HILLS BANCORPORATION

                                    FORM 10-K

                                DECEMBER 31, 1999


<PAGE>



                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, 1999.     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, 2000 (based upon reports of beneficial  ownership  that  approximately
80%  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 $70 per share) was $83,773,000.

The number of shares  outstanding of the  Registrant's  common stock as of March
20, 2000 is 1,495,941 shares of no par value common stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement  dated March 20, 2000 for the Annual Meeting of
the  Shareholders  of the  Registrant  to be held  April  17,  2000  (the  Proxy
Statement) are incorporated by reference in Part III of this Form 10-K.


                                  EXHIBIT INDEX

The exhibits index is on Page 67.


<PAGE>


Part I

Item 1.   Business

Hills  Bancorporation (the "Company") is a multibank holding company principally
engaged in the business of banking. Its three wholly-owned  subsidiary banks are
Hills Bank and Trust Company,  Hills, Iowa ("Hills Bank and Trust"); Hills Bank,
Lisbon, Iowa ("Hills Bank Lisbon");  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 acquired for cash all the outstanding  shares of Hills Bank
Lisbon and on  September  20, 1996,  Hills Bank Kalona  acquired  cash,  certain
assets and assumed the  deposits of the Kalona,  Iowa office of  Boatmen's  Bank
Iowa, N.A.

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, Coralville, North Liberty, Lisbon, Mount
Vernon and Kalona and the  surrounding  area and most  recently in Cedar Rapids.
This area includes parts of Johnson,  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 maintained.

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.

Hills Bank and Trust serves the communities of Iowa City, Coralville,  Hills and
North  Liberty,  located near  Interstate 80 and Interstate 380 in Eastern Iowa.
The communities  have a population of  approximately  80,000 and Johnson County,
Iowa has a population of approximately  106,000. The University of Iowa 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.


<PAGE>


Hills Bank Lisbon has offices  located in Lisbon,  Iowa (Linn  County) and Mount
Vernon,  Iowa (Linn County),  approximately  25 miles northeast of Iowa City and
does not conduct business in the same trade territories as Hills Bank and Trust.
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. In February 2000, Hills Bank Lisbon opened an office in downtown
Cedar Rapids, Iowa. Cedar Rapids has a metropolitan  population of approximately
180,000 and is located approximately 10 miles west of Lisbon, Iowa.

Hills Bank Kalona is located in Kalona, Iowa (Washington County),  approximately
20 miles south of Iowa City with 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 and Washington, Iowa.

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.

Iowa's banking laws regarding  interstate  banking and interstate  branching are
currently more restrictive than many other states.  As a result of the enactment
of the Riegle-Neal  Interstate Banking and Branching Efficiency Act of 1994 many
of  the  state-imposed  geographic  limitations  on  bank  ownership  have  been
liberalized.  The  1994  Act  expanded  opportunities  for  interstate  banking,
interstate mergers and interstate branching in the United States. First, subject
to certain  limitations,  bank  holding  companies  from  anywhere in the United
States are able to acquire Iowa banks with the permission of the Federal Reserve
Board.  Second,  the 1994 Act  authorizes a national or state bank which has its
main  office in another  state to merge with an Iowa bank and  operate  the Iowa
location as a branch office. However, out-of-state bank holding companies cannot
acquire Iowa  commercial  banks unless such banks have been in existence  for at
least five years.  Hills Bank Kalona has been in existence  since  September 20,
1996. Iowa also currently has a deposit concentration limit of 10% on the amount
of deposits  that any one  banking  organization  can  control  and  continue to
acquire banks, which applies to both in-state and out-of-state  banks. Iowa also
has a 35% limit on the  aggregate  amount of deposits all  out-of-state  banking
organizations can control within Iowa.

In recent years,  Norwest Bank Iowa, N.A.,  Mercantile  Bancorporation,  Firstar
Corporation,  Commercial  Federal Bank and 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.


<PAGE>


Iowa's intrastate  branching  statutes are also rather restrictive when compared
with those of other states.  Generally, bank branch offices may only be operated
or acquired in counties  contiguous to or cornering upon the county in which the
Bank has its principal place of business. Also, a bank in Iowa may not establish
a new branch  office in a city in which there exists an office of another  bank,
other than by acquisition of an existing office or bank. Effective July 1, 1998,
the number of bank branch offices  allowed within a municipal  corporation or an
urban  complex  is  unlimited.  However,  some of  Iowa's  intrastate  branching
limitations  regarding  geographic  location of branch offices and the number of
branch  offices  which  may be  established  in an urban  complex  or any  other
location  in Iowa may be  overcome  by merging  two or more  affiliated  banking
organizations  that have been in continuous  operation in Iowa for at least five
years into a "united community bank."

In 1999 and 1998,  three  smaller  banks from  outlying  communities  in Johnson
County opened branches or De Novo banks in Iowa City or Coralville,  and Brenton
Bank  opened an office in  Coralville.  Similarly,  several  smaller  banks have
recently began competing in the Cedar Rapids trade area.

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  businesses,  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  areas of ATM's,  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 ATM's not operated by the car issuer.  The
FSMA also  clarifies  that  nothing  in the act  repeals  any  provision  of the
Community  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  Reigle-Neal  Interstate  bill to include  all  branches of an
out-of-state bank holding company.


<PAGE>


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 Mercantile  Bank,  which does not disclose  local assets.  Other  independent
financial institutions are:

                                                                  Assets As Of
                                                                  December 31,
                                                                      1999
                                                                  -------------
                                                                  (In Millions)

Largest competing bank                                             $     382
Next largest competing bank                                              155
Largest competing credit union                                           185


Hills Bank Kalona and Hills Bank Lisbon  compete with other banks in their trade
territories.  Management  estimates  that these  banks hold less than 40% of the
deposits in their respective communities.

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 4.7% 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, 1999 and the Banks had 232
regular and 80 part-time employees.


<PAGE>


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,
                                              ----------------------------------
                                                  1999       1998       1997
                                              ----------------------------------
                                                        (In Thousands)
ASSETS

   Cash and due from banks ................... $  16,863  $  13,441  $  12,689
   Taxable securities ........................   119,856    111,099    110,542
   Nontaxable securities .....................    34,699     30,122     25,184
   Federal funds sold ........................     9,796     23,279      3,032
   Loans, net ................................   508,293    438,072    397,787
   Property and equipment, net ...............    11,633     10,410      8,603
   Other assets ..............................    17,249     16,098     14,829
                                               --------------------------------
                                               $ 718,389  $ 642,521  $ 572,666
                                               ================================
LIABILITIES AND STOCKHOLDERS' EQUITY
   Noninterest-bearing demand deposits ....... $  62,317  $  52,538  $  48,330
   Interest-bearing demand deposits ..........    57,017     46,874     43,262
   Savings deposits ..........................   152,507    131,988    119,282
   Time deposits .............................   274,507    262,111    250,241
   Securities sold under agreements to
      repurchase and federal funds
      purchased ..............................    12,139      7,974      8,740
   FHLB borrowings ...........................    86,880     75,262     43,026
   Other liabilities .........................     4,659      4,250      4,255
   Redeemable common stock held by
      Employee Stock Ownership Plan ..........    10,127      8,491      7,049
   Stockholders' equity ......................    58,236     53,033     48,481
                                               --------------------------------
                                               $ 718,389  $ 642,521  $ 572,666
                                               ================================



<PAGE>


INTEREST INCOME AND EXPENSE



                                                    Year Ended December 31,
                                            ------------------------------------
                                                  1999       1998       1997
                                              ----------------------------------
                                                        (In Thousands)

Income:
   Loans (1) ................................. $  42,107  $  38,039  $  34,814
   Taxable securities ........................     7,167      6,832      6,769
   Nontaxable securities (1) .................     2,373      2,112      1,845
   Federal funds sold ........................       455      1,209        158
                                              ---------------------------------
              Total interest income ..........    52,102     48,192     43,586
                                              ---------------------------------
Expense:
   Interest-bearing demand deposits ..........     1,175        997        949
   Savings deposits ..........................     4,769      4,648      4,183
   Time deposits .............................    14,882     14,813     14,162
   Securities sold under agreements to
      repurchase .............................       517        417        426
   FHLB borrowings ...........................     4,970      4,379      2,782
                                              ---------------------------------
              Total interest expense .........    26,313     25,254     22,502
                                              ---------------------------------

              Net interest income ............ $  25,789  $  22,938  $  21,084
                                              =================================

(1)  Presented on a tax equivalent basis using a federal tax rate of 34%.




