UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-k

     [X]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000.     Commission File Number 0-12668.

                              HILLS BANCORPORATION
              (Exact name of Registrant as specified in its charter)

               Iowa                                         42-1208067
----------------------------------------           -----------------------------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

131 Main Street, Hills, Iowa 52235
----------------------------------------
(Address of principal executive offices)

Registrant's telephone number, including area code:  (319) 679-2291

Securities Registered pursuant to Section 12 (b) of the Act:  None

Securities Registered pursuant to Section 12 (g) of the Act:

                            No par value common stock
                            -------------------------
                                 Title of Class

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X        No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Registrant  S-K (229.405 of this chapter) is not contained  herein,  and will
not be contained to the best of Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

While  it is  difficult  to  determine  the  market  value  of  shares  owned by
nonaffiliates (within the meaning of such term under the applicable  regulations
of the Securities and Exchange  Commission),  the Registrant  estimates that the
aggregate market value of the Registrant's common stock held by nonaffiliates on
March 20, 2001 (based upon reports of beneficial  ownership  that  approximately
82%  of  the  shares  are  so  owned  by  nonaffiliates   and  upon  information
communicated informally to the Registrant by various purchasers and sellers that
the sale price for the common stock is generally $77 per share) was $94,425,000

The number of shares outstanding of the Registrant's common stock as of March
20, 2001 is 1,495,483 shares of no par value common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement  dated March 20, 2001 for the Annual Meeting of
the  Shareholders  of the  Registrant  to be held  April  16,  2001  (the  Proxy
Statement) are incorporated by reference in Part III of this Form 10-K.

                                  EXHIBIT INDEX

The exhibits index is on Page 68.
<PAGE>


Part I

Item 1.   Business

Hills  Bancorporation (the "Company") is a multibank holding company principally
engaged in the business of banking.  Its two  wholly-owned  subsidiary banks are
Hills Bank and Trust  Company,  Hills,  Iowa  ("Hills Bank and Trust") and Hills
Bank  Kalona,  Kalona,  Iowa  ("Hills Bank  Kalona")  (hereinafter  collectively
referred to as the "Banks").

The Company was incorporated  December 12, 1982 and all operations are conducted
within the state of Iowa.  The Company  became owner of 100% of the  outstanding
stock of Hills Bank and Trust as of January 23, 1984 when  stockholders of Hills
Bank and Trust exchanged their shares for shares of the Company.  Effective July
1, 1996, the Company  formed a new  subsidiary,  Hills Bank,  which acquired for
cash all the  outstanding  shares of a bank in  Lisbon,  Iowa.  Subsequently  an
office of Hills Bank was  opened in Mount  Vernon,  Iowa,  a  community  that is
contiguous in Lisbon.  In 2000, the charter of Hills Bank was relocated in Cedar
Rapids,  Iowa,  although Hills Bank continued to maintain  offices in Lisbon and
Mount  Vernon,  Iowa.  Effective  November 17, 2000,  Hills Bank was merged into
Hills Bank and Trust.

Hills Bank and Trust currently serves the communities of Iowa City,  Coralville,
Hills and North  Liberty,  located  near  Interstate  80 and  Interstate  380 in
Eastern Iowa.  These  communities  have a combined  population of  approximately
80,000 and Johnson County, Iowa has a population of approximately  106,000.  The
University  of Iowa in Iowa City has over  27,000  students  and 23,000 full and
part-time employees, including employees of the University of Iowa Hospitals and
Clinics. Johnson County, Iowa has one of the strongest economies in Iowa and has
had substantial  economic growth in the past ten years.  Johnson County is known
for its educational  institutions,  health care facilities,  cultural and sports
events,  and retail centers.  As a result of the merger of Hills Bank into Hills
Bank and Trust in 2000,  Hills Bank and Trust also now operates  offices in Linn
County, Iowa located in Lisbon,  Mount Vernon and Cedar Rapids, Iowa. Lisbon has
a population of  approximately  1,500 and Mount Vernon,  located two miles away,
has a population of 3,700. Both communities are strong economically and are easy
commuting  distances to Cedar  Rapids and Iowa City,  Iowa.  In addition,  Mount
Vernon is the home of Cornell College,  which has approximately  1,200 students.
Cedar  Rapids has a  metropolitan  population  of  approximately  180,000 and is
located  approximately 10 miles west of Lisbon,  Iowa and approximately 25 miles
north of Iowa City on Interstate  380. The larger  employers in Cedar Rapids are
Rockwell  Collins with  approximately  6,300 employees and Amana Appliances with
approximately  2,950  employees.  Other major  employers  include  Cedar  Rapids
Community  Schools (about 2,475  employees),  St. Luke's  Hospital  (about 2,250
employees),  and McLeodUSA  (approximately  2,000 employees).  There are several
additional employers in Cedar Rapids having from 1,000 to 2,000 employees each.

On September 20, 1996, another  subsidiary,  Hills Bank, Kalona,  acquired cash,
certain assets and assumed the deposits of the Kalona,  Iowa office of Boatmen's
Bank Iowa,  N.A.  Hills Bank  Kalona is  located  in  Kalona,  Iowa  (Washington
County),  approximately 20 miles south of Iowa City.  Kalona has a population of
approximately 2,000 people. Kalona is primarily an agricultural  community,  but
is located within easy driving distance for employment in Iowa City, which has a
population of  approximately  60,000  people and  Washington,  Iowa,  which as a
population of approximately 7,300 people.

The Banks are all  full-service  commercial  banks  extending  their services to
individuals,  business, governmental units and institutional customers primarily
in the communities of Hills, Iowa City, Cedar Rapids, Coralville, North Liberty,
Lisbon,  Mount Vernon, and Kalona.  This area includes all of Johnson County and
parts of Linn and Washington counties.  All of the Banks are actively engaged in
all areas of commercial  banking,  including  acceptance of demand;  savings and
time deposits; making commercial,  real estate, agricultural and consumer loans;
maintaining  night  and safe  deposit  facilities;  and  performing  collection,
exchange and other banking  services  tailored for individual  customers.  Hills
Bank  and  Trust  administers   estates,   personal  trusts,   and  pension  and
profit-sharing funds and, in connection therewith,  provides for farm management
and investment advisory and custodial services for individuals, corporations and
nonprofit organizations.  At this time, trust services are available only at the
Hills Bank and Trust  locations.  The loan activity of the Banks is diversified,
with  commercial  and  agricultural   loans,  real  estate  loans,   automobile,
installment  and  other  consumer  loans  composing  the  majority  of its  loan
portfolio.  In  addition,  the Banks  earn  substantial  fees  from  originating
mortgages that are sold in the secondary  residential real estate market without
mortgage servicing rights being retained.
<PAGE>
Item 1.   Business (Continued)

Each Bank has established formal loan origination policies. In general, the loan
origination  policies  require  individual  lenders to reduce the risk of credit
loss to the Bank by requiring  that,  among other things,  minimum loan to value
ratios be maintained,  evidence of appropriate levels of insurance be carried by
borrowers  and  documenting  appropriate  types and  amounts of  collateral  and
sources of expected  payment.

The Banks'  business  is not  seasonal,  except that loan  origination  fees are
higher  during  the  spring and  summer  months.  The Banks have not  undertaken
significant new services during the current year that might exceed the limits of
their human resources and data processing capabilities.


The commercial banking business is highly competitive and the Banks compete with
other  commercial  banks,  credit unions,  brokerage firms,  finance  companies,
insurance companies and other financial institutions. Recent developments have
resulted in increasing competition for deposits and loans in the markets served
by the Banks.  Although Hills Bank and Trust is the largest locally-owned bank
in Iowa City, as a result of relocations from smaller outlying  cities and the
establishment of de nov banks, there are now nine commercial banks which operate
in Iowa City and Coralville.

In recent  years,  Wells  Fargo  Corporation,  Firstar  Corporation,  Commercial
Federal  Bank of America  Corporation  (formerly  NationsBank)  have  acquired a
number of independent  banks and smaller  multibank holding companies in various
metropolitan  areas of Iowa.  Each operates  under a single  charter in Iowa. In
September 1998, the Company's  largest  competing bank in Iowa City, with assets
of approximately  $550 million,  was acquired by Mercantile  Bancorporation  and
effective  January  2000 the  Mercantile  banks in Iowa were merged into Firstar
Bank Iowa. In 2000,  Firstar  Corporation and U. S.  Bancorporation  announced a
merger  expected to be finalized in 2001 and Wells Fargo  Corporation  announced
its  acquisition of Brenton  Bancorporation  that is expected to be completed in
2001 After the completion of its  acquisition of Brenton  Bancorporation,  Wells
Fargo Corporation will have offices in Iowa City as well as in Cedar Rapids.

Hills Bank and Trust Company is in direct  competition  for deposits,  loans and
other financial  related  business with other financial  institutions in Johnson
County,  Iowa. One of the largest competitors serving Johnson County is a branch
of Firstar  Bank,  which  does not  disclose  local  assets.  Other  independent
financial institutions are:

                                           Assets As Of
                                           December 31,
                                               2000
                                         -------------------
                                          (In Millions)

Largest competing bank                     $       389
Next largest competing bank                        166
Largest competing credit union                     234


Hills Bank Kalona  competes  with other banks in its trade  territory  and holds
less than 40% of the deposits in this community.

<PAGE>

Item 1.   Business (Continued)

Historically,  Iowa's intrastate  branching states have been rather  restrictive
when compared with those of other states.  Iowa's intrastate  branching statutes
were  relaxed in recent  legislation  that  became  effective  on  February  21,
2001(the "2001 Amendment"). The 2001 Amendment allows Iowa banks to move towards
statewide branching by allowing every Iowa bank with the approval of its primary
regulator,  to establish three new bank offices anywhere in Iowa during the next
three years.  The three offices are in addition to those offices  allowed within
certain  restricted  geographic  areas under prior Iowa law.  Effective  July 1,
2004, the 2001  Amendment  repeals all  limitations on bank office  location and
effectively allows statewide  branching.  After that date, banks will be allowed
to establish an unlimited number of offices in any location in Iowa subject only
to regulator's approval.

The  Financial  Services  Modernization  Act  ("FSMA")  was enacted  into law on
November 12, 1999.  The most  significant  provision in this  legislation is the
repeal of the restriction on banks  affiliating with securities  firms. The FSMA
would allow the creation of a "financial  holding company" which can engage in a
number of financial activities  including insurance and securities  underwriting
and other agency  activities,  merchant banking and insurance  company portfolio
investment activities. Activities that are ancillary to financial activities are
also  allowed.  Additionally,  the FSMA  amends the federal  securities  laws to
incorporate functional regulation of bank securities activities and provides for
the  functional   regulation  of  insurance  activities  by  establishing  which
insurance  products  banks  and bank  subsidiaries  may  provide  as  principal.
Furthermore,  the FSMA  provides  reform in the  Federal  Home Loan Bank area by
providing  that  banks with less than $500  million in assets may use  long-term
advances for loans to small business,  small farms and small agri-businesses and
replaces the current $300 million funding formula for the REFCORP obligations of
the Federal  Home Loan Banks to twenty  percent  (20%) of the Bank's  annual net
earnings.


In the area of privacy,  the FSMA  requires  clear  disclosure  by all financial
institutions  of  their  privacy  policy  regarding  the  sharing  of  nonpublic
information with both affiliates and third parties. Further, the FSMA requires a
notice to  consumers  and an  opportunity  to  "opt-out" of sharing of nonpublic
personal information with nonaffiliated third parties subject to certain limited
exceptions.  The FSMA  also  provides  reform  in the  area of  ATMs,  Community
Reinvestment,  Community Banks and Deposit Production Offices. Specifically, the
FSMA  requires ATM operators who impose a fee for use of an ATM by a noncustomer
to post a notice on the  machine  that a fee will be  charged  and on the screen
that a fee will be charged  and the amount of the fee,  and  further  requires a
notice when ATM cards are issued that surcharges may be imposed by other parties
when  transactions are initiated from ATMs not operated by the card issuer.  The
FSMA also  clarifies  that  nothing  in the act  repeals  any  provision  of the
Continuity Reinvestment Act ("CRA");  however, the FSMA requires full disclosure
of all CRA agreements and grants  regulatory  relief  regarding the frequency of
CRA exams to small  banks and  savings  and loans  (those with no more than $250
million in assets),in the community bank area, the FSMA allows  community  banks
all the powers as a matter of right that large  institutions have accumulated on
an ad hoc basis,  including the ability to underwrite municipal bonds in several
years.  Finally,  the FSMA expands the prohibition of deposit production offices
contained  in the  Riegle-Neal  Interstate  bill to include  all  branches of an
out-of-state bank holding company.

<PAGE>

Item 1. Business (Continued)

No material  portion of the Banks'  deposits  have been  obtained  from a single
person or a few persons. Accordingly,  management of the Banks have no reason to
believe that the loss of the deposits of any person or few persons  would have a
materially  adverse  effect on the Banks'  operations or erode its deposit base.
Approximately 4.5% of the Banks' loans have been made for agricultural purposes.
The  agricultural  sector of the economy has been  cyclical with a general trend
toward fewer and larger farms. The Banks have not experienced a material adverse
effect on their  business  as a result of  defaults  on  agricultural  loans and
expect  none  in the  future.

The Company does not engage in any business  activities apart from its ownership
of the Banks and, therefore, does not encounter any competition for its services
other than as described above for the Banks.

The Company and the Banks have undertaken no material research activities during
the last three years relating to research and development activities.

The Company is regulated by the Federal Reserve Bank.

All the Banks are regulated by the Federal Deposit Insurance Corporation and the
State of Iowa Division of Banking.

The  Company  had no  employees  as of  December  31, 2000 and the Banks had 250
regular and 82 part-time employees.


The following  consolidated  statistical  information reflects selected balances
and operations of the Company and the Banks for the periods indicated.

The following tables show (1) average  balances of assets and  liabilities,  (2)
interest  income and expense on a tax equivalent  basis,  (3) interest rates and
differential and (4) changes in interest income and expense.

