----

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

| Large accelerated filer | o | Accelerated Filer       | þ |
|-------------------------|---|-------------------------|--------|
| Non-accelerated filer   | o | Small Reporting Company | o      |

|                       |   | SHARES OUTSTANDING |
|----------------------------|--------|--------------------|
| CLASS                      |   | At April 30, 2010  |
|                       |   |               |
| Common Stock, no par value |   | 4,415,829          |

----

----

----

HILLS 

|              |   |                                                                                                        |   | Page    |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|---------|
|              |   |                                                                                                        |   | Number  |
|              |   |                                                                                                        |   |    |
| Item 1.           |   | Financial Statements                                                                                        |   |    |
|              |   |                                                                                                        |   |    |
|              |   | Consolidated balance sheets, March 31, 2010 (unaudited) and December 31, 2009                               |   | 3       |
|              |   | Consolidated statements of income, (unaudited) for three months ended March 31, 2010 and 2009               |   | 4       |
|              |   | Consolidated statements of comprehensive income, (unaudited) for three months ended March 31, 2010 and 2009 |   | 5       |
|              |   | Consolidated statements of stockholders' equity, (unaudited) for three months ended March 31, 2010 and 2009 |   | 6       |
|              |   | Consolidated statements of cash flows (unaudited) for three months ended March 31, 2010 and 2009            |   | 7 - 8   |
|              |   | Notes to consolidated financial statements                                                                  |   | 9 - 15  |
|              |   |                                                                                                        |   |    |
| Item 2.           |   | Management's Discussion and Analysis of Financial Condition and Results of Operations                       |   | 16 - 31 |
|              |   |                                                                                                        |   |    |
| Item 3.           |   | Quantitative and Qualitative Disclosures About Market Risk                                                  |   | 32      |
|              |   |                                                                                                        |   |    |
| Item 4.           |   | Controls and Procedures                                                                                     |   | 33      |
|              |   |                                                                                                        |   |    |
|              |   |                                                                                                        |   |    |
| Part II           |
| OTHER INFORMATION |
|              |   |                                                                                                        |   |    |
| Item 1.           |   | Legal proceedings                                                                                           |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 1A.          |   | Risk factors                                                                                                |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 2.           |   | Unregistered sales of equity securities and use of proceeds                                                 |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 3.           |   | Defaults upon senior securities                                                                             |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 4.           |   | Reserved                                                                                                    |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 5.           |   | Other information                                                                                           |   | 34      |
|              |   |                                                                                                        |   |    |
| Item 6.           |   | Exhibits                                                                                                    |   | 34      |
|              |   |                                                                                                        |   |    |
| Signatures        |   | 35                                                                                                          |
|              |   |                                                                                                        |   |    |
| Exhibits Index    |   | 36                                                                                                          |

----

Index

| HILLS BANCORPORATION                                                                                                                  |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED BALANCE SHEETS                                                                                                           |   |
| (Amounts In Thousands, Except Shares)                                                                                                 |   |
|                                                                                                                                  |   |   |   |   |   |   |
|                                                                                                                                  |   | March 31, 2010 |   |   | December 31, 2009 |   |
| ASSETS                                                                                                                                |   | (Unaudited) |   |   |   |
|                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                             |   | $ | 80,434 |   |   | $ | 24,095 |   |
| Investment securities available for sale at fair value (amortized cost March 31, 2010 $192,433; December 31, 2009 $194,844)           |   |   | 198,576 |   |   |   | 201,645 |   |
| Stock of Federal Home Loan Bank                                                                                                       |   |   | 11,060 |   |   |   | 12,453 |   |
| Loans held for sale                                                                                                                   |   |   | 3,861 |   |   |   | 7,976 |   |
| Loans, net of allowance for loan losses (March 31, 2010 $29,840;                                                                      |   |   |   |   |   |   |   |   |
| December 31, 2009 $29,160)                                                                                                            |   |   | 1,505,845 |   |   |   | 1,503,981 |   |
| Property and equipment, net                                                                                                           |   |   | 26,782 |   |   |   | 26,417 |   |
| Tax credit real estate                                                                                                                |   |   | 18,103 |   |   |   | 18,777 |   |
| Accrued interest receivable                                                                                                           |   |   | 9,897 |   |   |   | 9,677 |   |
| Deferred income taxes, net                                                                                                            |   |   | 9,448 |   |   |   | 8,892 |   |
| Other real estate owned and repossessed assets                                                                                        |   |   | 3,770 |   |   |   | 3,227 |   |
| Goodwill                                                                                                                              |   |   | 2,500 |   |   |   | 2,500 |   |
| Prepaid FDIC insurance                                                                                                                |   |   | 6,479 |   |   |   | 6,947 |   |
| Other assets                                                                                                                          |   |   | 3,650 |   |   |   | 4,039 |   |
|                                                                                                                                  |   | $ | 1,880,405 |   |   | $ | 1,830,626 |   |
|                                                                                                                                  |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                  |   |   |   |   |   |   |   |   |
|                                                                                                                                  |   |   |   |   |   |   |   |   |
| Liabilities                                                                                                                           |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits                                                                                                          |   | $ | 177,654 |   |   | $ | 184,158 |   |
| Interest-bearing deposits                                                                                                             |   |   | 1,280,235 |   |   |   | 1,163,269 |   |
| Total deposits                                                                                                                        |   | $ | 1,457,889 |   |   | $ | 1,347,427 |   |
| Short-term borrowings                                                                                                                 |   |   | 33,342 |   |   |   | 68,534 |   |
| Federal Home Loan Bank borrowings                                                                                                     |   |   | 195,000 |   |   |   | 225,000 |   |
| Accrued interest payable                                                                                                              |   |   | 2,230 |   |   |   | 2,341 |   |
| Other liabilities                                                                                                                     |   |   | 16,606 |   |   |   | 12,649 |   |
|                                                                                                                                  |   | $ | 1,705,067 |   |   | $ | 1,655,951 |   |
|                                                                                                                                  |   |   |   |   |   |   |   |   |
| Redeemable Common Stock Held by Employee Stock Ownership Plan (ESOP)                                                                  |   | $ | 23,300 |   |   | $ | 22,900 |   |
|                                                                                                                                  |   |   |   |   |   |   |   |   |
| STOCKHOLDERS' EQUITY                                                                                                                  |   |   |   |   |   |   |   |   |
| Capital stock, no par value; authorized 10,000,000 shares; issued March 31, 2010 4,619,014 shares; December 31, 2009 4,618,962 shares |   | $ | - |   |   | $ | - |   |
| Paid in capital                                                                                                                       |   |   | 14,591 |   |   |   | 14,582 |   |
| Retained earnings                                                                                                                     |   |   | 167,481 |   |   |   | 166,120 |   |
| Accumulated other comprehensive income                                                                                                |   |   | 3,793 |   |   |   | 4,200 |   |
| Treasury stock at cost (March 31, 2010 202,331 shares; December 31, 2009 196,688 shares)                                              |   |   | (10,527 | ) |   |   | (10,227 | ) |
|                                                                                                                                  |   | $ | 175,338 |   |   | $ | 174,675 |   |
| Less maximum cash obligation related to ESOP shares                                                                                   |   |   | 23,300 |   |   |   | 22,900 |   |
|                                                                                                                                  |   | $ | 152,038 |   |   | $ | 151,775 |   |
|                                                                                                                                  |   | $ | 1,880,405 |   |   | $ | 1,830,626 |   |