INTEREST RATES AND INTEREST DIFFERENTIAL


                                                        Year Ended December 31,
                                                   -----------------------------
                                                        1999     1998     1997
                                                   -----------------------------
Average yields:
   Taxable securities .............................     5.98%    6.15%    6.12%
   Nontaxable securities ..........................     4.51     4.63     4.84
   Nontaxable securities (tax equivalent basis) ...     6.84     7.01     7.33
   Loans (1) ......................................     8.25     8.64     8.70
   Loans (tax equivalent basis) ...................     8.28     8.68     8.75
   Federal funds sold .............................     4.64     5.19     5.21
   Interest-bearing demand deposits ...............     2.06     2.13     2.19
   Savings deposits ...............................     3.13     3.52     3.51
   Time deposits ..................................     5.42     5.65     5.66
   Securities sold under agreements to repurchase .     4.26     5.23     4.87
   Interest on FHLB borrowings ....................     5.72     5.82     6.47
   Yield on average interest-earning assets .......     7.75     8.00     8.12
   Rate on average interest-bearing liabilities ...     4.51     4.82     4.84
   Net interest spread (2) ........................     3.24     3.18     3.28
   Net interest margin (3) ........................     3.83     3.81     3.93


(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

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





<PAGE>


CHANGE IN INTEREST INCOME AND EXPENSE



                                                 Change Due  Change Due   Total
                                                 -------------------------------
                                                 To Volume    To Rates    Change
                                                 -------------------------------
                                                         (In Thousands)

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 ........................    (637)      (117)      (754)
                                                 -------------------------------
                                                    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
                                                 -------------------------------
                                                    2,424     (1,365)     1,059
                                                 -------------------------------
   Change in net interest income ................ $ 3,686   $   (835)   $ 2,851
                                                 ===============================

Year ended December 31, 1998:
   Change in interest income:
      Loans ..................................... $ 3,505    $  (280)   $ 3,225
      Taxable securities ........................      32         31        63
      Nontaxable securities .....................     330        (63)       267
      Federal funds sold ........................   1,052         (1)     1,051
                                                 -------------------------------
                                                    4,919       (313)     4,606
                                                 -------------------------------
   Change in interest expense:
      Interest-bearing demand deposits ..........      75        (27)        48
      Savings deposits ..........................     453         12        465
      Time deposits .............................     676        (25)       651
      Securities sold under agreements to
         repurchase .............................     (39)        30        (9)
      Interest on FHLB borrowings ...............   1,901       (304)     1,597
                                                 -------------------------------
                                                    3,066       (314)     2,752
                                                 -------------------------------
   Change in net interest income ................ $ 1,853    $     1    $ 1,854
                                                 ===============================

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 reserve
for loan losses) as of December 31 for each of the last five years.



                                                  December 31,
                             ---------------------------------------------------
                                1999      1998      1997      1996      1995
                             ---------------------------------------------------
                                                 (In Thousands)

Agricultural ................ $  27,302 $  32,318 $  27,636 $  23,133 $  19,000
Commercial and financial ....    36,848    39,438    33,616    30,650    26,810
Real estate, construction ...    40,879    28,476     8,157     8,846     7,937
Real estate, mortgage .......   439,072   338,871   332,655   279,134   239,899
Loans to individuals ........    31,030    30,664    28,707    33,812    31,640
                             ---------------------------------------------------
              Total ......... $ 575,131 $ 469,767 $ 430,771 $ 375,575 $ 325,286
                             ===================================================

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,
1999:
<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 ......... $  64,150  $  35,134  $  24,776  $   4,240
Real estate, construction and mortgage .........   479,951     73,126    192,431    214,394
Other ..........................................    31,030     10,492     19,732        806
                                                --------------------------------------------
                                                 $ 575,131  $ 118,752  $ 236,939  $ 219,440
                                                ============================================
Interest rates on loans are as follows:

   Fixed rate .................................. $ 355,167  $  98,300  $ 229,552  $  27,315
   Variable rate ...............................   219,964     20,452      7,387    192,125
                                                --------------------------------------------
                                                 $ 575,131  $ 118,752  $ 236,939  $ 219,440
                                                ============================================
</TABLE>

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



<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:



                                      1999     1998     1997     1996     1995
                                   ---------------------------------------------
                                                   (In Thousands)

Nonaccrual loans .................. $   - -  $    12  $   - -  $   339  $   489
Accruing loans past due
   90 days or more ................   1,320      945      954    1,092      417
Restructured loans
Impaired loans ....................   9,265    8,956    9,556    7,811    5,465


The Company does not have a significant  amount of loans which 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,
                                  ----------------------------------------------
                                     1999     1998     1997     1996     1995
                                  ----------------------------------------------
                                                  (In Thousands)

Amount of loan loss allowance
   at beginning of year .......... $ 8,856  $ 8,010  $ 7,311  $ 6,740  $ 6,210
                                  ----------------------------------------------
Charge-offs:
   Agriculture ...................      60        4      197      300      101
   Commercial and financial ......     181      431      326      236      387
   Real estate, mortgage .........     104      132      215      127      180
   Loans to individuals ..........     418      401      390      308      254
                                  ----------------------------------------------
                                       763      968    1,128      971      922
                                  ----------------------------------------------
Recoveries:
   Agriculture ...................     157      125       65       48      218
   Commercial and financial ......     260      256      195       95      226
   Real estate, mortgage .........      30      100      377      215      149
   Loans to individuals ..........     310      417      142       80      137
                                  ----------------------------------------------
                                       757      898      779      438      730
                                  ----------------------------------------------
Net charge-offs ..................       6       70      349      533      192
                                  ----------------------------------------------
Allowances of acquired banks .....     - -      - -      - -      350      - -
                                  ----------------------------------------------
Provision for loan losses (1) ....     900      916    1,048      754      722
                                  ----------------------------------------------
Balance of loan loss allowance
   at end of year ................ $ 9,750  $ 8,856  $ 8,010  $ 7,311  $ 6,740
                                  ==============================================
Ratio of net charge-offs during
   year to average loans
   outstanding ...................    0.00%    0.02%    0.09%    0.16%    0.06%
                                  ==============================================

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, 1999, 1998, 1997, 1996 and 1995.

(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 the loan portfolio and
       such other  factors  which deserve  current  recognition.  For income tax
       purposes, the allowance is maintained at the maximum allowable amount.


<PAGE>


ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The Banks review and place in risk categories  specific  borrowings.  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)  Potential watch and watch
(2)  Problem
(3)  Substandard
(4)  Doubtful

In  addition,   each  bank's  management  also  reviews  and,  where  determined
necessary,  allows  for  specific  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, 1999).

A summary of the components of the allowance for loan loss, by risk category, as
of December 31, 1999 and 1998 is as follows:


                                                         1999        1998
                                                  ------------------------------
                                                          (In Thousands)

Potential watch and watch loans ..................   $   3,164    $  2,905
Substandard ......................................       2,416       2,169
Specific borrowers (agricultural loans) ..........       1,025       1,048
Constructed model real estate homes ..............         925         969


Anticipated charge-offs of the above categories are not determinable at December
31, 1999;  however,  it is possible that  agricultural loan charge-offs could be
higher in 2000 than the historical average due to lower farm commodity prices in
recent months.


<PAGE>


INVESTMENT SECURITIES

The following tables show the carrying value of the investment  securities as of
December 31, 1999,  1998 and 1997 and the maturities and weighted  average yield
of the investment securities as of December 31, 1999:


                                                          December 31,
                                               ---------------------------------
                                                   1999       1998       1997
                                               ---------------------------------
                                                         (In Thousands)
Carrying value:
   U. S. Treasury securities .................. $  19,470  $  33,340  $  40,189
   Obligations of other U. S. Government
      agencies and corporations ...............    94,302     78,083     65,445
   Obligations of states and political
      subdivisions ............................    36,496     33,580     27,692
                                               ---------------------------------
                                                $ 150,268  $ 145,003  $ 133,326
                                               =================================


                                                            December 31, 1999
                                                        ------------------------
                                                                        Weighted
                                                          Carrying      Average
                                                           Value         Yield
                                                        ------------------------
                                                        (In Thousands)
Type and maturity grouping:
   U. S. Treasury maturities:
      Within 1 year .................................... $    9,029       6.23%
      From 1 to 5 years ................................     10,441       5.96
                                                        ------------
                                                             19,470
                                                        ------------
   Obligations of other U. S. Government agencies and
      corporations, maturities:
      Within 1 year ....................................     17,477       6.15%
      From 1 to 5 years ................................     76,353       6.02
      From 5 to 10 years ...............................        472       6.05
                                                        ------------
                                                             94,302
                                                        ------------
   Obligations of states and political subdivisions,
      maturities:
      Within 1 year ....................................      3,302       6.97%
      From 1 to 5 years ................................     19,080
      From 5 to 10 years ...............................     13,851       6.71
      Over 10 years ....................................        263       8.11
                                                        ------------
                                                             36,496
                                                        ------------
              Total .................................... $  150,268
                                                        ============



<PAGE>


INVESTMENT SECURITIES

As of  December 31,  1999,  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, 1999,  1998 and 1997 and the composition of the
certificates  issued in  denominations  in excess of $100,000 as of December 31,
1999:

<TABLE>

                                                                        December 31,
                                            ----------------------------------------------------------------
                                               1999       Rate      1998       Rate       1997       Rate
                                            ----------------------------------------------------------------
<S>                                          <C>          <C>     <C>          <C>      <C>          <C>
Average noninterest-bearing deposit ........ $  62,317    0.00%   $  52,538    0.00%    $  48,330    0.00%
Average interest-bearing demand
   deposits ................................    57,017    2.06       46,874    2.13        43,262    2.19
Average savings deposits ...................   152,507    3.13      131,988    3.52       119,282    3.51
Average time deposits ......................   274,507    5.42      262,111    5.65       250,241    5.66
                                            ----------           ----------            ----------
                                             $ 546,348            $ 493,511             $ 461,115
                                            ==========           ==========            ==========
</TABLE>
Time certificates issued in amounts
   of $100,000 or more as of
   December 31, 1999 with                         Amount               Rate
   maturity in:                                -------------------------------
   3 months or less ........................    $   4,861              5.15
   3 through 6 months ......................        9,228              5.05
   6 through 12 months .....................        6,285              5.07
   Over 12 months ..........................       10,068              5.60
                                               -----------
                                                $  30,442
                                               ===========