AVERAGE BALANCES
(Average Daily Basis)

                                                         December 31,
                                                  ---------------------------
                                                  2000       1999       1998
                                                  ---------------------------
ASSETS
  Cash and due from banks ....................   $ 20,347   $ 16,863   $ 13,441
  Taxable securities .........................    121,499    119,856    111,099
  Nontaxable securities ......................     38,026     34,699     30,122
  Federal funds sold .........................     11,358      9,796     23,279
  Loans, net .................................    600,215    508,293    438,072
  Property and equipment, net ................     13,675     11,633     10,410
  Other assets ...............................     16,129     17,249     16,098
                                                 -------------------------------
                                                 $821,249   $718,389   $642,521
                                                 ===============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits ..........     69,246   $ 62,317   $ 52,538
Interest-bearing demand deposits .............     66,090     57,017     46,874
Savings deposits .............................    154,121    152,507    131,988
Time deposits ................................    309,565    274,507    262,111
Securities sold under agreements to repurchase
  and federal funds purchased ................     14,665     12,139      7,974
FHLB borrowings ..............................    128,043     86,880     75,262
Other liabilities ............................      5,569      4,659      4,250
Redeemable common stock held by
  Employee Stock Ownership Plan ..............     11,251     10,127      8,491
Stockholders' equity .........................     62,699     58,236     53,033
                                                 -------------------------------
                                                 $821,249   $718,389   $642,521
                                                 ===============================


<PAGE>


INTEREST INCOME AND EXPENSE
                                                    Year Ended December 31,
                                                ------------------------------
                                                   2000      1999      1998
                                                ------------------------------
                                                   (In Thousands)
  Loans (1) ................................      $ 50,267  $  42,107 $  38,039
  Taxable securities .......................         7,481      7,167     6,832
  Nontaxable securities (1) ................         2,624      2,373     2,112
  Federal funds sold .......................           698        455     1,209
                                                  -----------------------------
     Total interest income .................        61,070     52,102    48,192
                                                  -----------------------------
Expense:
  Interest-bearing demand deposits .........         1,566      1,175       997
  Savings deposits .........................         5,615      4,769     4,648
  Time deposits ............................        17,690     14,882    14,813
  Securities sold under agreements
    to repurchase ..........................           699        517       417
  FHLB borrowings ..........................         7,494      4,970     4,379
                                                  -----------------------------
     Total interest expense ................        33,064     26,313    25,254
                                                  -----------------------------
     Net interest income ...................       $28,006    $25,789   $22,938
                                                  =============================

(1) Presented on a tax equivalent basis using a federal tax rate of 34% and
state tax rates of 3.7%

INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
                                                     Year Ended December 31,
                                                  ----------------------------
                                                   2000       1999       1998
                                                  ----------------------------
<S>                                                <C>        <C>        <C>
Average yields:
  Loans (1) ......................................   8.34%      8.25%      8.64%
  Loans (tax equivalent basis) ...................   8.37       8.28       8.68
  Taxable securities ..............................  6.15       5.98       6.15
  Nontaxable securities ...........................  4.55       4.51       4.63
  Nontaxable securities (tax equivalent basis) ....  6.90       6.84       7.01
  Federal funds sold ..............................  6.15       4.64       5.19
  Interest-bearing demand deposits ................  2.37       2.06       2.13
  Savings deposits ................................  3.64       3.13       3.52
  Time deposits ...................................  5.71       5.42       5.65
  Federal funds purchased and securities sold
    under agreements to repurchase ................  4.77       4.26       5.23
  FHLB borrowings .................................  5.85       5.72       5.82
  Yield on average interest-earning assets ........  7.92       7.75       8.00
  Rate on average interest-bearing liabilities ....  4.92       4.51       4.82
  Net interest spread (2)..........................  3.00       3.24       3.18
  Net interest margin (3) .........................  3.62       3.83       3.81
</TABLE>
<PAGE>

(1)     Nonaccruing loans are not significant and have been included in the
        average loan balances for purposes of this computation.

(2)     Net  interest  spread is the  difference  between  the yield on  average
        interest-earning   assets  and  the  yield  on  average  interest-paying
        liabilities  stated on a tax equivalent  basis using a federal and state
        tax rate of 34% and 5%, respectively, for the three years presented.

(3)     Net interest margin is net interest income, on a tax equivalent basis,
        divided by average interest-earning assets.

CHANGE IN INTEREST INCOME AND EXPENSE

                                                Change Due   Change Due   Total
                                                To Volume     To Rates    Change
                                                --------------------------------
                                                           (In Thousands)
Year ended December 31, 2000:

Change in interest income:
  Loans .....................................   $ 7,697    $   463    $ 8,160
  Taxable securities ........................       102        212        314
  Nontaxable securities .....................       230         21        251
  Federal funds sold ........................        80        163        243
                                                --------------------------------
                                                  8,109        859      8,968
                                                --------------------------------
Change in interest expense:
  Interest-bearing demand deposits ..........       201        190        391
  Savings deposits ..........................        52        794        846
  Time deposits .............................     1,979        829      2,808
  Securities sold under agreements
    to repurchase ...........................       116         66        182
  Interest on FHLB borrowings ...............     2,408        116      2,524
                                                --------------------------------
                                                  4,756      1,995      6,751
                                                --------------------------------
Change in net interest income ...............   $ 3,353    $(1,136)   $ 2,217
                                                ================================
Year ended December 31, 1999:
Change in interest income:
 Loans ......................................   $ 5,882    $(1,814)   $ 4,068
 Taxable securities .........................       528       (193)       335
 Nontaxable securities ......................       337        (76)       261
 Federal funds sold .........................     6,110     (2,200)     3,910
                                                ================================
Change in interest expense:
 Interest-bearing demand deposits ............      212        (34)       178
 Savings deposits .............................     672       (551)       121
 Time deposits ................................     685       (616)        69
 Securities sold under agreements
   to repurchase ...............................    188        (88)       100
 Interest on FHLB borrowings ...................    667        (76)       591
                                                --------------------------------
Change in net interest income ..............    $ 3,686    $  (835)   $ 2,851
                                                ================================

Rate volume  variances  are  allocated on a consistent  basis using the absolute
values of changes in volume  compared to the  absolute  values of the changes in
rates.  Loan fees  included in  interest  income are not  material.  Interest on
nontaxable securities and loans is shown at tax equivalent amounts.

<PAGE>



LOANS

The  following  table  shows the  composition  of loans  (before  deducting  the
allowance for loan losses) as of December 31 for each of the last five years.

                                             December 31,
                           ----------------------------------------------------
                            2000       1999       1998       1997       1996
                           ----------------------------------------------------
                                             (In Thousands)
Agricultural ..............$ 28,560   $ 27,302   $ 32,318   $ 27,636   $ 23,133
Commercial and financial ..  37,832     36,848     39,438     33,616     30,650
Real estate, construction .  38,184     40,879     28,476      8,157      8,846
Real estate, mortgage ..... 499,010    439,072    338,871    332,655    279,134
Loans to individuals ......  33,715     31,030     30,664     28,707     33,812
                           -----------------------------------------------------
Total .....................$637,301   $575,131   $469,767   $430,771   $375,575
                           =====================================================

There were no foreign loans outstanding for any of the years presented

MATURITY DISTRIBUTION OF LOANS

The following table shows the principal payments due on loans as of December 31,
2000:
<TABLE>
                                            Amount     One Year     One To   Over Five
                                           Of Loans    Or Less(1) Five Years    Years
                                           -------------------------------------------
                                                         (In Thousands)
<S>                                        <C>        <C>        <C>        <C>

Commercial, financial and agricultural ..   $ 66,392   $ 36,377   $ 26,747   $  3,267
Real estate, construction and mortgage ..    537,194     78,785    206,074    252,335
Other ...................................     33,715     11,316     21,827        573
                                           ------------------------------------------
                                            $637,301   $126,478   $254,648   $256,175
                                           ==========================================
Interest rates on loans are as follows:
Fixed rate ..............................   $372,526   $102,314   $247,988   $ 22,224
Variable rate ...........................    264,775     24,164      6,660    233,951
                                           ------------------------------------------
                                            $637,301   $126,478   $254,648   $256,175
                                           ==========================================

<FN>

(1)     A significant  portion of the commercial loans are six-month notes.
        However, a significant amount of these notes are renewed when due.
</FN>
</TABLE>


<PAGE>

NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS

The following table summarizes the Company's nonaccrual,  past due, restructured
and impaired loans as of December 31 for each of the years presented:

                              2000      1999       1998       1997      1996
                             ------------------------------------------------
Nonaccrual loans ........... $  618     $  --      $  12    $   --    $  339
Accruing loans past due
  90 days or more ..........  2,143     1,320        945       954     1,092
Restructured loans .........     --        --         --        --        --
Impaired loans ............. 11,068     9,265      8,956     9,556     7,811


The Company does not have a  significant  amount of loans that are past due less
than 90 days  on  which  there  are  serious  doubts  as to the  ability  of the
borrowers to comply with the loan repayment terms.

Loans are placed on nonaccrual status when management believes the collection of
future  interest is not reasonably  assured.  Interest income was not materially
affected by this classification.

The  Company has no  individual  borrower  or  borrowers  engaged in the same or
similar  industry  exceeding  10% of  total  loans.  The  Company  has no  other
interest-bearing  assets, other than loans, that meet the nonaccrual,  past due,
restructured or potential problem loan criteria.

No allowance for losses has been  recognized for impaired loans because  partial
charge-offs have been taken to reduce the loan balances to the net present value
of the  future  cash flows or the fair  value of the  collateral  if the loan is
collateral dependent.


<PAGE>



SUMMARY OF LOAN LOSS EXPERIENCE

The following  table  summarizes the Company's loan loss  experience for each of
the last five years:

                                               Year Ended December 31,
                                ------------------------------------------------
                                  2000    1999     1998      1997       1996
                                ------------------------------------------------
                                                       (In Thousands)
Amount of loan loss allowance
  at beginning of year ....... $ 9,750   $ 8,856  $ 8,010   $ 7,311    $ 6,740

Charge-offs:
  Agriculture .................     26        60        4       197        300
  Commercial and financial ....    522       181      431       326        236
  Real estate, mortgage .......    254       104      132       215        127
  Loans to individuals ........    372       418      401       390        308
                                ------------------------------------------------
                                 1,174       763      968     1,128        971
                                ------------------------------------------------
Recoveries:
  Agriculture .................    153       157      125         65        48
  Commercial and financial ....    276       260      256        195        95
  Real estate, mortgage .......    118        30      100        377       215
  Loans to individuals ........    357       310      417        142        80
                                ------------------------------------------------
                                   904       757      898        779       438
                                ------------------------------------------------
Net charge-offs ...............    270         6       70        349       533
                                ------------------------------------------------
Allowances of acquired banks ..     --        --       --         --       350
                                ------------------------------------------------
Provision for loan losses (1) .    948       900      916      1,048       754
                                ------------------------------------------------
Balance of loan loss allowance
 at end of year .............. $10,428   $ 9,750  $ 8,856    $ 8,010   $ 7,311
                                ================================================

Ratio of net charge-offs
 during year to average
 loans outstanding............    0.04%    0.00%    0.02%      0.09%      0.16%
                                ================================================

The balance of the loan loss  allowance has not been  allocated by type of loan.
Management  regularly reviews the loan portfolio and does not expect any unusual
material  amount to be  charged  off  during  2000 that  would be  significantly
different than the years ended December 31, 2000, 1999, 1998, 1997 and 1996.

(1)     For financial reporting purposes,  management regularly reviews the loan
        portfolio  and  determines  a provision  for loan losses  based upon the
        impact of economic  conditions on the borrower's  ability to repay, past
        collection  experience,  the risk  characteristics of loan portfolio and
        such other factors which deserve current recognition.  The growth of the
        loan  portfolio is a  significant  element in the  determination  of the
        provision for loan losses.


<PAGE>

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The Banks review a  substantial  part of the loans in the portfolio and classify
the loans into one or more  categories.  Based upon the risk category  assigned,
the Banks  allocate a percentage,  as determined by  management,  for a required
allowance  needed.  The risk categories are similar to those used by federal and
state regulatory agencies and consist of the following:

(1)  Pass
(2)  Potential watch and watch
(3)  Problem
(4)  Substandard
(5)  Doubtful

In  addition,   each  bank's  management  also  reviews  and,  where  determined
necessary,  provides  allowances  based upon reviews of specific  borrowers  and
provides general  allowances for areas which  management  believes are of higher
credit risk  (agricultural  loans and constructed  model real estate homes as of
December 31, 2000).

A summary of the components of the allowance for loan loss, by risk category, as
of December 31, 2000 and 1999 is as follows:

                                                 2000      1999
                                                ----------------
                                                 (In Thousands)

Pass ........................................   $ 1,316   $ 2,220
Potential watch and watch loans .............     3,471     3,164
Substandard .................................     2,521     2,416
Specific borrowers (agricultural loans) .....     1,576     1,025
Constructed model real estate homes .........     1,544       925
                                                -----------------
                                                $10,428   $ 9,750
                                                =================

Anticipated charge-offs of the above categories are not determinable at December
31, 2000; however, management does not believe there are any categories of loans
where future charge-offs are likely to be higher than the allowances provided.


<PAGE>


PART I

Item 1.   Business (Continued)

INVESTMENT SECURITIES

The following tables show the carrying value of the investment  securities as of
December 31, 2000,  1999 and 1998 and the maturities and weighted  average yield
of the investment securities as of December 31, 2000:

                                                             December 31,
                                                    ----------------------------
                                                     2000       1999       1998
                                                    ----------------------------
                                                           (In Thousands)
Carrying value:
  U. S. Treasury securities ..................... $ 18,318   $ 19,470   $ 33,340
  Obligations of other U. S. Government
    agencies and corporations ...................   95,036     94,302     78,083
  Obligations of state and political subdivisions   39,923     36,496     33,580
                                                   -----------------------------
                                                  $153,277   $150,268   $145,003
                                                  ==============================


                                                        December 31, 2000
                                                   ----------------------------
                                                                     Weighted
                                                     Carrying         Average
                                                      Value            Yield
                                                   ----------------------------
                                                           (In Thousands)
Type and maturity grouping:
  U. S. Treasury maturities:
    Within 1 year ................................   $  6,509           6.14%
    From 1 to 5 years ............................     11,809           6.22
                                                     ---------
                                                       18,318
                                                     ---------
Obligations of other U. S. Government agencies
 and corporations, maturities:
  Within 1 year ..................................     31,283           5.86%
  From 1 to 5 years ..............................     63,260           6.30
  From 5 to 10 years .............................        493           6.05
                                                     --------
                                                       95,036
                                                     --------
Obligations of state and politicalsubdivisions,
  maturities:
  Within 1 year .................................       4,349           6.79%
  From 1 to 5 years .............................      20,247           6.87
  From 5 to 10 years ............................      14,921           7.04
  Over 10 years .................................         406           7.86
                                                     --------
                                                       39,923
                                                    ---------
    Total .......................................    $153,277
                                                    =========
<PAGE>


INVESTMENT SECURITIES

As of December  31, 2000,  there were no  investment  securities  of any issuer,
other than securities of the U. S. Government and U. S. Government  agencies and
corporations, exceeding 10% of stockholders' equity.

The weighted  average  yield is based on the  amortized  cost of the  investment
securities.  The yields are computed on a  tax-equivalent  basis using a federal
tax rate of 34% and a state tax rate of 5%.

DEPOSITS

The following  tables show the average  deposits and rates paid on such deposits
for the years ended December 31, 2000,  1999 and 1998 and the composition of the
certificates  issued in  denominations  in excess of $100,000 as of December 31,
2000:
<TABLE>                                                   December 31,
                                        2000      Rate   1999     Rate    1998   Rate
                                        ---------------------------------------------
<S>                                   <C>        <C>   <C>       <C>  <C>       <C>
Average noninterest-bearing deposit .. $ 69,246   0.00% $ 62,317  0.00%$ 52,538  0.00%
Average interest-bearing demand
  deposits ...........................   66,090   2.37    57,017  2.06   46,874  2.13
Average savings deposits .............  154,121   6.21   152,507  3.13  131,988  3.52
Average time deposits ................  309,565   5.93   274,507  5.42  262,111  5.65
                                        ----------------------------------------------
                                       $599,022   6.57  $546,348       $493,511
                                        ==============================================
</TABLE>
Time certificates issued in amounts
  of $100,000 or more as of
  December 31, 2000 with .............   Amount   Rate
  maturity in:                           ----------------
  3 months or less ................... $  6,527   5.75%
  3 through 6 months .................   10,069   6.21
  6 through 12 months ................    4,966   5.93
  Over 12 months .....................   25,091   6.57
                                       --------
                                       $ 46,653
                                       ========

There were no deposits in foreign banking offices.


