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| For the fiscal year ended December 31, 2009. | Commission File Number 0-12668. |
|----------------------------------------------|---------------------------------|

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

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Table of Contents 

HILLS 

|     |                                                                                                               | Page   |
|----------|--------------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                               |   |
|     | PART I                                                                                                             |   |
|     |                                                                                                               |   |
| Item 1.  | Business                                                                                                           | 3      |
|     | General                                                                                                            | 3      |
|     | Competition                                                                                                        | 5      |
|     | The Economy                                                                                                        | 6      |
|     | Supervision and Regulation                                                                                         | 7      |
|     | Consolidated Statistical Information                                                                               | 13     |
| Item 1A. | Risk Factors                                                                                                       | 28     |
| Item 1B. | Unresolved Staff Comments                                                                                          | 35     |
| Item 2.  | Properties                                                                                                         | 36     |
| Item 3.  | Legal Proceedings                                                                                                  | 37     |
| Item 4.  | Reserved                                                                                                           | 37     |
|     |                                                                                                               |   |
|     |                                                                                                               |   |
|     | Part II                                                                                                            |   |
| Item 5.  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 38     |
| Item 6.  | Selected Financial Data                                                                                            | 41     |
| Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operation                         | 42     |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk                                                         | 60     |
| Item 8.  | Consolidated Financial Statements and Supplementary Data                                                           | 61     |
| Item 9.  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                               | 99     |
| Item 9A. | Controls and Procedures                                                                                            | 99     |
| Item 9B. | Other Information                                                                                                  | 100    |
|     |                                                                                                               |   |
|     |                                                                                                               |   |
|     | Part III                                                                                                           |   |
| Item 10. | Directors, Executive Officers and Corporate Governance                                                             | 100    |
| Item 11. | Executive Compensation                                                                                             | 100    |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                     | 100    |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence                                          | 100    |
| Item 14. | Principal Accounting Fees and Services                                                                             | 100    |
|     |                                                                                                               |   |
|     |                                                                                                               |   |
|     | Part IV                                                                                                            |   |
| Item 15. | Exhibits, Consolidated Financial Statement Schedules                                                               | 101    |

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PART 

| Item 1. | Business |
|---------|----------|

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| Item 1. | Business (Continued) |
|---------|----------------------|

| Employer                                   | Type of Business                 | Employees                                                   |
|--------------------------------------------|----------------------------------|-------------------------------------------------------------|
| Cedar Rapids and Linn-Mar School Districts | Education                        |          3,800 |
| AEGON USA, Inc.                            | Insurance                        |          3,700 |
| Heartland Express, Inc.                    | Trucking                         |          3,300 |
| Hy-Vee Food Stores                         | Grocery Stores                   |          3,100 |
| St. Luke's Hospital                        | Health Care                      |          3,100 |
| Mercy Medical Center                       | Health Care                      |          2,700 |
| Wal-Mart Stores, Inc.                      | Discount Store                   |          1,800 |
| Iowa City Community School District        | Education                        |          1,600 |
| Kirkwood Community College                 | Education                        |          1,500 |
| Veteran's Administration Medical Center    | Health Care                      |          1,500 |
| Mercy Iowa City                            | Health Care                      |          1,400 |
| Pearson Educational Measurement            | Information Services - Computers |          1,400 |
| City of Cedar Rapids                       | City Government                  |          1,200 |
| PRC                                        | Telemarketing Services           |          1,200 |
| ACT, Inc.                                  | Educational Testing Service      |          1,200 |
| Quaker Oats Company                        | Cereals and Chemicals            |          1,100 |