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, 1999, 1998 and 1997:



                                                            December 31,
                                                  ------------------------------
                                                     1999       1998       1997
                                                  ------------------------------
Return on assets ..............................      1.18%      1.17%      1.24%
Return on stockholders' equity ................     14.54      14.12      14.62
Dividend payout ratio .........................     22.56      23.52      21.69
Stockholders' equity to assets ratio ..........      8.11       8.25       8.47


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 1999, 1998 and 1997:



                                                    1999      1998      1997
                                                 -------------------------------
                                                     (Amounts In Thousands)

Outstanding as of December 31 ................... $ 26,714  $ 10,554  $  9,008
Weighted average interest rate at year end ......     4.28%     4.40%     4.30%
Maximum month-end balance .......................   27,815    10,547    16,104
Average month-end balance .......................   12,139     7,974     8,740
Weighted average interest rate for the year .....     4.26%     5.23%     4.87%


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 1999, 1998 and 1997:



                                                    1999      1998      1997
                                                --------------------------------
Outstanding as of December 31 .................. $ 108,700  $ 75,732  $ 50,764
Weighted average interest rate at year end .....      5.66%     5.68%     6.42%
Maximum month-end balance ......................   108,700    85,764    50,764
Average month-end balance ......................    86,880    75,262    43,026
Weighted average interest rate for the year ....      5.72%     5.82%     6.47%




<PAGE>


PART I

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
14,200  square feet, a portion of which was built in 1977 and remodeled in 1986.
A two-story addition was completed in 1984.

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 is 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 contains
       approximately  16,700 square feet of space.  This ofice is  equipped with
       four drive-up teller lanes and one 24-hour automatic teller machine.

3.     A  2,800 square foot  branch bank in North  Liberty,  Iowa was opened for
       business in 1986.  That office is a full-service location including three
       drive-up teller lanes and a drive-up automatic teller machine.

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 fet and
       the lease expires in June 2002.


The Lisbon office of Hills Bank 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.  Hills  Bank  Lisbon
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
lanes and a drive-up automatic teller machine. In February 2000, the Bank opened
a 2,900 square foot branch office in 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.


PART I

Item 3.   Legal Proceedings

There are no material pending legal proceedings.

Neither the Company nor the Banks hold any  properties  which 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, 1999.


<PAGE>


PART II

Item 5.   Market for the  Registrant's Common Stock and  Related Security Holder
          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, 1999, the Company had 1,166 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
--------------------------------------------------------------------------------
1999           6,415               22             $   70              $   58
1998           2,320               12                 58                  48
1997           7,314               12                 48                  40


The Company paid aggregate  annual cash dividends in 1999 and 1998 of $1,910,000
and $1,761,000,  respectively, or $1.30 per share in 1999 and $1.20 per share in
1998.  In January  2000,  the Company  declared and paid a dividend of $1.45 per
share  totaling  $2,169,000.  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>


PART II

Item 6.   Selected Financial Data

CONSOLIDATED FIVE-YEAR STATISTICAL SUMMARY

<TABLE>

                                                 1999        1998        1997        1996        1995
                                             ------------------------------------------------------------
<S>                                           <C>         <C>         <C>         <C>         <C>
YEAR-END TOTALS
   Total assets ............................. $  773,966  $  689,787  $  603,102  $  539,452  $  484,607
   Investment securities ....................    156,198     149,350     138,064     132,635     121,536
   Federal funds sold .......................        206      36,811       2,447       1,107      16,080
   Loans, net ...............................    565,381     460,911     422,761     368,264     318,546
   Deposits .................................    562,086     534,151     479,770     450,061     392,257
   Federal Home Loan Bank notes .............    108,700      75,732      50,764      25,795      30,727
   Redeemable common stock ..................     10,953       9,301       7,682       6,416       5,271
   Stockholders' equity .....................     60,264      56,452      51,500      47,335      43,277

EARNINGS

   Interest income .......................... $   51,121  $   47,289  $   42,743  $   37,516  $   33,978
   Interest expense .........................     26,313      25,254      22,502      19,951      18,468
   Provision for loan losses ................        900         916       1,048         754         722
   Other income .............................      6,437       5,811       5,938       3,868       3,438
   Other expenses ...........................     18,309      16,438      15,500      12,057      10,975
   Applicable income taxes ..................      3,570       3,006       2,545       2,478       1,994
   Net income ...............................      8,466       7,486       7,086       6,144       5,257

PER SHARE
   Net income:
      Basic ................................. $     5.70  $     5.10  $     4.83  $     4.19  $     3.59
      Diluted ...............................       5.66        5.02        4.78        4.15        3.57
   Cash dividends ...........................       1.30        1.20        1.05        0.95        0.87
   Book value as of December 31 .............      40.29       38.42       35.08       32.30       29.57
   Increase (decrease) in book value
      due to:
      ESOP obligation and debt ..............      (7.32)      (6.33)      (5.23)      (4.38)      (3.60)
      Unrealized gains (losses) on
        debt securities .....................      (0.66)       0.81        0.33        0.46        0.20

SELECTED RATIOS

   Return on average assets .................       1.18%       1.17%       1.24%       1.22%       1.14%
   Return on average equity .................      14.54       14.12       14.62       13.97       13.32
   Net interest margin ......................       3.83        3.81        3.93        3.86        3.74
   Average stockholders' equity to
      average total assets ..................       8.11        8.25        8.47        8.72        8.58
   Dividend payout ratio ....................      22.56       23.52       21.69       22.62       24.12
</TABLE>


<PAGE>


PART II

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>


Financial Position
------------------
<TABLE>

Year End Amounts (In Thousands)            1999       1998       1997       1996       1995
----------------------------------------------------------------------------------------------
<S>                                     <C>        <C>        <C>        <C>        <C>
Loans, net of allowance for losses .... $ 565,381  $ 460,911  $ 422,761  $ 368,264  $ 318,546
Investment securities .................   156,198    149,350    138,064    132,635    121,536
Deposits ..............................   562,086    534,151    479,770    450,061    392,257
Federal Home Loan Bank notes ..........   108,700     75,732     50,764     25,795     30,727
Stockholders' equity ..................    60,264     56,452     51,500     47,335     43,277
Total assets ..........................   773,966    689,787    603,102    539,452    484,607
</TABLE>


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. The 1998 loan growth of $38.2
million was also concentrated in real estate mortgage loans.

Total  assets  increased  12.20% in 1999,  compared  to an increase of 14.37% in
1998. The growth in assets in 1999 and 1998 was primarily attributable to strong
loan demand real estate mortgage loans.

Deposits  increased 5.23% in 1999 compared to an increase of 11.33% in 1998. The
banks continued to compete for deposits in a market area where the total deposit
growth was weak.  Federal Home Loan Bank note borrowings  increased by a net $33
million in 1999 and $25 million in 1998 with the advances  used to fund the loan
growth.

Components of Diluted Earnings Per Share
----------------------------------------

                                                     1999      1998      1997
--------------------------------------------------------------------------------

Net interest income ............................. $   16.59 $   14.78 $   13.64
Provision for loan losses .......................     (0.60)    (0.61)    (0.71)
Noninterest income ..............................      4.30      3.90      4.00
Noninterest expense .............................    (12.24)   (11.03)   (10.44)
                                                 -------------------------------
              Income before income taxes ........      8.05      7.04      6.49
Income tax expense ..............................     (2.39)    (2.02)    (1.71)
                                                 -------------------------------
              Net income ........................ $    5.66 $    5.02 $    4.78
                                                 ===============================

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 1998 increase in net income  resulted from increases in net interest  income
and noninterest income, but was partially offset by higher noninterest  expense.
Both  noninterest   income  and  noninterest   expense  for  1997  included  the
recognition  of a $1,054,000  gain on the  contribution  of a marketable  equity
security to Hills Bancorporation Foundation, a private charitable foundation. As
a result of the stock contribution,  Hills Bancorporation received an income tax
benefit of approximately $340,000, which reduced income tax expense.


<PAGE>


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 1999 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 ............................................ $  70,221    (0.39)% $  5,882  $ (1,814) $  4,068
Taxable securities ....................................     8,757    (0.17)       528      (193)      335
Nontaxable securities .................................     4,577    (0.17)       337       (76)      261
Federal funds sold ....................................   (13,483)   (0.72)      (637)     (117)     (754)
                                                       -----------          ------------------------------
                                                        $  70,072            $  6,110  $ (2,200) $  3,910
                                                       ===========          ==============================

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

Interest-bearing demand deposits ...................... $  10,143    (0.07)% $    212  $    (34) $    178
Savings deposits ......................................    20,519    (0.39)       672      (551)      121
Time deposits .........................................    12,396    (0.23)       685      (616)       69
Securities sold under agreements to repurchase ........     4,165    (0.97)       188       (88)      100
FHLB borrowings .......................................    11,618    (0.10)       667       (76)      591
                                                       -----------          ------------------------------
                                                        $  58,841      - -   $  2,424  $ (1,365)    1,059
                                                       ===========          ==============================
Change in net interest income .........................                      $  3,686  $   (835) $  2,851
                                                                            ==============================
</TABLE>

Net interest income changes for 1998 were as follows:

                                      Change In  Effect Of  Effect Of
                                       Average    Volume      Rate        Net
                                       Balance    Changes    Changes     Change
                                    --------------------------------------------
Interest-earning assets ............  $ 66,027    $ 4,919    $ (313)   $ 4,606
Interest-bearing liabilities .......    59,658      3,066      (314)     2,752
                                                --------------------------------
Change in net interest income ......             $  1,853    $    1    $ 1,854
                                                ================================


<PAGE>


A summary of the net interest spread and margin is as follows:

        (Tax Equivalent Basis)                            1999    1998    1997
--------------------------------------------------------------------------------

Yield on average interest-earning assets ...............  7.75%   8.00%   8.12%
Rate on average interest-bearing liabilities ...........  4.51    4.82    4.84
                                                        ------------------------
Net interest spread ....................................  3.24    3.18    3.28
Effect of noninterest-bearing funds ....................  0.59    0.63    0.65
                                                        ------------------------
Net interest margin (tax equivalent interest income
   divided by average interest-earning assets) .........  3.83%   3.81%   3.93%
                                                        ========================

Loan Losses
-----------

The provision for loan losses  totaled  $900,000,  $916,000 and  $1,048,000  for
1999, 1998 and 1997,  respectively.  Charge-offs,  net of recoveries were $6,000
for 1999, $70,000 for 1998 and $349,000 for 1997.

