments	279		650
(Increase) decrease in accrued interest payable and other liabilities	(970)		2,429

Loans originated for sale	(56,029)		(23,999)
Proceeds on sales of loans	59,376		22,170
Net gain on sales of loans	(515)		(244)
Net cash and cash equivalents provided by operating activities	21,153		15,046
Cash Flows from Investing Activities
Proceeds from maturities of investment securities available for sale	28,818		68,359
Proceeds from sales of investment securities available for sale	134		—
Purchases of investment securities available for sale	(39,810)		(28,247)
Proceeds from sale of stock of Federal Home Loan Bank	20,109		16,821
Purchases of stock of Federal Home Loan Bank	(10,833)		(14,503)
Loans made to customers, net of collections	(16,047)		(31,242)
Proceeds on sale of other real estate owned	52		241
Purchases of property and equipment	(615)		(468)


Net cash and cash equivalents provided by (used in) investing activities	(18,192)		10,961
Cash Flows from Financing Activities
Net increase in deposits	231,783		132,213
Net decrease in other short-term borrowings	(206,695)		(546,636)
Principal payments on short-term FHLB borrowings	(577,224)		(221,871)
Proceeds from the issuance of short-term FHLB borrowings	577,224		324,721
Principal payments on long-term FHLB borrowings	(250)		—




Proceeds from the issuance of long-term FHLB borrowings	—		280,000
Purchase of common stock	(3,130)		(2,398)
Proceeds from the issuance of common stock through the employee stock purchase plan	101		94
Dividends paid	(10,805)		(10,316)
Net cash and cash equivalents provided by (used in) financing activities	11,004		(44,193)

(Continued)

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


	Three Months Ended March 31,
	2026		2025
Increase (decrease) in cash and cash equivalents	13,965		(18,186)
Cash and cash equivalents:
Beginning of period	42,114		123,399
End of period	$	56,079	$	105,213

Supplemental Disclosures
Cash payments for:
Interest paid to depositors	$	12,886	$	15,198
Interest paid on other obligations	5,911		11,137
Income taxes paid	5,457		—


Noncash activities:
Increase in maximum cash obligation related to ESOP shares	$	4,046	$	2,261
Transfers to other real estate owned	118		492

Property acquired through extinguishment of loan receivable	981		—
Tax credits acquired through extinguishment of loan receivable	602		—
Contributions payable for investment in tax credit real estate included in other liabilities	—		1,247

See Notes to Consolidated Financial Statements.

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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, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment.

Operating results for the three month period ended March 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2026. 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, 2025 filed with the Securities Exchange Commission on March 18, 2026. The consolidated balance sheet as of December 31, 2025, has been derived from the audited consolidated financial statements for that period.

Subsequent Events: The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC. In April 2026, the Company’s Board of Directors approved and announced a two‑for‑one (2‑for‑1) stock split of the Company’s issued and outstanding shares of common stock, no par value, to be effected in the form of a stock dividend. Shareholders of record as of June 1, 2026 will receive one additional share of common stock for each share held, with distribution expected on June 8, 2026. In connection with the stock split, the Company will increase its authorized shares of common stock from 20,000,000 to 40,000,000 shares. All outstanding equity awards will be proportionally adjusted to reflect the stock split. The accompanying consolidated financial statements do not reflect the impact of the stock split.

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, fair values of securities and other financial instruments, and share-based compensation expense involve certain significant estimates made by management. These estimates are reviewed by management routinely and it is reasonably possible that circumstances that exist at March 31, 2026 may change in the near-term and the effect could be material to the consolidated financial statements.

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 as these activities are not subject to the requirements of ASC 606. Interest income on loans and investment securities is recognized on the accrual method in accordance with written contracts. Loan origination fees of mortgage loans originated for sale are recognized when the loans are sold.

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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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(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 March 31, 2026 and December 31, 2025, 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 did not capitalize any contract acquisition costs as of March 31, 2026 and December 31, 2025.

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 March 31, 2026. 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 partnership 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 March 31, 2026 and December 31, 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. Upon certain conditions being met, an additional $1.25 million of contributions to capital were made in February 2025. Additionally, a contribution of $1.19 million was made in September 2025 for a geothermal credit. 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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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(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 March 31, 2026 or 2025.

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 (loss) ("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 the Company intends to sell a debt security or more likely than not 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 $7.55 million and $6.81 million at March 31, 2026 and December 31, 2025, 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 are stated at the amount of unpaid principal, net of deferred loan fees, and reduced by the allowance for credit losses ("ACL"). Accrued interest receivable on loans held for investment totaled $18.17 million and $16.59 million at March 31, 2026 and December 31, 2025, 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 more past due. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed. Loans are

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, commercial and financial, real estate, loans to individuals, and obligations of state and political subdivisions. 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. The primary economic forecast used in estimating expected credit losses for this segment is the Iowa unemployment rate.

Commercial and Financial - The commercial loan portfolio segment is comprised commercial lines of credit, term loans, and other business-related lending that are generally secured by business assets or supported by borrower and guarantor cash flows. Underwriting emphasizes assessment of borrower profitability, liquidity, leverage, and historical financial performance. Repayment is sensitive to changes in general economic conditions, business performance, and interest rates. The primary economic forecast utilized for this segment is the Iowa unemployment rate.

Real Estate - The real estate loan segment includes loans secured by real property and is disaggregated into the following loan classes: construction, 1 to 4 family residential; construction, land development and commercial; mortgage loans secured by farmland; mortgage loans secured by 1 to 4 family residential properties (first and junior liens); mortgage loans secured by multi-family properties; and mortgage loans secured by commercial real estate.

•Construction Loans include loans for residential construction and for commercial construction and land development projects. These loans are generally dependent on the successful completion and sale or stabilization of the underlying property and are subject to risks related to construction timelines, cost overruns, absorption rates, and market demand.

•Residential Mortgage Loans secured by 1 to 4 family properties are 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

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(Unaudited)

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 housing prices and demand and levels of unemployment.

•Commercial and Multi-Family Mortgage Loans are underwritten based on analysis of property cash flows, debt service coverage, tenant composition, vacancy trends, borrower experience, and sponsorship strength. Repayment is sensitive to changes in interest rates, property operating performance, and local economic conditions.

•Farmland Mortgage Loans secured by agricultural real estate 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.

The primary economic forecast utilized in estimating expected credit losses for real estate loan classes is the Iowa unemployment rate.

Loans to Individuals - The Bank 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 loans 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. Primary economic forecasts used in estimating expected credit losses for this segment include the Iowa unemployment rate and the National real gross domestic product.

Obligations of State and Political Subdivisions – The obligations of state and political subdivisions portfolio segment consists solely of tax‑exempt loans made to state governments, municipalities, school districts, and other political subdivisions. Underwriting standards for this segment emphasize the borrower’s legal authority to incur debt, the stability and diversity of pledged revenue sources, historical operating performance, budgetary trends, and the overall financial capacity of the governmental entity. Additional considerations include the strength of taxing authority, the predictability of revenue collections, the presence of voter or legislative appropriation requirements, and the entity’s reliance on state or federal funding. Repayment of these obligations is generally supported by dedicated revenue streams or general obligation pledges, resulting in credit performance that has historically demonstrated low volatility and limited correlation with broader economic cycles. Given these characteristics, expected credit losses for this segment are estimated primarily using long‑run historical loss experience and internal credit assessments, and do not incorporate specific forward‑looking macroeconomic forecasts, as management has determined that traditional economic indicators do not meaningfully influence expected loss outcomes for this portfolio.

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

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(Unaudited)

incurred per loan class. 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 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, including the condition of various markets; (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. 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 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.

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(Unaudited)

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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures. The standard was adopted by the Company as of December 31, 2025 on a retrospective basis. The amendments affect annual income tax disclosures only and did not have a material impact on the Company’s interim consolidated financial statements.

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 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.

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements, which provides targeted amendments intended to enable entities to apply hedge accounting to a broader range of highly effective economic hedges and to better align hedge accounting outcomes with risk-management activities. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, and early adoption is permitted. The Company currently has no derivative positions outstanding; however, because it may enter into derivative or hedging relationships in future periods, the Company is evaluating the guidance to determine the potential impact on its consolidated financial statements and the method of adoption. At this time, the Company has not yet determined the expected impact of this update upon adoption.

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(Unaudited)

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270), which improves the navigability of the required interim disclosures, provides clarity as to when it is applicable, and provides additional guidance on what disclosures are required in interim reporting periods by establishing a disclosure principle. The guidance is effective for interim reporting periods beginning in 2028 and can be applied either prospectively or retrospectively. The Company is currently evaluating the updated guidance to assess the impact and determining its method of adoption.

In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which provides technical corrections, clarifications, and other minor enhancements across numerous areas of the Accounting Standards Codification. The amendments address 33 issues, including clarifications related to diluted earnings per share, lease receivable disclosures, and other areas where existing guidance was ambiguous or difficult to apply. The amendments are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods. ASU 2025-12 contains mixed transition requirements. Issue 4, relating to diluted EPS, must be adopted retrospectively, while all other amendments may be applied either prospectively or retrospectively, at the entity’s election on an issue-by-issue basis. The Company is currently evaluating the impact of ASU 2025-12 on its accounting policies, processes, and disclosures; however, the Company does not expect adoption of this update to have a material effect on its consolidated financial statements.

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 following table presents calculations of earnings per share:


	Three Months Ended March 31,
	2026		2025
Computation of weighted average number of basic and diluted shares:
Common shares outstanding at the beginning of the period	8,783,062		8,969,422
Weighted average number of net shares (redeemed)	(14,352)		(9,769)
Weighted average shares outstanding (basic)	8,768,710		8,959,653
Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method	1,748		942
Weighted average number of shares (diluted)	8,770,458		8,960,595
Net income (In thousands)	$	21,943	$	14,433
Earnings per share:
Basic	$	2.50	$	1.61
Diluted	$	2.50	$	1.61

Note 3.Accumulated Other Comprehensive Loss

The following table summarizes the components of accumulated other comprehensive loss (AOCI), included in stockholders’ equity, at March 31, 2026 and December 31, 2025:


	March 31, 2026		December 31, 2025
	(amounts in thousands)
Net unrealized (loss) on available-for-sale securities	$	(10,775)	$	(1,711)

Tax effect	2,561		407
Net-of-tax amount	$	(8,214)	$	(1,304)

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(Unaudited)

Note 4.Securities

The carrying values of investment securities as of March 31, 2026 and December 31, 2025 are summarized in the following table (dollars in thousands):


	March 31, 2026				December 31, 2025
	Amount		Percent		Amount		Percent
Securities available for sale
U.S. Treasury	$	264,428	27.59	%	$	255,527	26.74	%
U.S. Government Agency and GSE securities	4,592		0.48		4,658		0.49
State and political subdivisions	372,028		38.82		382,645		40.04
Mortgage-backed securities and collateralized mortgage obligations	317,336		33.11		312,754		32.73
Total securities available for sale	$	958,384	100.00	%	$	955,584	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. As of March 31, 2026 and December 31, 2025, 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. The Company has no securities designated as trading or held to maturity in its portfolio as of March 31, 2026 or December 31, 2025.

