|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 June 30, 2003

Commission file number: 0-12668

Hills
Bancorporation
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Incorporated in Iowa | I.R.S. Employer IdentificationNo. 42-1208067
|-------------------- | --------------------------------------------

|131 MAIN STREET, HILLS, IOWA 52235

Telephone number: (319) 679-2291

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.

[X] Yes [_] No

Indicate by checkmark whether the
Registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange
Act of 1934).

[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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CLASS                      | SHARES OUTSTANDINGAt July 31, 2003
|-------------------------- | ----------------------------------
|                          
|Common Stock, no par value | 1,515,778                         

|1

HILLS BANCORPORATION
Index to Form 10-Q

Part I
FINANCIAL INFORMATION
|------------------------------------------------------------------------

|        |  |                                                                                                                                     | PageNumber
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | ----------
|       
|Item 1. |  | Financial
      Statements                                                                                                          |           
|       
|        |  | Consolidated
        balance sheets, June 30, 2003 (unaudited)
        and December 31, 2002.                                       |           
|        |  | Consolidated
        statements of income, (unaudited) for three and six
        months ended June 30, 2003 and 2002.               |           
|        |  | Consolidated
        statements of comprehensive income, (unaudited) for
        three and six months ended June 30, 2003 and 2002. |           
|        |  | Consolidated
        statements of stockholders equity, (unaudited)
        for six months ended June 30, 2003 and 2002.           |           
|        |  | Consolidated
        statements of cash flows (unaudited) for six
        months ended June 30, 2003 and 2002.                      |           
|        |  | Notes
      to consolidated financial statements                                                                                    |           
|       
|Item 2. |  | Managements
        Discussion and Analysis of Financial Condition
        and Results of Operations                               |           
|       
|Item 3. |  | Quantitative
        and Qualitative Disclosures About Market Risk                                                                  |           
|       
|Item 4. |  | Evaluation
        of Disclosures Controls                                                                                          |           

|Part IIOTHER INFORMATION
|------------------------

|Item 1.                       |  | Legal proceedings                                 |  | 20
|----------------------------- |  | ------------------------------------------------- |  | --
|                             
|Item 2.                       |  | Changes in securities and use of proceeds         |  | 20
|                             
|Item 3.                       |  | Defaults upon senior securities                   |  | 20
|                             
|Item 4.                       |  | Submission of matters to vote of security holders |  | 20
|                             
|Item 5.                       |  | Other information                                 |  | 20
|                             
|Item 6.                       |  | Exhibits and reports on Form 8-K                  |  | 20
|                             
|Signatures and Certifications |  | 21-23                                            

|2
HILLS BANCORPORATIONCONSOLIDATED BALANCE SHEETS(In Thousands)
|---------------------------------------------------------------

|                                                     | June 30,
      2003
      Unaudited |  | December
      31, 2002* |          
|---------------------------------------------------- | ----------------------------------- |  | ------------------------ | ---------
|ASSETS                                               |                                     |  |                          |          
|Cash
      and due from banks                        |                                     |  | $                        | 27,745   
|Investment
      securities:                         |                                     | 
|Available
      for sale (amortized cost             |                                     | 
|June
      30, 2003 $198,486;                        |                                     | 
|December
      31, 2002 $190,313)                    |                                     |  |                          | 206,650  
|Held
      to maturity (fair value                   |                                     | 
|June
      30, 2003 $8,699;                          |                                     | 
|December
      31, 2002 $8,303)                      |                                     |  |                          | 8,502    
|Stock
      of Federal Home Loan Bank                |                                     |  |                          | 8,774    
|Federal
      funds sold                             |                                     |  |                          | 23,373   
|Loans,
      net                                     |                                     |  |                          | 827,596  
|Loans
      held for sale                            |                                     |  |                          | 12,449   
|Property
      and equipment, net                    |                                     |  |                          | 21,888   
|Accrued
      interest receivable                    |                                     |  |                          | 7,068    
|Deferred
      income taxes, net                     |                                     |  |                          | 1,201    
|Other
      assets                                   |                                     |  |                          | 8,075    
|                                                     |                                     |  |                          |          
|                                                     |                                     |  | $                        | 1,153,321
|                                                     |                                     |  |                          |          
|                                                    
|LIABILITIES
      AND STOCKHOLDERS EQUITY           |                                     | 
|                                                    
|LIABILITIES                                          |                                     | 
|Noninterest-bearing
      deposits                   |                                     |  | $                        | 116,628  
|Interest-bearing
      deposits                      |                                     |  |                          | 723,730  
|                                                     |                                     |  |                          |          
|Total
      deposits                                 |                                     |  | $                        | 840,358  
|Securities
      sold under agreements to repurchase |                                     |  |                          | 31,928   
|Federal
      Home Loan Bank (FHLB borrowings      |                                     |  |                          | 167,606  
|Accrued
      interest payable                       |                                     |  |                          | 1,911    
|Other
      liabilities                              |                                     |  |                          | 4,696    
|                                                     |                                     |  |                          |          
|                                                     |                                     |  | $                        | 1,046,499
|                                                     |                                     |  |                          |          
|                                                    
|REDEEMABLE
      COMMON STOCK HELD BY                |                                     | 
|EMPLOYEE
      STOCK OWNERSHIP PLAN                  |                                     | 
|(ESOP)                                               |                                     |  | $                        | 14,276   
|                                                     |                                     |  |                          |          
|                                                    
|STOCKHOLDERS
      EQUITY                           |                                     | 
|Capital
      stock, common, no par value;           |                                     | 
|authorized
      10,000,000 shares;                  |                                     | 
|issued
      June 30, 2003 - 1,515,778 shares;       |                                     | 
|December
      31, 2002 - 1,501,054 shares           |                                     |  | $                        | 11,252   
|Retained
      earnings                              |                                     |  |                          | 90,428   
|Accumulated
      other comprehensive income         |                                     |  |                          | 5,142    
|                                                     |                                     |  |                          |          
|                                                     |                                     |  | $                        | 106,822  
|Less
      unallocated shares of ESOP                |                                     |  |                          | 14,276   
|                                                     |                                     |  |                          |          
|                                                     |                                     |  | $                        | 92,546   
|                                                     |                                     |  |                          |          
|                                                     |                                     |  | $                        | 1,153,321
|                                                     |                                     |  |                          |          

