FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
              (As last amended in Rel. No. 34-26589, eff. 4/12/93.)

                                  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 September 30, 1998


                         Commission file number: 0-12668


                              Hills Bancorporation


Incorporated in Iowa                              I.R.S. Employer Identification
                                                  ------------------------------
                                                           No. 42-1208067

                          131 MAIN STREET, HILLS, IOWA

                        Telephone number: (319) 679-2291

Indicate by check mark 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.

                                 [X] Yes [ ] No

                      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                                              At October 31, 1998
--------------------------                                   -------------------
Common Stock, no par value                                         1,467,754

<PAGE>


                              HILLS BANCORPORATION
                               Index to Form 10-Q

                                     Part I
                              FINANCIAL INFORMATION


                                                                           Page
                                                                          Number

Item 1.        Financial Statements

               Consolidated balance sheets, September 30, 1998 
                 (unaudited) and December 31, 1997 
               Consolidated statements of income, (unaudited) for 
                 three and nine months ended September 30, 1998 
                 and 1997
               Consolidated statements of comprehensive income, 
                 (unaudited) for three and nine months ended 
                 September 30, 1998 and 1997.
               Consolidated statements of stockholders' equity, 
                 (unaudited) for nine months ended September 30, 
                 1998 and 1997 
               Consolidated statements of cash flows (unaudited) 
                 for nine months ended September 30, 1998 and 1997 
               Notes to consolidated financial statements

Item 2.        Management's discussion and analysis of financial 
                 condition and results of operations 


                                     Part II
                                OTHER INFORMATION

Item 1.        Legal proceedings  

Item 2.        Changes in securities    

Item 3.        Defaults upon senior securities    

Item 4.        Submission of matters to vote of security holders 

Item 5.        Other information  

Item 6.        Exhibits and reports on Form 8-K  

COMPUTATION OF EARNINGS PER SHARE    

SIGNATURES                      
<PAGE>


                              HILLS BANCORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)

                                                      September 30,
                                                          1998      December 31,
                                                        Unaudited      1997*
                                                      ------------- ------------
ASSETS
Cash and due from banks ..............................   $ 14,251     $ 15,508
Investment securities:
   Available for sale (amortized cost
     September 30, 1998 $118,633;
     December 31, 1997 $108,718) .....................    120,610      109,486
   Held to maturity (fair value
     September 30, 1998 $22,518;
     December 31, 1997 $24,230) ......................     21,976       23,840
   Stock of Federal Home Bank ........................      4,347        4,738
Federal funds sold ...................................     19,796        2,447
Loans, net ...........................................    447,017      422,761
Property and equipment, net ..........................     10,623        9,437
Accrued interest receivable ..........................      5,941        5,441
Deferred income taxes, net ...........................      1,432        1,859
Other assets .........................................      8,237        7,585
                                                         --------     --------
                                                         $654,230     $603,102
                                                         ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Noninterest-bearing deposits .........................   $ 53,075     $ 52,174
Interest-bearing deposits ............................    449,173      427,596
                                                         --------     --------
   Total deposits ....................................   $502,248     $479,770
Federal funds purchased and securities
   sold under agreements to repurchase ...............      8,326        9,008
Federal Home Loan Bank notes .........................     75,732       50,764
Accrued interest payable .............................      2,004        2,060
Other liabilities ....................................      2,268        2,318
                                                         --------     --------
                                                         $590,578     $543,920
                                                         --------     --------
REDEEMABLE COMMON STOCK HELD BY
   EMPLOYEE STOCK OWNERSHIP PLAN
   (ESOP) ............................................   $  8,802     $  7,682
                                                         --------     --------
STOCKHOLDERS' EQUITY
Capital stock, common, no par value;
   authorized 10,000,000 shares;
   issued September 30, 1998 and December 31,
   1997 - 1,467,754 shares ...........................   $  9,070     $  9,070
Retained earnings ....................................     53,338       49,627
Accumulated other comprehensive income,
   unrealized gains on investment securities, net ....      1,244          485
                                                         --------     --------
                                                         $ 63,652     $ 59,182
Less, maximum cash obligation related to
   ESOP shares .......................................      8,802        7,682
                                                         --------     --------
                                                         $ 54,850     $ 51,500
                                                         --------     --------
                                                         $654,230     $603,102
                                                         ========     ========

*  Derived from audited financial statements.