The carrying amount of available-for-sale securities and their approximate fair values as of March 31, 2026 and December 31, 2025, were as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Estimated Fair Value
March 31, 2026
U.S. Treasury	$	264,404	$	1,081	$	(1,057)	$	—	$	264,428
U.S. Government Agency and GSE securities	4,711		—		(119)		—		4,592
State and political subdivisions	382,785		1,402		(12,159)		—		372,028
Mortgage-backed securities and collateralized mortgage obligations	317,259		1,569		(1,492)		—		317,336
Total	$	969,159	$	4,052	$	(14,827)	$	—	$	958,384
December 31, 2025
U.S. Treasury	$	253,925	$	2,316	$	(714)	$	—	$	255,527
U.S. Government Agency and GSE securities	4,687		—		(29)		—		4,658
State and political subdivisions	388,685		3,214		(9,254)		—		382,645
Mortgage-backed securities and collateralized mortgage obligations	309,998		3,258		(502)		—		312,754
Total	$	957,295	$	8,788	$	(10,499)	$	—	$	955,584

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(Unaudited)

The amortized cost and estimated fair value of available-for-sale securities classified according to their contractual maturities as of March 31, 2026, were as follows (in thousands) below.


	Amortized Cost		Fair Value
Due in one year or less	$	77,313	$	76,632
Due after one year through five years	280,659		280,312
Due after five years through ten years	86,872		79,591
Due over ten years	207,056		204,513
	$	651,900	$	641,048
Mortgage-backed securities and collateralized mortgage obligations	317,259		317,336
	$	969,159	$	958,384

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 above summary.

As of March 31, 2026 and December 31, 2025, investment securities with a market value of $153.29 million and $154.03 million, respectively, were pledged to collateralize other borrowings. As of March 31, 2026, 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.

Sales proceeds and gross realized gains and losses on available-for-sale securities were as follows (in thousands):


	Three Months Ended March 31,
	2026		2025
Sale proceeds	$	134	$	—
Gross realized gains	—		—
Gross realized losses	(13)		—

The following table shows the Company's investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2026 and December 31, 2025 (in thousands):


	Less than 12 months							12 months or more							Total
March 31, 2026 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	18	$	76,527	$	(525)	0.69	%	19	$	51,814	$	(532)	1.03	%	37	$	128,341	$	(1,057)	0.82	%

U.S. Government Agency and GSE securities	1	4,592		(119)		2.59		—	—		—		—		1	4,592		(119)		2.59

State and political subdivisions	413	173,209		(2,793)		1.61		346	95,158		(9,366)		9.84		759	268,367		(12,159)		4.53

Mortgage-backed securities and collateralized mortgage obligations	13	111,665		(1,228)		1.10		4	18,578		(264)		1.42		17	130,243		(1,492)		1.15

	445	$	365,993	$	(4,665)	1.27	%	369	$	165,550	$	(10,162)	6.14	%	814	$	531,543	$	(14,827)	2.79	%

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(Unaudited)


	Less than 12 months							12 months or more							Total
December 31, 2025 Description of Securities	#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%		#	Fair Value		Unrealized Loss		%
U.S. Treasury	6	$	29,972	$	(69)	0.23	%	23	$	61,637	$	(645)	1.05	%	29	$	91,609	$	(714)	0.78	%

U.S. Government Agency and GSE securities	1	4,658		(29)		0.62		—	—		—		—		1	4,658		(29)		0.62

State and political subdivisions	78	47,697		(446)		0.94		518	159,124		(8,808)		5.54		596	206,821		(9,254)		4.47

Mortgage-backed securities and collateralized mortgage obligations	7	77,518		(382)		0.49		4	19,920		(120)		0.60		11	97,438		(502)		0.52

	92	$	159,845	$	(926)	0.58	%	545	$	240,681	$	(9,573)	3.98	%	637	$	400,526	$	(10,499)	2.62	%

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 were 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 completed several balance sheet repositioning transactions related to its investment securities portfolio throughout the last four months of 2025. This consisted of the sale of lower-yielding AFS debt securities resulting in a pre-tax realized loss on the sales of $9.63 million in total for 2025. All of the proceeds from the sale of these securities were used to purchase AFS debt securities at higher yields to improve income going forward, while maintaining the liquidity provided by the investment portfolio. 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 March 31, 2026. The fair value is expected to recover as the securities approach maturity. The Company evaluates whether 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 March 31, 2026.

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(Unaudited)

Note 5.Loans and Allowance for Credit Losses

Classes of loans are as follows:


	March 31, 2026		December 31, 2025
	(Amounts In Thousands)
Agricultural	$	122,863	$	118,924
Commercial and financial	294,009		295,618
Real estate:
Construction, 1 to 4 family residential	101,568		89,807
Construction, land development and commercial	259,006		248,292
Mortgage, farmland	273,485		276,790
Mortgage, 1 to 4 family first liens	1,255,829		1,261,877
Mortgage, 1 to 4 family junior liens	139,854		143,317
Mortgage, multi-family	495,392		494,282
Mortgage, commercial	567,272		565,177
Loans to individuals	27,308		28,763
Obligations of state and political subdivisions	41,854		41,885
Gross Loans (ex net unamortized fees and costs)	3,578,440		3,564,732
Net unamortized fees and costs	279		291
Gross Loans	3,578,719		3,565,023
Less allowance for credit losses	56,601		58,204
Loans, net allowance for credit losses	$	3,522,118	$	3,506,819

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(Unaudited)

Changes in the allowance for credit losses (ACL) on loans for the three months ended March 31, 2026 and 2025 are as follows:


	Three Months Ended March 31, 2026
	December 31, 2025		Charge-offs		Recoveries		Credit loss expense (benefit)		March 31, 2026
	(Amounts In Thousands)
ACL on loans:
Agricultural	$	418	$	(21)	$	17	$	73	$	487
Commercial and financial	11,890		(277)		322		(1,073)		10,862
Real estate:
Construction, 1 to 4 family residential	617		(152)		15		281		761
Construction, land development and commercial	3,165		—		—		320		3,485
Mortgage, farmland	2,478		(68)		1		(481)		1,930
Mortgage, 1 to 4 family first liens	20,959		(476)		105		386		20,974
Mortgage, 1 to 4 family junior liens	5,639		(200)		46		32		5,517
Mortgage, multi-family	2,345		—		133		(120)		2,358
Mortgage, commercial	9,855		(101)		5		(508)		9,251
Loans to individuals	826		(171)		123		186		964
Obligations of state and political subdivisions	12		—		—		—		12
Total	$	58,204	$	(1,466)	$	767	$	(904)	$	56,601

	Three Months Ended March 31, 2025
	December 31, 2024		Charge-offs		Recoveries		Credit loss expense (benefit)		March 31, 2025
	(Amounts In Thousands)
ACL on loans:
Agricultural	$	674	$	(35)	$	106	$	38	$	783
Commercial and financial	10,217		(251)		248		687		10,901
Real estate:
Construction, 1 to 4 family residential	280		(232)		24		250		322
Construction, land development and commercial	2,113		(19)		2		49		2,145
Mortgage, farmland	3,252		—		13		204		3,469
Mortgage, 1 to 4 family first liens	18,210		(328)		73		684		18,639
Mortgage, 1 to 4 family junior liens	4,719		(57)		89		(109)		4,642
Mortgage, multi-family	2,828		(200)		15		287		2,930
Mortgage, commercial	7,525		(237)		9		840		8,137
Loans to individuals	1,109		(374)		94		141		970
Obligations of state and political subdivisions	13		—		—		(1)		12
Total	$	50,940	$	(1,733)	$	673	$	3,070	$	52,950

Page 22

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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 months ended March 31, 2026 and 2025 were as follows:


	Three Months Ended March 31, 2026
	December 31, 2025		Credit loss (benefit) expense		(Charge-offs), net recoveries		March 31, 2026
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
Agricultural	$	88	$	360	$	—	$	448
Commercial and financial	2,376		(617)		—		1,759
Real estate:
Construction, 1 to 4 family residential	410		(103)		—		307
Construction, land development and commercial	844		175		—		1,019
Mortgage, farmland	71		(24)		—		47
Mortgage, 1 to 4 family first liens	122		(53)		—		69
Mortgage, 1 to 4 family junior liens	435		68		—		503
Mortgage, multi-family	30		52		—		82
Mortgage, commercial	62		(36)		—		26
Loans to individuals	56		(14)		—		42
Obligations of state and political subdivisions	7		31		—		38
Total	$	4,501	$	(161)	$	—	$	4,340

	Three Months Ended March 31, 2025
	December 31, 2024		Credit loss (benefit) expense		(Charge-offs), net recoveries		March 31, 2025
	(Amounts In Thousands)
ACL for off-balance sheet credit exposures:
Agricultural	$	147	$	1	$	—	$	148
Commercial and financial	1,753		566		—		2,319
Real estate:
Construction, 1 to 4 family residential	179		(37)		—		142
Construction, land development and commercial	307		22		—		329
Mortgage, farmland	13		29		—		42
Mortgage, 1 to 4 family first liens	120		111		—		231
Mortgage, 1 to 4 family junior liens	292		3		—		295
Mortgage, multi-family	1		23		—		24
Mortgage, commercial	45		78		—		123
Loans to individuals	43		4		—		47
Obligations of state and political subdivisions	—		—		—		—
Total	$	2,900	$	800	$	—	$	3,700

Credit loss expense (benefit) for off-balance sheet credit exposures is included in credit loss expense (benefit) on the consolidated statement of income for the three months ended March 31, 2026 and 2025.

Page 23

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 substandard to excellent. 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 are 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 Hills Bank, maintains high deposit balances and has an established payment history with Hills Bank 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 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 Hills bank 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 an excellent or good rated relationship. The borrower has an established relationship with Hills Bank. 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 are 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 liquidity 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 Hills Bank 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,

Page 24

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 bank 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 Bank 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.