|*  Derived from audited financial statements.

See Notes to Consolidated Financial Statements.

3
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2003 and 2002
(In Thousands, Except Per Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Three months EndedJune 30 |  | Six Months EndedJune 30 |       
|----------------------------------- | ------------------------- |  | ----------------------- | ------
|
|Interest income:                    |                           |  |                         |       
|Loans, including fees               |                           |  | $                       | 13,662
|Investment securities:              |                           | 
|Taxable                             |                           |  |                         | 1,545 
|Nontaxable                          |                           |  |                         | 603   
|Federal funds sold                  |                           |  |                         | 116   
|                                    |                           |  |                         |       
|Total interest income               |                           |  | $                       | 15,926
|                                    |                           |  |                         |       
|Interest expense:                   |                           | 
|Deposits                            |                           |  | $                       | 4,332 
|Securities sold under               |                           | 
|agreements to repurchase            |                           |  |                         | 117   
|FHLB borrowings                     |                           |  |                         | 2,266 
|                                    |                           |  |                         |       
|Total interest expense              |                           |  | $                       | 6,715 
|                                    |                           |  |                         |       
|Net interest income                 |                           |  | $                       | 9,211 
|                                   
|Provision for loan losses           |                           |  |                         | (35   
|                                    |                           |  |                         |       
|Net interest income after provision |                           | 
|for loan losses                     |                           |  | $                       | 9,246 
|                                    |                           |  |                         |       
|Other income:                       |                           | 
|Gain on sale of loans               |                           |  | $                       | 1,587 
|Trust fees                          |                           |  |                         | 559   
|Deposit account charges and fees    |                           |  |                         | 922   
|Other fees and charges              |                           |  |                         | 777   
|                                    |                           |  |                         |       
|                                    |                           |  | $                       | 3,845 
|                                    |                           |  |                         |       
|Other expenses:                     |                           | 
|                                   
|Salaries and employee benefits      |                           |  | $                       | 3,832 
|Occupancy                           |                           |  |                         | 464   
|Furniture and equipment             |                           |  |                         | 750   
|Office supplies and postage         |                           |  |                         | 258   
|Other                               |                           |  |                         | 1,623 
|                                    |                           |  |                         |       
|                                    |                           |  | $                       | 6,927 
|                                    |                           |  |                         |       
|Income before income taxes          |                           |  | $                       | 6,164 
|                                   
|Federal and state income taxes      |                           |  |                         | 2,037 
|                                    |                           |  |                         |       
|                                   
|Net income                          |                           |  | $                       | 4,127 
|                                    |                           |  |                         |       
|Earning per share:                  |                           | 
|Basic                               |                           |  | $                       | 2.73  
|Diluted                             |                           |  |                         | 2.72  

|See Notes to Consolidated Financial Statements.

4
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Six Months Ended June 30, 2003 and 2002
(In Thousands)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Three months EndedJune 30 |  | Six Months EndedJune 30 |      
|------------------------------------- | ------------------------- |  | ----------------------- | -----
|
|                                     
|Net Income                            |                           |  | $                       | 4,127
|                                      |                           |  |                         |      
|Other comprehensive income:           |                           | 
|Unrealized holding gains (losses)     |                           | 
|arising during the period             |                           |  | $                       | 1,221
|Income tax effect of unrealized gains |                           | 
|(losses)                              |                           |  |                         | (453 
|                                      |                           |  |                         |      
|                                      |                           |  | $                       | 768  
|                                      |                           |  |                         |      
|                                     
|Comprehensive Income                  |                           |  | $                       | 4,895
|                                      |                           |  |                         |      

|See Notes to Consolidated Financial Statements.