The allowance for loan losses  totaled  $9,750,000 at December 31, 1999 compared
to  $8,856,000  at  December  31,  1998.  The  percentage  of the  allowance  to
outstanding   loans  was  1.70%  and  1.89%  at  December  31,  1999  and  1998,
respectively.  The economy  remains strong in the Banks' trade areas of Johnson,
Washington and Linn Counties, Iowa. Unemployment remains quite low in the Bank's
trade territory and, for the most part,  area businesses have maintained  stable
employment levels.

Agricultural  loans totaled  $27,302,000  at December 31, 1999.  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 other significant change in
1999 except that agricultural loans experienced a $5,000,000  decrease from 1999
and  $100,000,000  of the  1999  loan  growth  was  in  real  estate  mortgages.
Therefore,  the estimation  methods and assumptions used in determining the 1999
allowance were consistent with 1998 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 a higher allowance for loan losses.

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>


Other Income
------------

Dollars Per Share, Based on Weighted Average
   Diluted Shares Outstanding                         1999     1998     1997
--------------------------------------------------------------------------------

Real estate origination fees ...................... $  0.39  $  0.54  $  0.26
Trust fees ........................................    1.36     1.17     0.92
Deposit account charges and fees ..................    1.47     1.23     1.28
Other fees and charges ............................    1.29     0.96     0.81
Other .............................................     - -      - -     0.10
Investment securities gains (losses) ..............   (0.21)     - -     0.63
                                                   -----------------------------
                                                    $  4.30  $  3.90 $   4.00
                                                   =============================

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 is due primarily to
the fewer loan refinancing  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 income was reduced for
1999 by  $315,000,  which  represented  investment  securities  losses  taken to
replace lower yielding  securities  with higher  yielding  securities of similar
risk and maturity.

In 1998,  total other income  increased  $967,000 on a comparable  basis to 1997
after adjusting for investment  securities gain in 1997 of $940,000 and $154,000
gain on the sale of the student loan  portfolio.  Due to the lower interest rate
environment in 1998,  loan  origination  fees  increased  $412,000 over the 1997
amount of  $387,000.  In  addition,  trust fees  increased  $380,000  due to new
accounts and higher balances under management.

Other Expenses
--------------

Dollars Per Share, Based on Weighted Average
   Diluted Shares Outstanding                         1999     1998     1997
--------------------------------------------------------------------------------

Salaries and employees benefits ................... $  6.56  $  5.75  $  4.79
Occupancy .........................................    0.84     0.76     0.68
Furniture and equipment ...........................    1.26     1.13     0.96
Office supplies and postage .......................    0.74     0.79     0.60
Contributions .....................................    0.03     0.03     0.75
Other .............................................    2.81     2.57     2.66
                                                   -----------------------------
                                                    $ 12.24  $ 11.03  $ 10.44
                                                   =============================

Other  expenses for 1999  increased to  $18,309,000  from  $16,438,000  in 1998.
Salaries and benefits  accounted  for  $1,200,000  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 1998 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 1999 and was the result of depreciation  and amortization
of major computer hardware and software additions in 1999 and late 1998.


<PAGE>


Salaries and benefits  increased  $1,457,000 in 1998 compared to 1997. The Banks
have added  positions  in the retail  sector of the Banks,  including  the Trust
Department,  as a result of increased  business.  At the end of 1998,  full time
equivalent  employees  totaled  253, an increase of 30 since  December 31, 1997.
Included in the 1998  increase  are new  personnel  located at the Mount  Vernon
office of Hills Bank  Lisbon,  which  opened in  February  1998.  Occupancy  and
furniture and equipment expenses increased $378,000 in 1998, or 15.45% over 1997
due to depreciation on the new office in Mount Vernon,  a new computer  hardware
and software system installed in the first quarter of 1998, and expenses related
to the Year 2000 computer changes which totaled approximately $88,000.

Income Taxes
------------

Income tax expense was $3,570,000, $3,006,000 and $2,545,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.  The corresponding percentage of
income taxes compared to income before income taxes is 29.66% in 1999, 28.65% in
1998 and 26.40% in 1997. Income tax expense for 1997 was 26.4% of pretax income,
compared to an average of 29.16% for other years, due to contributions.

Impact of Recently Issued Accounting Standards
----------------------------------------------

Recently issued accounting standards are summarized below.

Statement No. 133 on derivatives  will, in 2000,  require all  derivatives to be
recorded  at fair value in the  balance  sheet,  with  changes in fair value run
through  income.  If derivatives  are  documented  and effective as hedges,  the
change in the  derivative  fair value  will be offset by an equal  change in the
fair value of the hedged item.

This  standard  is not  expected to have a material  effect on future  financial
statements.


<PAGE>


Interest Rate Sensitivity and Liquidity Analysis
------------------------------------------------

At December 31, 1999,  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 ............. $     206  $     - -  $     - -  $    - -   $    - -  $     - -  $     206
   Investment
      securities ..................       - -        390      6,700     7,855     14,862    126,391    156,198
   Loans ..........................       - -     52,440     26,001    32,869     51,183    412,638    575,131
        Total earning              ----------------------------------------------------------------------------
           assets .................       206     52,830     32,701    40,724     66,045    539,029    731,535
Sources of funds:                  ----------------------------------------------------------------------------
   Interest-bearing
      checking and
      savings accounts ............    79,431        - -       - -        - -        - -    137,651    217,082
   Certificates of
      deposit .....................       - -     19,117    21,465     53,161     45,246    139,221    278,210
   Other borrowings -
      FHLB ........................       - -        - -    10,000      3,000      5,000     90,700    108,700
   Repurchase
      agreements and
      federal funds ...............    26,714        - -       - -        - -        - -        - -     26,714
                                   ----------------------------------------------------------------------------
                                      106,145     19,117    31,465     56,161     50,246    367,572    630,706
   Other sources,
      primarily
      noninterest-
      bearing .....................       - -        - -       - -        - -        - -    100,829    100,829
                                   ----------------------------------------------------------------------------
        Total sources .............   106,145     19,117    31,465     56,161     50,246    468,401    731,535
                                   ----------------------------------------------------------------------------
   Repricing
      differences ................. $(105,939)  $ 33,713  $  1,236  $ (15,437)  $ 15,799  $  70,628  $     - -
                                   ============================================================================
</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>

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  $1,419,000 as of December 31, 1999.  In 1999,  the holding  company
received  dividends of $1,911,000 from its subsidiary banks and used those funds
to pay dividends to its stockholders of $1,910,000.

As of December 31, 1999 and 1998,  stockholders' equity before deducting for the
maximum  cash  obligation  related  to ESOP  was  $71,217,000  and  $65,753,000,
respectively.  This  measure of equity as a percent of total assets was 9.20% at
December 31, 1999 and 9.53% at December 31,  1998.  These ratios are  comparable
with the  Company's  peers.  As of December 31, 1999,  total equity was 7.79% of
assets  compared  to 8.18% 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 subsidiaries  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
$4,032,000 as of December 31, 1999.

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,  1999,   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>


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, 1999,  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, 1999 with  minimum
requirements is presented below:


                                                                  Minimum
                                                      Actual    Requirements
                                                --------------------------------

Tier I Risk-Based Capital .......................      13.2%         4%
Total Risk-Based Capital ........................      14.47         8
Leverage Ratio ..................................       9.56         3

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

On a consolidated basis, 1999 cash flows from operations  provided  $10,844,000,
net  increases  in deposits  provided  $27,935,000  and  Federal  Home Loan Bank
borrowings provided $32,968,000.  These cash flows were invested in net loans of
$105,370,000,  net securities of $10,937,000 and net federal funds sold decrease
of  $36,605,000.  In  addition,  $1,937,000  was used to purchase  property  and
equipment.

At December 31, 1999,  the Company had total  outstanding  loan  commitments  of
$83,894,000.  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.

Commitments and Trends
----------------------

The Company has no material  commitments or plans which 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.