The following tables present the credit quality indicators and origination years by type of loan in each category as of March 31, 2026 (amounts in thousands):


	Agricultural
March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total

Excellent	$	1,312	$	200	$	—	$	55	$	149	$	700	$	6,855	$	9,271
Good	2,223		1,859		1,203		1,278		520		1,416		15,752		24,251
Satisfactory	2,820		5,091		3,176		1,223		1,770		4,111		22,100		40,291
Monitor	2,260		2,354		1,922		2,361		1,432		937		17,970		29,236
Special Mention	254		2,371		2,531		891		852		1,362		6,831		15,092
Substandard	—		47		1,853		73		212		566		1,971		4,722
Total	$	8,869	$	11,922	$	10,685	$	5,881	$	4,935	$	9,092	$	71,479	$	122,863
Current-period gross write offs	$	—	$	2	$	—	$	7	$	—	$	—	$	12	$	21




	Commercial and Financial
March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	43	$	763	$	361	$	895	$	66	$	287	$	4,952	$	7,367
Good	1,043		2,744		4,821		10,952		6,974		6,030		43,421		75,985
Satisfactory	9,082		26,119		10,803		17,003		13,974		9,377		40,485		126,843
Monitor	1,961		11,347		4,800		7,834		7,672		4,488		26,480		64,582
Special Mention	1,523		895		1,851		2,022		1,305		899		3,334		11,829
Substandard	298		810		884		1,226		1,679		1,438		1,068		7,403
Total	$	13,950	$	42,678	$	23,520	$	39,932	$	31,670	$	22,519	$	119,740	$	294,009

Current-period gross write offs	$	—	$	—	$	26	$	133	$	—	$	118	$	—	$	277

Page 25

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Construction, 1 to 4 Family Residential



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Good	—		551		138		—		—		—		16,555		17,244
Satisfactory	57		773		185		—		155		—		43,986		45,156
Monitor	—		306		187		—		—		—		35,273		35,766
Special Mention	—		—		—		—		—		92		2,596		2,688
Substandard	—		—		—		52		—		—		662		714
Total	$	57	$	1,630	$	510	$	52	$	155	$	92	$	99,072	$	101,568

Current-period gross write offs	$	—	$	—	$	—	$	147	$	—	$	—	$	5	$	152


	Real Estate: Construction, Land Development and Commercial



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	—	$	—	$	—	$	—	$	253	$	721	$	974
Good	356		949		409		—		86		146		19,275		21,221
Satisfactory	4,479		10,869		2,269		3,872		4,381		4,612		52,745		83,227
Monitor	589		1,768		2,611		2,664		4,739		2,045		83,187		97,603
Special Mention	—		8,281		—		10,000		283		1,172		34,331		54,067
Substandard	—		—		—		410		93		1,411		—		1,914
Total	$	5,424	$	21,867	$	5,289	$	16,946	$	9,582	$	9,639	$	190,259	$	259,006

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


	Real Estate: Mortgage, Farmland



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	423	$	853	$	361	$	1,808	$	1,866	$	3,944	$	651	$	9,906
Good	2,510		3,424		4,159		1,904		4,451		24,685		3,804		44,937
Satisfactory	2,219		26,733		8,368		16,004		30,943		57,353		11,719		153,339
Monitor	1,197		4,052		2,266		9,441		6,329		16,815		5,050		45,150
Special Mention	920		1,063		—		—		2,305		1,958		571		6,817
Substandard	—		226		—		3,365		2,652		4,714		2,379		13,336
Total	$	7,269	$	36,351	$	15,154	$	32,522	$	48,546	$	109,469	$	24,174	$	273,485

Current-period gross write offs	$	—	$	—	$	—	$	—	$	—	$	68	$	—	$	68


	Real Estate: Mortgage, 1 to 4 Family First Liens


March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	1,472	$	—	$	882	$	3,102	$	3,260	$	217	$	8,933
Good	1,265		18,333		6,892		9,074		10,931		30,450		4,491		81,436
Satisfactory	28,939		201,836		57,857		119,848		228,958		349,376		13,665		1,000,479
Monitor	3,978		12,472		4,086		11,646		18,352		47,049		10,666		108,249
Special Mention	—		324		1,096		4,059		5,754		14,342		1,227		26,802
Substandard	—		382		637		5,650		6,230		16,683		348		29,930
Total	$	34,182	$	234,819	$	70,568	$	151,159	$	273,327	$	461,160	$	30,614	$	1,255,829

Current-period gross write offs	$	—	$	—	$	19	$	152	$	259	$	46	$	—	$	476

Page 26

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Mortgage, 1 to 4 Family Junior Liens



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	—	$	—	$	—	$	12	$	4	$	—	$	16
Good	—		21		—		—		230		595		3,449		4,295
Satisfactory	2,676		9,952		2,343		5,588		8,424		17,180		78,504		124,667
Monitor	25		409		260		168		826		1,355		3,073		6,116
Special Mention	—		—		33		198		225		564		1,245		2,265
Substandard	—		32		176		326		130		568		1,263		2,495
Total	$	2,701	$	10,414	$	2,812	$	6,280	$	9,847	$	20,266	$	87,534	$	139,854

Current-period gross write offs	$	—	$	—	$	—	$	38	$	101	$	61	$	—	$	200


	Real Estate: Mortgage, Multi-Family



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	2,300	$	—	$	—	$	273	$	50,851	$	—	$	53,424
Good	—		2,339		—		9,505		45,872		40,183		12,644		110,543
Satisfactory	9,823		34,544		4,802		12,100		34,030		80,968		28,566		204,833
Monitor	3,645		9,958		12,038		3,492		22,527		21,027		29,131		101,818
Special Mention	—		—		—		14,354		1,736		3,236		1,626		20,952
Substandard	—		—		—		2,912		—		910		—		3,822
Total	$	13,468	$	49,141	$	16,840	$	42,363	$	104,438	$	197,175	$	71,967	$	495,392

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


	Real Estate: Mortgage, Commercial



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	3,558	$	96	$	—	$	—	$	14,116	$	9,224	$	26,994
Good	1,000		3,358		5,595		7,970		15,274		55,450		17,075		105,722
Satisfactory	4,510		28,146		17,227		23,311		44,028		73,854		44,121		235,197
Monitor	1,415		27,442		9,934		12,421		16,096		28,365		55,122		150,795
Special Mention	—		10,239		943		11,111		3,786		6,777		—		32,856
Substandard	—		354		686		3,388		1,025		10,255		—		15,708
Total	$	6,925	$	73,097	$	34,481	$	58,201	$	80,209	$	188,817	$	125,542	$	567,272

Current-period gross write offs	$	—	$	—	$	—	$	100	$	—	$	1	$	—	$	101


	Loans to Individuals



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Good	—		40		45		—		—		—		—		85
Satisfactory	1,270		5,058		2,736		2,370		1,416		450		13,259		26,559
Monitor	—		79		46		69		27		11		1		233
Special Mention	—		108		66		89		—		2		2		267
Substandard	—		20		33		16		38		57		—		164
Total	$	1,270	$	5,305	$	2,926	$	2,544	$	1,481	$	520	$	13,262	$	27,308

Current-period gross write offs	$	85	$	8	$	46	$	28	$	2	$	2	$	—	$	171

Page 27

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Obligations of State and Political Subdivisions


March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	—	$	—	$	—	$	—	$	—	$	2,339	$	—	$	2,339
Good	—		—		—		—		—		15,454		2,996		18,450
Satisfactory	596		530		793		1,317		1,445		6,936		1,100		12,717
Monitor	282		555		430		—		694		2,632		2,777		7,370
Special Mention	—		—		—		—		301		416		—		717
Substandard	—		—		—		—		—		261		—		261
Total	$	878	$	1,085	$	1,223	$	1,317	$	2,440	$	28,038	$	6,873	$	41,854

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

	Totals



March 31, 2026	2026		2025		2024		2023		2022		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	1,778	$	9,146	$	818	$	3,640	$	5,468	$	75,754	$	22,620	$	119,224
Good	8,397		33,618		23,262		40,683		84,338		174,409		139,462		504,169
Satisfactory	66,471		349,651		110,559		202,636		369,524		604,217		350,250		2,053,308
Monitor	15,352		70,742		38,580		50,096		78,694		124,724		268,730		646,918
Special Mention	2,697		23,281		6,520		42,724		16,547		30,820		51,763		174,352
Substandard	298		1,871		4,269		17,418		12,059		36,863		7,691		80,469
Total	$	94,993	$	488,309	$	184,008	$	357,197	$	566,630	$	1,046,787	$	840,516	$	3,578,440

Current-period gross write offs	$	85	$	10	$	91	$	605	$	362	$	296	$	17	$	1,466

The following tables present total loans by risk categories and gross charge-offs by year of origination as of December 31, 2025 (amounts in thousands):


	Agricultural
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	200	$	747	$	55	$	152	$	586	$	119	$	7,912	$	9,771
Good	2,062		720		1,200		509		86		732		12,481		17,790
Satisfactory	8,523		3,885		1,769		2,087		1,059		2,674		25,088		45,085
Monitor	2,791		2,486		2,475		674		304		542		17,761		27,033
Special Mention	1,649		2,291		913		1,055		50		709		7,152		13,819
Substandard	375		1,907		127		300		45		261		2,411		5,426
Total	$	15,600	$	12,036	$	6,539	$	4,777	$	2,130	$	5,037	$	72,805	$	118,924

Gross write-offs for period	$	—	$	—	$	—	$	39	$	—	$	—	—		$	39


	Commercial and Financial



December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total
Excellent	$	797	$	411	$	940	$	74	$	45	$	269	$	4,491	$	7,027
Good	4,329		4,205		11,663		7,227		500		4,414		45,404		77,742
Satisfactory	27,723		11,837		18,215		16,050		5,292		7,183		40,023		126,323
Monitor	12,773		5,124		8,179		9,335		1,742		2,707		25,205		65,065
Special Mention	873		2,003		3,052		1,195		77		548		4,244		11,992
Substandard	932		1,209		1,755		1,318		206		1,471		578		7,469
Total	$	47,427	$	24,789	$	43,804	$	35,199	$	7,862	$	16,592	$	119,945	$	295,618
Gross write-offs for period	$	473	$	809	$	358	$	167	$	46	$	105	$	170	$	2,128

Page 28

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Construction, 1 to 4 Family Residential
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Good	—		—		—		—		—		—		15,239		15,239
Satisfactory	487		68		—		250		—		—		39,785		40,590
Monitor	191		644		—		126		—		—		30,154		31,115
Special Mention	—		—		—		—		42		51		2,214		2,307
Substandard	61		—		185		—		—		—		310		556
Total	$	739	$	712	$	185	$	376	$	42	$	51	$	87,702	$	89,807
Gross write-offs for period	$	—	$	155	$	—	$	—	$	144	$	99	7		$	405


	Real Estate: Construction, Land Development and Commercial
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	—	$	—	$	—	$	—	$	—	$	262	$	604	$	866
Good	1,396		409		—		87		85		101		20,112		22,190
Satisfactory	12,033		4,154		4,028		4,497		2,520		2,909		47,325		77,466
Monitor	1,112		5,009		2,736		5,052		792		1,313		76,480		92,494
Special Mention	284		—		—		—		1,104		69		51,663		53,120
Substandard	—		—		556		167		1,388		45		—		2,156
Total	$	14,825	$	9,572	$	7,320	$	9,803	$	5,889	$	4,699	$	196,184	$	248,292
Gross write-offs for period	$	—	$	—	$	19	$	4	$	—	$	—	$	—	$	23