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| Item 1. | Business (Continued) |
|---------|----------------------|

|                                        |   | Johnson County |   |   | Linn County            |   |   | Washington County |   |
|---------------------------------------------|--------|----------------|--------|--------|------------------------|--------|--------|-------------------|--------|
|                                        |   | Offices        |   |   | Deposits (in millions) |   |   | Offices           |   |   | Deposits (in millions) |   |   | Offices |   |   | Deposits(in millions) |   |
|                                        |   |           |   |   |                   |   |   |              |   |   |   |   |   |   |   |   |   |   |
| Hills Bank and Trust Company                |   |           | 6      |   |                   | $      | 997    |              |   |   | 6 |   |   | $ | 272 |   |   |   | 2 |   |   | $ | 88 |   |
| Branches of largest competing national bank |   |           | 7      |   |                   |   | 203    |              |   |   | 9 |   |   |   | 652 |   |   |   | 1 |   |   |   | 23 |   |
| Largest competing independent bank          |   |           | 8      |   |                   |   | 482    |              |   |   | 8 |   |   |   | 488 |   |   |   | 2 |   |   |   | 166 |   |
| Largest competing credit union              |   |           | 7      |   |                   |   | 658    |              |   |   | 9 |   |   |   | 459 |   |   |   | 1 |   |   |   | 1 |   |
| All other bank and credit union offices     |   |           | 29     |   |                   |   | 596    |              |   |   | 79 |   |   |   | 2,627 |   |   |   | 7 |   |   |   | 204 |   |
| Total Market in County                      |   |           | 57     |   |                   | $      | 2,936  |              |   |   | 111 |   |   | $ | 4,498 |   |   |   | 13 |   |   | $ | 482 |   |

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| Item 1. | Business (Continued) |
|---------|----------------------|

|              |   | Labor Force |        |   | Unemployed |   |       | Rate % |   |
|-------------------|--------|-------------|-------------|--------|------------|--------|------------|--------|--------|
|              |   |        |        |   |       |   |       |   |   |
| United States     |   |        | 153,059,000 |   |       |   | 15,267,000 |   |   |   | 10.0 | % |
| State of Iowa     |   |        | 1,683,800   |   |       |   | 110,800    |   |   |   | 6.6 | % |
| Johnson County    |   |        | 79,900      |   |       |   | 3,500      |   |   |   | 4.4 | % |
| Linn County       |   |        | 121,900     |   |       |   | 7,800      |   |   |   | 6.4 | % |
| Washington County |   |        | 12,400      |   |       |   | 700        |   |   |   | 5.6 | % |

| College                    | City                                   | Enrollment |
|----------------------------|----------------------------------------|------------|
| The University of Iowa     | Iowa City                              | 30,328     |
| Coe College                | Cedar Rapids                           | 1,300      |
| Cornell College            | Mount Vernon                           | 1,150      |
| Kirkwood Community College | Cedar Rapids, Iowa City and Washington | 17,841     |
| Mount Mercy College        | Cedar Rapids                           | 1,666      |

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|---------|----------------------|

SUPERVISION 

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CONSOLIDATED 

|                                 |   | Years Ended December 31 |      |
|--------------------------------------|--------|-------------------------|-----------|
|                                 |   | 2009                    |      |   | 2008 |   |   | 2007 |   |
|                                 |   | (Amounts In Thousands)  |      |
| ASSETS                               |   |                    |      |   |   |   |   |   |   |
| Cash and cash equivalents            |   | $                       | 36,138    |   |   | $ | 21,308 |   |   | $ | 22,145 |   |
| Taxable securities                   |   |                    | 110,883   |   |   |   | 114,717 |   |   |   | 114,271 |   |
| Nontaxable securities                |   |                    | 99,142    |   |   |   | 96,771 |   |   |   | 88,727 |   |
| Federal funds sold                   |   |                    | 19,440    |   |   |   | 863 |   |   |   | 6,527 |   |
| Loans, net                           |   |                    | 1,479,823 |   |   |   | 1,406,447 |   |   |   | 1,305,485 |   |
| Property and equipment, net          |   |                    | 24,258    |   |   |   | 22,208 |   |   |   | 21,700 |   |
| Other assets                         |   |                    | 48,681    |   |   |   | 37,370 |   |   |   | 31,036 |   |
|                                 |   | $                       | 1,818,365 |   |   | $ | 1,699,684 |   |   | $ | 1,589,891 |   |
|                                 |   |                    |      |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY |   |                    |      |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits  |   | $                       | 170,627   |   |   | $ | 155,017 |   |   | $ | 137,271 |   |
| Interest-bearing demand deposits     |   |                    | 219,545   |   |   |   | 182,554 |   |   |   | 157,483 |   |
| Savings deposits                     |   |                    | 321,208   |   |   |   | 255,026 |   |   |   | 261,914 |   |
| Time deposits                        |   |                    | 643,413   |   |   |   | 588,691 |   |   |   | 575,738 |   |
| Short-term borrowings                |   |                    | 40,810    |   |   |   | 84,119 |   |   |   | 51,880 |   |
| FHLB borrowings                      |   |                    | 237,556   |   |   |   | 261,399 |   |   |   | 248,804 |   |
| Other liabilities                    |   |                    | 16,605    |   |   |   | 14,198 |   |   |   | 11,591 |   |
| Redeemable common stock held by      |   |                    |      |   |   |   |   |   |   |   |   |   |
| Employee Stock Ownership Plan        |   |                    | 23,357    |   |   |   | 23,010 |   |   |   | 21,573 |   |
| Stockholders' equity                 |   |                    | 145,244   |   |   |   | 135,670 |   |   |   | 123,637 |   |
|                                 |   | $                       | 1,818,365 |   |   | $ | 1,699,684 |   |   | $ | 1,589,891 |   |