----

Index

| HILLS BANCORPORATION                                                     |   |
|--------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF INCOME (Unaudited)                            |   |
| (Amounts In Thousands, Except Per Share Amounts)                         |   |
|                                                                     |   |   |   |   |   |   |
|                                                                     |   | Three Months Ended |   |
|                                                                     |   | March 31, |   |
|                                                                     |   | 2010 |   |   | 2009 |   |
| Interest income:                                                         |   |   |   |   |   |   |
| Loans, including fees                                                    |   | $ | 21,799 |   |   | $ | 22,057 |   |
| Investment securities:                                                   |   |   |   |   |   |   |   |   |
| Taxable                                                                  |   |   | 875 |   |   |   | 966 |   |
| Nontaxable                                                               |   |   | 824 |   |   |   | 841 |   |
| Federal funds sold                                                       |   |   | 2 |   |   |   | 4 |   |
| Total interest income                                                    |   | $ | 23,500 |   |   | $ | 23,868 |   |
| Interest expense:                                                        |   |   |   |   |   |   |   |   |
| Deposits                                                                 |   | $ | 5,099 |   |   | $ | 6,562 |   |
| Short-term borrowings                                                    |   |   | 142 |   |   |   | 233 |   |
| FHLB borrowings                                                          |   |   | 2,063 |   |   |   | 3,173 |   |
| Total interest expense                                                   |   | $ | 7,304 |   |   | $ | 9,968 |   |
| Net interest income                                                      |   | $ | 16,196 |   |   | $ | 13,900 |   |
| Provision for loan losses                                                |   |   | 2,065 |   |   |   | 2,436 |   |
| Net interest income after provision for loan losses                      |   | $ | 14,131 |   |   | $ | 11,464 |   |
| Other income:                                                            |   |   |   |   |   |   |   |   |
| Net gain on sale of loans                                                |   | $ | 545 |   |   | $ | 1,180 |   |
| Trust fees                                                               |   |   | 960 |   |   |   | 830 |   |
| Service charges and fees                                                 |   |   | 1,922 |   |   |   | 1,816 |   |
| Rental revenue on tax credit real estate                                 |   |   | 462 |   |   |   | 308 |   |
| Other noninterest income                                                 |   |   | 1,079 |   |   |   | 592 |   |
|                                                                     |   | $ | 4,968 |   |   | $ | 4,726 |   |
| Other expenses:                                                          |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                           |   | $ | 5,442 |   |   | $ | 5,201 |   |
| Occupancy                                                                |   |   | 761 |   |   |   | 773 |   |
| Furniture and equipment                                                  |   |   | 1,015 |   |   |   | 929 |   |
| Office supplies and postage                                              |   |   | 345 |   |   |   | 340 |   |
| Advertising and business development                                     |   |   | 357 |   |   |   | 451 |   |
| Outside services                                                         |   |   | 1,892 |   |   |   | 1,457 |   |
| Rental expenses on tax credit real estate                                |   |   | 512 |   |   |   | 413 |   |
| FDIC insurance assessment                                                |   |   | 774 |   |   |   | 525 |   |
| Net loss on sale of other real estate owned and other repossessed assets |   |   | 141 |   |   |   | 464 |   |
| Other noninterest expense                                                |   |   | 317 |   |   |   | 281 |   |
|                                                                     |   | $ | 11,556 |   |   | $ | 10,834 |   |
| Income before income taxes                                               |   | $ | 7,543 |   |   | $ | 5,356 |   |
| Income taxes                                                             |   |   | 2,158 |   |   |   | 1,367 |   |
| Net income                                                               |   | $ | 5,385 |   |   | $ | 3,989 |   |
|                                                                     |   |   |   |   |   |   |   |   |
| Earnings per share:                                                      |   |   |   |   |   |   |   |   |
| Basic                                                                    |   | $ | 1.22 |   |   | $ | 0.90 |   |
| Diluted                                                                  |   |   | 1.21 |   |   |   | 0.90 |   |

----

Index

| HILLS BANCORPORATION                                                                             |   |
|--------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)                                      |   |
| (Amounts In Thousands)                                                                           |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   | Three Months Ended |   |
|                                                                                             |   | March 31, |   |
|                                                                                             |   | 2010 |   |   | 2009 |   |
|                                                                                             |   |   |   |   |   |   |
| Net income                                                                                       |   | $ | 5,385 |   |   | $ | 3,989 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Other comprehensive loss:                                                                        |   |   |   |   |   |   |   |   |
| Unrealized holding losses arising during the period, net of income taxes, 2010 $(251); 2009 $(2) |   |   | (407 | ) |   |   | (2 | ) |
|                                                                                             |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                             |   | $ | 4,978 |   |   | $ | 3,987 |   |

----

Index

| HILLS BANCORPORATION                                        |   |
|-------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) |   |
| (Amounts In Thousands, Except Share Amounts)                |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |   |   |   |   |   |   |   |   |   | Maximum |   |   |   |   |   |   |   |
|                                                        |   |   |   |   |   |   |   |   |   |   | Cash |   |   |   |   |   |   |   |
|                                                        |   |   |   |   |   |   |   | Accumulated |   |   | Obligation |   |   |   |   |   |   |   |
|                                                        |   |   |   |   |   |   |   | Other |   |   | Related |   |   |   |   |   |   |   |
|                                                        |   | Paid In |   |   | Retained |   |   | Comprehensive |   |   | To ESOP |   |   | Treasury |   |   |   |   |
|                                                        |   | Capital |   |   | Earnings |   |   | Income (Loss) |   |   | Shares |   |   | Stock |   |   | Total |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2008                                  |   | $ | 13,447 |   |   | $ | 154,176 |   |   | $ | 3,649 |   |   | $ | (23,815 | ) |   | $ | (8,095 | ) |   | $ | 139,362 |   |
| Issuance of 607 shares of common stock                      |   |   | 33 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 33 |   |
| Forfeiture of 157 shares of common stock                    |   |   | (8 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (8 | ) |
| Share-based compensation                                    |   |   | 4 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4 |   |
| Net income                                                  |   |   | - |   |   |   | 3,989 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,989 |   |
| Cash dividends ($.91 per share)                             |   |   | - |   |   |   | (4,041 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,041 | ) |
| Purchase of 10,630 shares of common stock                   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (585 | ) |   |   | (585 | ) |
| Other comprehensive loss                                    |   |   | - |   |   |   | - |   |   |   | (2 | ) |   |   | - |   |   |   | - |   |   |   | (2 | ) |
| Balance, March 31, 2009                                     |   | $ | 13,476 |   |   | $ | 154,124 |   |   | $ | 3,647 |   |   | $ | (23,815 | ) |   | $ | (8,680 | ) |   | $ | 138,752 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009                                  |   | $ | 14,582 |   |   | $ | 166,120 |   |   | $ | 4,200 |   |   | $ | (22,900 | ) |   | $ | (10,227 | ) |   | $ | 151,775 |   |
| Issuance of 302 shares of common stock                      |   |   | 16 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 16 |   |
| Forfeiture of 250 shares of common stock                    |   |   | (11 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (11 | ) |
| Share-based compensation                                    |   |   | 4 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4 |   |
| Change related to ESOP shares                               |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (400 | ) |   |   | - |   |   |   | (400 | ) |
| Net income                                                  |   |   | - |   |   |   | 5,385 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5,385 |   |
| Cash dividends ($.91 per share)                             |   |   | - |   |   |   | (4,024 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,024 | ) |
| Purchase of 5,643 shares of common stock                    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (300 | ) |   |   | (300 | ) |
| Other comprehensive loss                                    |   |   | - |   |   |   | - |   |   |   | (407 | ) |   |   | - |   |   |   | - |   |   |   | (407 | ) |
| Balance, March 31, 2010                                     |   | $ | 14,591 |   |   | $ | 167,481 |   |   | $ | 3,793 |   |   | $ | (23,300 | ) |   | $ | (10,527 | ) |   | $ | 152,038 |   |