	Real Estate: Mortgage, Farmland
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	858	$	420	$	1,901	$	1,883	$	—	$	4,169	$	60	$	9,291
Good	3,821		4,254		1,935		3,690		10,164		14,529		3,570		41,963
Satisfactory	27,728		8,704		16,915		31,830		17,217		45,142		12,956		160,492
Monitor	3,864		2,197		11,766		7,561		3,300		14,187		4,971		47,846
Special Mention	859		—		1,355		2,778		541		1,919		577		8,029
Substandard	245		—		2,044		1,485		954		2,013		2,428		9,169
Total	$	37,375	$	15,575	$	35,916	$	49,227	$	32,176	$	81,959	$	24,562	$	276,790
Gross write-offs for period	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Real Estate: Mortgage, 1 to 4 Family First Liens
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	1,881	$	—	$	886	$	3,139	$	500	$	2,852	$	218	$	9,476
Good	19,026		6,935		8,895		11,233		6,338		26,076		4,531		83,034
Satisfactory	205,374		62,238		127,565		236,384		116,155		245,724		13,859		1,007,299
Monitor	11,865		4,762		10,672		19,082		8,757		39,025		10,358		104,521
Special Mention	457		1,163		5,456		6,732		4,680		10,883		896		30,267
Substandard	307		658		4,829		4,856		4,984		11,196		450		27,280
Total	$	238,910	$	75,756	$	158,303	$	281,426	$	141,414	$	335,756	$	30,312	$	1,261,877
Gross write-offs for period	$	—	$	153	$	322	$	279	$	104	$	69	$	20	$	947

Page 29

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Real Estate: Mortgage, 1 to 4 Family Junior Liens
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	—	$	—	$	—	$	12	$	—	$	4	$	143	$	159
Good	21		—		—		234		—		615		3,788		4,658
Satisfactory	11,913		2,445		5,828		8,851		6,284		11,816		80,500		127,637
Monitor	387		276		180		897		400		1,133		2,939		6,212
Special Mention	—		33		211		277		221		421		1,091		2,254
Substandard	32		179		330		115		29		573		1,139		2,397
Total	$	12,353	$	2,933	$	6,549	$	10,386	$	6,934	$	14,562	$	89,600	$	143,317
Gross write-offs for period	$	—	$	24	$	149	$	62	$	36	$	120	$	37	$	428


	Real Estate: Mortgage, Multi-Family
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	2,322	$	—	$	—	$	275	$	30,052	$	21,295	$	—	$	53,944
Good	2,349		—		9,570		49,085		2,764		37,997		12,736		114,501
Satisfactory	34,743		4,556		12,277		34,518		23,855		58,389		28,374		196,712
Monitor	11,295		9,816		3,984		22,656		6,410		14,874		29,303		98,338
Special Mention	—		—		15,506		1,744		—		3,269		1,633		22,152
Substandard	—		—		3,063		1,717		3,855		—		—		8,635
Total	$	50,709	$	14,372	$	44,400	$	109,995	$	66,936	$	135,824	$	72,046	$	494,282
Gross write-offs for period	$	—	$	—	$	7	$	100	$	100	$	—	$	—	$	207


	Real Estate: Mortgage, Commercial
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	3,575	$	96	$	—	$	—	$	2,057	$	12,291	$	9,299	$	27,318
Good	3,371		5,638		8,027		15,483		2,554		54,471		15,571		105,115
Satisfactory	28,908		15,583		23,469		44,648		17,304		61,412		45,429		236,753
Monitor	27,459		7,848		12,488		13,846		7,028		19,693		54,520		142,882
Special Mention	10,294		946		11,170		6,264		1,215		6,863		—		36,752
Substandard	358		774		3,521		827		2,633		8,244		—		16,357
Total	$	73,965	$	30,885	$	58,675	$	81,068	$	32,791	$	162,974	$	124,819	$	565,177
Gross write-offs for period	$	48	$	—	$	158	$	85	$	41	$	758	$	—	$	1,090


	Loans to Individuals
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total


Excellent	$	40	$	—	$	—	$	—	$	—	$	—	$	—	$	40
Good	42		50		—		—		—		—		2		94
Satisfactory	5,904		3,283		2,990		1,820		466		127		13,065		27,655
Monitor	83		63		78		42		14		—		—		280
Special Mention	121		97		97		—		16		—		—		331
Substandard	21		40		15		42		70		—		175		363
Total	$	6,211	$	3,533	$	3,180	$	1,904	$	566	$	127	$	13,242	$	28,763
Gross write-offs for period	$	619	$	308	$	254	$	38	$	—	$	10	$	493	$	1,722

Page 30

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Obligations of State and Political Subdivisions
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	—	$	—	$	—	$	—	$	—	$	2,461	$	—	$	2,461
Good	—		—		—		—		—		15,300		3,018		18,318
Satisfactory	532		803		1,329		1,506		583		6,916		1,228		12,897
Monitor	555		430		—		708		—		2,693		2,807		7,193
Special Mention	—		—		—		304		—		437		—		741
Substandard	—		—		—		—		—		275		—		275
Total	$	1,087	$	1,233	$	1,329	$	2,518	$	583	$	28,082	$	7,053	$	41,885
Gross write-offs for period	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—



	Totals
December 31, 2025	2025		2024		2023		2022		2021		Prior		Revolving Loans Amortized Cost Basis		Total



Excellent	$	9,673	$	1,674	$	3,782	$	5,535	$	33,240	$	43,722	$	22,727	$	120,353
Good	36,417		22,211		41,290		87,548		22,491		154,235		136,452		500,644
Satisfactory	363,869		117,556		214,385		382,441		190,735		442,292		347,629		2,058,907
Monitor	72,374		38,655		52,558		79,979		28,747		96,167		254,499		622,979
Special Mention	14,537		6,533		37,760		20,349		7,946		25,169		69,472		181,766
Substandard	2,331		4,767		16,425		10,827		14,164		24,078		7,491		80,083
Total	$	499,201	$	191,396	$	366,200	$	586,679	$	297,323	$	785,663	$	838,270	$	3,564,732

Gross write-offs for period	$	1,140	$	1,449	$	1,267	$	774	$	471	$	1,161	$	727	$	6,989

Page 31

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Past due loans as of March 31, 2026 and December 31, 2025 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)
March 31, 2026
Agricultural	$	76	$	122	$	85	$	283	$	122,580	$	122,863	$	—
Commercial and financial	1,380		489		1,549		3,418		290,591		294,009		16
Real estate:
Construction, 1 to 4 family residential	1,651		321		51		2,023		99,545		101,568		—
Construction, land development and commercial	9,978		2,976		283		13,237		245,769		259,006		283
Mortgage, farmland	908		304		660		1,872		271,613		273,485		—
Mortgage, 1 to 4 family first liens	18,824		3,007		5,855		27,686		1,228,143		1,255,829		362
Mortgage, 1 to 4 family junior liens	1,029		81		—		1,110		138,744		139,854		—
Mortgage, multi-family	1,272		—		—		1,272		494,120		495,392		—
Mortgage, commercial	3,385		1,998		276		5,659		561,613		567,272		—
Loans to individuals	155		83		—		238		27,070		27,308		—
Obligations of state and political subdivisions	—		—		—		—		41,854		41,854		—
	$	38,658	$	9,381	$	8,759	$	56,798	$	3,521,642	$	3,578,440	$	661

December 31, 2025
Agricultural	$	107	$	—	$	364	$	471	$	118,453	$	118,924	$	—
Commercial and financial	1,889		326		1,385		3,600		292,018		295,618		—
Real estate:
Construction, 1 to 4 family residential	636		—		—		636		89,171		89,807		—
Construction, land development and commercial	2,007		—		1,456		3,463		244,829		248,292		1,371
Mortgage, farmland	2,763		3,588		660		7,011		269,779		276,790		—
Mortgage, 1 to 4 family first liens	23,035		3,930		5,231		32,196		1,229,681		1,261,877		1,166
Mortgage, 1 to 4 family junior liens	673		123		90		886		142,431		143,317		—
Mortgage, multi-family	4,277		—		136		4,413		489,869		494,282		—
Mortgage, commercial	10,530		375		356		11,261		553,916		565,177		—
Loans to individuals	355		85		—		440		28,323		28,763		—
Obligations of state and political subdivisions	275		—		—		275		41,610		41,885		—
	$	46,547	$	8,427	$	9,678	$	64,652	$	3,500,080	$	3,564,732	$	2,537

Page 32

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The Company does not have a significant amount of loans that are past due less than 90 days where there are serious doubts as to the ability of the borrowers to comply with the loan repayment terms. The loans 90 days or more past due and still accruing are believed to be adequately collateralized. Loans are placed on nonaccrual status when management believes the collection of future principal and interest is not reasonably assured. As of March 31, 2026 and December 31, 2025, none of the Company's nonaccrual loans were earning interest on a cash basis.

Certain nonaccrual loan information by loan type at March 31, 2026 and December 31, 2025, was as follows:


	March 31, 2026				December 31, 2025
	Total Non-accrual loans		Nonaccrual with no ACL			Total Non- accrual loans		Nonaccrual with no ACL
	(Amounts In Thousands)				(Amounts In Thousands)
Agricultural	$	132	$	47		$	364	$	364
Commercial and financial	1,841		1,841			2,624		2,624
Real estate:
Construction, 1 to 4 family residential	422		422			—		—
Construction, land development and commercial	198		198			551		551
Mortgage, farmland	2,535		1,918			660		660
Mortgage, 1 to 4 family first liens	11,038		11,038			9,560		9,560
Mortgage, 1 to 4 family junior liens	154		154			251		251
Mortgage, multi-family	43		43			1,790		1,790
Mortgage, commercial	1,946		1,946			1,813		1,813


	$	18,309	$	17,607		$	17,613	$	17,613

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.

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):

Page 33

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


Loan Modifications Made to Borrowers Experiencing Financial Difficulty
		Three Months Ended March 31, 2026			Three Months Ended March 31, 2025
		Amortized Cost Basis		% of Total Class of Financing Receivable	Amortized Cost Basis		% of Total Class of Financing Receivable
Loan Type
Agricultural (1)	Interest Rate Reduction	$	1,745	1.42%	$	—	—%
Commercial and financial	Term extension	1,360		0.46	666		0.22
Construction, 1 to 4 family residential	Term extension	421		0.41	377		0.41
Construction, land development and commercial	Term extension	—		—	196		0.07
Mortgage, farmland	Term extension	300		0.11	—		—
Mortgage, 1 to 4 family first liens (2)	Principal and interest reduction	178		0.01	—		—


Mortgage, commercial	Term extension	262		0.05	—		—


		$	4,266		$	1,239

(1)Interest rate concession reduced interest rate by 2.00%. Modification reduced monthly payment amounts for the borrower.