Year 2000
---------

Like other financial service providers and business  organizations,  the Company
took  appropriate  measures in advance of the calendar change on January 1, 2000
to  ensure  its  application  software  programs  and  operating  systems  would
accommodate this date value. Beginning in 1997, the Company began carrying out a
plan to address the "Y2K"  issue.  All systems were  examined to  determine  the
extent and complexity of their  vulnerability.  Evaluations  included  hardware,
software, mechanical and other critical systems.

In each case  where a  potential  problem  was  identified,  action was taken to
address it by replacing or upgrading the system  affected.  All critical systems
were tested by  simulating  Year 2000  operating  conditions  and  verifying the
results of those tests.  Contingency  plans were developed to ensure  operations
would  continue in the  unlikely  event a system  failed.  The Company  employed
verification  procedures  during the century  rollover period and encountered no
problems to any of its systems.

The Company's  plans  included  communications  to and evaluation of significant
borrowers to assess their  readiness  and  determine if loan  payments  could be
delayed due to Year 2000 problems.  To date, the Company has not experienced any
loan losses, nor does it anticipate future losses, related to this issue.

Total  capitalized  hardware and software costs of the Year 2000 project in 1999
and 1998 were  approximately  $136,000 and  $1,180,000,  respectively.  Expenses
charged to earnings  for the Year 2000 project in 1999 and 1998 were $88,000 and
$105,000,  respectively. In addition, the Company estimates the opportunity cost
of maintaining additional cash reserves have been $66,000 in 1999.


<PAGE>


PART II

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 which 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>


PART II

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>

                                           2000      2001      2002      2003      2004    Thereafter   Total    Fair Value
                                       ------------------------------------------------------------------------------------
<S>                                     <C>        <C>       <C>       <C>       <C>       <C>        <C>        <C>
Assets:
   Loans, fixed:
      Balance ......................... $  98,300  $ 41,605  $ 46,523  $ 63,964  $ 77,460  $  27,315  $ 355,167  $ 348,367
      Average interest rate ...........      8.25%     8.20%     8.26%     7.90%     7.69%      7.88%      8.03%

   Loans, variable:
      Balance ......................... $  20,452  $  1,344  $  2,349  $  1,629  $  2,065  $ 192,125  $ 219,964  $ 219,964
      Average interest rate ...........      8.89%     9.09%     8.96%     8.73%     8.68%      7.69%      7.84%

   Investments (1):
      Balance ......................... $  30,308  $ 42,268  $ 26,527  $ 28,249  $  8,537  $  20,515  $ 156,404  $ 156,253
      Average interest rate ...........      6.27%     5.96%     6.01%     6.34%     6.71%      6.78%      6.25%

Liabilities:
   Liquid
      deposits (2):
      Balance ......................... $ 217,082  $    - -  $    - -  $    - -  $    - -  $     - -  $ 217,082  $ 217,082
      Average interest rate ...........      2.95%     0.00%     0.00%     0.00%     0.00%      0.00%      2.95%

   Deposits,
      certificates:
      Balance ......................... $ 138,989  $ 99,994  $ 15,294  $ 18,741  $  5,192  $     - -  $ 278,210  $ 281,164
      Average interest rate ...........      5.20%     5.58%     5.22%     5.79%     5.51%      0.00%      5.38%
</TABLE>


(1)    Includes all available-for-sale investments, held-to-maturity investments
       and federal funds.

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

Item 8.   Financial Statements and Supplementary Data

The financial  statements  are included on Pages 33 through 61. The Company does
not  meet  the  requirements  of  Item  302 of  Regulation  S-K to  include  the
supplementary financial information required by that item.


<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,  1999 and 1998,  and the
related consolidated statements of income,  comprehensive income,  stockholders'
equity and cash flows for the years  ended  December  31,  1999,  1998 and 1997.
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,  1999 and 1998,  and the results of their
operations and their cash flows for the years ended December 31, 1999,  1998 and
1997 in conformity with generally accepted accounting principles.



                                               /s/McGLADREY & PULLEN, LLP



Iowa City, Iowa
February 14, 2000


<PAGE>


HILLS BANCORPORATION

CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In Thousands, Except Shares)
<TABLE>

ASSETS                                                                                             1999        1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>         <C>
Cash and due from banks (Note 9) .............................................................. $   21,765   $   16,427
Investment securities (Note 2):
   Available for sale (amortized cost 1999 $133,516; 1998 $121,954) ...........................    131,961      123,835
   Held to maturity (fair value 1999 $18,362; 1998 $21,740) ...................................     18,307       21,168
   Stock of Federal Home Loan Bank ............................................................      5,930        4,347
Federal funds sold ............................................................................        206       36,811
Loans, net of allowance for loan losses 1999 $9,750; 1998 $8,856 (Notes 3 and 10) .............    565,381      460,911
Property and equipment, net (Note 4) ..........................................................     11,646       11,193
Accrued interest receivable ...................................................................      6,376        5,885
Deferred income taxes, net (Note 8) ...........................................................      3,954        1,838
Other assets ..................................................................................      8,440        7,372
                                                                                               -------------------------
                                                                                                $  773,966   $  689,787
                                                                                               =========================
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Noninterest-bearing deposits ............................................................... $   66,794   $   68,100
   Interest-bearing deposits (Note 5) .........................................................    495,292      466,051
                                                                                               -------------------------
              Total deposits ..................................................................    562,086      534,151
   Federal funds purchased and securities sold under agreements to repurchase .................     26,714       10,554
   Federal Home Loan Bank notes (Note 6) ......................................................    108,700       75,732
   Accrued interest payable ...................................................................      2,040        2,048
   Other liabilities ..........................................................................      3,209        1,549
                                                                                               -------------------------
                                                                                                   702,749      624,034
                                                                                               -------------------------
Commitments and Contingencies (Notes 7 and 13)

Redeemable Common Stock Held By Employee Stock
   Ownership Plan (ESOP) (Note 7) .............................................................     10,953        9,301
                                                                                               -------------------------
Stockholders' Equity (Note 9)
   Capital stock, no par value; authorized 10,000,000 shares;
      issued 1999 1,495,941 shares; 1998 1,469,443 shares .....................................     10,214        9,140
   Retained earnings ..........................................................................     61,984       55,428
   Accumulated other comprehensive income, unrealized gains (losses)
      on  debt securities, net ................................................................       (981)       1,185
                                                                                               -------------------------
                                                                                                    71,217       65,753
   Less maximum cash obligation related to ESOP shares (Note 7) ...............................     10,953        9,301
                                                                                               -------------------------
                                                                                                    60,264       56,452
                                                                                               -------------------------
                                                                                                $  773,966   $  689,787
                                                                                               =========================
</TABLE>

See Notes to Financial Statements.

<PAGE>


HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, Except Per Share Amounts)
<TABLE>

                                                                        1999        1998        1997
-------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>         <C>
Interest income:
   Loans, including fees ........................................... $  41,933   $  37,854   $  34,598
   Investment securities:
      Taxable ......................................................     7,167       6,832       6,769
      Nontaxable ...................................................     1,566       1,394       1,218
   Federal funds sold ..............................................       455       1,209         158
                                                                    -----------------------------------
              Total interest income ................................    51,121      47,289      42,743
                                                                    -----------------------------------
Interest expense:
   Deposits ........................................................    20,826      20,458      19,294
   Securities sold under agreements to repurchase ..................       517         417         426
   FHLB borrowings .................................................     4,970       4,379       2,782
                                                                    -----------------------------------
              Total interest expense ...............................    26,313      25,254      22,502
                                                                    -----------------------------------
              Net interest income ..................................    24,808      22,035      20,241
Provision for loan losses (Note 3) .................................       900         916       1,048
                                                                    -----------------------------------
              Net interest income after provision for loan losses ..    23,908      21,119      19,193
                                                                    -----------------------------------
Other income:
   Loan origination fees ...........................................       592         799         387
   Trust fees ......................................................     2,029       1,743       1,363
   Deposit account charges and fees ................................     2,203       1,828       1,893
   Other fees and charges ..........................................     1,928       1,441       1,355
   Net gains (losses) on sale of  investment securities (Note 2) ...      (315)        - -         940
                                                                    -----------------------------------
                                                                         6,437       5,811       5,938
                                                                    -----------------------------------
Other expenses:
   Salaries and employee benefits ..................................     9,807       8,575       7,118
   Occupancy .......................................................     1,249       1,137       1,017
   Furniture and equipment .........................................     1,893       1,687       1,429
   Office supplies and postage .....................................     1,111       1,178         889
   Contributions ...................................................        45          39       1,118
   Other ...........................................................     4,204       3,822       3,929
                                                                    -----------------------------------
                                                                        18,309      16,438      15,500
                                                                    -----------------------------------
              Income before income taxes ...........................    12,036      10,492       9,631
Federal and state income taxes (Note 8) ............................     3,570       3,006       2,545
                                                                    -----------------------------------
              Net income ........................................... $   8,466   $   7,486   $   7,086
                                                                    ===================================

Earnings per share:
   Basic ........................................................... $    5.70   $    5.10   $    4.83
   Diluted .........................................................      5.66        5.02        4.78
</TABLE>


See Notes to Financial Statements.

<PAGE>

HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>

                                                                              1999        1998        1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>         <C>         <C>
Net income ............................................................... $  8,466   $  7,486   $  7,086
                                                                          ---------------------------------
Other comprehensive income, net of income taxes:
   Unrealized holding gains (losses) arising during the year,
      net of income taxes 1999 $(1,385); 1998 $413; 1997 $202 ............   (2,364)       700        464
   Reclassification adjustments for net (gains) losses realized in
      net income, net of income taxes 1999 $116; 1998 none;
      1997 $(285) ........................................................      198        - -       (655)
                                                                          ---------------------------------
              Other comprehensive income (loss) ..........................   (2,166)       700       (191)
                                                                          ---------------------------------
              Comprehensive income ....................................... $  6,300   $  8,186   $  6,895
                                                                          =================================
</TABLE>



See Notes to Financial Statements.