<PAGE>


RETURN ON STOCKHOLDERS' EQUITY AND ASSETS

The  following  table  presents the return on average  stockholders'  equity and
average assets for the years ended December 31, 2000, 1999 and 1998:

                                                     December 31,
                                        ----------------------------------------
                                        2000             1999             1998
                                        ----------------------------------------
Return on assets                        1.14%            1.18%             1.17%
Return on stockholders' equity          14.94            14.54             14.12
Dividend payout ratio                   23.18            22.56             23.52
Stockholders' equity to assets ratio     7.63             8.11              8.25

SHORT-TERM BORROWINGS

The following table shows outstanding balances,  weighted average interest rates
at year end, maximum month-end balances, average month-end balances and weighted
average  interest  rates of federal funds  purchased and  securities  sold under
agreements to repurchase during 2000, 1999 and 1998:

                                              2000         1999             1998
                                             -----------------------------------
                                                  (Amounts In Thousands)

Outstanding as of December 31                $ 16,561     $ 26,714     $ 10,554
Weighted average interest rate at year end       4.80%        4.28%        4.40%
Maximum month-end balance                      16,678       27,815       10,547
Average month-end balance                      14,665       12,139        7,974
Weighted average interest rate for               4.77%        4.26%        5.23%


FEDERAL HOME LOAN BANK BORROWINGS

The following table shows outstanding balances,  weighted average interest rates
at year end, maximum month-end balances, average month-end balances and weighted
average interest rates during 2000, 1999 and 1998:

                                               2000         1999           1998
                                          --------------------------------------

Outstanding as of December 31              $ 120,668    $ 108,700      $ 75,732
Weighted average interest rate a                5.79%        5.66%         5.68%
Maximum month-end balance                    148,700      108,700        85,764
Average month-end balance                    128,043       86,880        75,262
Weighted average interest rate for the year     5.85%        5.72%         5.82%

<PAGE>



Item 2.   Properties

The  Company's  office and the main bank of Hills Bank and Trust are  located at
131 Main Street, Hills, Iowa. This is a brick building containing  approximately
45,000  square  feet.  A portion of the  building was built in 1977, a two-story
addition was completed in 1984, and in February  2001,  the Company  completed a
two-story  brick  addition.  With  the  completion  of the  31,000  square  foot
addition, all bank processing and administrative systems,  including trust, were
consolidated  in Hills,  Iowa.  A  majority  of these  operations  were  located
previously  in the  Coralville  office and sixty- five  full-part  and part-time
employees relocated.

The other offices of Hills Bank and Trust are as follows:

1. Iowa City office located at 1401 South Gilbert Street is a one-story brick
   building containing approximately 15,400 square feet. The branch has
   five drive-up teller lanes and a drive-up, 24-hour automatic teller machine.
   The Bank's trust department customer service representatives are located
   here. This building was constructed in 1982 and has been expanded several
   times, most recently in 1998.

2. Coralville  office is a two  story  building  built in 1972  that  contained
   approximately 16,700 square feet of space. This

3. A 2,800 square foot branch bank in North Liberty, Iowa was opened for
   business in 1986. That office is a full-service

4. The Bank leases an office at 132 East Washington Street in downtown Iowa City
   with approximately 2,500 square feet. The office has two 24-hour automatic
   teller machines and two private offices in addition to a tellers and customer
   service area. The lease expires in 2001, but the Bank has an option for an
   additional five years.

5. In June 1999, the Bank opened an office at 2400 Towncrest Drive on the
   eastside of Iowa City. The office is approximately 1,100 square feet and the
   lease expire in June 2002.

6. The Lisbon office is a two-story brick building in Lisbon, Iowa with
   approximately 3,000 square feet of banking retail space located on the first
   floor.  The building was extensively remodeled in 1996 and has one drive-up
   lane and a walk-up, 24-hour automatic teller machine.

7. Hills Bank and Trust  constructed and opened its Mount Vernon office location
   in  February  1998 with the  completion  of a  full-service,  4,200  square
   foot office, with four drive-up and a drive-up, automatic teller machine.

8. In February 2000, the Bank opened a 2,900 square foot branch office in
   downtown Cedar Rapids which is leased.

Hills Bank Kalona owns a 6,400  square foot  building in Kalona that  contains a
walk-up 24-hour automatic teller machine and one drive-up lane. This is an older
building that has been remodeled a number of times including a major  renovation
in late 1998.

All of the  properties  owned by the Bank are free and clear of any mortgages or
other encumbrances of any type.


<PAGE>


Item 3.   Legal Proceedings

There are no material pending legal proceedings.

Neither the Company  nor the Banks hold any  properties  that are the subject of
hazardous waste clean-up investigations.

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

No matters  were  submitted  to a vote of security  holders for the three months
ended December 31, 2000.

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

There is no established trading market for the Company's common stock. Its stock
is not listed with any exchange or quoted in an automated  quotation system of a
registered  securities  association,  nor is there any broker/dealer acting as a
market maker for its stock.  A bid and ask price is quoted in an Iowa City local
paper and the quotes are provided by a local broker.  The Company's stock is not
actively traded. As of December 31, 2000, the Company had 1,270 shareholders.

Based  on the  Company's  stock  transfer  records  and  information  informally
provided to the Company, its stock trading transactions have been as follows:

                 Number                            High             Low
                Of Shares       Number Of         Selling         Selling
  Year           Traded        Transactions        Price           Price
-------------------------------------------------------------------------------
2000             14,187               16         $ 77.00          $ 70.00
1999              6,415               22           70.00            58.00
1998              2,320               12           58.00            48.00


The Company paid aggregate  annual cash dividends in 2000 and 1999 of $2,171,000
and $1,910,000,  respectively, or $1.45 per share in 2000 and $1.30 per share in
1999.  In January  2001,  the Company  declared and paid a dividend of $1.60 per
share  totaling  $2,393,000.  The decision to declare any such cash dividends in
the future and the amount  thereof  rests within the  discretion of the Board of
Directors  and will remain  subject to, among other things,  certain  regulatory
restrictions  imposed on the payment of dividends  by the Banks,  and the future
earnings, capital requirements and financial condition of the Company.

<PAGE>

Item 6.   Selected Financial Data

CONSOLIDATED FIVE-YEAR STATISTICAL SUMMARY
<TABLE>

                                       2000          1999          1998          1997          1996
                                    ------------------------------------------------------------------
<S>                                <C>           <C>          <C>            <C>          <C>
YEAR-END TOTALS
  Total assets .................... $ 875,750     $ 773,966     $ 689,787     $ 603,102     $ 539,452
  Investment securities ...........   161,066       156,198       149,350       138,064       132,635
  Federal funds sold ..............    28,065           206        36,811         2,447         1,107
  Loans, net ......................   626,873       565,381       460,911       422,761       368,264
  Deposits ........................   652,706       562,086       534,151       479,770       450,061
  Federal Home Loan Bank borrowings   120,668       108,700        75,732        50,764        25,795
  Redeemable common stock .........    11,550        10,953         9,301         7,682         6,416
  Stockholders' equity ............    68,524        60,264        56,452        51,500        47,335

EARNINGS
  Interest income ................. $  59,992     $  51,121     $  47,289     $  42,743     $  37,516
  Interest expense ................    33,064        26,313        25,254        22,502        19,951
  Provision for loan losses .......       948           900           916         1,048           754
  Other income ....................     7,514         6,437         5,811         5,938         3,868
  Other expenses ..................    20,069        18,309        16,438        15,500        12,057
  Applicable income taxes .........     4,059         3,570         3,006         2,545         2,478
  Net income ......................     9,366         8,466         7,486         7,086         6,144

PER SHARE Net income:
  Net income:
    Basic ......................... $    6.26     $    5.70     $    5.10     $    4.83     $    4.19
    Diluted .......................      6.21          5.66          5.02          4.78          4.15
  Cash dividends ..................      1.45          1.30          1.20          1.05          0.95
  Book value as of December 31 ....     45.82         40.29         38.42         35.08         32.30
  Increase (decrease) in book value
    due to:
    ESOP obligation and debt .......    (7.72)        (7.32)        (6.33)        (5.23)        (4.38)
    Unrealized gains (losses) on
      debt securities ..............     0.47         (0.66)         0.81          0.33          0.46

SELECTED RATIOS
  Return on average assets ........      1.14%         1.18%         1.17%         1.24%         1.22%
  Return on average equity ........     14.94         14.54         14.12         14.62         13.97
  Net interest margin .............      3.62          3.83          3.81          3.93          3.86
  Average stockholders' equity to
    average total assets ..........      7.63          8.11          8.25          8.47          8.72
  Dividend payout ratio ...........     23.18         22.56         23.52         21.69         22.62
</TABLE>
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations

Special Note Regarding Forward Looking Statements

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

Forward-looking  statements  are typically  identified  by the words  "believe,"
"expect,"  "anticipate," "target," "goal," "objective," "intend," "estimate" and
similar expressions.

The risks  involved in the  operations  and  strategies  of the Company  include
competition  from  other  financial  institutions,  changes in  interest  rates,
changes in economic or market  conditions as well as events and trends affecting
specific assets, the effect of credit quality and market perceptions of value on
the fair values of financial  instruments and regulatory  factors.  These risks,
which are not inclusive, cannot be accurately estimated.

For  example,  a financial  institution  may accept  deposits at fixed  interest
rates,  at  different  times and for  different  terms,  and lend funds at fixed
interest  rates,  at different  times and for different  terms.  In doing so, it
accepts  the risk that its cost of funds may rise  while the use of those  funds
may be at a fixed  rate.  Similarly,  although  market  rates  of  interest  may
decline, the financial institution may have committed,  by virtue of the term of
a deposit, to pay what essentially becomes an above-market rate.

Loans, and the allowance for loan losses, carry the risk that borrowers will not
repay  all  funds in a timely  manner,  as well as the risk of total  loss.  The
collateral pledged as security for loans may or may not have the value which has
been attributed to it. The loan loss reserve, while believed to be adequate, may
prove inadequate if one or more large-balance borrowers, or numerous mid-balance
borrowers,  or a combination  of both,  experience  financial  difficulty  for a
variety of reasons.  These reasons may relate to the financial  circumstances of
an individual borrower,  or may be caused by negative economic  circumstances of
an individual borrower,  or may be caused by negative economic  circumstances at
the  local,  regional,  national  or  international  level  which are beyond the
control of the borrowers or the lender.

Because the business of banking is of a highly regulated  nature,  the decisions
of governmental entities can have a major effect on operating results.

All of these uncertainties, as well as others, are present in the operations and
business of the Company,  and  stockholders  are  cautioned  that the  Company's
actual results may differ materially from those included in the  forward-looking
statements.


<PAGE>


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Financial Position
<TABLE>

Year End Amounts (In Thousands) ..     2000       1999       1998       1997       1996
-----------------------------------------------------------------------------------------
<S>                                 <C>        <C>        <C>        <C>        <C>

Loans, net of allowance for losses   $626,873   $565,381   $460,911   $422,761   $368,264
Investment securities ............    161,066    156,198    149,350    138,064    132,635
Deposits .........................    652,706    562,086    534,151    479,770    450,061
Federal Home Loan Bank borrowings     120,668    108,700     75,732     50,764     25,795
Stockholders' equity .............     68,524     60,264     56,452     51,500     47,335
Total assets .....................    875,750    773,966    689,787    603,102    539,452
</TABLE>

For the year 2000, net loans  increased  $61.5  million,  and $60 million of the
increase was in real estate mortgage  loans.  Stable interest rates and new real
estate development projects contributed to loan growth.

In 1999, net loans increased  $104.5 million,  primarily in real estate mortgage
loans, as demand  remained high and rates continued to be attractive.  The large
increase in loans was primarily driven by a strong local economy,  the sale of a
local competing bank and favorable interest rates.

Total  assets  increased  13.15% in 2000,  compared  to an increase of 12.20% in
1999. The growth in assets in 2000 and 1999 was primarily attributable to strong
loan demand for real estate mortgage loans.

In 2000,  the rates paid on deposits were higher than in 1999, and Bank deposits
became  more   attractive  to  investors  as  stock  market  returns  were  down
significantly  from recent years.  In addition,  in February  2000,  the Company
extended to new market areas in Cedar Rapids, Iowa, with a downtown location and
the results of deposit growth has exceeded expectations during the first year of
operations.

Deposits  increased 16.12% in 2000 compared to an increase of 5.23% in 1999. The
banks  continued to compete for deposits in market areas where the total deposit
growth  continues to be weak.  Federal Home Loan Bank borrowings  increased by a
net $12.0 million in 2000 and $33 million in 1999 with the advances used to fund
the loan growth.

Components of Diluted Earnings Per Share

                                        2000           1999           1998
                                     ----------------------------------------
Net interest income ...............  $  17.85       $  16.59       $  14.78
Provision for loan losses .........     (0.63)         (0.60)         (0.61)
Noninterest income ................      4.98           4.30           3.90
Noninterest expense ...............    (13.30)        (12.24)        (11.03)
                                     ----------------------------------------
        Income before income taxes       8.90           8.05           7.04
Income tax expense ................     (2.69)         (2.39)         (2.02)
                                     ----------------------------------------
        Net income ................  $   6.21       $   5.66       $   5.02
                                     ========================================

For the year ended December 31, 2000, net income  increased by $900,000 from the
1999 results. Net interest income for 2000 was $2.1 million higher than 1999 and
was  primarily  the result of a  significant  increase  in the volume of average
earning assets during the year of approximately  $100 million.  Other income for
2000 increased over the prior year by $1,077,000 and other expenses increased in
2000 by $1,760,000.


<PAGE>



Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

In 1999,  the increase in net income was due primarily to increased net interest
income,  primarily  resulting from a large increase in earning assets.  The 1999
increase in noninterest  income totaling  $941,000  included  increases in trust
fees ($286,000),  deposit charges and fees ($375,000) and other charges and fees
($487,000).

The Company consistently benefited from low provisions for loan losses, a result
of a  strong  local  economy  and a  loan  portfolio  that  is  concentrated  in
well-secured real estate loans.

Net Interest Income

Net  interest  income  is the  excess  of the  interest  and  fees  received  on
interest-earning  assets  over  the  interest  expense  of the  interest-bearing
liabilities. The measure is shown on a tax-equivalent basis to make the interest
earned on taxable and nontaxable assets more comparable.