5
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2003 and 2002
(In Thousands)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 |  |  |  | CapitalStock |  |  |  | RetainedEarnings |   |  | AccumulatedOtherComprehensiveIncome (Loss) |        | MaximumCashObligationTo ESOPShares |  |  | Total    |  
|-------------------------------- |  |  |  | ------------ |  |  |  | ---------------- | - |  | ------------------------------------------ | ------ | ---------------------------------- |  |  | -------- | -
|Balance, December 31, 2002       |  |  |  | $10,541      |  |  |  | $85,773          |   |  |                                            | $4,721 |                                    |  |  | $(12,951 | )
|Stock options exercised for      |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  |  |          |  
|14,724 shares of common stock    |  |  |  | 375          |  |  |  |                 |   |  |                                            |       |                                    |  |  |         |  
|Change related to ESOP shares    |  |  |  |             |  |  |  |                 |   |  |                                            |       |                                    |  |  | (1,325   | )
|Net income                       |  |  |  |             |  |  |  | 7,508            |   |  |                                            |       |                                    |  |  |         |  
|Income tax benefit related to    |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  |  |          |  
|stock based compensation         |  |  |  | 336          |  |  |  |                 |   |  |                                            |       |                                    |  |  |         |  
|Cash dividends ($1.90 per share) |  |  |  |             |  |  |  | (2,853           | ) |  |                                            |       |                                    |  |  |         |  
|Other comprehensive income       |  |  |  |             |  |  |  |                 |   |  |                                            | 421    |                                    |  |  |         |  
|                                 |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  | 
|Balance, June 30, 2003           |  |  |  | $11,252      |  |  |  | $90,428          |   |  |                                            | $5,142 |                                    |  |  | $(14,276 | )
|                                 |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  | 

|                                 |  |  |  | CapitalStock |  |  |  | RetainedEarnings |   |  | AccumulatedOtherComprehensiveIncome (Loss) |        | MaximumCashObligationTo ESOPShares |  |  | Total    |  
|-------------------------------- |  |  |  | ------------ |  |  |  | ---------------- | - |  | ------------------------------------------ | ------ | ---------------------------------- |  |  | -------- | -
|Balance, December 31, 2001       |  |  |  | $10,397      |  |  |  | $76,931          |   |  |                                            | $3,021 |                                    |  |  | $(12,194 | )
|Net income                       |  |  |  |             |  |  |  | 5,296            |   |  |                                            |       |                                    |  |  |         |  
|Change related to ESOP shares    |  |  |  |             |  |  |  |                 |   |  |                                            |       |                                    |  |  | (299     | )
|Cash dividends ($1.75 per share) |  |  |  |             |  |  |  | (2,622           | ) |  |                                            |       |                                    |  |  |         |  
|Other comprehensive income       |  |  |  |             |  |  |  |                 |   |  |                                            | 664    |                                    |  |  |         |  
|                                 |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  | 
|Balance, June 30, 2002           |  |  |  | $10,397      |  |  |  | $79,605          |   |  |                                            | $3,685 |                                    |  |  | $(12,493 | )
|                                 |  |  |  |              |  |  |  |                  |   |  |                                            |        |                                    |  | 

|See Notes to Consolidated Financial Statements.

6
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2003 and 2002
(In Thousands)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                              | 2003 |  | 2002 |         
|------------------------------------------------------------- | ---- |  | ---- | --------
|CASH FLOWS FROM OPERATING ACTIVITIES                          |      |  |      |         
|Net income                                                    |      |  | $    | 7,508   
|Adjustments to reconcile net income to                        |      | 
|net cash provided by operating activities:                    |      | 
|Depreciation                                                  |      |  |      | 1,130   
|Amortization                                                  |      |  |      |        
|Provision for loan losses                                     |      |  |      | 449     
|Deferred income taxes                                         |      |  |      | 521     
|Decrease (increase) in accrued interest receivable            |      |  |      | 210     
|Amortization of bond discount                                 |      |  |      | 374     
|(Increase) in other assets                                    |      |  |      | (506    
|Decrease (increase) in accrued interest and other liabilities |      |  |      | (180    
|Loans originated for sale                                     |      |  |      | (185,525
|Proceeds on sales of loans                                    |      |  |      | 182,412 
|Net gain on sales of loans                                    |      |  |      | (2,452  
|Income tax benefits related to stock based compensation       |      |  |      | 336     
|                                                              |      |  |      |         
|Net cash provided by operating activities                     |      |  | $    | 4,277   
|                                                              |      |  |      |         
|CASH FLOWS FROM INVESTING ACTIVITIES                          |      | 
|Proceeds from maturities of investment securities:            |      | 
|Available for sale                                            |      |  | $    | 42,910  
|Held to maturity                                              |      |  |      | 3,090   
|Purchase of investment securities:                            |      | 
|Available for sale                                            |      |  |      | (51,849 
|Held to maturity                                              |      |  |      | (3,570  
|Federal funds sold, net                                       |      |  |      | 9,141   
|Loans made to customers, net of collections                   |      |  |      | (54,072 
|Purchases of property and equipment                           |      |  |      | (1,518  
|                                                              |      |  |      |         
|Net cash (used in) investing activities                       |      |  | $    | (55,868 
|                                                              |      |  |      |         
|CASH FLOWS FROM FINANCING ACTIVITIES                          |      | 
|Net increase in deposits                                      |      |  | $    | 38,037  
|Net increase (decrease) in federal funds purchased            |      | 
|and securities sold under agreements to repurchase            |      |  |      | 11,130  
|Borrowings from FHLB                                          |      |  |      |        
|Stock options exercised                                       |      |  |      | 375     
|Dividends paid                                                |      |  |      | (2,853  
|                                                              |      |  |      |         
|Net cash provided by financing activities                     |      |  | $    | 46,689  
|                                                              |      |  |      |         
|Decrease in cash and due from banks                           |      |  | $    | (4,902  
|                                                              |      |  |      |         
|CASH AND DUE FROM BANKS                                       |      | 
|Beginning                                                     |      |  |      | 32,647  
|                                                              |      |  |      |         
|Ending                                                        |      |  | $    | 27,745  
|                                                              |      |  |      |         
|SUPPLEMENTAL DISCLOSURES                                      |      | 
|Cash payments for:                                            |      | 
|Interest paid to depositors                                   |      |  | $    | 9,115   
|Interest paid on other obligations                            |      |  |      | 4,718   
|Income taxes                                                  |      |  |      | 4,208   
|Non-cash financing activity,                                  |      | 
|Increase in unallocated ESOP shares                           |      |  |      | 1,325   