See Notes to Financial Statements.


<PAGE>


                              HILLS BANCORPORATION
                   UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
             Three and Nine Months Ended September 30, 1998 and 1997
                      (In Thousands, Except Per Share Data)
<TABLE>
                                                         Three Months Ended      Nine Months Ended
                                                            September 30           September 30
                                                           1998       1997        1998       1997
                                                         --------   --------    --------   --------
<S>                                                      <C>        <C>         <C>        <C>  
Interest Income:
   Interest and fees on loans ........................   $  9,566   $  8,904    $ 28,108   $ 25,460
   Interest on investment securities:
     Taxable .........................................      1,698      1,680       5,064      5,046
     Non-taxable .....................................        354        306       1,019        898
   Interest on federal funds sold ....................        350         54         893        134
                                                         --------   --------    --------   --------
   Total interest income .............................   $ 11,968   $ 10,944    $ 35,084   $ 31,538
                                                         --------   --------    --------   --------

Interest Expense:
   Interest on deposits ..............................   $  5,185   $  4,942    $ 15,253   $ 14,264
   Interest on securities sold under
agreements to repurchase .............................         88         90         257        288
   Interest on FHLB borrowings .......................      1,106        747       3,277      2,007
                                                         --------   --------    --------   --------

   Total interest expense ............................   $  6,379   $  5,779    $ 18,787   $ 16,559
                                                         --------   --------    --------   --------
   Net interest income ...............................   $  5,589   $  5,165    $ 16,297   $ 14,979

Provision for loan losses ............................        304        195         712        785
                                                         --------   --------    --------   --------

   Net interest income after provision
     for loan losses .................................   $  5,285   $  4,970    $ 15,585   $ 14,194
                                                         --------   --------    --------   --------

Other income:
   Net gains (losses) on sale of investment securities   $     --   $    (62)   $     --   $    992
   Loan origination fees .............................        166        117         500        237
   Trust fees ........................................        403        322       1,266        947
   Deposit account charges and fees ..................        458        482       1,351      1,385
   Other fees and charges ............................        348        283       1,079        912
                                                         --------   --------    --------   --------
                                                         $  1,375   $  1,142    $  4,196   $  4,473
                                                         --------   --------    --------   --------
Other expenses:
   Salaries and employee benefits ....................   $  2,133   $  1,858    $  6,366   $  5,445
   Occupancy .........................................        284        269         859        756
   Furniture and equipment ...........................        421        335       1,249      1,005
   Office supplies and postage .......................        293        208         882        626
   Contributions .....................................          5         17          13      1,109
   Other operating ...................................        949        884       2,779      2,598
                                                         --------   --------    --------   --------
                                                         $  4,085   $  3,571    $ 12,148   $ 11,539
                                                         --------   --------    --------   --------
   Income before income taxes ........................   $  2,575   $  2,541    $  7,633   $  7,128

Federal and state income taxes .......................        756        788       2,237      1,829
                                                         --------   --------    --------   --------

   Net income ........................................   $  1,819   $  1,753    $  5,396   $  5,299
                                                         ========   ========    ========   ========

Earning per common share:
     Basic ...........................................   $   1.24   $   1.19    $   3.68   $   3.61
     Diluted .........................................       1.22       1.18        3.62       3.58
</TABLE>

See Notes to Financial Statements
<PAGE>


                              HILLS BANCORPORATION
            UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
             Three and Nine Months Ended September 30, 1998 and 1997
                      (In Thousands, Except Per Share Data)
<TABLE>