Net interest income on a tax-equivalent basis changed in 2000 as follows:

<TABLE>
                                                                        INTEREST INCOME
                                                                   ---------------------------
                                                                     Increase (Decrease)
                                           Change In    Change In  ---------------------------
                                            Average      Average   Volume    Rate        Net
                                            Balance       Rate     Changes  Changes    Change
                                           ---------------------------------------------------
                                                          (Amounts In Thousands)
<S>                                        <C>         <C>       <C>       <C>        <C>

Loans, net ..............................   $91,922     0.09%     $ 7,697   $   463    $ 8,160
Taxable securities ......................     1,643     0.17          102       212        314
Nontaxable securities ...................     3,327     0.06          230        21        251
Federal funds sold ......................     1,562     1.51           80       163        243
                                            ---------         --------------------------------
                                            $98,454               $ 8,109   $   859    $ 8,968
                                            =========         ================================


                                                                        INTEREST EXPENSE
                                                              --------------------------------

Interest-bearing demand deposits ........   $ 9,073      0.31%   $   201        190        391
Savings deposits ........................     1,614      0.51         52        794        846
Time deposits ...........................    35,058      0.29      1,979        829      2,808
Federal funds purchased and securities
  sold under agreements to repurchase ...     2,526      0.51        116         66        182
FHLB borrowings .........................    41,163      0.13      2,408        116      2,524
                                            --------            ------------------------------
                                            $89,434              $ 4,756   $  1,995    $ 6,751
                                            ========            ==============================
Change in net interest income ...........                        $ 3,353   $ (1,136)   $ 2,217
                                                                ==============================
</TABLE>


<PAGE>


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Net interest income changes for 1999 were as follows:
<TABLE>

                                                           Change In      Effect Of   Effect Of
                                                            Average        Volume        Rate       Net
                                                            Balance        Changes     Changes     Change
                                                          -----------------------------------------------
<S>                                                     <C>           <C>           <C>           <C>
Interest-earning assets ..............................   $   70,072    $   6,110     $  (2,200)    $3,910
Interest-bearing liabilities .........................       58,841        2,424        (1,365)     1,059
                                                          -----------------------------------------------
Change in net interest income ........................                 $   3,686     $    (835)    $2,851
                                                                       ==================================
</TABLE>

<TABLE>

A summary of the net interest spread and margin is as follows:
      (Tax Equivalent Basis) .........................                      2000          1999       1998
---------------------------------------------------------------------------------------------------------
<S>                                                                        <C>          <C>         <C>
Yield on average interest-earning assets .............                      7.92%        7.75%       8.00%
Rate on average interest-bearing liabilities .........                      4.92         4.51        4.82
Net interest spread ..................................                      3.00         3.24        3.18
Effect of noninterest-bearing funds ..................                      0.62         0.59        0.63
Net interest margin (tax equivalent interest income
  divided by average interest-earning assets) ........                      3.62%        3.83%       3.81%
                                                                        =================================
</TABLE>
Loan Losses

The provision for loan losses totaled $948,000,  $900,000 and $916,000 for 2000,
1999 and 1998,  respectively.  Charge-offs,  net of recoveries were $270,000 for
2000, $6,000 for 1999 and $70,000 for 1998.

The allowance for loan losses totaled  $10,428,000 at December 31, 2000 compared
to  $9,750,000  at  December  31,  1999.  The  percentage  of the  allowance  to
outstanding   loans  was  1.64%  and  1.70%  at  December  31,  2000  and  1999,
respectively.

Agricultural loans totaled  $28,560,000 and $27,302,000 at December 31, 2000 and
1999,  respectively.  Management has assessed the risks for  agricultural  loans
higher than the other loans due to unpredictable  commodity prices,  the effects
of weather on crops and  uncertainties  regarding  government  support programs.
Therefore,  the allowance for loan losses includes general and specific reserves
for these loans.

Loan  concentrations,  quality and loan terms had no significant changes in 2000
except that agricultural  loans experienced a $1,300,000  increase from 1999 and
$60,000,000 of the 2000 loan growth was in real estate mortgages. Therefore, the
estimation  methods and assumptions  used in determining the 2000 allowance were
consistent with 1999 and nearly all the additional allowance for loan losses was
allocated to new loans.  Net loss  experience  for the past three years has been
consistently  low, but the overall  growth of the loan  portfolio  results in an
increased  allowance for loan losses.  There were no significant  changes in the
elements  of  the  allowance  in the  past  two  years  or  the  methodology  in
determining the allowance.  The estimated loss rates were  consistently  used in
2000 and 1999 because asset quality was comparable.

There are no known trends or uncertainties  that are reasonably likely to have a
material effect on the allowance for loan losses in the near-term.


<PAGE>


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Other Income
<TABLE>
Dollars Per Share, Based on Weighted Average Diluted Shares Outstanding       2000       1999        1998
---------------------------------------------------------------------------------------------------------
<S>                                                                      <C>        <C>         <C>

Real estate origination fees ..........................................   $   0.2    $   0.39    $   0.54
Trust fees ............................................................       1.58       1.36        1.17
Deposit account charges and fees ......................................       1.70       1.47        1.23
Other fees and charges ................................................       1.49       1.29        0.96
Investment securities gains (losses) ..................................         --      (0.21)         --
                                                                          -------------------------------
                                                                          $   4.98   $   4.30    $   3.90
                                                                          ===============================
</TABLE>


Total other income  increased  $1,077,000  for the year ended  December 31, 2000
compared to the same  period one year ago.  Loan  origination  fees for the year
2000 are $276,000  less than 1999 as a result of higher  interest  rates in 2000
for these types of loans.  Trust fees,  deposit  account  charges and other fees
increased $1,038,000 for 2000 and resulted from volume increases in trust assets
and deposit  accounts.  During 1999, the Company had a reduction of other income
by $315,000,  which  represented  investment  securities losses taken to replace
lower yielding  securities with higher  yielding  securities of similar risk and
maturity.  For the  year  2000,  no  gains  and  losses  on  sale of  investment
securities occurred.

Other income for 1999 increased by $626,000 to $6,437,000. Loan origination fees
were $592,000  compared to $799,000 for 1998.  The decrease was due primarily to
fewer loan  refinancings  after interest  rates  increased in the second half of
1999. Trust fees increased $286,000 for the year to $2,029,000 due to more trust
assets under management. Deposit account charges and fees increased $375,000 for
1999 and other fees and charges increased $487,000.

Other Expenses
<TABLE>

Dollars Per Share, Based on Weighted Average Diluted Shares Outstanding       2000       1999       1998
--------------------------------------------------------------------------------------------------------
<S> ...................................................................   <C>        <C>        <C>
Salaries and employees benefits .......................................   $   7.06   $   6.56  $    5.75
Occupancy .............................................................       0.94       0.84       0.76
Furniture and equipment ...............................................       1.43       1.26       1.13
Office supplies and postage ...........................................       0.75       0.74       0.79
Other .................................................................       3.12       2.84       2.60
                                                                          $  13.30   $   12.24  $  11.03
                                                                         ===============================
</TABLE>

Other  expenses  increased  $1,760,000.  Of the increase,  salaries and benefits
accounted for $844,000,  occupancy and furniture and equipment  expense $431,000
and all other expenses  $485,000.  The salaries and employee  benefits  increase
were the direct  result of salary  adjustments  in the first quarter of 2000 and
the two new offices added during the last sixteen months. The Iowa City eastside
location  of Hills  Bank and  Trust  Company  opened  in June 1999 and the Cedar
Rapids office opened in February  2000. The two new locations also accounted for
a portion of the increase in occupancy  expense and other expense increases were
in marketing and business  promotion.  Also during 2000, the bank  introduced an
on-line banking product and incurred increased product promotion expense.


<PAGE>

Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations (Continued)

Other  expenses for 1999  increased to  $18,309,000  from  $16,438,000  in 1998.
Salaries and benefits  accounted  for  $1,232,000  of the increase for the year.
This is a result of new staff additions  during 1999 including staff for the new
branch,  salary adjustments in January 1999 and significant increases in medical
insurance  claims in 1999 compared to 1998.  All other  expenses  increased from
$7,863,000 in 1999 to $8,502,000 for the year ended December 31, 1999. The major
category that  increased was furniture and  equipment,  which was  $1,687,000 in
1998 and $1,893,000 in 2000 and was the result of depreciation  and amortization
of major computer hardware and software additions in 1999.

Income Taxes

Income tax expense was $4,059,000, $3,570,000 and $3,006,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.  The corresponding percentage of
income taxes compared to income before income taxes is 30.23% in 2000, 29.66% in
1999 and 28.65% in 1998.

Impact of Recently Issued Accounting Standards

The Financial  Accounting  Standards Board (FASB) has issued  Statement No. 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  which  is
effective  for all fiscal  quarters of fiscal years  beginning  after January 1,
2001.  This  Statement  establishes   accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts and for hedging activities. It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and  the  resulting  designation.  Management  believes  that  adoption  of this
Statement will not have an effect on the Company's financial statements.

The Financial  Accounting  Standards Board (FASB) has issued  Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Liabilities." This Statement replaces FASB Statement No. 125 in its entirety.
It revises the standards for accounting for  securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but carries
over most of Statement 125's provisions without  reconsideration.  The Statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. Management believes that adoption
of this Statement will not have an effect on the Company's financial statements.


<PAGE>


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Interest Rate Sensitivity and Liquidity Analysis

At December 31, 2000,  the  Company's  interest  rate  sensitivity  report is as
follows (in thousands):
<TABLE>

                            Repricing                     Days
                            Maturities ------------------------------------------  More Than
                           Immediately     2-30      31-90     91-180     181-365   One Year      Total
                           ----------------------------------------------------------------------------
<S>                         <C>       <C>        <C>        <C>         <C>        <C>        <C>
Earning assets:
  Federal funds sold .....   $ 28,065  $      --  $      --  $      --   $      --  $      --  $  28,065
Investment
  securities .............         --      1,685      7,610      9,184      23,906    110,892    153,277
Loans ....................         --     51,535     29,723     38,044      57,606    460,393    637,301
                             ---------------------------------------------------------------------------
       Total .............     28,065     53,220     37,333     47,228      81,512    571,285    818,643
                             ---------------------------------------------------------------------------
Sources of funds:
  Interest-bearing
    checking and
    savings accounts .....     50,618        --         --         --          --     181,965    232,583
  Certificates of
    deposit ..............         --     17,967     27,718     69,689      59,147    169,515    344,036
  Other borrowings -
   FHLB ..................         --     20,000         --     10,000          --     90,668    120,668
  Repurchase
    agreements and
    federal funds .........    16,561         --         --         --          --         --     16,561
                             ---------------------------------------------------------------------------
                               67,179     37,967     27,718     79,689      59,147    442,148    713,848
Other sources,
  primarily
  noninterest-
  bearing ..................       --         --         --         --          --     76,087     76,087
                             ---------------------------------------------------------------------------
       Total sources .......   67,179     37,967     27,718     79,689      59,147    518,235    789,935
                             ---------------------------------------------------------------------------
Repricing
  differences .............. $(39,114)   $ 15,253   $  9,615   $(32,461)   $ 22,365   $ 53,050   $ 28,708
                             ============================================================================
</TABLE>

A portion of the  interest-bearing  checking,  savings and money market accounts
has  been  included  in the  above  table as  maturing  immediately  based  upon
management's estimate using a financial model and the rest of these deposits are
shown as more than one year.  The  classifications  are used  because the Banks'
historical data indicates that these have been very stable deposits without much
interest rate  fluctuation.  Historically,  these  accounts would not need to be
adjusted  upward as quickly in a period of rate  increases so the interest  risk
exposure would be less than the repricing schedule indicates.


<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Inflation

Inflation  has an impact on the growth of total  assets and has  resulted in the
need to  increase  equity  capital to maintain  an  appropriate  equity to asset
ratio. The results of operations have been affected by inflation, but the effect
has been minimal.

Liquidity and Capital Resources

On an unconsolidated  basis, Hills Bancorporation (the holding company) had cash
balances of  $1,583,000 as of December 31, 2000.  In 2000,  the holding  company
received  dividends of $2,170,000 from its subsidiary banks and used those funds
to pay dividends to its stockholders of $2,171,000.

As of December 31, 2000 and 1999, stockholders' equity, before deducting for the
maximum  cash  obligation  related to ESOP,  was  $80,074,000  and  $71,217,000,
respectively.  This  measure of equity as a percent of total assets was 9.14% at
December 31, 2000 and 9.20% at December 31, 1999. As of December 31, 2000, total
equity  was 7.82% of assets  compared  to 7.79% of assets at the prior year end.
The ability of the Company to pay  dividends  to its  shareholders  is dependent
upon the earnings and capital  adequacy of the subsidiary  banks,  which affects
the Banks' dividends to the Company.  The Banks are subject to certain statutory
and regulatory restrictions on the amount they may pay in dividends. In order to
maintain  acceptable  capital ratios in the subsidiary  banks,  certain of their
retained  earnings  are not  available  for the payment of  dividends.  Retained
earnings   available   for  the  payment  of  dividends  to  the  Company  total
approximately $3,070,000 as of December 31, 2000.

The  Company  and  the  Banks  are  subject  to the  Federal  Deposit  Insurance
Corporation  Improvement  Act of 1991  and  the  Banks  are  subject  to  Prompt
Corrective Action Rules as determined and enforced by the Federal Reserve. These
regulations  establish  minimum  capital  requirements  which  member banks must
maintain.

As  of  December  31,  2000,   risk-based   capital   standards  require  8%  of
risk-weighted  assets.  At  least  half of that 8% must  consist  of Tier I core
capital (common  stockholders' equity,  noncumulative  perpetual preferred stock
and minority interest in the equity accounts of consolidated subsidiaries),  and
the  remainder  may  be  Tier  II   supplementary   capital   (perpetual   debt,
intermediate-term   preferred  stock,   cumulative   perpetual,   long-term  and
convertible  preferred  stock, and loan loss reserve up to a maximum of 1.25% of
risk-weighted assets). Total risk-weighted assets are determined by weighing the
assets according to their risk characteristics.  Certain off-balance sheet items
(such as standby letters of credit and firm loan  commitments) are multiplied by
"credit  conversion  factors" to translate  them into balance sheet  equivalents
before assigning them risk weightings. Any bank having a capital ratio less than
the 8%  minimum  required  level  must,  within 60 days,  submit to the  Federal
Reserve a plan describing the means and schedule by which the Bank shall achieve
the applicable minimum capital ratios.


<PAGE>


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (Continued)

Each of the Banks is an insured state bank,  incorporated  under the laws of the
state of Iowa. As such,  the Banks are subject to  regulation,  supervision  and
periodic  examination by the Superintendent of Banking of the State of Iowa (the
"Superintendent").  Among the requirements  and restrictions  imposed upon state
banks by the  Superintendent  are the requirements to maintain  reserves against
deposits,  restrictions on the nature and amount of loans,  which may be made by
state banks, and restrictions  relating to investments,  opening of bank offices
and other activities of state banks.  Changes in the capital  structure of state
banks must also be approved by the  Superintendent.  One of the most significant
standards of  operation of state banks is the six and one-half  percent (6 1/2%)
primary capital to total assets ratio generally required by the  Superintendent.
This  ratio was  reduced  in 1999 from the eight  percent  (8%)  ratio  formerly
required.  In certain instances,  the Superintendent may mandate higher capital,
but the  Superintendent  has not imposed  such a  requirement  on the Bank.  The
Superintendent   defines  the  term  "primary   capital"  to  mean  the  sum  of
stockholders'  equity and the  allowance  for loan  losses  less any  intangible
assets.  In determining the primary capital ratio, the  Superintendent  uses the
total assets as of the date of  computation.  At December 31, 2000,  the primary
capital to total assets ratio of each of the Banks  exceeded the ratio  required
by the Superintendent.

A  comparison  of the  Company's  capital as of December  31, 2000 with  minimum
requirements is presented below:

                                       Actual    Requirements
                                  ---------------------------

Tier I Risk-Based Capital ..............13.09         4%
Total Risk-Based Capital .............. 14.35         8
Leverage Ratio ......................... 8.91         3

Each  of  the  Banks  is  classified  as  "well  capitalized"  by  FDIC  capital
guidelines.