<PAGE>


HILLS BANCORPORATION

CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY  (Notes 7 and 9)
Years Ended December 31, 1999, 1998 and 1997
(In Thousands, Except Share Amounts)
<TABLE>

                                                                                    Less
                                                                                   Maximum
                                                                    Accumulated     Cash
                                                                       Other      Obligation
                                              Capital    Retained  Comprehensive   To ESOP
                                               Stock     Earnings     Income       Shares     Total
-----------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>         <C>       <C>          <C>

Balance, December 31, 1996 .................. $  8,997   $  44,078   $   676   $  (6,416)   $ 47,335
   Issuance of 2,993 shares of
      common stock ..........................       97         - -       - -         - -          97
   Redemption of 623 shares
      of common stock .......................      (24)        - -       - -         - -         (24)
   Change related to ESOP shares ............      - -         - -       - -      (1,266)     (1,266)
   Net income ...............................      - -       7,086       - -          - -      7,086
   Cash dividends ($1.05 per share) .........      - -      (1,537)      - -          - -     (1,537)
   Other comprehensive income ...............      - -         - -      (191)         - -       (191)
                                             --------------------------------------------------------
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 ...............      - -         - -    (2,166)         - -     (2,166)
                                             --------------------------------------------------------
Balance, December 31, 1999 .................. $ 10,214   $  61,984   $  (981)  $  (10,953)  $ 60,264
                                             ========================================================
</TABLE>

See Notes to Financial Statements.

<PAGE>

HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>

                                                                                        1999        1998        1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>         <C>
Cash Flows from Operating Activities
   Net income ..................................................................... $    8,466   $   7,486   $   7,086
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation ................................................................      1,484       1,325       1,143
      Amortization ................................................................        261         261         261
      Provision for loan losses ...................................................        900         916       1,048
      Net (gains) losses on disposition of investment securities ..................        315         - -        (940)
      Compensation paid by issuance of common stock ...............................         94          70          73
      Contribution of investment securities .......................................        - -         - -       1,054
      Deferred income taxes .......................................................       (847)        (15)       (417)
      (Increase) in accrued interest receivable ...................................       (491)       (444)       (557)
      Amortization of bond discount ...............................................        339         300         378
      (Increase) in other assets ..................................................     (1,329)       (425)        (88)
      Increase (decrease) in accrued interest and other liabilities ...............      1,652        (781)        603
                                                                                   -------------------------------------
              Net cash provided by operating activities ...........................     10,844       8,693       9,644
                                                                                   -------------------------------------
Cash Flows from  Investing  Activities
   Proceeds  from  maturities of investment securities:
      Available for sale ..........................................................     29,278      27,300      21,292
      Held to maturity ............................................................      2,862       2,607       2,590
   Proceeds from sales of available-for-sale securities ...........................     17,013         - -      16,411
   Purchases of investment securities:
      Available for sale ..........................................................    (60,090)    (40,380)    (42,083)
      Held to maturity ............................................................        - -         - -      (4,404)
   Federal funds sold, net ........................................................     36,605     (34,364)     (1,340)
   Loans made to customers, net of collections ....................................   (105,370)    (39,066)    (55,545)
   Purchases of property and equipment ............................................     (1,937)     (3,081)     (2,171)
                                                                                   -------------------------------------
              Net cash (used in) investing activities .............................    (81,639)    (86,984)    (65,250)
                                                                                   -------------------------------------
Cash Flows from Financing Activities
   Net increase in deposits .......................................................     27,935      54,381      29,709
   Net increase in federal funds purchased and
      securities sold under agreements to repurchase ..............................     16,160       1,546       2,937
   Borrowings from FHLB ...........................................................     50,000      40,000      30,000
   Payments on FHLB notes .........................................................    (17,032)    (15,032)     (5,031)
   Stock options exercised ........................................................        650         - -         - -
   Income tax benefits related to stock based compensation ........................        330          76         - -
   Dividends paid .................................................................     (1,910)     (1,761)     (1,537)
                                                                                   -------------------------------------
              Net cash provided by financing activities ...........................     76,133      79,210      56,078
                                                                                   -------------------------------------
</TABLE>


(Continued)

<PAGE>

HILLS BANCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>

                                                                       1999       1998       1997
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>        <C>        <C>

              Increase in cash and due from banks ................. $  5,338   $    919   $    472

Cash and due from banks:
   Beginning ......................................................   16,427     15,508     15,036
                                                                   --------------------------------
   Ending ......................................................... $ 21,765   $ 16,427   $ 15,508
                                                                   ================================
Supplemental Disclosures
   Cash payments for:
      Interest paid to depositors and others ...................... $ 20,824   $ 20,470   $ 19,186
      Interest paid on other obligations ..........................    5,487      4,796      3,208
      Income taxes ................................................    3,755      3,544      2,942

   Noncash financing transactions:
      Increase in maximum cash obligation related to
        ESOP shares ............................................... $  1,652   $  1,619   $  1,266
      Available-for-sale investment securities transferred
        as a charitable contribution ..............................      - -        - -      1,054
</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  three
wholly-owned  subsidiary  commercial  banks  are Hills  Bank and Trust  Company,
Hills, Iowa, Hills Bank, Lisbon, 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, 1999 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, 1999 and 1998.

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.

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.
<PAGE>

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.

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  $3,021,000  and  $3,282,000,  net of accumulated
amortization  of $876,000  and  $615,000 as of December 31, 1999 and 1998 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.

Following is a reconciliation of the denominator:
<TABLE>

                                                                            Year Ended December 31,
                                                             ---------------------------------------------
                                                                  1999             1998            1997
                                                             ---------------------------------------------
<S>                                                            <C>              <C>             <C>
Weighted average number of shares ...........................  1,483,540        1,467,772       1,465,914
Potential number of dilutive shares .........................     11,784           22,702          18,040
                                                             ---------------------------------------------
Total shares to compute diluted earnings per share ..........  1,495,324        1,490,474       1,483,954
                                                             =============================================
</TABLE>

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

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 sold 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.

   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 borrowings under repurchase
   agreements 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, 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
                                             ===============================================
December 31, 1998:
   U. S. Treasury ........................... $  32,804    $   536    $   - -     $  33,340
   U. S. Government agencies and
      corporations ..........................    76,882      1,206         (5)       78,083
   State and political subdivisions .........    12,268        168        (24)       12,412
                                             -----------------------------------------------
              Total ......................... $ 121,954    $ 1,910    $   (29)    $ 123,835
                                             ===============================================
</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, 1999:
   States and political subdivisions ........ $  18,307    $   93    $   (38)   $  18,362
                                             =============================================
December 31, 1998:
   States and political subdivisions ........ $  21,168    $  574    $    (2)   $  21,740
                                             =============================================
</TABLE>

The contractual  maturity  distribution of investment  securities as of December
31, 1999 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 ........................ $  27,085    $  27,082    $  2,726    $  2,729
Due after one year through five years ..........    92,901       91,739      14,135      14,181
Due after five years through ten years .........    13,330       12,952       1,371       1,377
Due over ten years .............................       200          188          75          75
                                                -------------------------------------------------
              Total ............................ $ 133,516    $ 131,961    $ 18,307    $ 18,362
                                                =================================================
</TABLE>


As of  December  31,  1999,  investment  securities  with a  carrying  value  of
$58,981,000 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:

                                          Year Ended December 31,
                                    -----------------------------------
                                         1999      1998       1997
                                    -----------------------------------
                                          (Amounts In Thousands)

Gross gains ........................  $      4  $    - -  $   1,059
Gross (losses) .....................      (319)      - -       (119)
                                    -----------------------------------
              Net gains (losses) ...  $   (315) $    - -  $     940
                                    ===================================

Included in 1997 gains was the contribution of a marketable equity security to a
private  charitable  foundation  organized by the Company,  upon which a gain of
$1,054,000 was recognized. The marketable equity security was an investment in a
development stage company that later became a public entity.