----

Index

| HILLS BANCORPORATION                                                                                   |   |
|--------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)                                                      |   |
| (Amounts In Thousands)                                                                                 |   |
|                                                                                                   |   |   |   |   |   |   |
|                                                                                                   |   | Three Months Ended |   |
|                                                                                                   |   | March 31, |   |
|                                                                                                   |   | 2010 |   |   | 2009 |   |
| Cash Flows from Operating Activities                                                                   |   |   |   |   |   |   |
| Net income                                                                                             |   | $ | 5,385 |   |   | $ | 3,989 |   |
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |   |   |   |   |   |   |   |   |
| Depreciation                                                                                           |   |   | 626 |   |   |   | 602 |   |
| Provision for loan losses                                                                              |   |   | 2,065 |   |   |   | 2,436 |   |
| Share-based compensation                                                                               |   |   | 4 |   |   |   | 4 |   |
| Forfeiture of common stock                                                                             |   |   | (11 | ) |   |   | (8 | ) |
| Compensation expensed through issuance of common stock                                                 |   |   | 16 |   |   |   | 33 |   |
| Provision for deferred income taxes                                                                    |   |   | (305 | ) |   |   | 83 |   |
| Net loss on sale of other real estate owned and other repossessed assets                               |   |   | 141 |   |   |   | 464 |   |
| Increase in accrued interest receivable                                                                |   |   | (220 | ) |   |   | (190 | ) |
| Amortization of discount on investment securities, net                                                 |   |   | 209 |   |   |   | 147 |   |
| Decrease in prepaid FDIC insurance                                                                     |   |   | 468 |   |   |   | - |   |
| Decrease (increase) in other assets                                                                    |   |   | 389 |   |   |   | (119 | ) |
| Increase in accrued interest payable and other liabilities                                             |   |   | 3,846 |   |   |   | 1,436 |   |
| Loans originated for sale                                                                              |   |   | (38,853 | ) |   |   | (88,232 | ) |
| Proceeds on sales of loans                                                                             |   |   | 43,513 |   |   |   | 94,529 |   |
| Net gain on sales of loans                                                                             |   |   | (545 | ) |   |   | (1,180 | ) |
| Net cash and cash equivalents provided by operating activities                                         |   | $ | 16,728 |   |   | $ | 13,994 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                                                                   |   |   |   |   |   |   |   |   |
| Proceeds from maturities of investment securities available for sale                                   |   | $ | 14,378 |   |   | $ | 10,770 |   |
| Purchases of investment securities available for sale                                                  |   |   | (10,783 | ) |   |   | (11,711 | ) |
| Loans made to customers, net of collections                                                            |   |   | (4,962 | ) |   |   | (1,305 | ) |
| Proceeds on sale of other real estate owned and other repossessed assets                               |   |   | 349 |   |   |   | 3,772 |   |
| Purchases of property and equipment                                                                    |   |   | (991 | ) |   |   | (949 | ) |
| Investment in tax credit real estate, net                                                              |   |   | 674 |   |   |   | 547 |   |
| Net cash (used in) provided by investing activities                                                    |   | $ | (1,335 | ) |   | $ | 1,124 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                                                                   |   |   |   |   |   |   |   |   |
| Net increase in deposits                                                                               |   | $ | 110,462 |   |   | $ | 131,636 |   |
| Net decrease in short-term borrowings                                                                  |   |   | (35,192 | ) |   |   | (63,898 | ) |
| Borrowings from FHLB                                                                                   |   |   | 10,000 |   |   |   | - |   |
| Payments on FHLB borrowings                                                                            |   |   | (40,000 | ) |   |   | - |   |
| Purchase of treasury stock                                                                             |   |   | (300 | ) |   |   | (585 | ) |
| Dividends paid                                                                                         |   |   | (4,024 | ) |   |   | (4,041 | ) |
| Net cash provided by financing activities                                                              |   | $ | 40,946 |   |   | $ | 63,112 |   |
|                                                                                                   |   |   |   |   |   |   |   |   |
| (Continued)                                                                                            |   |   |   |   |   |   |   |   |

----

Index

| HILLS BANCORPORATION                                                |   |
|---------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  (Continued) |   |
| (Amounts In Thousands)                                              |   |
|                                                                |   |   |   |   |   |   |
|                                                                |   | Three Months Ended |   |
|                                                                |   | March 31, |   |
|                                                                |   | 2010 |   |   | 2009 |   |
|                                                                |   |   |   |   |   |   |
| Increase in cash and cash equivalents                               |   | $ | 56,339 |   |   | $ | 78,230 |   |
|                                                                |   |   |   |   |   |   |   |   |
| Cash and cash equivalents:                                          |   |   |   |   |   |   |   |   |
| Beginning of year                                                   |   |   | 24,095 |   |   |   | 22,575 |   |
| End of period                                                       |   | $ | 80,434 |   |   | $ | 100,805 |   |
|                                                                |   |   |   |   |   |   |   |   |
| Supplemental Disclosures                                            |   |   |   |   |   |   |   |   |
| Cash payments for:                                                  |   |   |   |   |   |   |   |   |
| Interest paid to depositors                                         |   | $ | 5,210 |   |   | $ | 6,590 |   |
| Interest paid on other obligations                                  |   |   | 2,205 |   |   |   | 3,396 |   |
| Income taxes                                                        |   |   | - |   |   |   | 1,079 |   |
|                                                                |   |   |   |   |   |   |   |   |
| Noncash financing activities:                                       |   |   |   |   |   |   |   |   |
|                                                                |   |   |   |   |   |   |   |   |
| Increase in maximum cash obligation related to ESOP shares          |   | $ | 400 |   |   | $ | - |   |
| Transfers to other real estate owned                                |   |   | 1,033 |   |   |   | 659 |   |