|See Notes to Consolidated Financial Statements.

7
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 operations for the interim periods are not
necessarily indicative of the results for a full  year.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
reviewing these financial statements, reference should be made to the Notes to Financial
Statements contained in the audited Financial Statements for the year ended December 31,
2002,  included in Hills Bancorporation (the Company) Form 10-K filed with
the Securities Exchange  Commission on March 24, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
were no changes in accounting policies, which had a significant effect on the interim
consolidated financial statements for the periods presented except as disclosed in Note 3
to the  financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. |  | Earnings
Per Share
|------- |  | ------------------

| | Basic
earnings per share amounts are computed by dividing net income (the numerator) by the
weighted average number of common shares outstanding (the denominator) during the period.
Diluted  per share amounts assume the conversion, exercise or issuance of all potential
common stock  equivalents unless the effect is to reduce the loss or increase the income
per common share from  continuing operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
computation of earnings per common share for the periods presented are as follows:
| | --------------------------------------------------------------------------------------

|                                               | Three months EndedJune 30 |  | Six Months EndedJune 30 |          
|---------------------------------------------- | ------------------------- |  | ----------------------- | ---------
|
|Weighted average number of shares              |                           |  |                         |          
|outstanding (basic)                            |                           |  |                         | 1,512,097
|Weighted average of potential dilutive shares  |                           | 
|attributable to stock options granted computed |                           | 
|under the treasury stock method                |                           |  |                         | 3,575    
|                                               |                           |  |                         |          
|Weighted average number of shares (diluted)    |                           |  |                         | 1,515,672
|                                               |                           |  |                         |          
|Earnings Per Share:                            |                           | 
|Net income (in thousands)                      |                           |  | $                       | 4.127    
|                                               |                           |  |                         |          
|Earnings per common share:                     |                           | 
|Basic                                          |                           |  | $                       | 2.73     
|                                               |                           |  |                         |          
|Diluted                                        |                           |  |                         | 2.72     
|                                               |                           |  |                         |          

|8
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|-----------------------------------------------------------------------------

|Note 3. |  | Recent Accounting Pronouncements
|------- |  | --------------------------------

| | The
FASB has issued  Statement No. 146, Accounting for Costs Associated with Exit or
Disposal  Activities. The provisions of the Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. Implementation  of the
Statement is not expected to have a material impact on the Companys  financial
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
FASB has issued  Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of  Others 
an interpretation of FASB Statements No. 5, 57, and 107 and  rescission of FASB
Interpretation No. 34. This Interpretation elaborates  on the disclosures to be
made by a guarantor in its interim and annual financial  statements about its obligations
under certain guarantees that it has issued. It  also clarifies that a guarantor is
required to recognize, at the inception of a  guarantee, a liability for the fair value
of the obligation undertaken in  issuing the guarantee. The initial recognition and
measurement provisions of the  Interpretation are applicable on a prospective basis to
guarantees issued or  modified after December 31, 2002. Implementation of these
provisions of the  Interpretation is not expected to have a material impact on the Companys
consolidated financial statements. The disclosure requirements of the  Interpretation are
effective for financial statements of interim or annual  periods ending after December
15, 2002. The adoption of Interpretation No.  45s measurement and recognition
provisions did not have a material impact  to the Companys financial position or
results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2002, the FASB  issued Statement of Financial Accounting Standards No.147, Acquisition
of  Certain Financial Institutions, an Amendment to FASB Statements No.72 and 144  and
FASB Interpretation No.9. The statement removes acquisitions of financial  institutions
from the scope of the previous issued statements and interpretation  and requires that
those transactions be accounted for in accordance with  Statement of Financial Accounting
Standards No. 141, Business  Combinations and Statement of Financial
Accounting Standards No. 142,  Goodwill and Intangible Assets. Thus, the
requirement to recognize  (and subsequently amortize) any excess of the fair value of
liabilities assumed  over the fair value of tangible and identifiable intangible assets
acquired as  an unidentifiable intangible asset no longer applies to acquisitions within
the  scope of this statement. The Company adopted FASB No. 147 on October 1, 2002 and
the adoption resulted in no reclassification or revisions to prior period  financial
statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003, the FASB  issued Interpretation No.46, Consolidation of Variable
Interest  Entities, which addresses consolidation by business enterprises of
variable interest entities which have certain characteristics by requiring that  if a
business enterprise has a controlling interest in a variable interest  entity, the
assets, liabilities and results of activities of the variable  interest entity be
included in the consolidated financial statements with those  of the business enterprise.
This statement applies to variable interest entities  created after January 31, 2003 and
to variable interest entities in which an  enterprise obtains an interest after that
date. The Company has, and will  continue to, adopt the various provisions of this
statement but presently does  not have any variable interest entities that would be
required to be included in  its consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9
HILLS BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|-----------------------------------------------------------------------------