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| Item 1. | Business (Continued) |
|---------|----------------------|

|                             |   | Years Ended December 31 |   |
|----------------------------------|--------|-------------------------|--------|
|                             |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                             |   | (Amounts In Thousands)  |   |
|                             |   |                    |   |   |   |   |   |   |   |
| Income:                          |   |                    |   |   |   |   |   |   |   |
| Loans (1)                        |   | $                       | 89,184 |   |   | $ | 89,525 |   |   | $ | 88,937 |   |
| Taxable securities               |   |                    | 3,786  |   |   |   | 4,734 |   |   |   | 4,706 |   |
| Nontaxable securities (1)        |   |                    | 5,187  |   |   |   | 5,204 |   |   |   | 4,852 |   |
| Federal funds sold               |   |                    | 55     |   |   |   | 18 |   |   |   | 325 |   |
| Total interest income            |   |                    | 98,212 |   |   |   | 99,481 |   |   |   | 98,820 |   |
|                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Expense:                         |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits |   |                    | 1,390  |   |   |   | 1,571 |   |   |   | 2,246 |   |
| Savings deposits                 |   |                    | 3,137  |   |   |   | 3,397 |   |   |   | 6,034 |   |
| Time deposits                    |   |                    | 20,742 |   |   |   | 23,897 |   |   |   | 26,997 |   |
| Short-term borrowings            |   |                    | 631    |   |   |   | 1,818 |   |   |   | 2,151 |   |
| FHLB borrowings                  |   |                    | 11,241 |   |   |   | 12,860 |   |   |   | 12,524 |   |
| Total interest expense           |   |                    | 37,141 |   |   |   | 43,543 |   |   |   | 49,952 |   |
|                             |   |                    |   |   |   |   |   |   |   |   |   |   |
| Net interest income              |   | $                       | 61,071 |   |   | $ | 55,938 |   |   | $ | 48,868 |   |

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| Item 1. | Business (Continued) |
|---------|----------------------|