(2)Modification reduced monthly payment amounts for the borrower.

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


	Three Months Ended March 31, 2026	Three Months Ended March 31, 2025
Loan Type	Added Weighted Average Life (Years)	Added Weighted Average Life (Years)

Commercial and financial	4.4	1.0
Construction, 1 to 4 family residential	0.3	1.0
Construction land development and commercial	0.0	0.9
Mortgage, Farmland	5.5	0.0

Mortgage, commercial	0.3	0.0

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 March 31, 2026 and for the three months ending March 31, 2025.

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):

Page 34

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


March 31, 2026 Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Mortgage, 1 to 4 family first liens	$	172	$	—	$	178

Agricultural	1,745		—		—
Mortgage, commercial	754
Mortgage, farmland	300		—		—
Construction, 1 to 4 family residential	—		421		—

Commercial and financial	1,957		146		—
	$	4,928	$	567	$	178

March 31, 2025 Payment Status (Amortized Cost Basis)
	Current		30-89 Days Past Due		90+ Days Past Due
Loan Type
Agricultural	$	2,617	$	—	$	—
Mortgage, commercial	784		—		—
Construction, 1 to 4 family residential	378		—		—
Construction, land development and commercial	1,745		—		—
Commercial and financial	1,295		—		—
	$	6,819	$	—	$	—

The following tables present 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		Equipment		Total		ACL Allocation
	(Amounts In Thousands)
March 31, 2026
Agricultural	$	1,877	$	—	$	1,877	$	85
Commercial and financial	4,148		—		4,148		—
Real estate:
Construction, 1 to 4 family residential	421		—		421		—
Construction, land development and commercial	1,601		—		1,601		—
Mortgage, farmland	5,229		—		5,229		21
Mortgage, 1 to 4 family first liens	11,211		—		11,211		—
Mortgage, 1 to 4 family junior liens	154		—		154		—
Mortgage, multi-family	1,970		—		1,970		—
Mortgage, commercial	4,149		—		4,149		83
Loans to individuals	—		—		—		—

	$	30,760	$	—	$	30,760	$	189

Page 35

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Primary Type of Collateral
	Real Estate		Equipment		Total		ACL Allocation
	(Amounts In Thousands)
December 31, 2025
Agricultural	$	2,135	$	135	$	2,270	$	—
Commercial and financial	3,810		—		3,810		—
Real estate:
Construction, 1 to 4 family residential	51		—		51		—
Construction, land development and commercial	3,294		—		3,294		—
Mortgage, farmland	3,125		—		3,125		—
Mortgage, 1 to 4 family first liens	10,900		—		10,900		—
Mortgage, 1 to 4 family junior liens	251		—		251		—
Mortgage, multi-family	3,765		—		3,765		—
Mortgage, commercial	3,799		—		3,799		—
Loans to individuals	175		—		175		175

	$	31,305	$	135	$	31,440	$	175

Page 36

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 0.89% of loans held for investment as of March 31, 2026 and 0.88% as of December 31, 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.

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 helping to determine 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.

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HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 6.Leases

The Bank leases branch offices, parking facilities and certain equipment under operating leases. The leases have remaining lease terms of 1 year to 8 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 4 years. As the options are reasonably certain to be exercised, they are recognized as part of the right-of-use assets and lease liabilities.

For the three months ended March 31, 2026 and 2025 total operating lease expense was $120 thousand and $120 thousand, respectively, and is included in occupancy expenses in the consolidated statement of income. Included in this were $116 thousand and $100 thousand of operating lease costs, respectively, $2 thousand and $10 thousand, of short term lease costs, respectively, and $2 thousand and $10 thousand of variable lease costs, respectively.

For the three months ended March 31, 2026 and 2025, cash paid for amounts included in the measurement of operating lease liabilities was $116 thousand and $100 thousand, respectively, and no right-of-use assets were obtained in exchange for lease obligations.

As of March 31, 2026 and December 31, 2025, operating lease right-of-use assets included in other assets were $1.54 million and $1.60 million respectively. Operating lease liabilities included in other liabilities were $1.64 million and $1.71 million, respectively. The weighted average remaining lease term for operating leases was 6.83 years and 7.00 years, respectively, and the weighted average discount rate for operating leases was 3.02% and 3.68%, respectively. Discount rates used were determined from FHLB borrowing rates for comparable terms.

As of March 31, 2026, maturities of lease liabilities were as follows:


Year ending December 31:	(Amounts In Thousands)
2026 (excluding the three months ended March 31, 2026)	$	252
2027	333
2028	295
2029	172
2030	174
Thereafter	638
Total lease payments	1,864
Less imputed interest	(222)
Total operating lease liabilities	$	1,642

Page 38

Index

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 March 31, 2026 are as follows:


	March 31, 2026
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices (1)		Observable Market Prices (2)		Unobservable Market Prices (3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	56,079	$	56,079	$	56,079	$	—	$	—
Investment securities	958,384		958,384		264,428		693,956		—
Loans held for sale	5,215		5,215		—		5,215		—
Loans, net
Agricultural	122,376		122,613		—		—		122,613
Commercial and financial	283,147		283,407		—		—		283,407
Real estate:
Construction, 1 to 4 family residential	100,807		101,216		—		—		101,216
Construction, land development and commercial	255,521		258,234		—		—		258,234
Mortgage, farmland	271,555		266,430		—		—		266,430
Mortgage, 1 to 4 family first liens	1,235,134		1,191,868		—		—		1,191,868
Mortgage, 1 to 4 family junior liens	134,337		133,767		—		—		133,767
Mortgage, multi-family	493,034		480,460		—		—		480,460
Mortgage, commercial	558,021		550,103		—		—		550,103
Loans to individuals	26,344		25,654		—		—		25,654
Obligations of state and political subdivisions	41,842		41,747		—		—		41,747
Accrued interest receivable	25,727		25,727		—		25,727		—
Total financial instrument assets	$	4,567,523	$	4,500,904	$	320,507	$	724,898	$	3,455,499
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	615,648	$	615,648	$	—	$	615,648	$	—
Interest-bearing deposits	2,983,970		2,753,204		—		2,753,204		—
Other short-term borrowings	380,187		379,575		—		379,575		—
Federal Home Loan Bank borrowings	64,083		64,253		—		64,253		—

Accrued interest payable	3,250		3,250		—		3,250		—
Total financial instrument liabilities	$	4,047,138	$	3,815,930	$	—	$	3,815,930	$	—

	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	665,689
Letters of credit	11,052
Total financial instrument liabilities with off-balance-sheet risk	$	676,741

(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 39

Index

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, 2025 are as follows:


	December 31, 2025
	Carrying Amount		Estimated Fair Value		Readily Available Market Prices (1)		Observable Market Prices (2)		Unobservable Market Prices (3)
	(Amounts In Thousands)
Financial instrument assets:
Cash and cash equivalents	$	42,114	$	42,114	$	42,114	$	—	$	—
Investment securities	955,584		955,584		255,527		700,057		—
Loans held for sale	8,047		8,047		—		8,047		—
Loans
Agricultural	118,506		118,737		—		—		118,737
Commercial and financial	283,728		284,244		—		—		284,244
Real estate:
Construction, 1 to 4 family residential	89,190		89,558		—		—		89,558
Construction, land development and commercial	245,127		246,410		—		—		246,410
Mortgage, farmland	274,312		268,568		—		—		268,568
Mortgage, 1 to 4 family first liens	1,241,209		1,193,847		—		—		1,193,847
Mortgage, 1 to 4 family junior liens	137,678		136,911		—		—		136,911
Mortgage, multi-family	491,937		477,170		—		—		477,170
Mortgage, commercial	555,322		549,177		—		—		549,177
Loans to individuals	27,937		27,613		—		—		27,613
Obligations of state and political subdivisions	41,873		41,393		—		—		41,393
Accrued interest receivable	23,404		23,404		—		23,404		—
Total financial instrument assets	$	4,535,968	$	4,462,777	$	297,641	$	731,508	$	3,433,628
Financial instrument liabilities:
Deposits
Noninterest-bearing deposits	$	596,230	$	596,230	$	—	$	596,230	$	—
Interest-bearing deposits	2,771,605		2,563,767		—		2,563,767		—
Other short-term borrowings	586,882		585,948		—		585,948		—
Federal Home Loan Bank borrowings	64,333		64,754		—		64,754		—

Accrued interest payable	3,453		3,453		—		3,453		—
Total financial instrument liabilities	$	4,022,503	$	3,814,152	$	—	$	3,814,152	$	—

	Face Amount
Financial instrument with off-balance sheet risk:
Loan commitments	$	675,284
Letters of credit	11,152
Total financial instrument liabilities with off-balance-sheet risk	$	686,436

(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 40

Index

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 three months ended March 31, 2026. 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.

Page 41

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 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 and unfunded loan commitments are not significant.

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:


	March 31, 2026
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	$	264,428	$	—	$	—	$	264,428
State and political subdivisions	—		372,028		—		372,028
Mortgage-backed securities and collateralized mortgage obligations	—		317,336		—		317,336
U.S. Government Agency and GSE securities	—		4,592		—		4,592
Total	$	264,428	$	693,956	$	—	$	958,384


	December 31, 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	$	255,527	$	—	$	—	$	255,527
State and political subdivisions	—		382,645		—		382,645
Mortgage-backed securities and collateralized mortgage obligations	—		312,754		—		312,754
U.S. Government Agency and GSE securities	—		4,658		—		4,658
Total	$	255,527	$	700,057	$	—	$	955,584

(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.

There were no transfers between Levels 1, 2 or 3 during the three months ended March 31, 2026 and the year ended December 31, 2025.

Page 42

Index

HILLS BANCORPORATION

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. For assets measured at fair value on a nonrecurring basis that were still held on the balance sheet at March 31, 2026 and December 31, 2025, the following tables provide the level of valuation assumptions used to determine the adjustment and the carrying value of the related individual assets at year end.


	March 31, 2026
	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	—		—		138		138
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—
Construction, land development and commercial	—		—		51		51
Mortgage, farmland	—		—		596		596
Mortgage, 1 to 4 family first liens	—		—		1,418		1,418
Mortgage, 1 to 4 family junior liens	—		—		—		—
Mortgage, multi-family	—		—		—		—
Mortgage, commercial	—		—		419		419
Loans to individuals	—		—		—		—
Foreclosed assets (5)	—		—		—		—
Total	$	—	$	—	$	2,622	$	2,622

(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.

