Auditor Issues Adverse Opinion on Internal Controls; Company Reports Strong Earnings Amidst Material Weaknesses

summarizeSummary

Hills Bancorporation reported strong 2025 financial results, including a 27% increase in net income, but its auditor issued an adverse opinion on internal controls over financial reporting due to multiple material weaknesses, raising significant concerns about financial statement reliability.

check_boxKey Events

• Auditor Issues Adverse Opinion on Internal Controls

  Forvis Mazars, LLP issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2025, indicating fundamental flaws in financial reporting processes.

• Multiple Material Weaknesses Identified

  The auditor cited six material weaknesses, including issues with period-end financial reporting, manual journal entries, related party transactions, allowance for credit losses, and property and equipment accounting.

• Auditor Change Announced

  Forvis Mazars, LLP was dismissed on January 5, 2026, and Crowe LLP was engaged as the new independent registered public accounting firm for the fiscal year ending December 31, 2026.

• Strong Financial Performance Reported

  Net income increased by 27.09% to $60.50 million, and diluted earnings per share rose by 29.47% to $6.81 for the year ended December 31, 2025.

auto_awesomeAnalysis

Hills Bancorporation's auditor, Forvis Mazars, LLP, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2025. This is a critical finding, indicating fundamental flaws in the company's financial reporting processes and raising significant concerns about the reliability of its financial statements. The auditor cited multiple material weaknesses, including deficiencies in period-end financial reporting, manual journal entry review, related party transaction identification, controls over the qualitative component of the allowance for credit losses, and property and equipment accounting. Management also concluded that internal controls were not effective and has initiated a remediation plan, expecting completion by December 31, 2026. This adverse opinion and the identified weaknesses overshadow the otherwise strong financial performance reported for 2025, which included a 27.09% increase in net income to $60.50 million and a 29.47% rise in diluted EPS to $6.81. The company also saw its net interest margin improve to 3.45% from 2.78% in 2024. However, credit loss expense significantly increased to $12.33 million in 2025 from $2.21 million in 2024, and the company realized a $9.63 million pre-tax loss from repositioning its investment securities portfolio. The company also disclosed that 21.79% of its total deposits are uninsured, posing a potential liquidity risk. The auditor change, with Forvis Mazars, LLP being dismissed and Crowe LLP engaged for 2026, is a direct consequence of these control issues. While the company remains well-capitalized with a Community Bank Leverage Ratio (CBLR) of 12.94%, the severe internal control deficiencies present a major risk to investor confidence and the integrity of future financial disclosures.