<PAGE>

Note 3.   Loans

The composition of loans is as follows:

                                                             December 31,
                                                      --------------------------
                                                           1999        1998
                                                      --------------------------
                                                        (Amounts In Thousands)

Agricultural ......................................... $  27,302   $  32,318
Commercial and financial .............................    36,848      39,438
Real estate:
   Construction ......................................    40,879      28,476
   Mortgage ..........................................   439,072     338,871
Loans to individuals .................................    31,030      30,664
                                                      --------------------------
                                                         575,131     469,767
Less allowance for loan losses .......................     9,750       8,856
                                                      --------------------------
                                                       $ 565,381   $ 460,911
                                                      ==========================

Changes in the allowance for loan losses are as follows:

                                                 Year Ended December 31,
                                          --------------------------------------
                                              1999        1998        1997
                                          --------------------------------------
                                                 (Amounts In Thousands)

Balance, beginning ....................... $  8,856   $  8,010   $  7,311
   Provision charged to expenses .........      900        916      1,048
   Recoveries ............................      757        898        779
   Loans charged off .....................     (763)      (968)    (1,128)
                                          --------------------------------------
Balance, ending .......................... $  9,750   $  8,856   $  8,010
                                          ======================================

Information about impaired loans as of and for the years ended December 31, 1999
and 1998 is as follows:

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

Loans receivable for which there is a
   related allowance for credit losses ........... $     - -   $    - -
Loans receivable for which there is no
   related allowance for credit losses ...........     9,750      8,956
                                                  --------------------------
              Total impaired loans ............... $   9,750   $  8,956
                                                  ==========================
Related allowance for credit losses .............. $     - -   $    - -
Average balance ..................................     9,110      9,216
Interest income recognized .......................       814        869

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.
<PAGE>

Note 4.   Property and Equipment

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

                                                       December 31,
                                                  ----------------------
                                                     1999       1998
                                                  ----------------------
                                                  (Amounts In Thousands)

Land ............................................. $   2,195   $  1,950
Buildings and improvements .......................     8,858      8,363
Furniture and equipment ..........................    12,129     10,932
                                                  ----------------------
                                                      23,182     21,245
Less accumulated depreciation ....................    11,536     10,052
                                                  ----------------------
              Net ................................ $  11,646   $ 11,193
                                                  ======================


Note 5.   Interest-Bearing Deposits

A summary of these deposits is as follows:


                                                       December 31,
                                                  -----------------------
                                                      1999       1998
                                                  -----------------------
                                                  (Amounts In Thousands)

NOW and other demand ............................. $   62,081   $  53,296
Savings ..........................................    155,001     144,177
Time, $100,000 and over ..........................     30,442      33,657
Other time .......................................    247,768     234,921
                                                  -----------------------
                                                   $  495,292   $ 466,051
                                                  =======================

Note 6.   Federal Home Loan Bank Borrowings

As of December 31, 1999, the borrowings were as follows:
                                                            (In Thousands)
                                                            --------------

Due January 24, 2000, 6.21% ................................. $  10,000
Due April 9, 2000, 6.71% ....................................     3,000
Due November 18, 2002, 5.33% ................................     5,000
Due August 17, 2005, 7.12% ..................................       100
Due January 14, 2008, 5.22% .................................    10,000
Due February 4, 2008, 5.38% .................................    10,000
Due February 4, 2008, 5.25% .................................    10,000
Due April 30, 2008, 5.40% ...................................    10,000
Due August 11, 2008, 6.00% ..................................       600
Due June 15, 2009, 5.66% ....................................    10,000
Due June 15, 2009, 6.04% ....................................    10,000
Due June 17, 2009, 5.11% ....................................     5,000
Due October 6, 2009, 5.37% ..................................     5,000
Due October 6, 2009, 5.85% ..................................    10,000
Due October 6, 2009, 6.22% ..................................    10,000
                                                             -----------
                                                              $ 108,700
                                                             ===========

The  borrowings  are  collateralized  by 1-4 family  mortgage  loans with a face
amount of  $135,875,000.  As of December 31, 1999, the Company held Federal Home
Loan Bank stock with a cost of $5,930,000.

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
$64,000,  $58,000 and $49,000 for the years ended  December 31,  1999,  1998 and
1997, 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, 1999,  156,474  shares held by the ESOP, at a fair value of $70 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  $509,000,  $461,000  and
$394,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

The Company has a Stock  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.  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. Additional compensation is accrued equivalent to the
amount of dividends  that would have been paid on the stock had the options been
exercised.  Such  compensation  is payable  upon  exercise  of the  options.  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,
                                                --------------------------
                                                  1999     1998     1997
                                                --------------------------

Pro forma net income (in thousands) ........... $ 8,461  $ 7,481  $ 7,084
Pro forma earnings per share:
   Basic ......................................    5.70     5.10     4.83
   Diluted ....................................    5.66     5.02     4.77


The pro forma  effects of applying  SFAS are not  indicative  of future  amounts
since, among other reasons, the pro forma requirements of SFAS No. 123 have been
applied only to options granted after December 31, 1994.

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 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.

A summary of the stock options is as follows:

                                                                  Weighted
                                                                  Average
                                                    Number        Exercise
                                                   Of Shares       Price
                                                 --------------------------

Balance, December 31, 1997 ......................   46,569      $   26.45
   Exercised ....................................   (1,029)         25.33
                                                 --------------------------
Balance, December 31, 1998 ......................   45,540          26.48
   Exercised ....................................  (25,078)         25.93
                                                 --------------------------
Balance, December 31, 1999 ......................   20,462      $   27.15
                                                 ==========================



                                                  1999      1998      1997
                                              --------------------------------
Number of options exercisable, end of year ...   20,462    45,540    22,605
Weighted-average fair value of options granted
   during the year ........................... $    - -  $    - -  $  13.22


Other pertinent  information  related to the options outstanding at December 31,
1999 is as follows:

                                             Remaining
 Exercise               Number              Contractual              Number
  Price              Outstanding               Life                Exercisable
--------------------------------------------------------------------------------
$  25.33               12,330                27 Months               12,330
   26.17                6,077                30 Months                6,077
   41.00                2,055                75 Months                2,055
                     ----------                                    ----------
                       20,462                                        20,462
                     ==========                                    ==========

As of December 31, 1999, no options were available for future grants.

The committee is also  authorized to grant awards of common stock and authorized
the  issuance  of  1,587,  902 and 938  shares  of  common  stock  to a group of
employees in 1999, 1998 and 1997, respectively.


<PAGE>
Note 8.   Income Taxes

Income taxes for the years ended December 31, 1999, 1998 and 1997 are summarized
as follows:
                                                 1999      1998      1997
                                              -------------------------------
                                                  (Amounts In Thousands)
Current:
   Federal ................................... $  3,707  $  2,435  $  2,399
   State .....................................      710       586       563
Deferred .....................................     (847)      (15)     (417)
                                              -------------------------------
                                               $  3,570  $  3,006  $  2,545
                                              ===============================

Deferred income tax  liabilities  and assets arose from the following  temporary
differences:

                                                       December 31,
                                           ------------------------------
                                              1999      1998      1997
                                           ------------------------------
                                                 (Amounts In Thousands)
Deferred income tax assets:
   Allowance for loan losses .............. $ 3,597   $ 3,079   $ 2,622
   Unrealized losses on debt securities ...     574       - -       - -
   Deferred compensation ..................     311       156        77
   Certain accrued expenses ...............     190       211       302
   Other ..................................     112       - -       - -
                                           ------------------------------
      Gross tax assets ....................   4,784     3,446     3,001
                                           ------------------------------
Deferred income tax liabilities:
   Property and equipment .................     700       677       644
   FHLB dividends .........................     130       130       130
   Unrealized gains on debt securities ....     - -       696       283
   Other ..................................     - -       105        85
                                           ------------------------------
      Gross tax liabilities ...............     830     1,608     1,142
                                           ------------------------------
      Net deferred income tax asset ....... $ 3,954   $ 1,838   $ 1,859
                                           ==============================


The net change in the  deferred  income  taxes for the years ended  December 31,
1999, 1998 and 1997 is reflected in the financial statements as follows:

                                                 Year Ended December 31,
                                           ----------------------------------
                                               1999       1998        1997
                                           ----------------------------------
                                                 (Amounts In Thousands)


Statement of income ....................... $    (847) $    (15) $    (417)
Statement of stockholders' equity .........    (1,269)      413        (83)
                                           ----------------------------------
                                            $  (2,116) $    398  $    (500)
                                           ==================================


The income tax provisions  for the years ended December 31, 1999,  1998 and 1997
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:

                                1999               1998               1997
                        --------------------------------------------------------
                                    % Of               % Of               % Of
                                   Pretax             Pretax             Pretax
                           Amount  Income     Amount  Income     Amount  Income
                        --------------------------------------------------------
                                          (Amounts In Thousands)

Expected provision ..... $ 4,213    35.0%   $ 3,672    35.0%   $ 3,371    35.0%
Tax-exempt interest ....    (647)   (5.3)      (596)   (5.7)      (557)   (5.8)
Interest expense
   limitation ..........     120     1.0        102     1.0         97     1.0
Investment securi-
   ties contributed ....     - -     - -        - -     - -       (358)   (3.7)
State income taxes,
   net of federal
   income tax
   benefit .............     468     3.9        398     3.8        372     3.9
Income tax credits .....    (345)   (2.9)      (345)   (3.3)      (345)   (3.6)
Other ..................    (239)   (2.0)      (225)   (2.2)       (35)   (0.4)
                        --------------------------------------------------------
                         $ 3,570    29.7%   $ 3,006    28.6%   $ 2,545    26.4%
                        ========================================================
<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, 1999 with the minimum
requirements is presented below.