On a consolidated basis, 2000 cash flows from operations  provided  $12,702,000,
net  increases  in deposits  provided  $90,620,000  and  Federal  Home Loan Bank
borrowings provided $29,847,000.  These cash flows were invested in net loans of
$62,440,000, net securities of $2,245,000 and net federal funds sold increase of
$27,859,000.  In  addition,   $6,501,000  was  used  to  purchase  property  and
equipment.

At December 31, 2000, the Company had total  outstanding  loan  commitments  and
unused portions of lines of credit  totaling  $91,060,000.  Management  believes
that its  liquidity  levels are  sufficient,  but the  Company may slow down the
growth of its assets by selling more loans in the secondary market or by selling
portions of loans to other banks through participation agreements.

As of December 31, 2000,  the Company  estimates  that  additional  construction
expenditures  for two  construction  projects to be completed in 2001 will total
$1,648,000 and will not require outside financing.

Commitments and Trends

The Company has no material commitments or plans that will materially affect its
liquidity or capital  resources.  Property and equipment may be acquired in cash
purchases, or they may be financed if favorable terms are available.


<PAGE>


Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Market Risk Exposures

The Company's  primary market risk exposure is to changes in interest rates. The
Company's  asset/liability  management, or its management of interest rate risk,
is focused  primarily on  evaluating  and  managing  net  interest  income given
various risk  criteria.  Factors  beyond the Company's  control,  such as market
interest  rates  and  competition,  may also  have an  impact  on the  Company's
interest  income and  interest  expense.  In the absence of other  factors,  the
Company's  overall  yield on  interest-earning  assets will increase as will its
cost of funds on its  interest-bearing  liabilities  when market rates  increase
over an extended  period of time.  Inversely,  the Company's  yields and cost of
funds will  decrease  when market rates  decline.  The Company is able to manage
these  swings to some  extent by  attempting  to control  the  maturity  or rate
adjustments of its interest-earning assets and interest-bearing liabilities over
given periods of time.

The Banks maintain an asset/liability  committee, which meets at least quarterly
to  review  the  interest  rate  sensitivity  position  and  to  review  various
strategies as to interest  rate risk  management.  In addition,  the Banks use a
simulation  model to  review  various  assumptions  relating  to  interest  rate
movement.  The model  attempts  to limit rate risk even if it appears the Banks'
asset and liability  maturities are perfectly  matched and a favorable  interest
margin is present.

In order to minimize the  potential  effects of adverse  material and  prolonged
increases or decreases in market  interest  rates on the  Company's  operations,
management has implemented an  asset/liability  program designed to mitigate the
Company's  interest rate sensitivity.  The program emphasizes the origination of
adjustable rate loans, which are held in the portfolio, the investment of excess
cash in short or intermediate term interest-earning assets, and the solicitation
of passbook or transaction  deposit accounts which are less sensitive to changes
in interest rates and can be repriced rapidly.

Based  on  the  data   following,   net  interest  income  should  decline  with
instantaneous  increases  in interest  rates while net  interest  income  should
increase  with  instantaneous  declines in  interest  rates.  Generally,  during
periods of increasing  interest  rates,  the Company's  interest rate  sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the Company's  interest  rate spread and margin.  This would result
from an increase in the  Company's  cost of funds that would not be  immediately
offset by an increase  in its yield on earning  assets that would tend to reduce
net interest income.  In times of decreasing  interest rates,  fixed rate assets
could  increase in value and the lag in  repricing  of interest  rate  sensitive
assets could be expected to have a positive effect on the Company's net interest
income.

The following table provides  quantitative  information with respect to interest
sensitive assets and liabilities.


<PAGE>



Item 7A.  Quantitative and Qualitative Disclosures About Market Risk (Continued)

The following table provides  information about the Company's loans,  investment
securities  and deposits  that are sensitive to changes in interest  rates.  The
table presents  principal cash flows and related weighted average interest rates
by expected maturity dates.
<TABLE>
                       2001       2002      2003       2004        2005      Thereafter     Total     Fair Value
                   ---------------------------------------------------------------------------------------------
<S>               <C>          <C>        <C>        <C>         <C>         <C>          <C>         <C>
Assets:
 Loans, fixed:
   Balance ........$ 102,314    $39,097   $ 88,444    $ 84,448    $ 35,999   $  22,224     $372,526    $359,675
   Average
     interest rate      8.72%      8.33%      8.26%       7.80%       8.56%       7.28%        8.26%

Loans, variable:
  Balance ........ $  24,164    $ 1,637    $ 1,809    $  2,199    $  1,016   $ 233,950      264,775     264,775
  Average
    interest rate .     9.61%      9.59%      9.74%       9.51%       9.87%       8.06%        8.24%

Investments (1):
  Balance ......   $  70,200     29,297     32,416      20,877      11,591      24,750      189,131     161,233
  Average
    interest rate       6.01%      6.10%      6.39%       6.80%       6.56%       6.85%        6.32%

Liabilities:
  Liquid
    deposits (2):
    Balance ...... $ 232,583         --         --          --          --          --    $ 232,583    $232,583
    Average
      interest rate     3.49%      0.00%      0.00%       0.00%       0.00%       0.00%        3.49%

Deposits,
  certificates:
  Balance .......  $ 174,521    113,745     35,869      15,799       4,102          --    $ 344,036     350,657
  Average
    interest rate       5.64%      6.54%      6.10%       6.38%       5.96%       0.00%        6.02%
</TABLE>

(1) Includes all available-for-sale  investments,  held-to-maturity investments,
    federal funds and Federal Home Loan Bank stock.

(2) Includes passbook accounts, NOW accounts, Super NOW accounts and money
    market funds.


Item 8.   Financial Statements and Supplementary Data

The financial statements and supplementary data are included on Pages 32 through
60.

<PAGE>
Independent Auditor's Report

To the Board of Directors and Stockholders
Hills Bancorporation
Hills, Iowa

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Hills
Bancorporation  and  subsidiaries  as of  December  31,  2000 and 1999,  and the
related consolidated statements of income,  comprehensive income,  stockholders'
equity and cash flows for the years  ended  December  31,  2000,  1999 and 1998.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Hills Bancorporation
and  subsidiaries  as of December  31,  2000 and 1999,  and the results of their
operations and their cash flows for the years ended December 31, 2000,  1999 and
1998 in conformity with generally accepted accounting principles.

                                      /s/McGLADREY & PULLEN, LLP

Iowa City, Iowa
February 16, 2001


<PAGE>


HILLS BANCORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2000 and 1999
(In Thousands, Except Shares)
<TABLE>
ASSETS ...................................................................      2000        1999
                                                                             ---------------------
<S> ......................................................................  <C>         <C>
Cash and due from banks (Note 9) .........................................   $  25,669   $  21,765
Investment securities (Note 2):
  Available for sale (amortized cost 2000 $136,661; 1999 $133,516) .......     137,768     131,961
  Held to maturity (fair value 2000 $15,676; 1999 $18,362) ...............      15,509      18,307
Stock of Federal Home Loan Bank ..........................................       7,789       5,930
Federal funds sold .......................................................      28,065         206
Loans, net of allowance for loan losses 2000 $10,428; 1999 $9,750
  (Notes 3 and 10) .......................................................     626,873     565,381
Property and equipment, net (Note 4) .....................................      16,499      11,646
Accrued interest receivable ..............................................       7,522       6,376
Deferred income taxes, net (Note 8) ......................................       3,286       3,954
Other assets .............................................................       6,770       8,440
                                                                              --------------------
                                                                             $  875,750  $ 773,966
                                                                             =====================
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------
<S> ........................................................................  <C>         <C>
Liabilities
  Noninterest-bearing deposits ............................................. $  76,087   $  66,794
  Interest-bearing deposits (Note 5) .......................................   576,619     495,292
                                                                             ---------------------
     Total deposits ........................................................   652,706     562,086
  Federal funds purchased and securities sold under agreements to repurchase    16,561      26,714
  Federal Home Loan Bank borrowings (Note 6) ...............................   120,668     108,700
  Accrued interest payable .................................................     2,865       2,040
  Other liabilities ........................................................     2,876       3,209
                                                                             ---------------------
                                                                               795,676     702,749
                                                                             =====================

Commitments and Contingencies (Notes 7 and 13)

Redeemable Common Stock Held By Employee Stock
  Ownership Plan (ESOP) (Note 7) ...........................................    11,550      10,95
                                                                             ---------------------
Stockholders' Equity (Note 9)
  Capital stock, no par value; authorized 10,000,000 shares;
    issued 2000 1,495,483 shares; 1999 1,495,941 shares ....................    10,197      10,214
  Retained earnings ........................................................    69,179      61,984
  Accumulated other comprehensive income (loss) ............................       698        (981)
                                                                             ---------------------
                                                                                80,074      71,217
  Less maximum cash obligation related to ESOP shares (Note 7) .............    11,550      10,953
                                                                             ---------------------
                                                                                68,524      60,264
                                                                             ---------------------
                                                                             $ 875,705  $  773,966
                                                                             =====================
</TABLE>
See Notes to Financial Statements

<PAGE>

HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2000, 1999 and 1998
(In Thousands, Except Per Share Amounts)
<TABLE>
                                                                  2000       1999        1998
-----------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>         <C>
Interest income:
  Loans, including fees ....................................... $ 50,081   $ 41,933    $ 37,854
  Investment securities:
    Taxable ...................................................    7,481      7,167       6,832
    Nontaxable ................................................    1,732      1,566       1,394
  Federal funds sold ..........................................      698        455       1,209
                                                                  -----------------------------
          Total interest income ...............................   59,992     51,121      47,289
                                                                  -----------------------------
Interest expense:
  Deposits ....................................................   24,871     20,826      20,458
  Securities sold under agreements to repurchase ..............      699        517         417
  FHLB borrowings .............................................    7,494      4,970       4,379
                                                                  -----------------------------
          Total interest expense ..............................   33,064     26,313      25,254
                                                                  -----------------------------
          Net interest income .................................   26,928     24,808      22,035
Provision for loan losses (Note 3) ............................      948        900         916
                                                                  -----------------------------
          Net interest income after provision for loan losses     25,980     23,908      21,119
                                                                  -----------------------------
Other income:
  Loan origination fees .......................................      316        592         799
  Trust fees ..................................................    2,388      2,029       1,743
  Deposit account charges and fees ............................    2,566      2,203       1,828
  Other fees and charges ......................................    2,244      1,928       1,441
  Net gains (losses) on sale of  investment securities (Note 2)       --       (315)         --
                                                                  -----------------------------
                                                                   7,514      6,437       5,811
                                                                  -----------------------------
Other expenses:
  Salaries and employee benefits ..............................   10,651      9,807       8,575
  Occupancy ...................................................    1,417      1,249       1,137
  Furniture and equipment .....................................    2,156      1,893       1,687
  Office supplies and postage .................................    1,128      1,111       1,178
  Other .......................................................    4,717      4,249       3,861
                                                                  -----------------------------
                                                                  20,069     18,309      16,438
                                                                  -----------------------------
       Income before income taxes ............................    13,425     12,036      10,492
Federal and state income taxes (Note 8) ......................     4,059      3,570       3,006
                                                                  -----------------------------
        Net income ...........................................  $  9,366   $  8,466    $  7,486
                                                                ===============================

Earnings per share:
  Basic .......................................................   $   6.26   $   5.70    $   5.10
  Diluted .....................................................       6.21       5.66        5.02
</TABLE>


See Notes to Financial Statements

<PAGE>
HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2000, 1999 and 1998
(In Thousands)
<TABLE>
                                                                  2000      1999       1998
-------------------------------------------------------------------------------------------
<S>                                                             <C>       <C>        <C>
Net income .................................................   $ 9,366   $ 8,466    $ 7,486
                                                               ----------------------------

Other comprehensive income, net of income taxes:
  Unrealized holding gains (losses) arising during the year,
    net of income taxes 2000 $983; 1999 $(1,385); 1998 $413 ..   1,679    (2,364)       700
  Reclassification adjustments for net (gains) losses realized
    in net income, net of income taxes 2000 none;
    1999 $116; 1998 none .......................................    --       198         --
                                                               ----------------------------
Other comprehensive income (loss) ..........................     1,679    (2,166)       700
                                                               ----------------------------
Comprehensive income .......................................   $11,045   $ 6,300    $ 8,186
                                                               ============================
</TABLE>
See Notes to Financial Statements.


<PAGE>



--------------------------------------------------------------------------------
HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Notes 7 and 9)
Years Ended December 31, 2000, 1999 and 1998
(In Thousands, Except Share Amounts)
<TABLE>
                                                                                         Cash
                                                                    Accumulated       Obligation
                                                                       Other           Related
                                             Capital    Retained    Comprehensive      To ESOP
                                              Stock     Earnings    Income (Loss)      Shares      Total
------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>           <C>               <C>        <C>
Balance, December 31, 1997                 $  9,070    $ 49,627      $   485          $ (7,682)   $ 51,500
  Issuance of 1,931 shares of
    common stock .....................           78          --           --                --          78
  Redemption of 242 shares
    of common stock ..................           (8)         --           --                --          (8)
  Change related to ESOP shares ......           --          --           --            (1,619)     (1,619)
  Net income .........................           --       7,486           --                --       7,486
  Income tax benefit related to
    stock based compensation .........           --          76           --                --          76
  Cash dividends ($1.20 per share) ...           --      (1,761)          --                --      (1,761)
Other comprehensive income ...........           --          --          700                --         700
                                            --------------------------------------------------------------
Balance, December 31, 1998 ...........        9,140      55,428        1,185            (9,301)     56,452
  Issuance of 26,665 shares of
    common stock .....................          752          --           --                --         752
  Redemption of 167 shares
    of common stock ..................           (8)         --           --                --          (8)
  Change related to ESOP shares ......           --          --           --            (1,652)     (1,652)
  Net income .........................           --       8,466           --                --       8,466
  Income tax benefit related to
    stock based compensation .........          330          --           --                --         330
  Cash dividends ($1.30 per share) ...           --      (1,910)          --                --      (1,910)
  Other comprehensive
    income (loss) ....................           --          --       (2,166)               --      (2,166)
                                           ----------------------------------------------------------------
Balance, December 31, 1999 ...........       10,214      61,984         (981)          (10,953)     60,264
  Redemption of 458 shares
    of common stock ..................          (23)         --            --               --         (23)
  Change related to ESOP shares ......           --          --            --             (597)       (597
  Net income .........................           --       9,366            --               --       9,366
  Income tax benefit related to
    stock based compensation .........            6          --            --               --           6
  Cash dividends ($1.45 per share) ...           --      (2,171)           --               --      (2,171)
  Other comprehensive income .........           --          --         1,679               --       1,679
                                           ----------------------------------------------------------------
Balance, December 31, 2000 ............    $ 10,197    $ 69,179      $    698         $(11,550)   $ 68,524
                                           ================================================================
</TABLE>
See Notes to Financial Statements.