|                                         |   | Years Ended December 31 |   |
|----------------------------------------------|--------|-------------------------|--------|
|                                         |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                         |   |                    |   |   |   |   |   |   |   |
| Average yields:                              |   |                    |   |   |   |   |   |   |   |
| Loans (1)                                    |   |                    | 6.01   | % |   |   | 6.35 | % |   |   | 6.80 | % |
| Loans (tax equivalent basis) (1)             |   |                    | 6.03   |   |   |   | 6.37 |   |   |   | 6.81 |   |
| Taxable securities                           |   |                    | 3.41   |   |   |   | 4.13 |   |   |   | 4.12 |   |
| Nontaxable securities                        |   |                    | 3.40   |   |   |   | 3.50 |   |   |   | 3.55 |   |
| Nontaxable securities (tax equivalent basis) |   |                    | 5.23   |   |   |   | 5.38 |   |   |   | 5.47 |   |
| Federal funds sold                           |   |                    | 0.16   |   |   |   | 2.05 |   |   |   | 4.98 |   |
| Average rates paid:                          |   |                    |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits             |   |                    | 0.63   |   |   |   | 0.86 |   |   |   | 1.43 |   |
| Savings deposits                             |   |                    | 0.98   |   |   |   | 1.33 |   |   |   | 2.30 |   |
| Time deposits                                |   |                    | 3.22   |   |   |   | 4.06 |   |   |   | 4.69 |   |
| Short-term borrowings                        |   |                    | 1.48   |   |   |   | 2.09 |   |   |   | 4.15 |   |
| FHLB borrowings                              |   |                    | 4.73   |   |   |   | 4.92 |   |   |   | 5.03 |   |
| Yield on average interest-earning assets     |   |                    | 5.69   |   |   |   | 6.15 |   |   |   | 6.52 |   |
| Rate on average interest-bearing liabilities |   |                    | 2.52   |   |   |   | 3.15 |   |   |   | 3.85 |   |
| Net interest spread (2)                      |   |                    | 3.17   |   |   |   | 3.00 |   |   |   | 2.68 |   |
| Net interest margin (3)                      |   |                    | 3.55   |   |   |   | 3.47 |   |   |   | 3.24 |   |

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

| (2) | Net interest spread is the difference between the yield on average interest-earning assets and the yield on average interest-paying liabilities stated on a tax equivalent basis using a federal rate of 35% for the three years presented.  The net interest spread increased 17 basis points in 2009 and increased 32 basis points in 2008. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Net interest margin is net interest income, on a tax equivalent basis, divided by average interest-earning assets.  The net interest margin increased 8 basis points in 2009 and increased 23 basis points in 2008.    The net interest margin increased in 2009 due to the continued low rate environment.  The Company was able to reprice interest-bearing liabilities downward more quickly that the average yields on earnings assets. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                             |   | Changes Due            |   |   | Changes Due |   |   | Total   |   |
|----------------------------------|--------|------------------------|--------|--------|-------------|--------|--------|---------|--------|
|                             |   | To Volume              |   |   | To Rates    |   |   | Changes |   |
|                             |   | (Amounts In Thousands) |   |
|                             |   |                   |   |   |        |   |   |    |   |
| Year ended December 31, 2009:    |   |                   |   |   |        |   |   |    |   |
| Change in interest income:       |   |                   |   |   |        |   |   |    |   |
| Loans                            |   | $                      | 4,657  |   |        | $      | (4,998 | )       |   | $ | (341 | ) |
| Taxable securities               |   |                   | (191   | )      |        |   | (757   | )       |   |   | (948 | ) |
| Nontaxable securities            |   |                   | 127    |   |        |   | (144   | )       |   |   | (17 | ) |
| Federal funds sold               |   |                   | 37     |   |        |   | -      |    |   |   | 37 |   |
|                             |   | $                      | 4,630  |   |        | $      | (5,899 | )       |   | $ | (1,269 | ) |
| Change in interest expense:      |   |                   |   |   |        |   |   |    |   |   |   |   |
| Interest-bearing demand deposits |   |                   | (321   | )      |        |   | 502    |    |   |   | 181 |   |
| Savings deposits                 |   |                   | (1,142 | )      |        |   | 1,402  |    |   |   | 260 |   |
| Time deposits                    |   |                   | (2,222 | )      |        |   | 5,377  |    |   |   | 3,155 |   |
| Short-term borrowings            |   |                   | 912    |   |        |   | 275    |    |   |   | 1,187 |   |
| FHLB borrowings                  |   |                   | 1,206  |   |        |   | 413    |    |   |   | 1,619 |   |
|                             |   |                   | (1,567 | )      |        |   | 7,969  |    |   |   | 6,402 |   |
| Change in net interest income    |   | $                      | 3,063  |   |        | $      | 2,070  |    |   | $ | 5,133 |   |
|                             |   |                   |   |   |        |   |   |    |   |   |   |   |
| Year ended December 31, 2008:    |   |                   |   |   |        |   |   |    |   |   |   |   |
| Change in interest income:       |   |                   |   |   |        |   |   |    |   |   |   |   |
| Loans                            |   | $                      | 7,617  |   |        | $      | (7,028 | )       |   | $ | 589 |   |
| Taxable securities               |   |                   | 24     |   |        |   | 4      |    |   |   | 28 |   |
| Nontaxable securities            |   |                   | 439    |   |        |   | (88    | )       |   |   | 351 |   |
| Federal funds sold               |   |                   | (307   | )      |        |   | -      |    |   |   | (307 | ) |
|                             |   | $                      | 7,773  |   |        | $      | (7,112 | )       |   | $ | 661 |   |
| Change in interest expense:      |   |                   |   |   |        |   |   |    |   |   |   |   |
| Interest-bearing demand deposits |   |                   | (358   | )      |        |   | 1,032  |    |   |   | 674 |   |
| Savings deposits                 |   |                   | 382    |   |        |   | 2,256  |    |   |   | 2,638 |   |
| Time deposits                    |   |                   | (607   | )      |        |   | 3,707  |    |   |   | 3,100 |   |
| Short-term borrowings            |   |                   | (1,673 | )      |        |   | 2,006  |    |   |   | 333 |   |
| FHLB borrowings                  |   |                   | (671   | )      |        |   | 335    |    |   |   | (336 | ) |
|                             |   |                   | (2,927 | )      |        |   | 9,336  |    |   |   | 6,409 |   |
| Change in net interest income    |   | $                      | 4,846  |   |        | $      | 2,224  |    |   | $ | 7,070 |   |