                                                                  Minimum
                                                     Actual     Requirements
                                                --------------------------------
Tier 1 Risk-Based Capital .......................    13.21%         4.00%
Total Risk-Based Capital ........................    14.47%         8.00%
Leverage Ratio ..................................     9.56%         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 $4,032,000 as of December 31, 1999
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  $7,938,000 and $5,783,000 as of
December 31, 1999 and 1998, 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, 1999 and 1998:

                                           Year Ended December 31,
                                        ----------------------------
                                              1999         1998
                                        ----------------------------
                                           (Amounts In Thousands)

Balance, beginning .....................  $  10,981    $  10,511
   Advances ............................      5,732        7,077
   Collections .........................     (5,980)      (6,607)
                                        ----------------------------
Balance, ending ........................  $  10,733    $  10,981
                                        ============================

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, 1999 and 1998 are as follows:
<TABLE>

                                                      1999                    1998
                                             ------------------------------------------------
                                               Carrying   Estimated    Carrying   Estimated
                                                Amount    Fair Value    Amount    Fair Value
                                             ------------------------------------------------
                                                          (Amounts In Thousands)
<S>                                           <C>         <C>         <C>         <C>
Cash and due from banks ..................... $  21,765   $  21,765   $  16,427   $  16,427
Federal funds sold ..........................       206         206      36,811      36,811
Investment securities .......................   156,198     156,253     149,350     149,922
Loans .......................................   565,381     568,331     460,911     468,581
Accrued interest receivable .................     6,376       6,376       5,885       5,885
Deposits ....................................   562,086     565,040     534,151     536,824
Securities sold under agreements
   to repurchase ............................    26,714      26,714      10,554      10,554
Borrowings from Federal Home Loan
   Bank .....................................   108,700     109,112      75,732      78,609
Accrued interest payable ....................     2,040       2,040       2,048       2,048

                                              Face Amount             Face Amount
                                              -----------             -----------
Off-balance sheet instruments:
   Loan commitments ......................... $  83,894   $     - -   $  93,920   $     - -
   Letters of credit ........................    10,711         - -      10,571         - -
</TABLE>


Note 12.   Parent Company Only Financial Information

Following is condensed  financial  information  of the Company  (parent  company
only):
                                 BALANCE SHEETS
                           December 31, 1999 and 1998
                             (Amounts In Thousands)

ASSETS                                                        1999      1998
--------------------------------------------------------------------------------
Cash ..................................................... $  1,419  $    698
Investment securities available for sale .................      499       303
Investment in subsidiary banks ...........................   68,790    64,332
Other assets .............................................      833       653
                                                          ----------------------
              Total assets ............................... $ 71,541  $ 65,986
                                                          ======================

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Liabilities .............................................. $    324  $    233
                                                          ----------------------
Redeemable common stock held by ESOP .....................   10,953     9,301
                                                          ----------------------
Stockholders' equity:
   Capital stock .........................................   10,214     9,140
   Retained earnings .....................................   61,984    55,428
   Unrealized gains (losses) on investment
      securities, net ....................................     (981)    1,185
                                                          ----------------------
                                                             71,217    65,753
   Less maximum cash obligation related to ESOP shares ...   10,953     9,301
                                                          ----------------------
              Total stockholders' equity .................   60,264    56,452
                                                          ----------------------
              Total liabilities and stockholders' equity . $ 71,541  $ 65,986
                                                          ======================


                              STATEMENTS OF INCOME
                  Years Ended December 31, 1999, 1998 and 1997
                             (Amounts In Thousands)

                                                      1999     1998     1997
--------------------------------------------------------------------------------
Interest on investment securities ................. $    16  $    17  $    17
Gain on sale of investment security ...............     - -      - -    1,054
Dividends received from subsidiaries ..............   1,911    2,762    2,515
Contributions .....................................     - -      - -   (1,054)
Other expenses ....................................    (121)    (113)    (102)
      Income before income taxes and equity        -----------------------------
         in subsidiaries' undistributed income ....   1,806    2,666    2,430
Income tax benefit ................................      37       39      370
                                                   -----------------------------
                                                      1,843    2,705    2,800
Equity in subsidiaries' undistributed income ......   6,623    4,781    4,286
                                                   -----------------------------
              Net income .......................... $ 8,466  $ 7,486  $ 7,086
                                                   =============================
<PAGE>


                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997
                             (Amounts In Thousands)
<TABLE>

                                                                 1999       1998       1997
----------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
   Net income ............................................... $  8,466   $  7,486   $  7,086
   Noncash items included in net income:
      Undistributed earnings of subsidiaries ................   (6,623)    (4,781)    (4,286)
      (Increase) decrease in other assets ...................     (180)       357       (174)
      Increase (decrease) in liabilities ....................       90        (84)      (225)
                                                             ---------------------------------
              Net cash provided by operating activities .....    1,753      2,978      2,401
                                                             ---------------------------------
Cash flows from investing activities:
   Investment in subsidiary banks ...........................      - -     (1,000)      (750)
   Proceeds from maturities of investment securities ........      303        300        - -
   Purchase of investment securities ........................     (499)      (303)       - -
                                                             ---------------------------------
              Net cash (used in) investing activities .......     (196)    (1,003)      (750)
                                                             ---------------------------------
Cash flows (used in) financing activities:
   Stock issued .............................................      744        - -        - -
   Income tax benefits related to stock based
      compensation ..........................................      330         76        - -
   Dividends paid ...........................................   (1,910)    (1,761)    (1,537)
                                                             ---------------------------------
              Net cash (used in) financing activities .......     (836)    (1,685)    (1,537)
                                                             ---------------------------------
              Increase (decrease) in cash ...................      721        290        114
Cash balance:
   Beginning ................................................      698        408        294
                                                             ---------------------------------
   Ending ................................................... $  1,419   $    698   $    408
                                                             =================================
</TABLE>


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 $15,898,000.  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 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.


<PAGE>


Note 13.   Commitments and Contingencies (Continued)

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, 1999 and 1998
is as follows:

                                                             1999       1998
                                                        ------------------------
                                                         (Amounts In Thousands)
Firm loan commitments and unused portion of
   lines of credit:
   Home equity loans .................................... $  3,628  $   3,509
   Credit card participations ...........................   10,695      8,689
   Commercial, real estate and home construction ........   35,882     27,549
   Commercial lines .....................................   33,689     54,173
Outstanding letters of credit ...........................   10,711     10,571


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.


<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     47      Director of Registrant and Bank; President, Registrant and Bank               1986 (1975)

Willis M. Bywater        61      Director of Registrant and Bank; Chairman of the Board, Bank;                 1997
                                    Vice President of the Registrant; Executive Officer and Shareholder
                                    of Economy Advertising Company

Earl M. Yoder            72      Director of Registrant and Bank; Vice President of the Registrant;            1997
                                    Executive Officer and Shareholder of Iowa City Ready Mix, Inc.

James G. Pratt           51      Treasurer of Registrant; Senior Vice President from January 1986              1985 (1982)
                                    to present

Thomas J. Cilek          53      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


                                                                       Form 10-K
                                                                       Reference
                                                                       ---------
(a)  1.  Financial Statements
         Independent auditor's report on the financial statements
         Consolidated balance sheets as of December 31, 1999 and 1998
         Consolidated statements of income for the years ended
            December 31, 1999, 1998 and 1997
         Consolidated statements of comprehensive income for the years
            ended December 31, 1999, 1998 and 1997
         Consolidated statements of stockholders' equity for the years
            ended December 31, 1999, 1998 and 1997
         Consolidated statements of cash flows for the years ended
            December 31, 1999, 1998 and 1997
         Notes to financial statements

(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  December 31,  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 11 - Statement Re Computation of Basic and Diluted Earnings Per
         Share is attached on Page 68.

         Exhibit 21 - Subsidiaries of the Registrant is attached on Page 69.

         Exhibit 23 - Consent of Accountants is attached on Page 70.

         Exhibit 27 - Financial Data Schedule is attached on Pages 71 and 72.

(b)      Reports on Form 8-K:

         There were no reports on Form 8-K  for the three months  ended December
         31, 1999.


<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

Date March 30, 1999                 By /s/ Dwight O. Seegmiller
    --------------------------      --------------------------------------------
                                    Dwight O. Seegmiller, Director and President

Date March 30, 1999                 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.

Date  March 30, 1999                By /s/ Willis M. Bywater
    --------------------------      --------------------------------------------
                                    Willis M. Bywater, Director

Date March 30, 1999                 By /s/ Thomas J. Gill
    --------------------------      --------------------------------------------
                                    Thomas J. Gill, Director

Date March 30, 1999                 By /s/ Donald H. Gringer
    --------------------------      --------------------------------------------
                                    Donald H. Gringer, Director

Date March 30, 1999                 By /s/ Richard W. Oberman
    --------------------------      --------------------------------------------
                                    Richard W. Oberman, Director

Date March 30, 1999                 By /s/ Theodore H. Pacha
    --------------------------      --------------------------------------------
                                    Theodore H. Pacha, Director

Date March 30, 1999                 By /s/ Ann M. Rhodes
    --------------------------      --------------------------------------------
                                    Ann M. Rhodes, Director

Date March 30, 1999                 By /s/ Ronald E. Stutsman
    --------------------------      --------------------------------------------
                                    Ronald E. Stutsman, Director

Date March 30, 1999                 By /s/ Earl M. Yoder
    --------------------------      --------------------------------------------
                                    Earl M. Yoder, Director

Date March 30, 1999                 By /s/ Sheldon E. Yoder
    --------------------------      --------------------------------------------
                                    Sheldon E. Yoder, Director





<PAGE>


                              HILLS BANCORPORATION
                       ANNUAL REPORT ON FORM 10-K FOR THE
                       FISCAL YEAR ENDED DECEMBER 31, 1999

                                  EXHIBIT INDEX



 Exhibit
 Number                            Description
--------------------------------------------------------------------------------
   11      Statement Re Computation of Basic and Diluted Earnings Per Share

   21      Subsidiaries of the Registrant

   23      Consent of Independent Certified Public Accountants

   27      Financial Data Schedule