|Note 3. |  | Recent Accounting Pronouncements (continued)
|------- |  | --------------------------------------------

| | In
May 2003, the FASB issued Statement of Financial Accounting Standards No. 150,  Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and  Equity. This
statement established standards for how an issuer classifies and measures  certain
financial instruments with characteristics of both liabilities and equity. It  requires
that an issuer classify a financial instrument that is within its scope as a  liability
(or asset in some circumstances). Many of those instruments were previously  classified
as equity. The statement is effective for financial instruments entered into or  modified
after May 31, 2003, and otherwise is effective at the beginning of the first  interim
period beginning after June 15, 2003. The Company will adopt the statement on July  1,
2003 and such adoption is not expected to have a material effect on its financial
position or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10
HILLS BANCORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is
managements discussion and analysis of the financial condition of Hills
Bancorporation and subsidiary (Company) at June 30, 2003,
(unaudited) when compared with December 31, 2002 and the results of operations
for the three and six months ended June 30, 2003 and 2002 (unaudited). The
accompanying unaudited financial statements should be read in conjunction with
the Hills Bancorporation consolidated financial statements and related notes
appearing in the 2002 annual report previously filed on Form 10-K.

SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS

The discussion following
contains certain forward-looking statements with respect to the financial
condition, the results of operations and business of the Company. These
statements involve certain risks and uncertainties, which are often inherent in
the ongoing operation of financial institutions such as the Companys
subsidiary bank.

Forward-looking
statements discuss matters that are not facts and are typically identified by
the words believe, expect, anticipate,
 target,  goal, objective, 
intend, estimate,  will, can,
would, should, could, may and
similar expressions. They discuss expectations about the future and are not
guarantees. Forward-looking statements speak only as of the date they are made,
and the Company undertakes no obligation to update them to reflect changes that
occur after the date they are made.

There are several factors
 many of which are beyond the control of the Company or its subsidiary
Bank  that could cause results to differ significantly from expectations.
Some of these factors are described below. There are factors other than those
described below that could cause results to differ from expectations. Any factor
described below could by itself, or together with one or more other factors,
adversely affect the business, earnings and/ or financial condition of the
Company and its subsidiary Bank.

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. There risks, which are not all
inclusive, cannot be estimated.

CRITICAL
ACCOUNTING POLICIES

The Companys
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America. The financial information
within these 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 policy to be related to
the allowance for loan losses. The Companys allowance for loan loss
methodology incorporates a variety of risk considerations, both quantitative and
qualitative in establishing an allowance for loan loss that management believes
is appropriate at each reporting date. Quantitative factors include the
Companys historical loss experience, delinquency and charge-off trends,
collateral values, changes in nonperforming loans, and other factors.
Quantitative factors also incorporate known information about individual loans,
including borrowers sensitivity to interest rate movements. Qualitative
factors include the general economic environment in the Companys markets,
including economic conditions throughout the Midwest and in particular, the
state of certain industries.

11
HILLS BANCORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

CRITICAL
ACCOUNTING POLICIES (continued)

Size and complexity of individual
credits in relation to loan structure, existing loan policies and pace of
portfolio growth are other qualitative factors that are considered in the
methodology. As the Company adds new products and increases the complexity of
its loan portfolio, it will enhance its methodology accordingly. This discussion
and analysis should be read in conjunction with the Companys financial
statements and the accompanying notes presents elsewhere herein, as well as the
portion of this Managements Discussion and Analysis section entitled
Financial Condition  Allowance for Loan Losses. Although
management believes the levels of the allowance as of both June 30, 2003 and
December 31, 2002 were adequate to absorb losses inherent in the loan portfolio,
a decline in local economic conditions, or other factors, could result in
increasing losses that cannot be reasonably predicted at this time.

The Companys other
critical accounting policies that affect net income are the accrual of interest
income and expense. Interest is accrued at the stated rate on the outstanding
balances of all interest-earning assets and interest-bearing liabilities. The
Company discontinues accruing interest income on certain loans when there is
reasonable doubt about the borrowers ability to make the entire principal
and interest payments. Other critical policies that affect the Companys
balance sheet are the fair value of investment securities available for sale and
the Companys maximum cash obligation related to its obligation to redeem
common stock held by the ESOP.

12
HILLS BANCORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

FINANCIAL CONDITION AT
JUNE 30, 2003 COMPARED TO DECEMBER 31, 2002.

Assets and
Liabilities Review

Total assets grew to
$1.153 billion at June 30, 2003, compared to total assets of $1.099 billion at
December 31, 2002. The asset growth of $54.8 million included a net increase in
the investment securities of $9.7 million and net loan growth of $59.2 million.
The net loan growth includes loans held for sale of $12.4 million as of June 30,
2003, which were secondary market loans that are waiting funding. The loans held
for sale at December 31, 2002 were $6.9 million.