Page 43

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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


	December 31, 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	—		—		932		932
Real Estate:
Construction, 1 to 4 family residential	—		—		—		—
Construction, land development and commercial	—		—		194		194
Mortgage, farmland	—		—		—		—
Mortgage, 1 to 4 family first liens	—		—		2,020		2,020
Mortgage, 1 to 4 family junior liens	—		—		9		9
Mortgage, multi-family	—		—		136		136
Mortgage, commercial	—		—		444		444
Loans to individuals	—		—		—		—
Foreclosed assets (5)	—		—		—		—
Total	$	—	$	—	$	3,735	$	3,735

(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.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

March 31, 2026

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range
(Weighted Average)

(Amounts in Thousands)

Individually assessed loans

2,622

Appraised Value

Appraisal Discount

25.00%

December 31, 2025

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range
(Weighted Average)

(Amounts in Thousands)

Individually assessed loans

3,735

Appraised Value

Appraisal Discount

25.00%

Page 44

Index

HILLS BANCORPORATION

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 2,055,750 shares of its common stock in privately negotiated transactions from August 1, 2005 through March 31, 2026. Of these 2,055,750 shares, 37,094 shares were purchased during the quarter ended March 31, 2026, at an average price per share of $84.38.

Page 45

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 9. Commitments and Contingencies

Concentrations of credit risk: The Bank's loans, commitments to extend credit, unused lines of credit and outstanding letters of credit have been granted to customers within the Bank's market area. Investments in securities issued by state and political subdivisions within the state of Iowa had fair value of $160.24 million and $153.88 million as of March 31, 2026 and 2025, respectively. 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 Bank 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 Bank 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 mitigates credit risk associated with these commitments through credit underwriting standards, ongoing credit monitoring, and, in many cases, collateral requirements and personal or corporate guarantees. Because many commitments are expected to expire without being fully drawn, the total contractual amount does not represent the Company’s expected future funding requirements or credit exposure. The Company maintains an allowance for credit losses on off-balance sheet credit exposures of $4.34 million at March 31, 2026, which reflects management’s estimate of expected credit losses on unfunded commitments, considering the likelihood of funding and expected credit losses consistent with the methodology applied to funded loans.

The Bank'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 Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank's commitments at March 31, 2026 and December 31, 2025 is as follows:


	March 31, 2026		December 31, 2025
	(Amounts In Thousands)
Firm loan commitments and unused portion of lines of credit:
Home equity loans	$	95,868	$	93,895
Credit cards	80,677		80,910
Commercial, real estate and home construction	188,869		177,797
Commercial lines and real estate purchase loans	300,275		322,682
Outstanding letters of credit	11,052		11,152
Total commitments	$	676,741	$	686,436

Page 46

Index

HILLS BANCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note 10.Income Taxes

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, 2025, 2024, and 2023, remain subject to examination by the Internal Revenue Service. For state tax purposes, the tax years ended December 31, 2025, 2024, and 2023 remain open for examination. There were no material unrecognized tax benefits at March 31, 2026 and December 31, 2025, and therefore no interest or penalties on unrecognized tax benefits have been recorded. As of March 31, 2026, the Company does not anticipate any significant increase or decrease in unrecognized tax benefits during the twelve-month period ending March 31, 2027. Income taxes as a percentage of income before taxes were 20.24% for the three months ended March 31, 2026 and 18.76% for the same period in 2025.

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 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 executed one interest rate swap agreement in November 2023 and was not required to pledge a US Treasury security as collateral as of March 31, 2026 and December 31, 2025, 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.

As of March 31, 2026 and December 31, 2025 there were no derivative instruments outstanding.

The table below identifies the gains and (losses) recognized on the Bank’s derivative instrument designated as cash flow hedges for the three months ended March 31, 2026 and March 31, 2025:



	Recognized in Other Comprehensive Income (Loss)		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
	(Amounts in Thousands)
March 31, 2026
Interest rate swap	$	—	Interest Expense	$	—	Other Income	$	—

March 31, 2025
Interest rate swap	$	44	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 March 31, 2026 and December 31, 2025:


	March 31, 2026		December 31, 2025
	(Amounts In Thousands)
Other short-term borrowings
FHLB daily reset advances, interest rate 2026 3.91%; 2025 3.98%	$	380,187	$	586,882


	$	380,187	$	586,882

Federal Home Loan Bank borrowings

(Effective interest rates as of March 31, 2026)
Due 2027, 3.87% to 4.58%	$	40,000	$	40,000
Due 2030, 4.06%	24,083		24,333
	$	64,083	$	64,333

The Company has federal funds lines available totaling $175.00 million from multiple correspondent banking relationships as of March 31, 2026 and December 31, 2025, respectively. Of the total federal funds lines available, $50.00 million is secured by available for sale securities of $48.17 million and the remaining balance is unsecured.

The Company also has availability to borrow from the Federal Reserve Bank Discount Window of $105.11 million and $105.54 million as of March 31, 2026 and December 31, 2025, respectively, that is secured by available for sale securities.

The Company's FHLB borrowings are secured by collateral provided by the Company's 1 to 4 family residential, commercial real estate, agricultural real estate first mortgages and multi-family loans totaling $1.119 billion and $1.051 billion as of March 31, 2026 and December 31, 2025, respectively. There was $444.27 million and $651.22 million borrowed against this collateral as of March 31, 2026 and December 31, 2025, respectively. The weighted average interest rate on the FHLB daily reset advances outstanding was 3.91% and 3.98% as of March 31, 2026 and December 31, 2025. 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 22.79 million and 32.06 million at March 31, 2026 and December 31, 2025, 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 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. The Company’s operations have similar economic characteristics, including consistent net interest margins, cost structures, and risk profiles across lending and deposit products.

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 discussion by management is presented regarding 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 should be read in conjunction with the consolidated financial statements and the accompanying footnotes thereto included or incorporated by reference elsewhere in this document.

An overview of three month period ended March 31, 2026 is presented following the section discussing a special note regarding forward looking statements.

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 higher inflation, rising energy prices, geopolitical conflicts, and supply chain imbalances, including tariffs.

•The effects of 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 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 change in the market value, the 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 and monetary and financial matters as well as any laws otherwise affecting the Company, including, but not limited to, 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.

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•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.

•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

For the first quarter of 2026, per the Beige Book, economic activity for the Company's region slightly increased over the reporting period with an expected no change in activity in the coming year. Manufacturing demand rose modestly; consumer spending increased slightly; employment, business spending and construction and real estate were flat. Prices rose moderately, wages rose modestly, and financial conditions tightened modestly. Farm income expectations for 2026 declined somewhat.

Higher borrowing costs continue to present a risk to the economy, with consumer and business budgets accounting for higher interest costs. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will likely continue to impact results for the rest of 2026 and beyond.

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 economic conditions and continued migration in the loan portfolio towards the special mention risk rating category.

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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, 2025, filed with the SEC on March 18, 2026, and there have been no material changes in these critical accounting policies since December 31, 2025.

Overview

The Company is a bank holding company engaged, through its wholly-owned subsidiary bank, in the business of commercial banking. The Company’s subsidiary is Hills Bank and Trust Company, Hills, Iowa. 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.

Highlights with respect to items on the Company's statement of income for the three month period ended March 31, 2026 included the following:

•Net income for the three month period ended March 31, 2026 was $21.94 million compared to $14.43 million for the same three months of 2025, an increase of $7.51 million or 52.03%. The principal factors in the increase in net income for the first three months of 2026 were an increase in net interest income of $7.63 million, a decrease in credit loss expense of $4.94 million, and an increase in noninterest income of $0.41 million, primarily due to net gain on sale of loans. The increase in net income was offset by an increase in noninterest expenses of $3.23 million, primarily due to an increase in salaries and employee benefits expense.

•The Company achieved a return on average assets of 1.48% and a return on average equity of 12.97% for the twelve months ended March 31, 2026, compared to the twelve months ended March 31, 2025, which were 1.13% and 10.33%, respectively. The return on average assets and return on average equity for the three months ended March 31, 2026 were 1.92% and 16.29%, respectively, compared to the three months ended March 31, 2025, which were 1.30% and 11.91%, respectively. Dividends of $1.23 per share were paid in January 2026 to 2,643 shareholders. The dividend paid in January 2025 was $1.15 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 3.84% for the three months ended March 31, 2026 compared to 3.25% for the same three months of 2025. Average earning assets were $4.504 billion year to date in 2026 and $4.405 billion in 2025.

Highlights noted on the balance sheet as of March 31, 2026 for the Company included the following:

•Total assets were $4.673 billion, an increase of $25.19 million since December 31, 2025.

•Cash and cash equivalents were $56.08 million, an increase of $13.97 million since December 31, 2025.

•Loans net of allowance for credit losses was $3.522 billion, an increase of $15.30 million since December 31, 2025, primarily due to increases in construction, 1 to 4 family residential and construction, land development and commercial. This was offset by decreases in mortgage, 1 to 4 family first liens and mortgage, farmland loans.

•Loans held for sale were $5.22 million, a decrease of $2.83 million since December 31, 2025.

•Deposits increased $231.78 million since December 31, 2025.

Reference is made to Note 7 for the Company's consolidated financial statements for a discussion of fair value measurements which relate to methods used by the Company in recording certain assets and liabilities on its consolidated financial statements.

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Financial Condition

Loan demand has stabilized and grown through the first quarter of 2026 and loan demand is expected to remain consistent throughout the remainder of 2026.

The following table shows the composition of the loans (before deducting the allowance for credit losses) as of March 31, 2026 and December 31, 2025. The table does not include loans held for sale to the secondary market.


	March 31, 2026				December 31, 2025
	Amount		Percent		Amount		Percent
	(Amounts In Thousands)				(Amounts In Thousands)
Agricultural	$	122,863	3.43	%	$	118,924	3.34	%
Commercial and financial	294,009		8.22		295,618		8.29
Real estate:
Construction, 1 to 4 family residential	101,568		2.84		89,807		2.52
Construction, land development and commercial	259,006		7.24		248,292		6.97
Mortgage, farmland	273,485		7.64		276,790		7.76
Mortgage, 1 to 4 family first liens	1,255,829		35.09		1,261,877		35.40
Mortgage, 1 to 4 family junior liens	139,854		3.91		143,317		4.02
Mortgage, multi-family	495,392		13.84		494,282		13.87
Mortgage, commercial	567,272		15.85		565,177		15.85
Loans to individuals	27,308		0.76		28,763		0.81
Obligations of state and political subdivisions	41,854		1.17		41,885		1.17
Gross Loans (ex net unamortized fees and costs)	$	3,578,440	100.00	%	$	3,564,732	100.00	%
Net unamortized fees and costs	279				291
Gross Loans	$	3,578,719			$	3,565,023
Less allowance for credit losses	56,601				58,204
Loans, net allowance for credit losses	$	3,522,118			$	3,506,819

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.