                                                   Three Months Ended     Nine Months Ended
                                                       September 30          September 30
                                                   -------------------    ------------------
                                                     1998       1997       1998       1997
                                                    -------    -------    -------    -------
<S>                                                 <C>        <C>        <C>        <C>  
Net Income ......................................   $ 1,819    $ 1,753    $ 5,396    $ 5,299

Other comprehensive income:
   Unrealized gains (losses) on debt securities .     1,147        365      1,209       (547)
   Income tax effect of unrealized gains (losses)      (426)      (135)      (450)       183
                                                    -------    -------    -------    -------
   Comprehensive Income .........................   $ 2,540    $ 1,983    $ 6,155    $ 4,935
                                                    =======    =======    =======    =======
</TABLE>
<PAGE>


                              HILLS BANCORPORATION
            UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Nine Months Ended September 30, 1998 and 1997
                                 (In Thousands)

<TABLE>
                                    Capital  Retained    Unrealized          ESOP
                                     Stock   Earnings  Gains (Losses)  Obligations    Total
                                    --------------------------------------------------------
<S>                                 <C>      <C>       <C>             <C>          <C>   
Balance, January 1, 1998 ........   $ 9,070   $49,627    $   485        $ (7,682)   $ 51,500
Net income ......................       - -     5,396        - -             - -       5,396
Change related to ESOP shares ...       - -       - -        - -          (1,120)     (1,120)
Cash dividends ($1.20 per share)        - -    (1,763)       - -             - -      (1,763)
Unrealized gains (losses) on debt
  securities, net ...............       - -       - -        759             - -         759
Tax savings on restricted
  stock issued ..................       - -         78       - -             - -          78
                                    -------   --------    -------        -------    --------
Balance, September 30, 1998 .....   $ 9,070   $ 53,338    $ 1,244        $(8,802)   $ 54,850
                                    =======   ========    =======        =======    ========

Balance, January 1, 1997 ........   $ 8,996   $ 44,079    $   676        $(6,416)   $ 47,335
Exercise Stock Options
  for 2,055 shares ..............        53        - -        - -            - -          53
Redemption of stock .............        (7)       - -        - -            - -          (7)
Net income ......................       - -      5,299        - -            - -       5,299
Change related to ESOP shares ...       - -        - -        - -           (642)       (642)
Cash dividends ($1.05 per share)        - -     (1,539)       - -            - -      (1,539)
Unrealized gains (losses) on
  debt securities, net ..........       - -        - -       (364)           - -        (364)
                                    -------    -------    -------        -------    --------
Balance, September 30, 1997 .....   $ 9,042    $47,839    $   312        $(7,058)   $ 50,135
                                    =======    =======    =======        =======    ========
</TABLE>
See Notes to Financial Statements.

<PAGE>


                              HILLS BANCORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Nine Months Ended September 30, 1998 and 1997
                                 (In Thousands)
<TABLE>
                                                                                     1998        1997
                                                                                   --------    --------
<S>                                                                                <C>         <C>   

CASH FLOWS FROM OPERATING ACTIVITIES
Net income .....................................................................   $  5,396    $  5,299
Adjustments to reconcile net income to
    net cash provided by operating activities:
    Depreciation ...............................................................        987         803
    Provision for loan losses ..................................................        712         785
    Net gains on disposition of investment securities ..........................        - -        (992)
    (Increase) decrease in accrued interest receivable .........................       (500)       (776)
    Amortization of bond discount ..............................................        216         260
    (Increase) in other assets .................................................       (910)       (344)
    Amortization of intangibles ................................................        258         258
    Increase in accrued interest and other liabilities .........................       (106)        398
                                                                                   --------    --------
    Net cash provided by operating activities ..................................   $  6,053    $  5,691
                                                                                   --------    --------