<PAGE>


HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2000, 1999 and 1998
(In Thousands)
<TABLE>
                                                                     2000        1999        1998
-----------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>          <C>
Cash Flows from Operating Activities
  Net income ..................................................   $   9,366    $   8,466    $   7,486
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation ................................................     1,648        1,484        1,325
    Amortization ................................................       261          261          261
    Provision for loan losses ...................................       948          900          916
    Net (gains) losses on sale of investment securities .........        --          315           --
    Compensation paid by issuance of common stock ...............        --           94           70
    Deferred income taxes .......................................      (315)        (847)         (15)
    (Increase) in accrued interest receivable ...................    (1,146)        (491)        (444)
    Amortization of bond discount ...............................        39          339          300
    (Increase) in other assets ..................................     1,409       (1,329)        (425)
    Increase (decrease) in accrued interest and other liabilities       492        1,652         (781)
                                                                   ----------------------------------
        Net cash provided by operating activities ..............     12,702       10,844        8,693
                                                                   ----------------------------------
Cash Flows from Investing Activities
  Proceeds from maturities of investment securities:
    Available for sale ..........................................    27,115       29,278       27,300
    Held to maturity ............................................     2,798        2,862        2,607
  Proceeds from sales of available-for-sale securities ........          --       17,013           --
  Purchases of investment securities available for sale .......     (32,158)     (60,090)     (40,380)
  Federal funds sold, net .....................................     (27,859)      36,605      (34,364)
  Loans made to customers, net of collections .................     (62,440)    (105,370)     (39,066)
  Purchases of property and equipment .........................      (6,501)      (1,937)      (3,081)
                                                                   -----------------------------------
        Net cash (used in) investing activities ...............     (99,045)     (81,639)     (86,984)
                                                                   -----------------------------------
Cash Flows from Financing Activities
  Net increase in deposits ....................................      90,620       27,935       54,381
  Net increase (decrease) in federal funds purchased and
    securities sold under agreements to repurchase ..............   (10,153)      16,160        1,546
  Borrowings from FHLB ........................................      40,000       50,000       40,000
  Payments on FHLB borrowings .................................     (28,032)     (17,032)     (15,032)
  Stock options exercised .....................................          --          650           --
  Income tax benefits related to stock based compensation .....           6          330           76
  Redemption of common stock ..................................         (23)          --           --
  Dividends paid ..............................................      (2,171)      (1,910)      (1,761)
                                                                   ----------------------------------
    Net cash provided by financing activities ...................    90,247       76,133       79,210
                                                                   ==================================
</TABLE>

<PAGE>
HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31, 2000, 1999 and 1998
(In Thousands)
<TABLE>
                                                        2000      1999      1998
--------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>
      Increase in cash and due from banks .........  $ 3,904   $ 5,338   $   919

Cash and due from banks:
  Beginning ........................................  21,765    16,427    15,508
                                                     ---------------------------
  Ending ........................................... $25,669   $21,765   $16,427
                                                     ===========================

Supplemental Disclosures
  Cash payments for:
    Interest paid to depositors and others ......... $24,046   $20,824   $20,470
    Interest paid on other obligations .............   8,193     5,487     4,796
    Income taxes ...................................   4,424     3,755     3,544

Noncash financing transactions:
  Increase in maximum cash obligation related to
    ESOP shares .................................... $   597   $ 1,652   $ 1,619
</TABLE>

See Notes to Financial Statements.


<PAGE>


Hills Bancorporation

Notes to Financial Statements

--------------------------------------------------------------------------------
Note 1.  Nature of Activities and Significant Accounting Policies

Nature of  activities:  Hills  Bancorporation  (the  "Company")  is a  multibank
holding company engaged in the business of banking.  The Company's  wholly-owned
subsidiary  commercial banks are Hills Bank and Trust Company,  Hills,  Iowa and
Hills Bank Kalona, Kalona, Iowa. The Banks are all full-service commercial banks
extending  their services to  individuals,  businesses,  governmental  units and
institutional  customers  primarily  in the  communities  of Hills,  Iowa  City,
Coralville, North Liberty, Lisbon, Mount Vernon, Kalona and Cedar Rapids, Iowa.

The  Banks  compete  with  other   financial   institutions   and   nonfinancial
institutions providing similar financial products. Although the loan activity of
the Banks is diversified  with commercial and  agricultural  loans,  real estate
loans,  automobile,  installment and other consumer loans, each Bank's credit is
concentrated in real estate loans.

Accounting estimates: The preparation of financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that affect the reported  amount of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Certain  significant  estimates:  The allowance for loan losses,  fair values of
securities and other financial instruments, and stock-based compensation expense
involve certain  significant  estimates made by management.  These estimates are
reviewed  by  management   routinely   and  it  is   reasonably   possible  that
circumstances that exist at December 31, 2000 may change in the near-term future
and that the effect could be material to the consolidated financial statements.

Principles of consolidation:  The consolidated  financial statements include the
accounts  of the  Company  and its  subsidiaries,  which are  wholly-owned.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

Investment  securities:  Held-to-maturity  securities  consist  solely  of  debt
securities,  which the  Company has the  positive  intent and ability to hold to
maturity and are stated at amortized cost.

Available-for-sale  securities  consist of debt  securities  not  classified  as
trading or held to maturity.  Available-for-sale  securities  are stated at fair
value, and unrealized  holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of stockholders' equity. There were
no trading securities as of December 31, 2000 and 1999.

Stock of the Federal Home Loan Bank is carried at cost.

Premiums and discounts on debt  securities  are amortized  over the  contractual
lives of those  securities.  The  method of  amortization  results in a constant
effective yield on those  securities (the interest  method).  Realized gains and
losses on investment securities are included in income,  determined on the basis
of the cost of the specific securities sold.


<PAGE>


Loans: Loans are stated at the amount of unpaid principal, reduced by the
allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses
charged to expense.  Loans are charged  against the  allowance  when  management
believes the  collectability  of principal is unlikely.  The  allowance for loan
losses is maintained at a level  considered  adequate to provide for losses that
can be reasonably anticipated.  The allowance is increased by provisions charged
to expense and is reduced by net charge-offs.  The Banks make continuous reviews
of the loan portfolio and considers current economic conditions, historical loss
experience,  review of specific  problem loans and other factors in  determining
the adequacy of the allowance.

Loans are considered  impaired when, based on current information and events, it
is probable  the Banks will not be able to collect all amounts  due. The portion
of the allowance for loan losses  applicable to impaired loans has been computed
based on the present  value of the  estimated  future cash flows of interest and
principal  discounted at the loans effective  interest rate or on the fair value
of the collateral for collateral  dependent  loans. The entire change in present
value of  expected  cash  flows of  impaired  loans  or of  collateral  value is
reported as bad debt  expense in the same manner in which  impairment  initially
was  recognized  or as a  reduction  in the  amount  of bad  debt  expense  that
otherwise would be reported.  Interest income on impaired loans is recognized on
the cash basis.

The accrual of interest income on loans is discontinued  when, in the opinion of
management,  there is  reasonable  doubt as to the  borrower's  ability  to meet
payments of interest or principal when they become due.

Loan fees and  origination  costs are  reflected  in the  statement of income as
collected or incurred. Compared to the net deferral method, this practice had no
significant effect on income.

Transfers of financial  assets:  Transfers of financial assets are accounted for
as sales,  when  control  over the assets  has been  surrendered.  Control  over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from the  Company,  (2) the  transferee  obtains  the  right  (free of
conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred  assets and (3) the Company does not maintain effective
control over the  transferred  assets  through an agreement to  repurchase  them
before their maturity.

Credit related financial  instruments:  In the ordinary course of business,  the
Company has entered into  commitments  to extend credit,  including  commitments
under credit card arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded when they are funded.


<PAGE>



Property  and  equipment:   Property  and  equipment  is  stated  at  cost  less
accumulated    depreciation.    Depreciation   is   computed   using   primarily
declining-balance  methods  over the  estimated  useful  lives of 7-40 years for
buildings and improvements and 3-20 years for furniture and equipment.

Deferred  income taxes:  Deferred  income taxes are provided under the liability
method  whereby  deferred tax assets are  recognized  for  deductible  temporary
differences  and net operating loss, and tax credit  carryforwards  and deferred
tax  liabilities  are recognized for taxable  temporary  differences.  Temporary
differences  are the  differences  between  the  reported  amounts of assets and
liabilities and their tax bases.  Deferred tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some or all of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.

Intangible  assets:  Intangible  assets consist  principally of goodwill,  which
represents the excess of cost over fair value of net assets acquired in business
combinations  of two banks in 1996  accounted  for under  the  purchase  method.
Goodwill is amortized on a straight-line  basis over the estimated  period to be
benefited, 15 years. The carrying value of goodwill is reviewed periodically for
impairment.  Goodwill  totaled  $2,760,000  and  $3,021,000,  net of accumulated
amortization  of  $1,137,000  and  $876,000  as of  December  31, 2000 and 1999,
respectively, and is included in other assets.

Stock  options:  Compensation  expense for stock issued through stock option and
award  plans is  accounted  for  using  the  intrinsic  value  based  method  of
accounting  prescribed  by APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees."  Under this  method,  compensation  is  measured  as the  difference
between  the  estimated  fair  value of the stock at the date of award  less the
amount required to be paid for the stock. The difference,  if any, is charged to
expense over the periods of service.

Common stock held by ESOP:  The  Company's  maximum cash  obligation  related to
these shares is classified outside  stockholders'  equity because the shares are
not readily traded and could be put to the Company for cash.

Trust  assets:  Trust  assets,  other than cash  deposits,  held by the Banks in
fiduciary  or agency  capacities  for its  customers  are not  included in these
statements since they are not assets of the Company.

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


<PAGE>



Following is a reconciliation of the denominator:
<TABLE>
                                                                       Year Ended December 31,
                                                                ------------------------------------
                                                                   2000         1999         1998
                                                                ------------------------------------
<S>                                                            <C>          <C>          <C>
Weighted average number of shares ...........................   $1,495,906   $1,483,540   $1,467,772
Potential number of dilutive shares .........................       12,875       11,784       22,702
                                                                ------------------------------------
Total shares to compute diluted earnings per share ..........   $1,508,781   $1,495,324   $1,490,474
                                                                ====================================
</TABLE>

There are no potentially  dilutive securities that have not been included in the
determination of diluted shares.

Statement of cash flows: For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks  (including cash items in
process of clearing).  Cash flows from loans  originated by the Banks,  deposits
and federal funds purchased and securities  sold under  agreements to repurchase
are reported net.

Recently issued accounting standards:

Recently issued  accounting  standards are not expected to materially affect the
Company's financial statements.

Fair value of financial instruments: In cases where quoted market prices are not
available,  fair values of financial  instruments  are based on estimates  using
present value or other valuation techniques.  Those techniques are significantly
affected by the assumptions  used,  including the discount rate and estimates of
future cash flows. In that regard,  the derived fair value  estimates  cannot be
substantiated by comparison to independent markets and, in many cases, could not
be  realized  in  immediate  settlement  of the  instrument.  Certain  financial
instruments  and all  nonfinancial  instruments  are  excluded  from fair  value
disclosure.  Accordingly,  the aggregate fair value amounts presented in Note 11
do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

   Off-balance sheet instruments:  Fair values for outstanding letters of credit
   are based on fees currently charged to enter into similar agreements,  taking
   into account the remaining  terms of the agreements  and the  counterparties'
   credit standing.  The fair value of the outstanding  letters of credit is not
   believed to be  significant.  Unfunded loan  commitments are not valued since
   the loans are generally priced at market at the time of funding.

   Cash and cash  equivalents  and federal  funds  sold:  The  carrying  amounts
   reported in the balance sheet for cash and short-term instruments approximate
   their fair values.


<PAGE>


   Investment  securities:  Fair values for  investment  securities are based on
   quoted  market  prices,  where  available.  If quoted  market  prices are not
   available,  fair  values  are based on  quoted  market  prices of  comparable
   instruments.

   Loans receivable: For variable-rate loans that reprice frequently and with no
   significant  change in credit risk, fair values are based on carrying values.
   The fair values for other loans are determined  using  estimated  future cash
   flows,  discounted at the interest  rates  currently  being offered for loans
   with similar terms to borrowers  with similar  credit  quality.  The carrying
   amount of accrued interest receivable approximates its fair value.

   Deposit liabilities:  The fair values of demand deposits equal their carrying
   amounts,  which represent the amount payable on demand.  The carrying amounts
   for  variable-rate,  fixed-term  money market  accounts and  certificates  of
   deposit are estimated using a discounted cash flow  calculation  that applies
   interest  rates  currently  being  offered on  certificates  to a schedule of
   aggregated expected monthly maturities on time deposits.

   Short-term  borrowings:  The  carrying  amounts  of  federal  funds  sold and
   securities sold under agreements to repurchase approximate their fair values.

   Long-term  borrowings:  The fair  values of the Banks'  long-term  borrowings
   (other than  deposits) are estimated  using  discounted  cash flow  analyses,
   based on the Banks' current incremental  borrowing rates for similar types of
   borrowing arrangements.
<PAGE>

Note 2.

Investment Securities

The amortized  cost and fair value of investment  securities  available for sale
are as follows:
<TABLE>
                                                                     Gross            Gross
                                                    Amortized      Unrealized       Unrealized        Fair
                                                      Cost           Gains          (Losses)         Value
                                                   ---------------------------------------------------------
                                                                     (Amounts In Thousands)
<S>                                                <C>            <C>             <C>             <C>
December 31, 2000:
  U. S. Treasury ................................    $ 18,070       $    249        $     (1)       $ 18,318
  U. S. Government agencies and
    corporations ................................      94,439            720            (123)         95,036
  State and political subdivisions ..............      24,152            331             (69)         24,414
                                                   ---------------------------------------------------------
     Total .....................................     $136,661       $  1,300        $   (193)       $137,768
                                                   =========================================================
December 31, 1999:
  U. S. Treasury ...............................     $ 19,525       $     24        $    (79)       $ 19,470
  U. S. Government agencies and
    corporations ...............................       95,389              8          (1,095)         94,302
  State and political subdivisions .............       18,602              8            (421)         18,189
                                                   ---------------------------------------------------------
     Total .....................................     $133,516       $     40        $ (1,595)       $131,961
                                                   =========================================================
</TABLE>

The  amortized  cost and fair value of debt  securities  held to maturity are as
follows:
<TABLE>
                                                                      Gross        Gross
                                                    Amortized       Unrealized   Unrealized    Fair
                                                      Cost            Gains       (Losses)     Value
                                                -----------------------------------------------------
                                                                   (Amounts In Thousands)
<S>                                                <C>            <C>            <C>         <C>
December 31, 2000:
  State and political subdivisions .............   $    15,509     $   168       $    (1)     $15,676
                                                =====================================================
December 31, 1999:
  State and political subdivisions .............   $    18,307     $    93       $   (38)     $18,362
                                                =====================================================
</TABLE>





<PAGE>



The contractual  maturity  distribution of investment  securities as of December
31, 2000 is summarized as follows:
<TABLE>
                                               Available For Sale      Held To Maturity
                                              -------------------------------------------
                                              Amortized    Fair      Amortized    Fair
                                                 Cost      Value        Cost      Value
                                              -------------------------------------------
                                                                   (Amounts In Thousands)
<S>                                           <C>        <C>        <C>        <C>
Due in one year or less .....................  $ 39,008   $ 38,961   $  3,170   $  3,180
Due after one year through five years .......    82,534     83,446     11,894     12,038
Due after five years through ten years ......    14,769     15,008        395        407
Due over ten years ..........................       350        353         50         51
                                               -----------------------------------------
         Total ..............................  $136,661   $137,768   $ 15,509   $ 15,676
                                               =========================================
</TABLE>


As of  December  31,  2000,  investment  securities  with a  carrying  value  of
$54,522,000 were pledged to collateralize public and trust deposits,  short-term
borrowings and for other purposes, as required or permitted by law.