Overall credit quality in the loan portfolio remained stable during the first quarter of 2026, with certain metrics reflecting modest improvement compared to December 31, 2025. Nonperforming assets declined during the quarter, driven primarily by reductions in nonaccrual loans across several loan categories. Accruing loans past due 90 days or more also decreased during

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the quarter and represented a low percentage of total loans at March 31, 2026. Management believes loans that remained accruing while past due were generally well‑collateralized. Delinquency levels declined during the quarter, reflecting improvements in customer payment performance and continued proactive credit monitoring. Trends in early‑stage delinquencies remained stable, and the Company did not experience material deterioration in any specific loan segment. Net charge‑offs during the first quarter of 2026 were consistent with historical experience and were partially offset by recoveries. Charge‑off activity remained concentrated in isolated credits and did not reflect broader portfolio‑level stress. Management continues to closely monitor credit quality indicators, including trends in nonperforming loans, delinquencies, loan risk‑rating migration, and charge‑offs, particularly in light of ongoing economic uncertainty and higher interest rate sensitivity for certain borrowers. While credit metrics were stable during the quarter, future credit performance may be affected by changes in economic conditions, borrower cash flows, collateral values, and interest rate levels.

Accruing loans past due 90 days or more decreased $1.88 million from December 31, 2025 to March 31, 2026. As of March 31, 2026 and December 31, 2025, accruing loans past due 90 days or more were 0.02% and 0.07% of total loans, respectively. The average balance of the accruing loans past due 90 days or more decreased in March 31, 2026 compared to December 31, 2025. The average 90 days or more past due accruing loan balance per loan was $0.13 million as of March 31, 2026 compared to $0.23 million as of December 31, 2025.

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 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 nonaccrual 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 payment 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 we determine that a loan amount, or portion thereof, is uncollectible, the loan’s credit risk rating is immediately downgraded and the uncollectible amount is charged-off. The Bank's credit and legal departments undertake a thorough and ongoing analysis to determine if an additional specific reserve and/or charge-offs are appropriate and to begin a workout plan for the loan to minimize realized loss.

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The following table presents the allowance for credit losses by type of loans, the percentage of the allocation for each category to the total allowance and the percentage of all loans in each category to total loans as of March 31, 2026 and December 31, 2025:


	March 31, 2026						December 31, 2025
	Amount		% of Total Allowance		% of Loans to Total Loans		Amount		% of Total Allowance		% of Loans to Total Loans
	(In Thousands)						(In Thousands)
Agricultural	$	487	0.86	%	3.43	%	$	418	0.72	%	3.34	%
Commercial and financial	10,862		19.19		8.22		11,890		20.43		8.29
Real estate:
Construction, 1 to 4 family residential	761		1.34		2.84		617		1.06		2.52
Construction, land development and commercial	3,485		6.16		7.24		3,165		5.44		6.97
Mortgage, farmland	1,930		3.41		7.64		2,478		4.26		7.76
Mortgage, 1 to 4 family first liens	20,974		37.06		35.09		20,959		36.01		35.40
Mortgage, 1 to 4 family junior liens	5,517		9.75		3.91		5,639		9.69		4.02
Mortgage, multi-family	2,358		4.17		13.84		2,345		4.03		13.87
Mortgage, commercial	9,251		16.34		15.85		9,855		16.93		15.85
Loans to individuals	964		1.70		0.76		826		1.42		0.81
Obligations of state and political subdivisions	12		0.02		1.17		12		0.01		1.17
	$	56,601	100.00	%	100.00	%	$	58,204	100.00	%	100.00	%

The allowance for credit losses (ACL) totaled $56.60 million at March 31, 2026 compared to the allowance of $58.20 million at December 31, 2025. The percentage of the allowance to outstanding loans was 1.58% and 1.63% at March 31, 2026 and December 31, 2025, 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 during the first quarter of 2026 compared to December 31, 2025 reflect updates made during the period based on new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.

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 March 31, 2026, and that the loan portfolio is diversified and secured without undue concentration in any specific risk area. The process of estimating the allowance for credit losses involves a high degree of management judgment; however, the ACL is based on a comprehensive, well‑documented, and consistently applied analysis of the Company’s loan portfolio. The ACL is highly sensitive to changes in certain key assumptions and inputs used in the Company’s credit loss estimation process. These assumptions include, among others, economic forecasts (most notably the Iowa unemployment rate and national real gross domestic product), prepayment speeds, curtailment rates, probability of default, loss given default, time to recovery, and qualitative factors applied by management to address risks not fully captured by quantitative models.

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Changes in these assumptions can result in materially different estimates of expected credit losses. For example, adverse changes in economic conditions, including increases in unemployment or deterioration in macroeconomic indicators used in the Company’s reasonable and supportable forecast, could result in higher modeled probabilities of default and loss severity, which would increase the ACL and related credit loss expense. Conversely, improvements in economic forecasts, loan performance trends, or reductions in portfolio risk could decrease the estimated ACL. The ACL is also sensitive to changes in management judgment applied through qualitative factors, including assessments of loan portfolio composition, credit quality migration, delinquency trends, concentrations of credit, collateral values, and emerging risks within certain loan segments. Because these qualitative adjustments are based in part on judgment, actual credit losses may differ materially from estimated amounts. While management regularly evaluates the reasonableness of the assumptions and inputs used in estimating the ACL and believes the allowance was appropriate as of March 31, 2026, future changes in economic conditions, portfolio characteristics, or other factors may require material changes to the allowance in subsequent periods.

Investment securities available for sale held by the Company increased by $2.80 million from December 31, 2025 to March 31, 2026. The fair value of securities available for sale was $10.78 million less than the amortized cost of such securities as of March 31, 2026. At December 31, 2025, the fair value of the securities available for sale was $1.71 million less than the amortized cost of such securities.

Deposits increased $231.78 million in the first three months of 2026. The Company continues to have sufficient liquidity resources available to fund expected additional loan growth.

Brokered deposits are included in total deposits and totaled $35.24 million as of March 31, 2026 with an average rate of 4.25%. Brokered deposits were $35.17 million as of December 31, 2025 with a weighted average interest rate of 4.12%. As of March 31, 2026 and December 31, 2025, brokered deposits were 0.98% and 1.04% of total deposits, respectively.

There were $64.08 million and $64.33 million of Federal Home Loan Bank (FHLB) borrowings as of March 31, 2026 and December 31, 2025, respectively. There were $380.19 million of FHLB daily reset advances as of March 31, 2026 and $586.88 million as of December 31, 2025. 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 2026, Hills Bancorporation paid a dividend of 10.81 million or $1.23 per share. The dividend paid in January 2025 was $1.15 per share. After payment of the dividend and the adjustment for accumulated other comprehensive income (loss), stockholders’ equity as of March 31, 2026 totaled $545.56 million.

The Bank 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 Bank is required to maintain a CBLR of greater than 9.00%, as measured by dividing the Bank's Tier 1 capital by its average total consolidated assets. As of March 31, 2026 and December 31, 2025, 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 March 31, 2026 and December 31, 2025 are presented below (amounts in thousands):


	Actual
As of March 31, 2026:	Amount of Tier 1 Capital		Ratio
Company:
Community Bank Leverage ratio (1)	$	609,792	13.15	%

Bank:
Community Bank Leverage ratio	603,366		13.02

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	Actual
As of December 31, 2025:	Amount of Tier 1 Capital		Ratio
Company:
Community Bank Leverage ratio (1)	$	601,513	12.94	%

Bank:
Community Bank Leverage ratio	601,341		12.94

(1)The community bank leverage ratio for the holding company is only included for informational purposes

Discussion of operations for the three months ended March 31, 2026 and 2025

Net Income Overview

Total net income was $21.94 million in 2026 and $14.43 million in the comparable period in 2025, an increase of $7.51 million or 52.03%. The change in net income in 2026 from the first three months of 2025 was primarily the result of the following:

•Net interest income before credit loss expense increased by $7.63 million or 22.34%.

•For the three months ended March 31, 2026, credit loss benefit was $1.07 million. This represents a decrease in expense of $4.94 million from the credit loss expense of $3.87 million for the three months ended March 31, 2025.

•Noninterest income increased by $0.41 million, or 5.07%.

•Noninterest expenses increased by $3.23 million, or 15.66%.

For the three month period ended March 31, 2026 and March 31, 2025 basic earnings per share was $2.50 and $1.61, respectively. Diluted earnings per share was $2.50 for the three months ended March 31, 2026 compared to $1.61 for the same period in 2025.

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 $41.79 million for the first three months of 2026 was derived from the Company’s $4.504 billion of average earning assets during that period and its tax-equivalent net interest margin of 3.84%. Average earning assets in the three months ended March 31, 2025 were $4.405 billion and the tax-equivalent net interest margin was 3.25%. 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 2025 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 (benefit). The majority of the Company’s interest-earning assets are in loans outstanding, which amounted to $3.522 billion at March 31, 2026. Credit loss benefit was $1.07 million in 2026 compared to an expense of $3.87 million in 2025. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.

The third factor affecting the Company’s net income is noninterest income, primarily the increase in net gain on sale of loans. The net gain on sale of loans was $0.52 million and $0.24 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 111.07%. Other noninterest income was $0.99 million and $0.78 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 27.03%, primarily due to incentive and marketing bonuses from the VISA payment network growth agreement.

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Net Interest Income

Net interest income is the excess of the interest and fees received on interest-earning assets over the interest paid on the interest-bearing liabilities. Net interest income on a tax equivalent basis increased $7.44 million for the three months ended March 31, 2026 compared to the comparable period in 2025. 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 loans and investments. Also, overall interest expense was slightly lower than the same period in 2025 due to favorable rate variances. The net interest margin for the first three months of 2026 was 3.84% compared to 3.25% in 2025 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 2026 compared to the comparable period in 2025 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	$	111,146	0.30	%	$	1,618	$	2,489	$	4,107
Taxable securities	1,758		0.45		246		457		703
Nontaxable securities	(7,548)		0.39		(70)		349		279
Interest-bearing cash and cash equivalents	(6,813)		(0.89)		(77)		(21)		(98)
	$	98,543			$	1,717	$	3,274	$	4,991

Interest expense:
Interest-bearing demand deposits	$	(10,621)	(0.11)	%	$	35	$	250	$	285
Savings deposits	106,516		0.16		(742)		2		(740)
Time deposits	(68,976)		(0.77)		645		1,580		2,225
Other short-term borrowings, including FHLB daily reset advances	85,447		(0.68)		(928)		534		(394)
FHLB Borrowings	(56,884)		(0.60)		635		437		1,072
	$	55,482			$	(355)	$	2,803	$	2,448
Change in net interest income					$	1,362	$	6,077	$	7,439

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. Loan fees included in interest income are not material. Interest on nontaxable securities and loans is shown at tax equivalent amounts.