----

Index

HILLS 

| Note 1. | Basis of Presentation |
|---------|-----------------------|

| Note 2. | Earnings Per Share |
|---------|--------------------|

|                                                                                                                          |   | Three months ended |      |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|
|                                                                                                                          |   | March 31,          |      |
|                                                                                                                          |   | 2010               |      |   | 2009 |   |
|                                                                                                                          |   |               |      |   |   |   |
| Common shares outstanding at the beginning of the period                                                                      |   |               | 4,422,274 |   |   |   | 4,440,545 |   |
| Weighted average number of net shares redeemed                                                                                |   |               | (2,864    | ) |   |   | (2,673 | ) |
| Weighted average shares outstanding (basic)                                                                                   |   |               | 4,419,410 |   |   |   | 4,437,872 |   |
| Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method |   |               | 12,930    |   |   |   | 15,457 |   |
| Weighted average number of shares (diluted)                                                                                   |   |               | 4,432,340 |   |   |   | 4,453,329 |   |
|                                                                                                                          |   |               |      |   |   |   |   |   |
| Net income (In Thousands)                                                                                                     |   | $                  | 5,385     |   |   | $ | 3,989 |   |
|                                                                                                                          |   |               |      |   |   |   |   |   |
| Earnings per share:                                                                                                           |   |               |      |   |   |   |   |   |
| Basic                                                                                                                         |   | $                  | 1.22      |   |   | $ | 0.90 |   |
| Diluted                                                                                                                       |   | $                  | 1.21      |   |   | $ | 0.90 |   |

----

Index

----

Index

|                              |   | March 31, 2010         |      |   | December 31, 2009 |   |
|-----------------------------------|--------|------------------------|-----------|--------|-------------------|--------|
|                              |   | Carrying               |      |   | Estimated         |   |   | Carrying |   |   | Estimated |   |
|                              |   | Amount                 |      |   | Fair Value        |   |   | Amount |   |   | Fair Value |   |
|                              |   | (Amounts In Thousands) |      |
|                              |   |                   |      |   |              |   |   |   |   |   |   |   |
| Cash and due from banks           |   | $                      | 80,434    |   |              | $      | 80,434 |   |   | $ | 24,095 |   |   | $ | 24,095 |   |
| Investment securities             |   |                   | 209,636   |   |              |   | 209,636 |   |   |   | 214,098 |   |   |   | 214,098 |   |
| Loans                             |   |                   | 1,509,706 |   |              |   | 1,523,979 |   |   |   | 1,511,957 |   |   |   | 1,515,351 |   |
| Accrued interest receivable       |   |                   | 9,897     |   |              |   | 9,897 |   |   |   | 9,677 |   |   |   | 9,677 |   |
| Deposits                          |   |                   | 1,457,889 |   |              |   | 1,460,421 |   |   |   | 1,347,427 |   |   |   | 1,350,881 |   |
| Short-term borrowings             |   |                   | 33,342    |   |              |   | 33,342 |   |   |   | 68,534 |   |   |   | 68,534 |   |
| Federal Home Loan Bank borrowings |   |                   | 195,000   |   |              |   | 211,721 |   |   |   | 225,000 |   |   |   | 242,562 |   |
| Accrued interest payable          |   |                   | 2,230     |   |              |   | 2,230 |   |   |   | 2,341 |   |   |   | 2,341 |   |
|                              |   |                   |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                              |   | Face Amount            |      |   |              |   |   |   | Face Amount |   |   |   |   |   |
|                              |   |                   |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance sheet instruments:    |   |                   |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loan commitments                  |   | $                      | 279,281   |   |              | $      | - |   |   | $ | 289,927 |   |   | $ | - |   |
| Letters of credit                 |   |                   | 9,513     |   |              |   | - |   |   |   | 9,724 |   |   |   | - |   |

| Level 1 | Valuations for assets and liabilities traded in active markets for identical assets or liabilities.  Level 1 includes securities purchased from the Federal Home Loan Bank (“FHLB”), Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Level 2 | Valuations for assets and liabilities traded in less active dealer or broker markets.  Level 2 includes securities issued by state and political subdivisions.  Valuations are obtained from third party pricing services for identical or comparable assets or liabilities. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

| Level 3 | Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  The Company does not have any Level 3 assets or liabilities. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                     |   | March 31, 2010         |   |
|------------------------------------------|--------|------------------------|--------|
|                                     |   | Level 1                |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                     |   | (Amounts in Thousands) |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| Investment securities available for sale |   | $                      | 97,320 |   |   | $ | 101,256 |   |   | $ | - |   |   | $ | 198,576 |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                    |   | $                      | 97,320 |   |   | $ | 101,256 |   |   | $ | - |   |   | $ | 198,576 |   |

----

Index

|                  |   |                   |   |   |           |   |   |    |   |   |   |   |   | Quarter Ended |   |
|-----------------------|--------|------------------------|--------|--------|----------------|--------|--------|---------|--------|--------|--------|--------|--------|---------------|--------|
|                  |   | March 31, 2010         |   |   | March 31, 2010 |   |
|                  |   | Level 1                |   |   | Level 2        |   |   | Level 3 |   |   | Total  |   |   | Total Losses  |   |
|                  |   | (Amounts in Thousands) |   |   |           |   |
|                  |   |                   |   |   |           |   |   |    |   |   |   |   |   |          |   |
| Loans (1)             |   | $                      | -      |   |           | $      | 5,875  |    |   | $      | -      |   |   | $             | 5,875  |   |   | $ | 242 |   |
| Other real estate (2) |   |                   | -      |   |           |   | 1,272  |    |   |   | -      |   |   |          | 1,272  |   |   |   | 144 |   |
| Total                 |   | $                      | -      |   |           | $      | 7,147  |    |   | $      | -      |   |   | $             | 7,147  |   |   | $ | 386 |   |

| (1) | Represents carrying value after related write-downs of loans for which adjustments are based on the value of the collateral.  The carrying value of loans fully-charged off is zero. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Represents the fair value and related losses of other real estate and other collateral owned that were measured at fair value subsequent to their initial classification as foreclosed assets. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                                         |   | March 31, 2010         |    |   | December 31, 2009 |   |
|--------------------------------------------------------------|--------|------------------------|---------|--------|-------------------|--------|
|                                                         |   | (Amounts In Thousands) |    |
| Firm loan commitments and unused portion of lines of credit: |   |                   |    |   |              |   |
| Home equity loans                                            |   | $                      | 37,504  |   |              | $      | 37,705 |   |
| Credit card participations                                   |   |                   | 44,636  |   |              |   | 43,658 |   |
| Commercial, real estate and home construction                |   |                   | 65,238  |   |              |   | 78,783 |   |
| Commercial lines and real estate purchase loans              |   |                   | 131,903 |   |              |   | 129,781 |   |
| Outstanding letters of credit                                |   |                   | 9,513   |   |              |   | 9,724 |   |