The following tables set
forth the composition of loans and the allowance for loan losses and information
on non-performing loans:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | June 30 | 
|------------------------------ | ------- | 
|
|
|                              
|Agricultural                   |         | 
|Commercial and financial       |         | 
|Real estate:                   |         | 
|Construction                   |         | 
|Mortgage                       |         | 
|Loans to individuals           |         | 
|                               |         | 
|                               |         | 
|Less allowance for loan losses |         | 
|                               |         | 
|                               |         | 
|                               |         | 

|Changes in the allowance for loan losses are as follows:
|--------------------------------------------------------

|                             | Six MonthsEnded June 30 | 
|---------------------------- | ----------------------- | 
|
|
|                            
|Balance, beginning           |                         | 
|Provision charged to expense |                         | 
|Net recoveries               |                         | 
|Loans charged off            |                         | 
|                             |                         | 
|Balance, ending              |                         | 
|                             |                         | 

|Non-performing loan information at June 30, was as follows:
|-----------------------------------------------------------

|                                                      | 2003 |  | 2002 |      
|----------------------------------------------------- | ---- |  | ---- | -----
|
|                                                     
|Impaired loans, non-accrual                           |      |  | $    | 4,450
|                                                     
|Loans past due ninety days or more and still accruing |      |  |      | 1,356
|                                                     
|Restructured loans                                    |      |  |      |     

|13
HILLS BANCORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Assets and
Liabilities Review (continued)

Interest rates, which
help drive both new loan growth and secondary market loans, including
refinances, continue to be at record low levels compared to the last fifty
years. Effective June 25, 2003, the Federal Reserve Open Market Committee
lowered the federal funds target rate to 1.00%. The 1.00% is the lowest level
since July of 1958. The decrease was the first in 2003 with the last 25 basis
point decrease occurring on November 6, 2002. The decrease in the federal funds
rate marked the thirteenth decrease since May 16, 2000, when the rate was 6.50%.
Overall, the local economy remains in good condition but weaknesses have been
seen with some layoffs in employment. Budget restraints continue to affect the
University of Iowa and state government spending. In addition, the national
economy has not directly affected the Company, but obviously the continued war
in Iraq and the aftermath process of peace and other national economic news will
continue to affect the financial markets. The new tax relief act signed into law
in May, 2003, contains major tax cuts for individuals and business taxpayers.
One of the most talked about provisions is lower tax on corporate dividends and
this has aided recent stock market gains. As of June 30, 2003, the major stock
indices all show a positive growth for the first six months of 2003.

The growth of deposits in
the first half of the year has been $38.01 million and a total of $49.2 million
when repurchase agreements are included. Borrowings from the FHLB remained
static at $167.6 million for the two periods presented.

Dividends
and Equity

In January 2003, Hills
Bancorporation paid a dividend of $2,853,000 or $1.90 per share, an 8.57%
increase from the $1.75 paid in January 2002. After payment of the dividend and
the adjustment for accumulated other comprehensive income, stockholders
equity as of June 30, 2003 totaled $92,546,000. The total stockholders
equity of Hills Bancorporation as of June 30, 2003, before the reduction for the
ESOP shares, totaled 9.26% of total assets. The total equity under this
measurement was $101.7 million. Under risk-based capital rules, the total risk
based capital is 12.83% of risk-adjusted assets, and substantially in excess of
required minimums.

14
HILLS BANCORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

RESULTS OF
OPERATIONS  FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002.

Net
income, net interest income and other income

Net income for the six
months ended June 30, 2003 is $7,508,000, which represents a $2,212,000 increase
over the reported income for the same period in 2002. As discussed at the end of
the first quarter for 2003, the increase in net income is related to three
significant factors, one the increased earning assets, two the improved net
interest margin and third, the increase in the gain of sale of loans. Net
interest income, not including fees increased $2.4 million for the six months
ended June 30, 2003 compared to 2002. The improvement is due to an increase in
average earning assets of $123.3 million and a rise in the net interest margin
by approximately eight basis points. The mortgage refinancing growth continued
in the second quarter of the year as the number of loans sold on the secondary
market and the resulting gain on sale was $2,452,000 which is $461,000 more than
for all of 2002 and $1,833,000 higher than gains on sale of loans for the period
ended June 30, 2002.

The net income for the
quarter ended June 30, 2003 was $1,454,000 ahead of the same quarter in 2002.
This change is due in large part to the gain on sale of loans, which are loans
sold to the secondary market, which were $1,345,000 higher in 2003 than 2002 for
the three months. The other large difference is that net interest income is $1.2
million higher due to average earning assets increasing $124.8 million.

Trust fees increased to
$1,178,000 for the six months ended June 30, 2003 from $1,159,000 one year ago.
The number of trust accounts continues to increase, but the decline in stocks
values in 2001 and 2002 had the effect of reducing otherwise expected increases
in fees since the fees are based on asset value of the account. Deposit account
charges and fees increased $274,000 in the two periods shown. The change is
primarily due to increase service charges on selected deposit accounts and the
volume of accounts having increased. Other fees and charges increased $286,000
from the first six months of 2003 compared to the same period in 2002. The
increase included $252,000 in credit card processing fees, but this income was
offset by additional processing fees of $285,000, included in the other expense
category.