Net gains or losses from the sale of investment securities were as follows:


<TABLE>
                                                Year Ended December 31,
                                        ---------------------------------------
                                          2000           1999             1998
                                        ---------------------------------------
                                                  (Amounts In Thousands)
<S>                                     <C>             <C>              <C>
Gross gains .........................   $--             $   4             $--
Gross (losses) .......................   --              (319)             --
                                        ---------------------------------------
         Net gains (losses) .........   $--             $(315)            $--
                                        =======================================
</TABLE>


<PAGE>



Note 3.  Loans

The composition of loans is as follows:

                                                  December 31,
                                             ----------------------
                                                 2000       1999
                                             ----------------------
                                             (Amounts In Thousands)
Agricultural ..............................   $ 28,560   $ 27,302
Commercial and financial .................      37,832     36,848
Real estate:
  Construction ............................     38,184     40,879
  Mortgage ...............................     499,010    439,072
Loans to individuals .....................      33,715     31,030
                                              ---------------------
                                               637,301    575,131
                                              ---------------------
Less allowance for loan losses ............     10,428      9,750
                                              ---------------------
                                              $626,873   $565,381
                                              =====================
Changes in the allowance for loan losses are as follows:


Changes in the allowance for loan losses are as follows:
                                              Year Ended December 31,
                                          ---------------------------------
                                            2000         1999         1998
                                          ---------------------------------
                                              (Amounts In Thousands)
Balance, beginning ....................   $  9,750    $  8,856    $  8,010
Provision charged to expenses .........        948         900         916
Recoveries ............................        904         757         898
Loans charged off .....................     (1,174)       (763)       (968)
                                          ---------------------------------
Balance, ending .......................   $ 10,428    $  9,750    $  8,856
                                          =================================

<PAGE>




Information about impaired loans as of and for the years ended December 31, 2000
and 1999 is as follows:
<TABLE>
                                                                                     2000            1999
                                                                                   ------------------------
                                                                                    (Amounts In Thousands)
<S>                                                                                 <C>             <C>
Loans receivable for which there is a related allowance for credit losses ......    $     --        $    --
Loans receivable for which there is no related allowance for credit losses .....       11,068         9,750
                                                                                    -----------------------
        Total impaired loans ...................................................    $  11,068       $ 9,750
                                                                                    =======================


Related allowance for credit losses ............................................    $      --       $    --
Average balance .................................................................      10,409         9,110
Interest income recognized .....................................................          977           814
</TABLE>


<PAGE>



No allowance for credit losses has been  recognized  for impaired  loans because
partial  charge-offs  have been  taken to reduce  the loan  balances  to the net
present value of the future cash flows or to the fair value of the collateral if
the loan is collateral dependent.

Note 4.  Property and Equipment

The  major  classes  of  property  and  equipment  and  the  total   accumulated
depreciation are as follows:


                                                  December 31,
                                               --------------------
                                                2000          1999
                                               --------------------
                                              (Amounts In Thousands)


Furniture and equipment ....................    13,939       12,129
                                               --------------------
                                               $29,683      $23,182
Less accumulated depreciation ..............    13,184       11,536
                                               --------------------
        Net ................................   $16,499      $11,646
                                               ====================

Note 5.  Interest-Bearing Deposits

A summary of these deposits is as follows

                                             December 31,
                                        ----------------------
                                            2000       1999
                                        ----------------------
                                        (Amounts In Thousands)
                                        ----------------------
NOW and other demand .................   $ 70,980   $ 62,081
Savings ..............................    161,603    155,001
Time, $100,000 and over .............      46,653     30,442
Other time ..........................     297,383    247,768
                                        ---------------------
                                         $576,619   $495,292
                                        =====================
<PAGE>


Note 6.   Federal Home Loan Bank Borrowings

As of December 31, 2000, the borrowings were as follows:

                                                   (In Thousands)
                                                    ------------
Due August 17, 2005, 7.12% .....................      $10,000
Due January 14, 2008, 5.22% ....................       10,000
Due February 4, 2008, 5.38% ....................       10,000
Due February 4, 2008, 5.25% ....................          100
Due April 30, 2008, 5.40% ......................       10,000
Due August 11, 2008, 6.00% .....................       10,000
Due June 15, 2009, 5.66% .......................       10,000
Due June 15, 2009, 6.04% .......................       10,000
Due October 6, 2009, 5.85% .....................          568
Due October 6, 2009, 6.22% .....................       10,000
Due January 8, 2010, 6.28% .....................       10,000
Due January 8, 2010, 6.61% .....................       10,000
Due January 19, 2010, 5.77% ....................       20,000
                                                    ---------
                                                    $ 120,668
                                                    =========

The  borrowings  are  collateralized  by 1-4 family  mortgage  loans with a face
amount of  $150,835,000.  As of December 31, 2000, the Company held Federal Home
Loan Bank stock with a cost of $7,789,000.

Note 7.  Employee Benefit Plans

The Company has an Employee Stock  Ownership Plan (the "ESOP") to which it makes
discretionary cash contributions. The Company's contribution to the ESOP totaled
$70,000,  $64,000 and $58,000 for the years ended  December 31,  2000,  1999 and
1998, respectively.

In the event a terminated plan participant  desires to sell his or her shares of
the Company stock, or for certain employees who elect to diversify their account
balances,  the  Company  may  be  required  to  purchase  the  shares  from  the
participant at their fair value.  To the extent that shares of common stock held
by the ESOP are not readily  traded,  a sponsor  must  reflect the maximum  cash
obligation  related to those securities  outside of stockholders'  equity. As of
December 31, 2000,  150,005  shares held by the ESOP, at a fair value of $77 per
share, have been reclassified from stockholders' equity to liabilities.


<PAGE>


The Company has a profit-sharing plan with a 401(k) feature,  which provides for
discretionary  annual  contributions in amounts to be determined by the Board of
Directors.  The  profit-sharing  contribution  totaled  $562,000,  $509,000  and
$461,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

The Company has a Stock Option and Incentive  Plan for certain key employees and
directors  whereby  shares of common stock have been  reserved for awards in the
form of stock options or stock awards.  The Plan approved by the shareholders in
April 2000 replaces the 1993 Stock  Incentive  Plan that expired in 1999.  Under
the new Stock Option and Incentive Plan, the aggregate  number of options cannot
exceed 66,000 shares. A Stock Option Committee may grant options at prices equal
to the fair value of the stock at the date of the grant. Options expire 10 years
from the date of the grant.  Directors  may  exercise  options  immediately  and
officers'  rights  under the plan vest over a five-year  period from the date of
the grant.  No  compensation  expense  has been  charged  to  expense  using the
intrinsic  value  based  method as  prescribed  by APB No. 25. Had  compensation
expense been  determined  based on the grant date fair values of the awards,  as
prescribed  by SFAS No. 123,  reported  net income and  earnings per share would
have been as follows:

                                                  Years Ended December 31,
                                                -----------------------------
                                                2000        1999        1998
                                                -----------------------------
Pro forma net income (in thousands) .......   $   9,361   $   8,461   $  7,481
Pro forma earnings per share:
  Basic ...................................        6.26        5.70       5.10
  Diluted .................................        6.21        5.66       5.02


The fair  value  of each  grant is  established  at the  grant  date  using  the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions for the last grants in 1997:  Dividend rate 2.19%;  price volatility
of 4.64%; risk-free interest rate of 6.63% and an expected life of 5 years.


<PAGE>

A summary of the stock options is as follows:
                                                     Weighted
                                                      Average
                                         Number      Exercise
                                        Of Shares      Price
                                        ----------------------
Balance, December 31, 1998 ..........     45,540    $   26.48
Exercised ...........................    (25,078)       25.93

Balance, December 31, 1999 ..........     20,462        27.15
Exercised ...........................         --           --
                                        ----------------------
Balance, December 31, 2000 ..........     20,462    $   27.15
                                        ======================

Other pertinent  information  related to the options outstanding at December 31,
2000 is as follows:

                                    Remaining
     Exercise      Number          Contractual        Number
      Price      Outstanding         Life          Exercisable
-------------------------------------------------------------------
$    25.33         12,330             15 Months      12,330
     26.17          6,077             18 Months       6,077
     41.00          2,055             63 Months       2,055
                   ------                             -----
                   20,462                            20,462
                   ======                            ======
As of December 31, 2000, 66,000 options were available for future grants.

The committee is also  authorized to grant awards of common stock and authorized
the  issuance  of none,  1,587  and 902  shares  of  common  stock to a group of
employees in 2000, 1999 and 1998, respectively.
<PAGE>

Note 8.

Income Taxes

Income taxes for the years ended December 31, 2000, 1999 and 1998 are summarized
as follows:
                                 2000        1999         1998
                               --------------------------------
                                   (Amounts In Thousands)
Current:
  Federal ..................   $ 3,648     $ 3,707     $ 2,435
  State ....................       726         710         586
Deferred .................        (315)       (847)        (15)
                               --------------------------------
                               $ 4,059     $ 3,570     $ 3,006
                               ================================

Deferred income tax  liabilities  and assets arose from the following  temporary
differences:
                                                        December 31,
                                                ----------------------------
                                                   2000       1999     1998
                                                ----------------------------
                                                    (Amounts In Thousands)
Deferred income tax assets:
  Allowance for loan losses ....................   $3,860   $3,597   $3,079
  Unrealized losses on investment securities ...       --        574     --
  Deferred compensation ........................      433      311      156
  Certain accrued expenses .....................      198      190      211
  Other ........................................       90      112       --
                                                   ------------------------
     Gross deferred tax assets .................    4,581    4,784    3,446
                                                   ------------------------
Deferred income tax liabilities:
  Property and equipment .......................      750      700      677
  FHLB dividends ...............................      130      130      130
  Unrealized gains on investment securities ....      409       --      696
  Other ........................................        6       --      105
                                                   ------------------------
     Gross deferred tax liabilities ............    1,295      830    1,608
                                                   ------------------------
     Net deferred income tax asset .............   $3,286   $3,954   $1,838
                                                   ========================


<PAGE>



The net change in the  deferred  income  taxes for the years ended  December 31,
2000, 1999 and 1998 is reflected in the financial statements as follows:
                                                 Year Ended December 31,
                                                --------------------------
                                                2000       1999     1998
                                                --------------------------
                                                  (Amounts In Thousands)
Statement of income .....................       $ (315) $   (847) $  (15)
Statement of stockholders' equity .......          983    (1,269)    413
                                                --------------------------
                                                $  668  $ (2,116) $  398
                                                ==========================

The income tax provisions  for the years ended December 31, 2000,  1999 and 1998
are less than the amounts  computed by applying  the maximum  effective  federal
income tax rate to the  income  before  income  taxes  because of the  following
items:
                                      2000           1999           1998
                              ------------------------------------------------
                                       % Of            % Of             % Of
                                      Pretax            Pretax          Pretax
                              Amount  Income   Amount   Income  Amount  Income
                              ------------------------------------------------
                                             (Amounts In Thousands)
Expected provision ......    $ 4,699   35.0%  $ 4,213   35.0%  $ 3,672  35.0%
Tax-exempt interest .....       (712)  (5.3)     (647)  (5.3)     (596) (5.7)
Interest expense
  limitation ............        111    1.0       120    1.0       102   1.0
State income taxes,
  net of federal
  income tax
  benefit ...............        479    3.6       468    3.9       398   3.8
Income tax credits ......       (345)  (2.6)     (345)  (2.9)     (345) (3.3)
Other ...................       (173)  (1.3)     (239)  (2.0)     (225) (2.2)
                              ------------------------------------------------
                              $ 4,059  30.4%  $ 3,570   29.7%  $ 3,006  28.6%
                              ================================================

<PAGE>



Note 9.   Regulatory Capital Requirements, Restrictions on Subsidiary Dividends
          and Cash Restrictions

Federal regulatory agencies have adopted various capital standards for financial
institutions,  including risk-based capital standards. The primary objectives of
the risk-based  capital  framework are to provide a more  consistent  system for
comparing capital  positions of financial  institutions and to take into account
the different risks among financial  institutions'  assets and off-balance sheet
items.

Risk-based  capital standards include  requirements for a minimum Tier 1 capital
to assets ratio (leverage ratio). In addition,  regulatory agencies consider the
published  capital  levels  as  minimum  levels  and  may  require  a  financial
institution to maintain capital at higher levels.

A comparison of the  Company's  capital as of December 31, 2000 with the minimum
requirements is presented below.

                                                               Minimum
                                                  Actual    Requirements
                                                ---------------------------
Tier 1 Risk-Based Capital ....................    13.09%        4.00%
Total Risk-Based Capital .....................    14.35         8.00
Leverage Ratio ..............................     8.91          3.00

According to FDIC capital  guidelines,  each of the Banks is classified as "Well
Capitalized." The ability of the Company to pay dividends to its stockholders is
dependent  upon  dividends  paid by the Banks.  The Banks are subject to certain
statutory and regulatory  restrictions  on the amount they may pay in dividends.
To maintain  acceptable  capital ratios in the Banks,  certain of their retained
earnings are not available for the payment of dividends.  To maintain a ratio of
capital to assets of 8%, retained earnings of $3,070,000 as of December 31, 2000
are available for the payment of dividends to the Company.

Each of the Banks is required to maintain  reserve  balances in cash or with the
Federal Reserve Bank.  Reserve balances totaled  $9,662,000 and $7,938,000 as of
December 31, 2000 and 1999, respectively.

Note 10.  Related Party Transactions

Certain  directors  of the  Company and the Banks and  companies  with which the
directors are  affiliated and certain  principal  officers are customers of, and
have banking  transactions  with, the Banks in the ordinary  course of business.
Such indebtedness has been incurred on substantially  the same terms,  including
interest rates and  collateral,  as those  prevailing at the time for comparable
transactions with unrelated persons.

The  following  is an analysis  of the  changes in the loans to related  parties
during the years ended December 31, 2000 and 1999:

                                     Year Ended December 31,
                                     ------------------------
                                        2000          1999
                                     ------------------------
                                      (Amounts In Thousands)
Balance, beginning .................   $ 10,733    $ 10,981
  Advances .........................      8,725       5,732
  Collections ......................     (6,161)     (5,980)
                                     ------------------------
Balance, ending ....................   $ 13,297    $ 10,733
                                     ========================

Deposits from related  parties are accepted  subject to the same interest  rates
and terms as those from nonrelated parties.


<PAGE>

Note 11.