----

Index

| Item 2.  | Management’s Discussion and Analysis of Financial Condition And Results of Operations |
|---------------|---------------------------------------------------------------------------------------------|

| — | The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The effects of recent financial market disruptions and the current global economic recession, and monetary and other governmental actions designed to address such disruptions and recession. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The financial strength of the counterparties with which the Company or the Company’s customers do business and as to which the Company had investment or financial exposure. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The credit quality and credit agency ratings of the securities in the Company’s investment portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the affected securities and the recognition of impairment loss. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The effects of, and changes in, laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters as well as any laws otherwise affecting the Company.   |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The ability of the Company to obtain new customers and to retain existing customers. |
|---------|--------------------------------------------------------------------------------------|

| — | The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

| Item 2.  | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------------|---------------------------------------------------------------------------------------------------------|

| — | Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The ability of the Company to develop and maintain secure and reliable electronic systems. |
|---------|--------------------------------------------------------------------------------------------|

| — | The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely. |
|---------|-----------------------------------------------------------------------------------------------------------------------|

| — | The economic impact of natural disasters, terrorist attacks and military actions. |
|---------|-----------------------------------------------------------------------------------|

| — | Business combinations and the integration of acquired businesses and assets which may be more difficult or expensive than expected. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------|

| — | The costs, effects and outcomes of existing or future litigation. |
|---------|-------------------------------------------------------------------|

| — | Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| — | The ability of the Company to manage the risks associated with the foregoing as well as anticipated. |
|---------|------------------------------------------------------------------------------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition  And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------------|

| Ÿ | Total assets are $1.880 billion, an increase of $49.78 million since December 31, 2009. |
|--------|-----------------------------------------------------------------------------------------|

| Ÿ | Cash and cash equivalents are $80.43 million, an increase of $56.34 million since December 31, 2009. |
|--------|------------------------------------------------------------------------------------------------------|

| Ÿ | Net loans are $1.510 billion, a decrease of $2.25 million since December 31, 2009. |
|--------|------------------------------------------------------------------------------------|

| Ÿ | Deposit growth of $110.46 million since December 31, 2009. |
|--------|------------------------------------------------------------|

| Ÿ | Short-term borrowings decreased $35.19 million since December 31, 2009. |
|--------|-------------------------------------------------------------------------|

| Ÿ | Federal Home Loan Bank borrowings decreased $30.0 million since December 31, 2009 |
|--------|-----------------------------------------------------------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                            |   | March 31, 2010         |      |   | December 31, 2009      |   |
|-------------------------------------------------|--------|------------------------|-----------|--------|------------------------|--------|
|                                            |   | Amount                 |      |   | Percent                |   |   | Amount |   |   | Percent |   |
|                                            |   | (Amounts In Thousands) |      |   | (Amounts In Thousands) |   |
|                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |
| Agricultural                                    |   | $                      | 65,865    |   |                   |   | 4.29 | % |   | $ | 64,598 |   |   |   | 4.21 | % |
| Commercial and financial                        |   |                   | 147,109   |   |                   |   | 9.58 |   |   |   | 153,997 |   |   |   | 10.04 |   |
| Real estate:                                    |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |                   | 26,715    |   |                   |   | 1.74 |   |   |   | 25,821 |   |   |   | 1.68 |   |
| Construction, land development and commercial   |   |                   | 97,229    |   |                   |   | 6.33 |   |   |   | 95,955 |   |   |   | 6.26 |   |
| Mortgage, farmland                              |   |                   | 88,074    |   |                   |   | 5.74 |   |   |   | 87,300 |   |   |   | 5.70 |   |
| Mortgage, 1 to 4 family first liens             |   |                   | 470,499   |   |                   |   | 30.64 |   |   |   | 470,328 |   |   |   | 30.68 |   |
| Mortgage, 1 to 4 family junior liens            |   |                   | 114,702   |   |                   |   | 7.47 |   |   |   | 114,742 |   |   |   | 7.48 |   |
| Mortgage, multi-family                          |   |                   | 192,468   |   |                   |   | 12.53 |   |   |   | 190,180 |   |   |   | 12.40 |   |
| Mortgage, commercial                            |   |                   | 299,304   |   |                   |   | 19.49 |   |   |   | 295,070 |   |   |   | 19.25 |   |
| Loans to individuals                            |   |                   | 23,866    |   |                   |   | 1.55 |   |   |   | 25,405 |   |   |   | 1.66 |   |
| Obligations of state and political subdivisions |   |                   | 9,854     |   |                   |   | 0.64 |   |   |   | 9,745 |   |   |   | 0.64 |   |
|                                            |   | $                      | 1,535,685 |   |                   |   | 100.00 | % |   | $ | 1,533,141 |   |   |   | 100.00 | % |
| Less allowance for loan losses                  |   |                   | 29,840    |   |                   |   |   |   |   |   | 29,160 |   |   |   |   |   |
|                                            |   | $                      | 1,505,845 |   |                   |   |   |   |   | $ | 1,503,981 |   |   |   |   |   |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                          |   | Three Months Ended     |   |
|-----------------------------------------------|--------|------------------------|--------|
|                                          |   | March 31,              |   |
|                                          |   | 2010                   |   |   | 2009 |   |
|                                          |   | (Amounts In Thousands) |   |
|                                          |   |                   |   |   |   |   |
| Balance, beginning                            |   |                   | 29,160 |   |   | $ | 27,660 |   |
| Charge-offs:                                  |   |                   |   |   |   |   |   |   |
| Agricultural                                  |   |                   | 8      |   |   |   | - |   |
| Commercial and financial                      |   |                   | 884    |   |   |   | 685 |   |
| Real estate:                                  |   |                   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | 24     |   |   |   | - |   |
| Construction, land development and commercial |   |                   | 132    |   |   |   | - |   |
| Mortgage, farmland                            |   |                   | 13     |   |   |   | - |   |
| Mortgage, 1 to 4 family first liens           |   |                   | 295    |   |   |   | 625 |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | 123    |   |   |   | 87 |   |
| Mortgage, multi-family                        |   |                   | 19     |   |   |   | 95 |   |
| Mortgage, commercial                          |   |                   | 169    |   |   |   | 50 |   |
| Loans to individuals                          |   |                   | 81     |   |   |   | 179 |   |
|                                          |   |                   | 1,748  |   |   |   | 1,721 |   |
|                                          |   |                   |   |   |   |   |   |   |
| Recoveries:                                   |   |                   |   |   |   |   |   |   |
| Agricultural                                  |   |                   | 2      |   |   |   | 3 |   |
| Commercial and financial                      |   |                   | 151    |   |   |   | 103 |   |
| Real estate:                                  |   |                   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | 1      |   |   |   | - |   |
| Mortgage, farmland                            |   |                   | -      |   |   |   | 1 |   |
| Mortgage, 1 to 4 family first liens           |   |                   | 48     |   |   |   | 17 |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | 36     |   |   |   | 34 |   |
| Mortgage, commercial                          |   |                   | 31     |   |   |   | - |   |
| Loans to individuals                          |   |                   | 94     |   |   |   | 67 |   |
|                                          |   |                   | 363    |   |   |   | 225 |   |
| Net charge-offs                               |   |                   | 1,385  |   |   |   | 1,496 |   |
| Provision charged to expense                  |   |                   | 2,065  |   |   |   | 2,436 |   |
| Balance, ending                               |   | $                      | 29,840 |   |   | $ | 28,600 |   |