In comparing the three
months ended June 30, 2003 and 2002, other income increased $1,640,000 to
$3,845,000. The increase was the result of the gain on sale of loans increasing
$1,345,000 and this was primarily due to the continued low rate environment.
Deposit account charges increased $131,000 from $791,000 to $922,000. As for the
six months results discussed, the change is due to increased service charges and
the volume of accounts. The $145,000 increase for the three months ended June
30, 2003 in other fees is primarily an increase in credit card processing fees,
and offset by similar increases in processing fees included in the expenses.

15
HILLS
BANCORPORATIONITEM 2. MANAGEMENTS DISCUSSION AND ANALYSISOF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)

Provision
for loan losses and allowance for loan losses

The provision for loan
losses for the six months ended June 30, 2003 is $449,000 compared to $487,000
for the six months ended June 30, 2002. The first quarter provision for this
line item was $484,000 compared to a credit of $35,000 for the second quarter of
2003. The net provision is the result of managements determination on a
quarterly basis of the allowance for loan losses required based on its review of
the loan portfolio. In its review, management considers loan concentrations,
loans with higher credit risks (primarily agricultural loans) and overall
increases in net loans outstanding. The allowance for loan losses balance is
also affected by the net charge-offs for each quarter. For the first quarter of
2003, the charged-off loans exceeded loan recoveries by $79,000 while in the
second quarter recoveries exceeded loans charged-off by $244,000, resulting in a
higher reserve balance before the provision.

The allowance for loan
losses totaled $12,740,000 at June 30, 2003 compared to $10,350,000 at June 30,
2002. The percentage of the allowance to outstanding loans was 1.49% and 1.38%
at June 30, 2003 and 2002, respectively. The increase in the balance of the
allowance is due primarily to the deterioration of several loans that are in the
swine production segment of agricultural loans. The methodology used in 2003 is
consistent with the prior years. Beginning in 2001, the Bank refined the
methodology used to compute the allowance for loan losses, primarily by applying
estimated loss rates to several risk categories of loans instead of more general
categories of loans.

The University of Iowa
continues to have a dominant effect on the economy of the Banks primary
trade area, Johnson County, Iowa, and has helped the local economy remain strong
even when the national economy has experienced weaknesses. However, in the last
eighteen months the economy of the state of Iowa has weakened and the University
continues to suffer from budget cuts. For its fiscal year beginning July 1, 2003
the University expects continued budget constraints. The possible effects on the
local economy cannot be predicted, but are likely to weaken the economy in
future years.

Other
expenses and income taxes expense

Total other expenses were
$13,492,000 and $12,060,000 for the six months ended June 30, 2002 and 2002,
respectively. The increase includes $795,000 in salaries and benefits which is
the direct result of increased full-time equivalents of thirty-five since June
30, 2002. The new employees added included nine in the secondary market
department and eleven in the Marion office, which opened in February 2003. All
other expenses other than salaries and benefits increased a total of $637,000 or
11.92%. Credit card processing fees, which composed part of the other expenses,
increased $285,000 and was offset by $252,000 of increased fee income of credit
card processing included in the other income section.

The three months ended
June 30, 2003 compared to the same period ending June 30, 2002, saw an increase
in other expenses of $748,000. Salaries and employee benefits accounted for
$392,000 of the increase and reflects salary increases over the prior year and
the increase discussed above in the full-time equivalents added in 2003. The
only other large increase in expenses was the credit card processing expense of
approximately $145,000 discussed in the other income review.

Income tax expense was
$3,695,000 and $2,339,000 for the six months ended June 30, 2003 and 2002,
respectively. The corresponding percentage of income taxes compared to income
before income taxes is 32.98% in 2003 and 30.63% in 2002. For the three months,
the percentage of income taxes increased form 30.10% in 2002 to 33.05% in 2003.
The percentage is up slightly due to substantially more income from the gain on
sale of loans and not a corresponding increase in non-taxable interest income.

16
HILLS
BANCORPORATIONITEM 2. MANAGEMENTS DISCUSSION AND ANALYSISOF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)

Earnings per
share

Earnings per share, both
basic and diluted increased for the quarter ended June 30, 2003 compared to
2002. For the quarter ended June 30, 2003 basic and diluted earnings per share
were $2.73 and $2.72 in comparison to $1.78 and $1.76 for the quarter ended June
30, 2002. The earnings per share for the six months ended June 30, 2003 and June
30, 2002, were $4.98 and $3.53 for basic earnings per share and $4.97 and $3.50
for diluted earnings per share.

Liquidity

The Company actively
monitors and manages its liquidity position with the objective of maintaining
sufficient cash flows to fund operations, meet client commitments, take
advantage of market opportunities and provide a margin against unforeseeable
liquidity needs. Federal funds sold and investment securities available for sale
are readily marketable assets. Maturities of all investment securities are
managed to meet the Companys normal liquidity needs, to respond to market
changes or to adjust the Companys interest rate risk position. Federal
funds sold and investment securities available for sale comprised 19.9% of the
Companys total assets at June 30, 2003.