A summary of the net interest spread and margin three months ended March 31, 2026 and 2025 is as follows:


	Three Months Ended March 31,
(Tax Equivalent Basis)	2026		2025
Yield on average interest-earning assets	5.51	%	5.17	%
Rate on average interest-bearing liabilities	2.20		2.53
Net interest spread	3.31	%	2.64	%
Effect of noninterest-bearing funds	0.53		0.61
Net interest margin (tax equivalent net interest income divided by average interest-earning assets)	3.84	%	3.25	%

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The Federal Open Market Committee met two times during the first three months of 2026. The federal funds target rate decreased to 3.75% as of March 31, 2026 from 4.50% as of the same period in 2025. Interest rates on loans are generally affected by the target rate since interest rates for the U.S. Treasury market normally correlate to the Federal Reserve Board federal funds rate. In the pricing of loans and deposits, the Bank considers the U.S. Treasury indexes as benchmarks in determining interest rates. As of March 31, 2026, the average rate indexes for the one, three and five year indexes were 3.68%, 3.81% and 3.92%, respectively. The one year index decreased 8.68% compared to March 31, 2025, the one, three and five year indexes were 4.03%, 3.89%, and 3.96%, respectively.

Credit Loss Expense (Benefit)

Credit loss benefit was $1.07 million for the three months ended March 31, 2026 compared to credit loss expense of $3.87 million in 2025, a decrease of expense of $4.94 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 Bank's loan portfolio.

Also, under CECL, a significant component in 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 March 31, 2026, the key loss drivers were Iowa unemployment and National GDP. The decrease in expense when compared to the same period in 2025 is primarily attributable to the following: new loan activity, portfolio performance, and updated assumptions. These changes included revisions to quantitative assumptions, such as prepayment rates, curtailment rates and economic forecasts, and adjustments to qualitative factors driven primarily by changes in past due loans and loan migration, which resulted in a decrease in the ACL.

The allowance for credit losses balance is impacted by charge-offs, net of recoveries, for the periods presented. For the three months ended March 31, 2026 and 2025, recoveries were $0.77 million and $0.67 million, respectively; and charge-offs were $1.47 million in 2026 and $1.73 million in 2025. The allowance for credit losses totaled $56.60 million at March 31, 2026 compared to $58.20 million as of December 31, 2025. The allowance represented 1.58% and 1.63% of loans held for investment at March 31, 2026 and December 31, 2025.

Noninterest Income

The following table sets forth the various categories of noninterest income for the three months ended March 31, 2026 and 2025.


	Three Months Ended March 31,
	2026		2025		$ Change		% Change
	(Amounts in thousands)
Net gain on sale of loans	$	515	$	244	$	271	111.07	%
Trust fees	3,966		4,045		(79)		(1.95)
Service charges and fees	3,078		3,055		23		0.75
Other noninterest income	987		777		210		27.03
Loss on sale of investment securities	(13)		—		(13)		—
	$	8,533	$	8,121	$	412	5.07	%

Net gain on sale of loans was $0.52 million and $0.24 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 111.07%. The amount of the net gain on sale of secondary market mortgage loans in each year can vary significantly. The volume of activity in these types of loans is directly related to the level of interest rates as well as the current origination and refinancing activity. The servicing of the loans sold into the secondary market is not retained by the Company, so these do not provide an ongoing stream of income.

Other noninterest income was $0.99 million and $0.78 million for the three months ended March 31, 2026 and 2025, respectively, an increase of 27.03%. This is primarily due to annual incentive and marketing bonuses from the VISA payment network growth agreement.

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Trust fees, service charges and fees, and loss on sale of investment securities experienced nominal changes compared to the same period in prior year.

Noninterest Expenses

The following table sets forth the various categories of noninterest expenses for the three months ended March 31, 2026 and 2025.


	Three Months Ended March 31,
	2026		2025		$ Change		% Change
	(Amounts in thousands)
Salaries and employee benefits	$	12,546	$	11,365	$	1,181	10.39	%
Occupancy	912		1,150		(238)		(20.70)
Furniture, equipment and software	2,386		1,746		640		36.66
Office supplies and postage	554		512		42		8.20
Advertising and business development	1,018		834		184		22.06
Outside services	4,573		3,885		688		17.71
FDIC insurance assessment	526		512		14		2.73
Other noninterest expense	1,365		643		722		112.29
	$	23,880	$	20,647	$	3,233	15.66	%

In the three months ended March 31, 2026, salaries and employee benefits increased $1.18 million or 10.39%, primarily due to annual merit raises and an increase in full time employees.

Advertising and business development increased $0.18 million or 22.06% primarily due to expanded marketing initiatives and higher promotional activity.

Furniture, equipment and software increased $0.64 million or 36.66% primarily due to planned technology refresh.

Other noninterest expense increased $0.72 million or 112.29%, primarily due to increase in value of director deferred compensation expense from the increase in shareholder price and ATM losses.

Other noninterest expense categories experienced marginal period-to-period fluctuations for the three months ended March 31, 2026.

Income Taxes

Federal and state income tax expenses were $5.57 million and $3.33 million for the three months ended March 31, 2026 and 2025, respectively. Income taxes as a percentage of income before taxes were 20.24% in 2026 and 18.76% in 2025. See Note 10 Income Taxes for additional information.

Liquidity

The objective of liquidity management is to ensure the availability of sufficient cash flows to fund operations, to meet depositor withdrawals, to provide for our customers' credit needs, and to meet maturing obligations and existing commitments. The Company's principal source of funds is deposits. Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, federal funds purchased, advances from the FHLB, advances on bank lines of credit, brokered deposit relationships, and funds provided by operations. Liquidity management is conducted on both a daily and a long-term basis. Investments in liquid assets are adjusted based on expected loan demand, projected loan and investment securities maturities and payments, expected deposit flows and the objectives set by the Company's asset-liability management, liquidity and contingency funding policies.

Investment securities available for sale comprised 20.51% of the Company’s total assets at March 31, 2026 compared to 20.56% at December 31, 2025. As of March 31, 2026, investment securities with a market value of $153.29 million were

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pledged to collateralize public and trust deposits and other borrowings. As of December 31, 2025, investment securities with a market value of $154.03 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 March 31, 2026 and December 31, 2025 were approximately $936.22 million and $733.97 million, respectively, which comprised 26.01% and 21.79% of total deposits.

As of March 31, 2026, the Company had additional borrowing capacity available from the Federal Home Loan Bank (“FHLB”) of $1.055 billion. The Company had $64.08 million and $64.33 million outstanding in FHLB borrowings as of March 31, 2026 and December 31, 2025, respectively, with maturities through 2030. The Company also had $380.19 million outstanding in FHLB daily reset advances as of March 31, 2026. In addition, the Company had $175.00 million in borrowing capacity available through secured and unsecured lines of credit with correspondent banks with no borrowings under those federal fund lines as of March 31, 2026. Finally, the Company had $105.11 million in borrowing capacity available through the Federal Reserve Discount Window, with no borrowings as of March 31, 2026

Other liquidity sources include various sources of brokered deposits.

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, 2025.

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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 Company 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 well as 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 theoretical 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.

The Company uses derivative financial instruments, when needed, to manage the impact of changes in interest rates on future interest income or interest expense. The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these derivative instruments but believes the risk of these losses has been minimized by entering into the contracts with large, stable financial institutions.

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

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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.


Item 4.			Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief 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) and Rule 15d-15(e) under the Securities Exchange Act of 1934). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, provides only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, notwithstanding substantial progress as a result of the Company’s remediation efforts during 2025 to correct material weaknesses disclosed in the Company’s prior year Annual Report on Form 10-K (“2024 10-K”), as a result of the material weaknesses in internal control over financial reporting described below, the Company's disclosure controls and procedures were not effective as of March 31, 2026.

Update on Internal Control over Financial Reporting

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 10-K"), the Company identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.

As of March 31, 2026, the following material weaknesses, which were disclosed in the 2025 10-K, have not been fully remediated:

•Management review and activity-level controls over the period-end financial reporting process and controls to ensure that i) period-end financial statements to be filed are correct, and ii) our independent auditor has completed its procedures prior to the filing of period end financial statements;

•The review, posting, and approval of manual journal entries;

•The identification and disclosure of related party transactions;

•Related to the allowance for credit losses on loans ("ACL"), the design of controls over the framework used to determine the qualitative component of the ACL and the review process to ensure qualitative adjustments are accurately determined and applied;

•Related to property and equipment, the design of controls over the determination of estimated useful lives and the timely identification and recording of dispositions of property and equipment; and

•Management lacks sufficient depth and structure in the oversight of the financial reporting function and insufficient staffing levels with specialized technical accounting and internal control expertise to effectively design controls and perform an adequate level of review over the period‑end financial reporting process.

Notwithstanding the material weaknesses, the Company’s management, including the CEO and CFO, has concluded that the consolidated financial statements, included in this Quarterly Report on Form 10-Q, for the period ended March 31, 2026, fairly present, in all material respects, the Company's financial condition, results of operations and cash-flows for the periods presented in conformity with U.S. generally accepted accounting principles.

Remediation Plan and Status

Throughout 2025 the Company invested substantial resources in remedial measures to strengthen its financial reporting controls and procedures as a result of the material weaknesses disclosed in its 2024 10-K and those disclosed above. These include (i) enhancing the design and documentation of key internal controls, (ii) strengthening management review controls, (iii) engagement of third parties with specialized accounting expertise, and (iv) retention of additional managerial resources with accounting and financial reporting experience and expertise. Management achieved substantial improvements to its financial reporting controls and procedures during 2025 as a result of these changes. Additionally, the Company’s Governance and

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Nominating Committee recruited, and the Board of Directors nominated for election to the Board of Directors at the 2026 Annual Meeting of Shareholders, an individual with prior public company auditing experience, including time as a partner with a major national accounting firm.

The actions the Company is taking under its remediation plan are subject to ongoing management review and are also subject to Audit Committee oversight. Management remains committed to the full remediation of the identified material weaknesses and will continue to devote significant time, attention, training and resources to these efforts. Management expects to complete the remediation of these material weaknesses by December 31, 2026.

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.

Changes in Internal Control over Financial Reporting

Except as otherwise discussed above, there were no changes in our internal controls over financial reporting 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.

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PART II - OTHER INFORMATION


Item 1.			Legal Proceedings

None.


Item 1A.			Risk Factors

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, 2025.


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 March 31, 2026:


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)
January 1 to January 31	13,752	$	81.50	13,752	217,589
February 1 to February 28	5,540	81.50		5,540	212,049
March 1 to March 31	17,802	87.50		17,802	194,247
Total	37,094	$	84.38	37,094	194,247

(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. The most recent independent current quarterly appraisal value of the stock performed as of December 31, 2025 is $87.50 a share.

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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 March 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 March 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 18, 2026.

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:	May 11, 2026	By: /s/ Lisa A. Shileny
		Lisa A. Shileny, Director, President and Chief Executive Officer

Date:	May 11, 2026	By: /s/ Anthony V. Roetlin
		Anthony V. Roetlin, Treasurer, Chief Financial Officer and Chief Accounting Officer