----

Index

| Item 2.  | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------------|---------------------------------------------------------------------------------------------------------|

|                                                               |   | March 31, 2010         |      |   | December 31, 2009 |   |
|--------------------------------------------------------------------|--------|------------------------|-----------|--------|-------------------|--------|
|                                                               |   | (Amounts in thousands) |      |
|                                                               |   |                   |      |   |              |   |
| Non-accrual loans                                                  |   | $                      | 7,050     |   |              | $      | 5,360 |   |
| Accruing loans past due ninety days or more                        |   |                   | 3,136     |   |              |   | 7,009 |   |
| Restructured loans                                                 |   |                   | 24,448    |   |              |   | 15,135 |   |
| Non-performing loans (includes non-accrual and restructured loans) |   |                   | 84,667    |   |              |   | 75,265 |   |
| Loans held for investment                                          |   |                   | 1,535,685 |   |              |   | 1,533,141 |   |
| Ratio of allowance for loan losses to loans held for investment    |   |                   | 1.94      | %      |              |   | 1.90 | % |
| Ratio of allowance for loan losses to non-performing loans         |   |                   | 35.24     |   |              |   | 38.74 |   |

|                                          |   | March 31, 2010         |   |   | December 31, 2009      |   |
|-----------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                          |   |                   |   |   | Accruing loans         |   |   |   |   |   |   |   |   | Accruing loans |   |   |   |   |
|                                          |   | Non-accrual            |   |   | past due               |   |   | Restructured |   |   | Non-accrual |   |   | past due |   |   | Restructured |   |
|                                          |   | loans                  |   |   | 90 days                |   |   | loans |   |   | loans |   |   | 90 days |   |   | loans |   |
|                                          |   | (Amounts In Thousands) |   |   | (Amounts In Thousands) |   |
|                                          |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agriculture                                   |   | $                      | -      |   |                   | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | 8 |   |   | $ | - |   |
| Commercial and financial                      |   |                   | 1,023  |   |                   |   | 184 |   |   |   | 3,188 |   |   |   | 958 |   |   |   | 280 |   |   |   | 3,134 |   |
| Real estate:                                  |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | 260    |   |                   |   | - |   |   |   | - |   |   |   | - |   |   |   | 260 |   |   |   | - |   |
| Construction, land development and commercial |   |                   | 1,737  |   |                   |   | 394 |   |   |   | 2,214 |   |   |   | 2,645 |   |   |   | 1,202 |   |   |   | 2,442 |   |
| Mortgage, farmland                            |   |                   | 172    |   |                   |   | - |   |   |   | - |   |   |   | - |   |   |   | 172 |   |   |   | - |   |
| Mortgage, 1 to 4 family first liens           |   |                   | 1,379  |   |                   |   | 2,476 |   |   |   | 1,628 |   |   |   | 1,534 |   |   |   | 3,528 |   |   |   | 1,672 |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | -      |   |                   |   | 54 |   |   |   | 984 |   |   |   | - |   |   |   | 140 |   |   |   | 613 |   |
| Mortgage, multi-family                        |   |                   | 1,874  |   |                   |   | - |   |   |   | 4,843 |   |   |   | - |   |   |   | 906 |   |   |   | 4,867 |   |
| Mortgage, commercial                          |   |                   | 605    |   |                   |   | - |   |   |   | 11,591 |   |   |   | 223 |   |   |   | 469 |   |   |   | 2,407 |   |
| Loans to individuals                          |   |                   | -      |   |                   |   | 28 |   |   |   | - |   |   |   | - |   |   |   | 44 |   |   |   | - |   |
|                                          |   | $                      | 7,050  |   |                   | $      | 3,136 |   |   | $ | 24,448 |   |   | $ | 5,360 |   |   | $ | 7,009 |   |   | $ | 15,135 |   |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                            |   | March 31, 2010 |   |   | December 31, 2009 |   |
|-------------------------------------------------|--------|----------------|--------|--------|-------------------|--------|
|                                            |   |           |   |   | % of              |   |   | % of |   |   |   |   |   | % of |   |   | % of |   |
|                                            |   |           |   |   | Total             |   |   | Loans to |   |   |   |   |   | Total |   |   | Loans to |   |
|                                            |   | Amount         |   |   | Allowance         |   |   | Total Loans |   |   | Amount |   |   | Allowance |   |   | Total Loans |   |
|                                            |   | (In Thousands) |   |   |              |   |   |   |   |   | (In Thousands) |   |   |   |   |   |   |   |
| Agricultural                                    |   | $              | 3,055  |   |              |   | 10.24 | % |   |   | 4.29 |   |   | $ | 2,967 |   |   |   | 10.17 | % |   |   | 4.21 | % |
| Commercial and financial                        |   |           | 7,140  |   |              |   | 23.93 |   |   |   | 9.58 |   |   |   | 7,090 |   |   |   | 24.31 |   |   |   | 10.04 |   |
| Real estate:                                    |   |           |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |           | 848    |   |              |   | 2.84 |   |   |   | 1.74 |   |   |   | 836 |   |   |   | 2.87 |   |   |   | 1.68 |   |
| Construction, land development and commercial   |   |           | 4,141  |   |              |   | 13.88 |   |   |   | 6.33 |   |   |   | 3,975 |   |   |   | 13.63 |   |   |   | 6.26 |   |
| Mortgage, farmland                              |   |           | 1,607  |   |              |   | 5.38 |   |   |   | 5.74 |   |   |   | 1,417 |   |   |   | 4.86 |   |   |   | 5.69 |   |
| Mortgage, 1 to 4 family first liens             |   |           | 5,940  |   |              |   | 19.90 |   |   |   | 30.64 |   |   |   | 6,091 |   |   |   | 20.89 |   |   |   | 30.68 |   |
| Mortgage, 1 to 4 family junior liens            |   |           | 1,457  |   |              |   | 4.88 |   |   |   | 7.47 |   |   |   | 1,393 |   |   |   | 4.78 |   |   |   | 7.49 |   |
| Mortgage, multi-family                          |   |           | 1,774  |   |              |   | 5.95 |   |   |   | 12.53 |   |   |   | 1,723 |   |   |   | 5.91 |   |   |   | 12.40 |   |
| Mortgage, commercial                            |   |           | 3,256  |   |              |   | 10.91 |   |   |   | 19.49 |   |   |   | 3,019 |   |   |   | 10.36 |   |   |   | 19.25 |   |
| Loans to individuals                            |   |           | 611    |   |              |   | 2.05 |   |   |   | 1.55 |   |   |   | 639 |   |   |   | 2.19 |   |   |   | 1.66 |   |
| Obligations of state and political subdivisions |   |           | 11     |   |              |   | 0.04 |   |   |   | 0.64 |   |   |   | 10 |   |   |   | 0.03 |   |   |   | 0.64 |   |
|                                            |   | $              | 29,840 |   |              |   | 100.00 | % |   |   | 100.00 | % |   | $ | 29,160 |   |   |   | 100.00 | % |   |   | 100.00 | % |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                            |   |           |    |   |              |   |   |   |   |   |    |   |
|-------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|--------|--------|--------|--------|---------|--------|
|                                            |   | March 31, 2010 |    |   | December 31, 2009 |   |
|                                            |   | Amount         |    |   | Percent           |   |   | Amount |   |   | Percent |   |
| Securities available for sale                   |   |           |    |   |              |   |   |   |   |   |    |   |
|                                            |   |           |    |   |              |   |   |   |   |   |    |   |
| Obligations of state and political subdivisions |   | $              | 101,256 |   |              |   | 50.99  | %      |   | $      | 102,555 |   |   |   | 50.86 | % |
|                                            |   |           |    |   |              |   |   |   |   |   |    |   |   |   |   |   |
| Other securities (FHLB, FHLMC and FNMA)         |   |           | 97,320  |   |              |   | 49.01  |   |   |   | 99,090  |   |   |   | 49.14 |   |
|                                            |   |           |    |   |              |   |   |   |   |   |    |   |   |   |   |   |
| Total securities available for sale             |   | $              | 198,576 |   |              |   | 100.00 | %      |   | $      | 201,645 |   |   |   | 100.00 | % |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                    |   |      |    |   | Gross      |   |   | Gross      |   |   | Estimated |   |
|-----------------------------------------|--------|-----------|---------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                                    |   | Amortized |    |   | Unrealized |   |   | Unrealized |   |   | Fair      |   |
|                                    |   | Cost      |    |   | Gains      |   |   | (Losses)   |   |   | Value     |   |
|                                    |   |      |    |
| March 31, 2010:                         |   |      |    |   |       |   |   |       |   |   |      |   |
| Other securities (FHLB, FHLMC and FNMA) |   | $         | 94,345  |   |       | $      | 3,006  |       |   | $      | (31       | )      |   | $ | 97,320 |   |
| State and political subdivisions        |   |      | 98,088  |   |       |   | 3,369  |       |   |   | (201      | )      |   |   | 101,256 |   |
| Total                                   |   | $         | 192,433 |   |       | $      | 6,375  |       |   | $      | (232      | )      |   | $ | 198,576 |   |
|                                    |   |      |    |   |       |   |   |       |   |   |      |   |   |   |   |   |
| December 31, 2009:                      |   |      |    |   |       |   |   |       |   |   |      |   |   |   |   |   |
| Other securities (FHLB, FHLMC and FNMA) |   | $         | 95,745  |   |       | $      | 3,355  |       |   | $      | (10       | )      |   | $ | 99,090 |   |
| State and political subdivisions        |   |      | 99,099  |   |       |   | 3,562  |       |   |   | (106      | )      |   |   | 102,555 |   |
| Total                                   |   | $         | 194,844 |   |       | $      | 6,917  |       |   | $      | (116      | )      |   | $ | 201,645 |   |