CASH FLOWS FROM  INVESTING  ACTIVITIES 
Proceeds  from  maturities of investment securities:
    Available for sale .........................................................   $ 19,599    $ 15,251
    Held to maturity ...........................................................      2,286       1,894
Proceeds from sales of available-for-sale securities ...........................        - -       9,366
Purchase of investment securities:
    Available for sale .........................................................    (29,785)    (25,283)
    Held to maturity ...........................................................        - -      (5,273)
Federal funds sold, net ........................................................    (17,349)        900
Loans made to customers, net of collections ....................................    (24,968)    (47,450)
Purchases of property and equipment ............................................     (2,173)     (1,196)
                                                                                   --------    --------
    Net cash (used in) investing activities ....................................   $(52,390)   $(51,791)
                                                                                   --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase (decrease) in deposits ........................................   $ 22,478    $ 18,791
    Net increase (decrease) in fed funds purchased and
       securities sold under agreements to repurchase ..........................       (682)     10,033
    Borrowings from FHLB .......................................................     40,000      20,000    
    Payments on FHLB notes .....................................................    (15,032)        (31)
    Stock options exercised ....................................................        - -          53
    Redemption of common stock .................................................        - -          (7)
    Tax savings on restricted stock issued .....................................         78         - -
    Dividends paid .............................................................     (1,762)     (1,539)
                                                                                   --------    --------
       Net cash provided by financing activities ...............................   $ 45,080    $ 47,300
                                                                                   --------    --------
       Increase in cash and due from banks .....................................   $ (1,257)   $  1,200

CASH AND DUE FROM BANKS
    Beginning ..................................................................     15,508      15,036
                                                                                   --------    --------
    Ending .....................................................................   $ 14,251    $ 16,236
                                                                                   ========    ========

SUPPLEMENTAL DISCLOSURES Cash payments for:
       Interest paid to depositors and others ..................................   $ 15,309    $ 14,244
       Interest paid on other obligations ......................................      3,534       2,295
    Non-cash financing transactions:
       Increase in maximum cash obligation related
        to ESOP shares .........................................................      1,120         642
       Net unrealized gains (losses) on debt securities ........................      1,209        (547)
</TABLE>

See Notes to Financial Statements.
<PAGE>


                              HILLS BANCORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 1.   Interim Financial Statements

Interim consolidated  financial statements have not been examined by independent
public  accountants,  but include  all  adjustments  (consisting  only of normal
recurring  accruals)  which,  in the opinion of management,  are necessary for a
fair presentation of the results for these periods. The results of operation for
the interim  periods are not  necessarily  indicative  of the results for a full
year.

For purposes of reporting  cash flows,  cash and due from banks includes cash on
hand and amounts due from banks  (including  cash items in process of clearing).
Cash flows from demand deposits,  NOW accounts,  savings  accounts,  and federal
funds  purchased and sold are reported net since their  original  maturities are
less than three months. Cash flows from loans and time deposits are presented as
net increases or decreases.

Note 2.   Loans

The following  tables set forth the  composition  of loans and the allowance for
loan losses:

                                                           (In thousands)
                                                            September 30
                                                     --------------------------
                                                       1998              1997
                                                     ---------        ---------

Agricultural ................................        $  33,946        $  27,135
Commercial and financial ....................           36,523           33,742
Real estate, construction ...................           24,512            9,887
Real estate, mortgage .......................          330,525          322,278
Loans to individual .........................           29,994           29,741
                                                     ---------        ---------
                                                     $ 455,500        $ 422,783
Less allowance for loan losses ..............            8,483           (7,854)
                                                     ---------        ---------
                                                     $ 447,017        $ 414,929
                                                     =========        =========

Transactions in the allowance for loan losses are as follows:

                                                            (In thousands)
                                                             Nine Months
                                                          ended September 30
                                                       ------------------------
                                                        1998              1997
                                                       -------          -------