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| Item 1. | Business (Continued) |
|---------|----------------------|

|                                            |   | December 31,           |      |
|-------------------------------------------------|--------|------------------------|-----------|
|                                            |   | 2009                   |      |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                            |   | (Amounts In Thousands) |      |
|                                            |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Agricultural                                    |   | $                      | 64,598    |   |   | $ | 64,198 |   |   | $ | 60,004 |   |   | $ | 49,223 |   |   | $ | 43,730 |   |
| Commercial and financial                        |   |                   | 153,997   |   |   |   | 162,170 |   |   |   | 132,070 |   |   |   | 111,441 |   |   |   | 86,005 |   |
| Real estate:                                    |   |                   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |                   | 25,821    |   |   |   | 29,343 |   |   |   | 33,209 |   |   |   | 26,266 |   |   |   | 19,195 |   |
| Construction, land development and commercial   |   |                   | 95,955    |   |   |   | 111,006 |   |   |   | 89,935 |   |   |   | 87,933 |   |   |   | 64,261 |   |
| Mortgage, farmland                              |   |                   | 87,300    |   |   |   | 83,499 |   |   |   | 66,554 |   |   |   | 53,822 |   |   |   | 42,554 |   |
| Mortgage, 1 to 4 family first liens             |   |                   | 470,328   |   |   |   | 444,474 |   |   |   | 423,177 |   |   |   | 420,642 |   |   |   | 380,577 |   |
| Mortgage, 1 to 4 family junior liens            |   |                   | 114,742   |   |   |   | 117,086 |   |   |   | 115,604 |   |   |   | 111,077 |   |   |   | 88,952 |   |
| Mortgage, multi-family                          |   |                   | 190,180   |   |   |   | 180,525 |   |   |   | 167,718 |   |   |   | 166,540 |   |   |   | 163,070 |   |
| Mortgage, commercial                            |   |                   | 295,070   |   |   |   | 270,158 |   |   |   | 247,749 |   |   |   | 231,408 |   |   |   | 230,695 |   |
| Loans to individuals                            |   |                   | 25,405    |   |   |   | 26,823 |   |   |   | 29,069 |   |   |   | 32,167 |   |   |   | 32,631 |   |
| Obligations of state and political subdivisions |   |                   | 9,745     |   |   |   | 8,218 |   |   |   | 7,220 |   |   |   | 6,558 |   |   |   | 5,406 |   |
|                                            |   | $                      | 1,533,141 |   |   | $ | 1,497,500 |   |   | $ | 1,372,309 |   |   | $ | 1,297,077 |   |   | $ | 1,157,076 |   |
| Less allowance for loan losses                  |   |                   | 29,160    |   |   |   | 27,660 |   |   |   | 19,710 |   |   |   | 17,850 |   |   |   | 15,360 |   |
|                                            |   | $                      | 1,503,981 |   |   | $ | 1,469,840 |   |   | $ | 1,352,599 |   |   | $ | 1,279,227 |   |   | $ | 1,141,716 |   |