Net cash provided from
operations is another primary source of liquidity. For the six months ended June
30, 2003 and 2002, net cash provided by operating activities was $2,498,000 and
$6,748,000 respectively.

The Company has
historically maintained a stable deposit base and a relatively low level of
large deposits, which has mitigated the volatility in liquidity. As of June 30,
2003, the Company had advances of $167,606,000 from the FHLB of Des Moines.
These advances were used as a means of providing both long and short-term,
fixed-rated funding for certain assets and managing interest rate risk. The
Company had additional borrowing capacity available from the FHLB of
approximately $135 million at June 30, 2003.

As additional liquidity,
the Company has the ability to borrow up to $10 million from the Federal Reserve
Bank of Chicago, and two lines of credit with two banks totaling $96 million,
that does require the pledging of investment securities when drawn upon.

The combination of high
levels of potentially liquid assets, low dependence on volatile liabilities and
additional borrowing capacity provided sufficient liquidity for the Company
through June 30, 2003.

17
HILLS
BANCORPORATIONITEM 3.QUANTITATIVE
AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

Market
Risk Management

Market risk is the risk
of loss arising from adverse changes in market prices and rates. The
Companys market risk is comprised primarily of interest rate risk
resulting from its core banking activities of lending and deposit gathering.
Interest rate risk measures the impact on earnings from changes in interest
rates and the effect on current fair market values of the Companys assets,
liabilities and off-balance sheet contracts. The objective is to measure this
risk and manage the balance sheet to avoid unacceptable potential for economic
loss. Management continually develops and applies strategies to mitigate market
risk. Exposure to market risk is reviewed on a regular basis by the
asset/liability committee at the bank. Management does not believe that the
Companys primary market risk exposures and how those exposures have been
managed to date in 2003 changed significantly when compared to 2002.

Asset/Liability
Management

The Company has a fully
integrated asset/liability management system to assist in managing the balance
sheet. The process, which is used to project the results of alternative
investment decisions, includes the development of simulations that reflect the
effects of various interest rate scenarios on net interest income. Management
analyzes the simulations to manage interest risk, the net interest margin and
levels of net interest income.

The goal is to structure
the balance sheet so that net interest margin fluctuates in a narrow range
during periods of changing interest rates. The Company currently believes that
net interest income would fall by less than 5 percent if interest rates
increased or decreased by 300 basis points over a one-year time horizon. This is
within the Companys policy limits.

To improve net interest
income and lessen interest rate risk, management continues its strategy of
de-emphasizing fixed-rate portfolio residential real estate loans with long
re-pricing periods. The Company continues to focus on reducing interest rate
risk by emphasizing growth in variable-rate consumer and commercial loans. Other
actions include the use of fixed-rate Federal Home Loan Bank (FHLB) advances as
alternatives to certificates of deposit, and active management of the available
for sale investment securities portfolio to provide for cash flows that will
facilitate rate risk management.

The highly competitive
banking environment in Iowa also greatly impacts the Companys net interest
margin. The effect of competition on net interest income is difficult to
predict.

18
HILLS
BANCORPORATIONITEM 4.EVALUATION OF DISCLOSURE CONTROLS

Based on their evaluation
of the effectiveness of the registrants disclosure controls and procedures
as of a date within 90 days prior to the filing date of this quarterly report,
the undersigned officers of the registrant have concluded that such disclosure
controls and procedures are adequate. There were no significant changes in
internal controls or in other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses, subsequent to the date of the most recent
evaluation by the undersigned officers of the registrant of the design and
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report financial
data.

19
HILLS BANCORPORATIONPART II  OTHER INFORMATION
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|Item 1. |  | Legal
Proceedings
|------- |  | -----------------

| | There
are no materials 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
|------- |  | ---------------------------------------------------

| | At
the Annual Meeting held on April 21, 2003, the security holders approved the following:
| | ------------------------------------------------------------------------------------------

| | 1. |  | Election
of Willis M. Bywater, Thomas J. Gill D.D.S., Donald H. Gringer and Dwight O.  Seegmiller
to three-year terms to the Board of Directors expiring at the 2006 Annual  Meeting.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 5. |  | Other
Information
|------- |  | -----------------

| | None
| | ----

|Item 6. |  | Exhibits
and Reports on Form 8-K
|------- |  | --------------------------------

| | (a) |  | ExhibitsExhibit II  Statement Re Computation of Earnings Per Common Share
| | --- |  | --------------------------------------------------------------------------

| | (b) |  | Reports
on Form 8-KForm 8-K was filed by Hills Bancorporation on May 14, 2003. The 8-K was filed to change
the Registrants certifying accountant from McGladrey and Pullen, LLP to KPMG LLP,
effective May 14, 2003.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
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 | 8/12/2003 | By |  | /s/ Dwight O.
      Seegmiller                              
|     |           |    |  |                                                             
|     |           |    |  | Dwight
      O. Seegmiller, President                       
|    
|Date | 8/12/2003 | By |  | /s/
      James G. Pratt                                    
|     |           |    |  |                                                             
|     |           |    |  | James
      G. Pratt, Treasurer and Chief Accounting Officer

|
|