Balance, beginning ...........................         $ 8,010          $ 7,311
  Provision charged to expense ...............             712              785
  Net charge-offs ............................            (239)            (242)
                                                       -------          -------
Balance, ending ..............................         $ 8,483          $ 7,854
                                                       =======          =======

The following summarizes the Company's  nonaccrual,  past due,  restructured and
impaired loans:

                                                 (In thousands)
                                                  September 30
                                                  1998    1997   
                                                 ------  ------

Nonaccrual ....................................  $  - -  $  - -
Accruing loans, past due 90 days or more ......   1,825     963
Restructured loan .............................     - -     - -
Impaired loans ................................   7,996   7,173
<PAGE>


Note 3.  Changes in Accounting Policies

SFAS No. 130, "Reporting  Comprehensive  Income" was issued in June 1997 and was
adopted  January 1, 1998 for the initial period ended March 31, 1998.  Statement
#130  establishes  standards  for  reporting  comprehensive  income in financial
statements.  The Company has presented a Statement of Comprehensive Income. SFAS
No.  131,"Disclosures  About Segments of an Enterprise and Related  Information"
expands certain reporting and disclosure  requirements for segments from current
standards.  Statement  #131 will be  effective  for the year ended  December 31,
1998,  but the Company  operates in one business  segment and the Statement will
have no effect on the financial statements.

Note 4.  Earnings Per Share

Basic net income per share  amounts are  computed by dividing  net income by the
weighted average number of common shares outstanding during the period.  Diluted
earnings per share are  computed by dividing  net income by the weighed  average
number of  common  shares  outstanding  during  the  period  plus the  number of
potential  dilutive  common shares  attributable  to the Company's  stock option
plan.
<PAGE>


                                 PART I, ITEM 2.
                              HILLS BANCORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
              OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The consolidated  balance sheet of Hills Bancorporation as of September 30, 1998
reflects  total assets of $654.2  million  which is an increase of $51.1 million
from  December  31,  1997.  Net loans  increased  from $422.8  million to $447.0
million,  which represents an increase of $24.2. Compared to one year ago, total
assets have  increased  from $592.1 million to $654.2 million for an increase of
$62.1  million.  Also during this year,  net loans  increased  $32.1  million to
$438.1 million as of September 30, 1998. Loan demand continues to be very strong
due to a  continued  strong  local  economy and a favorable  low  interest  rate
environment.  Single  family  loans and other real  estate  loans  continued  to
account for the majority of the loan growth.

Other significant  balance sheet changes from December 31, 1997 to September 30,
1998 are as follows:

o    Available for sale investment securities increasing $11.2 million to $120.6
     million.  o Federal funds sold were $17.3 million  higher at September 30th
     than December 31, 1997.

o    Deposits  including  securities sold under agreements to repurchase totaled
     $510.6 million at September 30, 1998 compared to $488.8 million at December
     31, 1997.

o    Federal  Home Loan Bank's  borrowings  increased a net $25 million as Hills
     Bank and Trust Company took  advantage of lower  interest rates on four and
     five year advances available.

o    Also due to lower investment rates accumulated other  comprehensive  income
     which was all  unrealized  gains on investment  securities  increased  from
     $485,000 at December 31, 1997 to $1,244,000 at September 30, 1998.

Asset-liability  management  encompasses  both the  management  of interest rate
sensitivity and the maintenance of adequate liquidity. Interest rate sensitivity
management  attempts to provide the optimal  level of net interest  income while
managing  exposure to risks  associated with interest rate movements.  Liquidity
management  involves  planning to meet  anticipated  funding  needs.  Management
monitors the rate sensitivity and liquidity  positions on an on-going basis and,
when necessary,  appropriate  action is taken to minimize any adverse effects of
rapid interest rate movements or any unexpected liquidity concerns.