|                                                                                |   | AmountOf Loans         |      |   | One YearOr Less (1) |   |    | One ToFive Years |   |   | Over FiveYears |   |
|-------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|---------------------|--------|---------|------------------|--------|--------|----------------|--------|
|                                                                                |   | (Amounts In Thousands) |      |
|                                                                                |   |                   |      |   |                |   |    |             |   |   |           |   |
| Commercial                                                                          |   | $                      | 214,704   |   |                | $      | 106,560 |             |   | $      | 100,998        |   |   | $ | 7,146 |   |
| Real Estate                                                                         |   |                   | 1,282,958 |   |                |   | 273,646 |             |   |   | 898,702        |   |   |   | 110,610 |   |
| Other                                                                               |   |                   | 35,479    |   |                |   | 7,149   |             |   |   | 18,916         |   |   |   | 9,414 |   |
| Totals                                                                              |   | $                      | 1,533,141 |   |                | $      | 387,355 |             |   | $      | 1,018,616      |   |   | $ | 127,170 |   |
|                                                                                |   |                   |      |   |                |   |    |             |   |   |           |   |   |   |   |   |
| The types of interest rates applicable to these principal payments are shown below: |   |                   |      |   |                |   |    |             |   |   |           |   |   |   |   |   |
|                                                                                |   |                   |      |   |                |   |    |             |   |   |           |   |   |   |   |   |
| Fixed rate                                                                          |   | $                      | 759,199   |   |                | $      | 140,825 |             |   | $      | 542,141        |   |   | $ | 76,233 |   |
| Variable rate                                                                       |   |                   | 773,942   |   |                |   | 246,530 |             |   |   | 476,475        |   |   |   | 50,937 |   |
|                                                                                |   | $                      | 1,533,141 |   |                | $      | 387,355 |             |   | $      | 1,018,616      |   |   | $ | 127,170 |   |

| (1) | A significant portion of the commercial loans are due in one year or less.  A significant percentage of the loans are re-evaluated prior to their maturity and are likely to be extended. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Item 1. | Business (Continued) |
|---------|----------------------|

|                                                               |   | 2009                   |      |   | 2008   |   |      | 2007   |   |   | 2006      |   |   | 2005   |      |
|--------------------------------------------------------------------|--------|------------------------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|
|                                                               |   | (Amounts In Thousands) |      |
|                                                               |   |                   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| Nonaccrual loans                                                   |   | $                      | 5,360     |   |   | $      | 2,535     |   |   | $      | 4,948     |   |   | $      | 879       |   |   | $ | 175 |   |
| Accruing loans past due 90 days or more                            |   |                   | 7,009     |   |   |   | 5,049     |   |   |   | 6,019     |   |   |   | 4,983     |   |   |   | 1,910 |   |
| Restructured loans                                                 |   |                   | 15,135    |   |   |   | 4,478     |   |   |   | -         |   |   |   | -         |   |   |   | - |   |
| Non-performing (includes non-accrual loans and restructured loans) |   |                   | 75,265    |   |   |   | 52,186    |   |   |   | 39,583    |   |   |   | 14,681    |   |   |   | 16,602 |   |
| Loans held for investment                                          |   |                   | 1,533,141 |   |   |   | 1,497,500 |   |   |   | 1,372,309 |   |   |   | 1,297,077 |   |   |   | 1,157,076 |   |
| Ratio of allowance for loan losses to loans held for investment    |   |                   | 1.90      | %      |   |   | 1.85      | %      |   |   | 1.44      | %      |   |   | 1.38      | % |   |   | 1.33 | % |
| Ratio of allowance for loan losses to non-performing loans         |   |                   | 38.74     |   |   |   | 53.00     |   |   |   | 49.79     |   |   |   | 121.59    |   |   |   | 92.52 |   |