|                                   |   | Amortized |    |   | Fair   |   |
|----------------------------------------|--------|-----------|---------|--------|--------|--------|
|                                   |   | Cost      |    |   | Value  |   |
|                                   |   |      |    |
|                                   |   |      |    |   |   |   |
| Due in one year or less                |   | $         | 31,379  |   |   | $      | 31,934 |   |
| Due after one year through five years  |   |      | 115,872 |   |   |   | 120,088 |   |
| Due after five years through ten years |   |      | 44,454  |   |   |   | 45,803 |   |
| Due over ten years                     |   |      | 728     |   |   |   | 751 |   |
| Total                                  |   | $         | 192,433 |   |   | $      | 198,576 |   |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|------------|--------|--------|
|                                  |   | Less than 12 months |   |   | 12 months or more |   |   | Total      |   |
| March 31, 2010                        |   |                |   |   | Fair              |   |   | Unrealized |   |   |   |   |   |   |   |   | Fair   |   |   | Unrealized |       |   |   |   |   |   |   |   | Fair   |   |   | Unrealized |   |       |   |   |
| Description                           |   | #                   |   |   | Value             |   |   | Loss       |   |   | %      |   |   | #      |   |   | Value  |   |   | Loss       |       |   | %      |   |   | #      |   |   | Value  |   |   | Loss       |   |       | %      |   |
| of Securities                         |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |
| Other securities                      |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |
| (FHLB, FHLMC and FNMA)                |   | 3                   |   |   | $                 | 9,225  |   |       | $      | (31    | )      |   |   | 0.34   | %      |   | -      |   |   | $          | -          |   |   | $      | -      |   |   |   | -      |   |   | 3          |   |       | $      | 9,225  |   |   | $ | (31 | ) |   |   | 0.34 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions      |   | 38                  |   |   |              | 8,944  |   |       |   | (188   | )      |   |   | 2.10   | %      |   | 2      |   |   |       | 242        |   |   |   | (13    | )      |   |   | 5.37   | %      |   | 40         |   |       |   | 9,186  |   |   |   | (201 | ) |   |   | 2.19 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | 41                  |   |   | $                 | 18,169 |   |       | $      | (219   | )      |   |   | 1.21   | %      |   | 2      |   |   | $          | 242        |   |   | $      | (13    | )      |   |   | 5.37   | %      |   | 43         |   |       | $      | 18,411 |   |   | $ | (232 | ) |   |   | 1.26 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   | Less than 12 months |   |   | 12 months or more |   |   | Total      |   |
| December 31, 2009                     |   |                |   |   | Fair              |   |   | Unrealized |   |   |   |   |   |   |   |   |   | Fair   |   |       | Unrealized |   |   |   |   |   |   |   |   |   | Fair   |       |   | Unrealized |   |   |   |   |   |
| Description                           |   | #                   |   |   | Value             |   |   | Loss       |   |   | %      |   |   | #      |   |   | Value  |   |   | Loss       |       |   | %      |   |   | #      |   |   | Value  |   |   | Loss       |   |       | %      |   |
| of Securities                         |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Other securities                      |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| (FHLB, FHLMC and FNMA)                |   | 1                   |   |   | $                 | 996    |   |       | $      | (10    | )      |   |   | 1.00   | %      |   | -      |   |   | $          | -          |   |   | $      | -      |   |   |   | -      |   |   | 1          |   |       | $      | 996    |   |   | $ | (10 | ) |   |   | 1.00 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions      |   | 35                  |   |   |              | 7,929  |   |       |   | (106   | )      |   |   | 1.34   | %      |   | -      |   |   |       | -          |   |   |   | -      |   |   |   | -      |   |   | 35         |   |       |   | 7,929  |   |   |   | (106 | ) |   |   | 1.34 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |       |       |   |   |   |   |   |   |   |   |   |   |       |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   | 36                  |   |   | $                 | 8,925  |   |       | $      | (116   | )      |   |   | 1.30   | %      |   | -      |   |   | $          | -          |   |   | $      | -      |   |   |   | -      |   |   | 36         |   |       | $      | 8,925  |   |   | $ | (116 | ) |   |   | 1.30 | % |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