Fair Value of Financial Instruments

The  carrying  value  and  estimated  fair  values  of the  Company's  financial
instruments as of December 31, 2000 and 1999 are as follows:
<TABLE>
                                                 2000                      1999
                                          -------------------------------------------------
                                           Carrying    Estimated     Carrying    Estimated
                                            Amount     Fair Value     Amount     Fair Value
                                          -------------------------------------------------
                                                       (Amounts In Thousands)
<S>                                       <C>          <C>           <C>        <C>

Cash and due from banks ................   $ 25,669    $ 25,669      $ 21,765   $ 21,765
Federal funds sold .....................     28,065      28,065           206        206
Investment securities ..................    161,066     161,233       156,198    156,253
Loans ..................................    626,873     624,450       565,381    568,331
Accrued interest receivable ............      7,522       7,522         6,376      6,376
Deposits ...............................    652,706     659,327       562,086    565,040
Federal funds purchased and securities
  sold under agreements to repurchase ..     16,561      16,561        26,714     26,714
Borrowings from Federal Home Loan
  Bank .................................    120,668    121,325        108,700    109,112
Accrued interest payable ...............      2,865      2,865          2,040      2,040
</TABLE>

<TABLE>
                                           Face Amount               Face Amount
                                       -------------------------------------------------
<S>                                         <C>       <C>           <C>        <C>
Off-balance sheet instruments:
  Loan commitments .................       $ 91,060   $     --       $ 83,894   $    --
  Letters of credit ................         10,993         --         10,711        --
</TABLE>
<PAGE>




Note 12.  Parent Company Only Financial Information

Following is condensed  financial  information  of the Company  (parent  company
only):

                               BALANCE SHEETS
                         December 31, 2000 and 1999
                           (Amounts In Thousands)
<TABLE>
ASSETS ................................................        2000        1999
--------------------------------------------------------------------------------
<S> ...................................................   <C>         <C>
Cash ..................................................    $  1,583    $  1,419
Investment securities available for sale ..............         499         499
Investment in subsidiary banks ........................      77,711      68,790
Other assets ..........................................         529         833
                                                           ---------------------
         Total assets .................................    $ 80,322    $ 71,541
                                                           =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Liabilities ...........................................    $    248    $    324
                                                           ---------------------
Redeemable common stock held by ESOP ..................      11,550      10,953
                                                           ---------------------
Stockholders' equity:
  Capital stock .......................................      10,197      10,214
  Retained earnings ...................................      69,179      61,984
  Accumulated other comprehensive income (loss) .......         698        (981)
                                                           ---------------------
                                                             80,074      71,217
Less maximum cash obligation related to ESOP shares ...      11,550      10,953
                                                           ---------------------
         Total stockholders' equity ...................      68,524      60,264
                                                           ---------------------
         Total liabilities and stockholders' equity ...    $ 80,322    $ 71,541
                                                           =====================
</TABLE>



<PAGE>


                     STATEMENTS OF INCOME
         Years Ended December 31, 2000, 1999 and 1998
                    (Amounts In Thousands)


                                                    2000        1999       1998
--------------------------------------------------------------------------------

Interest on investment securities ..............   $    30    $    16    $   17
Dividends received from subsidiaries ...........     2,170      1,911     2,762
Other expenses .................................      (119)      (121)     (113)
                                                   -----------------------------
   Income before income taxes and equity
     in subsidiaries' undistributed income .....     2,081      1,806     2,666
Income tax benefit .............................        43         37        39
                                                   -----------------------------
                                                     2,124      1,843     2,705
Equity in subsidiaries' undistributed income ...     7,242      6,623     4,781
                                                   -----------------------------
     Net income ................................   $ 9,366    $ 8,466   $ 7,486
                                                   =============================


<TABLE>

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2000, 1999 and 1998
                             (Amounts In Thousands)

                                                           2000       1999       1998
----------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>       <C>
Cash flows from operating activities:
Net income ...........................................   $ 9,366    $ 8,466    $ 7,486
Noncash items included in net income:
  Undistributed earnings of subsidiaries ...............    (7,242)  (6,623)    (4,781)
  (Increase) decrease in other assets ..................       304     (180)       357
  Increase (decrease) in liabilities ...................       (76)      90        (84)
                                                        ------------------------------
     Net cash provided by operating activities .........     2,352    1,753      2,978
                                                        ------------------------------
Cash flows from investing activities:
  Investment in subsidiary banks .......................        --       --     (1,000)
  Proceeds from maturities of investment securities ....        --      303        300
  Purchase of investment securities ....................        --     (499)      (303)
                                                        ------------------------------
     Net cash (used in) investing activities ...........        --     (196)    (1,003)
                                                        ------------------------------
Cash flows (used in) financing activities:
  Stock issued (redeemed) ..............................       (23)     744         --
  Income tax benefits related to stock based
    compensation .......................................         6      330         76
  Dividends paid .......................................    (2,171)  (1,910)    (1,761)
                                                        ------------------------------
    Net cash (used in) financing activities ............    (2,188)    (836)    (1,685)
                                                        ------------------------------
    Increase in cash ...................................       164      721        290
Cash balance:
  Beginning ............................................     1,419      698        408
                                                        ------------------------------
  Ending ...............................................   $ 1,583  $ 1,419    $   698
                                                        ==============================
</TABLE>

<PAGE>


Note 13. Commitments and Contingencies

Concentrations  of credit risk:  All of the Banks' loans,  commitments to extend
credit,  unused  lines of credit and  outstanding  letters  of credit  have been
granted to customers  within each Bank's market area.  Investments in securities
issued by state and  political  subdivisions  within  the state of Iowa  totaled
approximately $15,877,000.  The concentrations of credit by type of loan are set
forth in Note 3.  Outstanding  letters  of  credit  were  granted  primarily  to
commercial  borrowers.  Although the Banks have a diversified loan portfolio,  a
substantial  portion  of its  debtors'  ability  to  honor  their  contracts  is
dependent upon the economic conditions in Johnson County, Iowa.

Contingencies:  In the normal  course of  business,  the  Company  and Banks are
involved  in  various  legal  proceedings.  In the  opinion of  management,  any
liability  resulting  from such  proceedings  would not have a material  adverse
effect on the accompanying financial statements.

Financial  instruments  with  off-balance  sheet risk:  The Banks are parties to
financial  instruments  with  off-balance  sheet  risk in the  normal  course of
business  to meet  the  financing  needs  of their  customers.  These  financial
instruments include commitments to extend credit, credit card participations and
standby  letters of  credit.  These  instruments  involve,  to varying  degrees,
elements  of credit  risk in  excess of the  amount  recognized  in the  balance
sheets.

The Banks' exposure to credit loss in the event of  nonperformance  by the other
party to the financial instrument for commitments to extend credit,  credit card
participations  and standby  letters of credit is represented by the contractual
amount of those  instruments.  The Banks use the same credit  policies in making
commitments  and  conditional  obligations  as  they  do  for  on-balance  sheet
instruments.  A summary of the Banks'  commitments at December 31, 2000 and 1999
is as follows:
<TABLE>
                                                                   2000        1999
                                                                ---------------------
                                                                (Amounts In Thousands)
<S>                                                               <C>          <C>

Firm loan commitments and unused portion of lines of credit:
  Home equity loans ...........................................   $ 4,693     $ 3,628
  Credit card participations ..................................    12,639      10,695
  Commercial, real estate and home construction ...............    33,562      35,882
  Commercial lines ............................................    40,166      33,689
Outstanding letters of credit .................................    10,993      10,711
</TABLE>

<PAGE>


Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since many
of the  commitments  are expected to expire  without being drawn upon, the total
commitment amounts do not necessarily  represent future cash  requirements.  The
Banks evaluate each customer's  credit  worthiness on a case-by-case  basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party. Collateral held
varies,  but may  include  accounts  receivable,  crops,  livestock,  inventory,
property and equipment,  residential real estate and income-producing commercial
properties.  Credit card  participations  are the unused portion of the holders'
credit limits. Such amounts represent the maximum amount of additional unsecured
borrowings.

Outstanding  letters of credit  are the  conditional  commitments  issued by the
Banks  to  guarantee  the  performance  of a  customer  to  a  third  party  and
collateralize  the customer's  borrowing  arrangement with other creditors.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.  Collateral held varies
as specified above and is required in instances which the Banks deem necessary.

Note 14. Quarterly Results of Operations (unaudited, in thousands, except per
         share amounts)
<TABLE>
                                                 Quarter Ended
                                  ----------------------------------------------
                                    March      June   September  December   Year
<S>                                <C>       <C>       <C>       <C>      <C>
2000:
  Total interest income .......... $14,059   $14,651   $15,300   $15,982   $59,992
  Net interest income after
    provisions for loan losses ....  6,294     6,496     6,511     6,679    25,980
  Net income .....................   2,204     2,399     2,336     2,427     9,366
  Basic earnings per share .......    1.47      1.60      1.56      1.63      6.26
  Diluted earnings per share .....    1.46      1.59      1.55      1.61      6.21

1999:
  Total interest income .......... $12,054   $12,471   $13,006   $13,590   $51,121
  Net interest income after
    provisions for loan losses ...   5,582     5,943     6,173     6,210    23,908
  Net income .....................   2,079     2,081     2,118     2,188     8,466
  Basic earnings per share .......    1.41      1.40      1.41      1.48      5.70
  Diluted earnings per share .....    1.39      1.39      1.40      1.48      5.66



</TABLE>
<PAGE>

Part II

Item 9. Changes In and Disagreements With Accountants on Accounting and
        Financial Disclosure

None

Part III

Item 10.   Directors and Executive Officers of the Registrant

Information   concerning  directors  is  contained  in  the  Registrant's  Proxy
Statement  under the heading  "Information  Concerning  Nominees for Election as
Directors" and  "Information  Concerning  Directors Other Than Nominees,"  which
sections are incorporated herein by this reference.

The following  table sets forth the name,  age and  principal  occupation of the
Executive  Officers of the  Registrant  and Executive  Officers of the Bank. All
officers of the Registrant and the Bank are elected  annually for one-year terms
of office.
<TABLE>
                                                                                                  Year First
                                                                                                   Elected
                                        Position With Registrant Or Bank And                      Officer Of
                                         Principal Occupation And Employment                      Registrant
     Name                 Age                During The Past Five Years                             (Bank)
------------------------------------------------------------------------------------------------------------------------
<S>                     <C>  <C>                                                                    <C>
Dwight O. Seegmiller     48  Director of Registrant and Bank; President, Registrant and Bank        1986 (1975)

Willis M. Bywater        62  Director of Registrant and Bank; Chairman of the Board, Bank;          1997
                             Vice President of the Registrant; Executive Officer and Shareholder
                             of Economy Advertising Company

James G. Pratt           52  Treasurer of Registrant; Senior Vice President from January 1986       1985 (1982)
                             to present

Thomas J. Cilek          54  Secretary of Registrant; Senior Vice President of Bank from            1988 (1986)
                             August 1986 to present
</TABLE>


Item 11.   Executive Compensation

Information  required  by  this  item is  contained  in the  Registrant's  Proxy
Statement under the heading "Executive Compensation and Benefits," which section
is incorporated herein by this reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

Information  required  by  this  item is  contained  in the  Registrant's  Proxy
Statement under the heading "Security Ownership of Certain Beneficial Owners and
Management"  and  "Report  on  Executive   Compensation,"   which  sections  are
incorporated herein by this reference.

Item 13.   Certain Relationships and Related Transactions

Information  required  by  this  item is  contained  in the  Registrant's  Proxy
Statement  under the  heading  "Loans To and  Certain  Other  Transactions  With
Executive Officers and Directors," which section is incorporated  herein by this
reference.


<PAGE>


Part IV

Item 14.   Exhibits, Financial Statements, Schedules and Reports on Form 8-K

<TABLE>
                                                                                                Form 10-K
                                                                                                Reference
                                                                                                ---------
<S>     <C>                                                                                       <C>
(a) 1.   Financial Statements

         Independent auditor's report on the financial statements .............................
         Consolidated balance sheets as of December 31, 2000 and 1999 .........................
         Consolidated statements of income for the years ended
         December 31, 2000, 1999 and 1998
         Consolidated statements of comprehensive income for the years ended
         December 31, 2000, 1999 and 1998 .....................................................
         Consolidated statements of stockholders' equity for the years ended
         December 31, 2000, 1999 and 1998 .....................................................
         Consolidated statements of cash flows for the years ended
         December 31, 2000, 1999 and 1998 .....................................................
         Notes to financial statements ........................................................
</TABLE>

(a) 2.   Financial Statements Schedules

         All  schedules  are  omitted  because  they are not  applicable  or not
         required,  or because  the  required  information  is  included  in the
         consolidated financial statements or notes thereto.

(a) 3.   Exhibits

         Exhibit 3 - Articles of Incorporation  and Bylaws filed as Exhibit 3 of
         Form 10-K for the year ended  December31, 1993 are incorporated by
         reference.

         Exhibit 10(a) - Material Contract (Employee Stock Ownership Plan) filed
         as Exhibit  10(a) in Form 10-K for the year ended  December 31, 1993 is
         incorporated by reference.

         Exhibit 10(b) - Material  Contract (1993 Stock Incentive Plan) filed as
         Exhibit  10(b) in Form 10-K for the year  ended  December 31, 1993 is
         incorporated by reference.

         Exhibit 10(c) - Material  contract (1995 Deferred  Compensation  Plans)
         filed as  Exhibit  10(c) in Form 10-K for the year ended  December 31,
         1995 is incorporated by reference.

         Exhibit  10(d) - Material  contract  (2000 Stock Option and  Incentive
         Plan)filed as Exhibit  10(d) in Form 10-K for the year ended  December
         31, 2000 is incorporated by reference.

         Exhibit 11 - Statement Re Computation of Basic and Diluted Earnings Per
         Share is attached on Page 66

         Exhibit 21 - Subsidiaries of the Registrant is attached on Page 67

         Exhibit 23 - Consent of Accountants is attached on Page 68

(b)      Reports on Form 8-K:

         There were no reports on Form 8-K for the three months
         December 31, 2000.





<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        HILLS BANCORPORATION

3/27/01                                 By /s/ Dwight O. Seegmiller
----------------------------            --------------------------------------
Date                                    Dwight O. Seegmiller,
                                        Director and President



3/27/01                                 By /s/ James G. Pratt
----------------------------            --------------------------------------
                                        James G. Pratt,
                                        Treasurer and Chief Accounting Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


 3/27/01                                /s/Willis M. Bywater
----------------------------           -----------------------------------------
Date                                    Willis M. Bywater, Director


 3/27/01                                /s/ Thomas J. Gill
---------------------------             ----------------------------------------
Date                                    Thomas J. Gill, Director


 3/27/01                                /s/Donald H. Gringer
---------------------------             ----------------------------------------
Date                                    Donald H. Gringer, Director


 3/27/01                                 /s/ Michael E. Hodge
---------------------------             ----------------------------------------
Date                                    Michael E. Hodge, Director


 3/27/01                                 /s/ Richard W. Oberman
---------------------------             ----------------------------------------
Date                                    Richard W. Oberman, Director


 3/27/01                                 /s/ Theodore H. Pacha
---------------------------             ----------------------------------------
Date                                    Theodore H. Pacha


3/27/01                                  /s/ Ann M. Rhodes
---------------------------             ----------------------------------------
Date                                    Ann M. Rhodes, Director


3/27/01                                  /s/ Ronald E. Stutsman
---------------------------             ----------------------------------------
Date                                    Ronald E. Stutsman, Director


3/27/01                                  /s/ Sheldon E. Yoder
---------------------------             ----------------------------------------
Date                                    Sheldon E. Yoder, Director






<PAGE>


                              HILLS BANCORPORATION

                       ANNUAL REPORT ON FORM 10-K FOR THE

                       FISCAL YEAR ENDED DECEMBER 31, 2000

                                  EXHIBIT INDEX

                                                                Page Number
                                                             In The Sequential
Exhibit                                                       Numbering System
Number                 Description                         For 2000 Form 10-K
-------------------------------------------------------------------------------
11   Statement Re Computation of Basic and Diluted
       Earnings Per Share

21   Subsidiaries of the Registrant

23   Consent of Independent Certified Public Accountants