In January  1998,  Hills  Bancorporation  paid a dividend of $1.20 per share,  a
14.29%  increase  from the $1.05 paid in January  1997.  The total  dividend  of
$1,763,000  is  deducted  from  stockholders'  equity  and is  reflected  in the
resulting  stockholders'  equity  as  of  September  30,  1998  of  $54,850,000.
Stockholders'  equity at September  30, 1998 and  December 31, 1997  reflects an
adjustment for unrealized gain (losses) on debt securities, net of income taxes.
The total stockholders'  equity of Hills Bancorporation as of September 30, 1998
before the reduction for the ESOP shares, as a percent of total assets is 9.73%.
Under risk-based capital rules, total capital is 15.06% of risk adjusted assets,
compared to the current 8% requirement.

Net income for the quarter ending September 30, 1998 increased  $66,000 from the
previous year's quarter.  Net interest income increased  $424,000 and $1,318,000
for the quarter and the nine months  ending  September  30, 1998 compared to the
same time periods in 1997. The increase in net interest  income  continues to be
due to  significant  increases in the volume of earning  assets during the first
nine months of 1998 compared to 1997. The increase in average earning assets for
the nine months ending September 30, 1998 compared to the same months in 1997 is
approximately $65.8 million and is due primarily to average net loans increasing
$42.8 million and the  investment  in federal funds being $19.3 million  higher.
The large  federal  fund  balances  were the result of funds  borrowed  from the
Federal Home Loan Banks  earlier in 1998 to be used for funding of expected loan
growth.  A significant  other income item in the second  quarter of 1997 was the
recognition  of $1,054,000 on the sale of a marketable  equity  security held by
Hills  Bancorporation.   The  equity  security  was  transferred  to  the  Hills
Bancorporation   Foundation,   a  private   charitable   foundation,   organized
exclusively for charitable and  educational  purposes to benefit the communities
which  the  banks'  serve.  As  a  result  of  the  stock  contribution,   Hills
Bancorporation received an income tax savings of approximately $340,000 which is
reflected as tax savings in the federal and state  income taxes  expense for the
second quarter of 1997.
<PAGE>


Other income changes occurred in loan  origination fees which increased  $49,000
for the three months ended September 30, 1998 from one year ago and $263,000 for
the nine months ending  September 30 1998,  compared to the same period in 1997.
Trust fees showed growth over 1997 with an $81,000  increase for the quarter and
$319,000  for the  nine  months.  Other  expenses,  excluding  the  contribution
discussed above increased  $514,000 and $1,705,000 for the third quarter and the
nine months ended  September 30, 1998  compared to the same period in 1997.  The
major  portion of this  increase was $921,000  increase in salaries and employee
benefits as full-time equivalent employees increased by thirty and normal yearly
increases  for existing  employees.  Also the full service  Mount Vernon  office
opened in February, 1998 and has ten employees. All other operating expenses are
up  $784,000  as a result of increase in  marketing,  other  professional  fees,
expenses  relating  to the new bank in Mount  Vernon and other  data  processing
charges.

Basic and diluted  earnings per share for the three months ending  September 30,
1998  were  $1.24  and $1.22 in  comparison  to $1.19 and $1.18 for the  quarter
ending  September  30,  1997.  The  earnings per share for the nine months ended
September  30,  1998 and  September  30,  1997  were  $3.68  and $3.61 for basic
earnings  per share and $3.62 and $3.58 for diluted  earnings per share for both
periods presented.

The  Bank's  principal  sources  of funds  continues  to be  prepayment  of loan
principal and current amortized loan payments.  In addition,  funds are provided
from current operations.  All of the funds are used to fulfill loan commitments,
make  short-term  investments,  and fund any  deposit  withdrawals  needed.  The
Company has no material  commitments or plans which will  materially  affect its
liquidity or capital resources. The acquisition of property and equipment may be
in cash purchases, or they may be financed if favorable terms are available.