| Ÿ | Net interest income increased $2,296,000. |
|--------|-------------------------------------------|

| Ÿ | The provision for loan losses decreased $371,000. |
|--------|---------------------------------------------------|

| Ÿ | Other income increased $242,000. |
|--------|----------------------------------|

| Ÿ | Other expenses increased $722,000. |
|--------|------------------------------------|

| Ÿ | Income taxes increased $791,000. |
|--------|----------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

|                             |   | Change in              |    |   | Change in    |   |   | Increase (Decrease) in Net Interest Income |   |
|----------------------------------|--------|------------------------|---------|--------|--------------|--------|--------|--------------------------------------------|--------|
|                             |   | Average Balance        |    |   | Average Rate |   |   | Volume Changes                             |   |   | Rate Changes |   |   | Net Change |   |
|                             |   |                   |    |   |         |   |   |                                       |   |   |   |   |   |   |   |
|                             |   | (Amounts in Thousands) |    |
|                             |   |                   |    |   |         |   |   |                                       |   |   |   |   |   |   |   |
| Interest income:                 |   |                   |    |   |         |   |   |                                       |   |   |   |   |   |   |   |
| Loans, net                       |   | $                      | 33,130  |   |         |   | (0.20  | ) %                                        |   | $ | 442 |   |   | $ | (692 | ) |   | $ | (250 | ) |
| Taxable securitities             |   |                   | (5,682  | )      |         |   | (0.16  | )                                          |   |   | (25 | ) |   |   | (66 | ) |   |   | (91 | ) |
| Nontaxable securities            |   |                   | (737    | )      |         |   | (0.07  | )                                          |   |   | (10 | ) |   |   | (16 | ) |   |   | (26 | ) |
| Federal funds sold               |   |                   | (10,405 | )      |         |   | (0.06  | )                                          |   |   | (2 | ) |   |   | - |   |   |   | (2 | ) |
|                             |   | $                      | 16,306  |   |         |   |   |                                       |   | $ | 405 |   |   | $ | (774 | ) |   | $ | (369 | ) |
|                             |   |                   |    |   |         |   |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                |   |                   |    |   |         |   |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits |   | $                      | 15,445  |   |         |   | (0.13  | )                                          |   | $ | (24 | ) |   | $ | 66 |   |   | $ | 42 |   |
| Savings deposits                 |   |                   | 71,680  |   |         |   | (0.53  | )                                          |   |   | (236 | ) |   |   | 498 |   |   |   | 262 |   |
| Time deposits                    |   |                   | (9,063  | )      |         |   | (0.69  | )                                          |   |   | 77 |   |   |   | 1,082 |   |   |   | 1,159 |   |
| Short-term borrowings            |   |                   | (1,990  | )      |         |   | (0.55  | )                                          |   |   | 14 |   |   |   | 77 |   |   |   | 91 |   |
| FHLB borrowings                  |   |                   | (71,398 | )      |         |   | (0.53  | )                                          |   |   | 855 |   |   |   | 255 |   |   |   | 1,110 |   |
|                             |   | $                      | 4,674   |   |         |   |   |                                       |   | $ | 686 |   |   | $ | 1,978 |   |   | $ | 2,664 |   |
| Change in net interest income    |   |                   |    |   |         |   |   |                                       |   | $ | 1,091 |   |   | $ | 1,204 |   |   | $ | 2,295 |   |

| (Tax Equivalent Basis)                                                                          |   | 2010   |   |   | 2009   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                                            |   |   |   |   |   |   |
| Yield on average interest-earning assets                                                        |   |   | 5.68   | %      |   |   | 5.81 | % |
| Rate on average interest-bearing liabilities                                                    |   |   | 2.03   |   |   |   | 2.78 |   |
| Net interest spread                                                                             |   |   | 3.65   | %      |   |   | 3.03 | % |
| Effect of noninterest-bearing funds                                                             |   |   | 0.31   |   |   |   | 0.42 |   |
| Net interest margin (tax equivalent interest income divided by average interest-earning assets) |   |   | 3.96   | %      |   |   | 3.45 | % |

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

----

Index

| Item 2. | Management’s Discussion and Analysis of Financial Condition And Results of Operations (continued) |
|---------|---------------------------------------------------------------------------------------------------------|

----

Index

| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
|---------|------------------------------------------------------------|

----

Index

| Item 4.  | Controls and Procedures |
|---------------|-------------------------|

----

Index

Item 

Item 

Item 

| Period                    |   | Total number of shares purchased |   |   | Average price paid per share |   |   | Total number of shares purchased as part of publicly announced plans or programs |   |   | Maximum number of shares that may yet be purchased under the plans or programs (1) |   |
|---------------------------|--------|----------------------------------|--------|--------|------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|
| January 1 to January 31   |   |                             | 2,175  |   |                         | $      | 53.00  |                                                                             |   |   | 198,863                                                                            |   |   |   | 551,137 |   |
| February 1 to February 28 |   |                             | 1,500  |   |                         |   | 53.00  |                                                                             |   |   | 200,363                                                                            |   |   |   | 549,637 |   |
| March 1 to March 31       |   |                             | 1,968  |   |                         |   | 53.44  |                                                                             |   |   | 202,331                                                                            |   |   |   | 547,669 |   |
| Total                     |   |                             | 5,643  |   |                         | $      | 53.15  |                                                                             |   |   | 202,331                                                                            |   |   |   | 547,669 |   |

| Item 3. | Defaults upon Senior Securities |
|---------|---------------------------------|

| Item 4. | Reserved |
|---------|----------|

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

| Item 6. | Exhibits |
|---------|----------|

| 31 | Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 |
|----|--------------------------------------------------------------------|

| 32 | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 |
|----|--------------------------------------------------------------------|

----

Index

SIGNATURES

| HILLS BANCORPORATION         |
|------------------------------|
|                         |   |   |
|                         |   |   |
| Date:  May 7, 2010 |   | By: /s/ Dwight O. Seegmiller |
|                         |   | Dwight O. Seegmiller, Director, President and Chief Executive Officer |
|                         |   |   |
| Date:  May 7, 2010 |   | By: /s/ James G. Pratt |
|                         |   | James G. Pratt, Secretary, Treasurer and Chief Accounting Officer |

----

Index

HILLS 

|    |   |                                                               |   | Page Number              |
|---------|--------|--------------------------------------------------------------------|--------|--------------------------|
|    |   |                                                               |   | In The Sequential        |
| Exhibit |   |                                                               |   | Numbering System         |
| Number  |   | Description                                                        |   | March 31, 2010 Form 10-Q |
|    |   |                                                               |   |                     |
| 31      |   | Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 |   | 37 - 38                  |
|    |   |                                                               |   |                     |
| 32      |   | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 |   | 39                       |

----