Year 2000

The Company and its three wholly-owned  subsidiary  commercial banks, Hills Bank
and Trust Company, Hills, Iowa; Hills Bank, Lisbon, Iowa; and Hills Bank Kalona,
Kalona, Iowa are taking the appropriate  measures to be ready for the Millennium
change.  The Banks' "Y2K"  readiness plan is being  implemented  and a Year 2000
committee  to  oversees  its  progress.  To date the Company  has  completed  an
inventory and  assessment of all  computers,  equipment and software  containing
date  sensitive  functions.  Contact  has been  made with the  vendors  of these
products to determine Year 2000 compatibility.

A  renovation  schedule  is being  followed  to replace  or  upgrade  identified
products which are not Year 2000  compliant.  In 1998, the Company  replaced its
primary computer system with a newer Year 2000 compliant system and has received
a warranty  from the software  company that the software  will operate after the
Year 2000  without  error  relating to date data.  In  addition,  the  Company's
critical  information systems are in the process of being tested to make certain
that by the end of 1998 the systems will be ready - one year ahead of the actual
changeover.

Contingency Plans

The Company is also working on  contingency  plans that will  provide  alternate
methods of doing business,  if needed. The Year 2000 issues for banks depend not
only on compliance of the banks' software and equipment,  but also on compliance
by all of the other institutions with which the banks do business.  Four federal
regulatory  agencies,  which share the responsibility for supervising efforts by
banks and savings  associations  to make sure that they are taking the necessary
steps now to get ready for the Year 2000 date  change.  The Banks  already  keep
backup  records  for account  transactions  and will  continue  to do so.  These
records could be used to correct and identify  errors that might affect deposit,
loan or other account information due to a Year 2000 problem.

Risks

In the early weeks of 2000, the Company may experience  some random supply chain
disruption  that may affect its ability to produce and  distribute key products.
These  disruptions  will  be  material  if  the  U.S.  experiences   significant
interruptions  in basic  services,  such as the electric  power grid,  telephone
service or the banking system.

Costs

The Banks replaced its primary computer system during the first quarter of 1998.
Since most of these types of  upgrades or  renovations  will be  capitalized  as
property and  equipment and  depreciated  it is expected that the costs will not
have a significant impact on the earnings or future liquidity of the Company.
<PAGE>


Forward Looking Information

Forward looking  information  relating to the financial results or strategies of
the Company are made in the Management's  Discussion and Analysis. The following
paragraphs  identify  forward  looking  statements and the risks that need to be
considered when reading those statements.

Forward looking  statements include such words as believe,  expect,  anticipate,
target,  goal,  objective and other words with similar  meaning.  The Company is
under no obligation to update such statements.

The risks  involved in the  operations  and  strategies  of the Company  include
competition  from  other  financial  institutions,  changes in  interest  rates,
changes in economic or market  conditions  and  changes in  regulatory  factors.
These risks, which are not all inclusive, cannot be estimated.
<PAGE>


                              HILLS BANCORPORATION
                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         There are no material pending legal proceedings.

Item 2.  Changes in Securities

         There were no changes in securities.

Item 3.  Defaults upon Senior Securities

         Hills Bancorporation has no senior securities.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted to a vote of security holders during the
         quarter ending September 30, 1998.

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibit
              See exhibit II - Statement Re Computation of Earnings Per 
              Common Share

         (b)  Reports on Form 8-K
              No  reports on Form 8-K have been  filed  during the  quarter
              ended September 30, 1998.
<PAGE>



                                   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 and thereunto duly authorized.


                                     HILLS BANCORPORATION
                                     (Registrant)



November 13, 1998                    /s/ Dwight O. Seegmiller
Date                                 -------------------------------------------
                                     Dwight O. Seegmiller, President
                                     (Duly authorized officer of the registrant)


                                     /s/ James G. Pratt
                                     -------------------------------------------
                                     James G. Pratt, Treasurer
                                     (Principal Financial Officer)