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                          |   | December 31, 2009      |   |   | December 31, 2008               |   |
|-----------------------------------------------|--------|------------------------|--------|--------|---------------------------------|--------|
|                                          |   | Non-accrual loans      |   |   | Accruing loans past due 90 days |   |   | Restructured loans |   |   | Non-accrual loans |   |   | Accruing loans past due 90 days |   |   | Restructured loans |   |
|                                          |   | (Amounts In Thousands) |   |   | (Amounts In Thousands)          |   |
|                                          |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agriculture                                   |   | $                      | -      |   |                            | $      | 8 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Commercial and financial                      |   |                   | 958    |   |                            |   | 280 |   |   |   | 3,134 |   |   |   | 661 |   |   |   | 429 |   |   |   | 199 |   |
| Real estate:                                  |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | -      |   |                            |   | 260 |   |   |   | - |   |   |   | 1,325 |   |   |   | 208 |   |   |   | 1,010 |   |
| Construction, land development and commercial |   |                   | 2,645  |   |                            |   | 1,202 |   |   |   | 2,442 |   |   |   | - |   |   |   | 515 |   |   |   | 3,269 |   |
| Mortgage, farmland                            |   |                   | -      |   |                            |   | 172 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage, 1 to 4 family first liens           |   |                   | 1,534  |   |                            |   | 3,528 |   |   |   | 1,672 |   |   |   | 549 |   |   |   | 2,741 |   |   |   | - |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | -      |   |                            |   | 140 |   |   |   | 613 |   |   |   | - |   |   |   | 363 |   |   |   | - |   |
| Mortgage, multi-family                        |   |                   | -      |   |                            |   | 906 |   |   |   | 4,867 |   |   |   | - |   |   |   | 90 |   |   |   | - |   |
| Mortgage, commercial                          |   |                   | 223    |   |                            |   | 469 |   |   |   | 2,407 |   |   |   | - |   |   |   | 605 |   |   |   | - |   |
| Loans to individuals                          |   |                   | -      |   |                            |   | 44 |   |   |   | - |   |   |   | - |   |   |   | 98 |   |   |   | - |   |
|                                          |   | $                      | 5,360  |   |                            | $      | 7,009 |   |   | $ | 15,135 |   |   | $ | 2,535 |   |   | $ | 5,049 |   |   | $ | 4,478 |   |
|                                          |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | December 31, 2007      |   |   | December 31, 2006               |   |
|                                          |   | Non-accrual loans      |   |   | Accruing loans past due 90 days |   |   | Restructured loans |   |   | Non-accrual loans |   |   | Accruing loans past due 90 days |   |   | Restructured loans |   |
|                                          |   | (Amounts In Thousands) |   |   | (Amounts In Thousands)          |   |
|                                          |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agriculture                                   |   | $                      | 109    |   |                            | $      | 34 |   |   | $ | - |   |   | $ | 445 |   |   | $ | 25 |   |   | $ | - |   |
| Commercial and financial                      |   |                   | 491    |   |                            |   | 795 |   |   |   | - |   |   |   | 212 |   |   |   | 307 |   |   |   | - |   |
| Real estate:                                  |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | 369    |   |                            |   | - |   |   |   | - |   |   |   | - |   |   |   | 506 |   |   |   | - |   |
| Construction, land development and commercial |   |                   | 302    |   |                            |   | 750 |   |   |   | - |   |   |   | - |   |   |   | 695 |   |   |   | - |   |
| Mortgage, farmland                            |   |                   | -      |   |                            |   | - |   |   |   | - |   |   |   | 44 |   |   |   | 43 |   |   |   | - |   |
| Mortgage, 1 to 4 family first liens           |   |                   | -      |   |                            |   | 3,897 |   |   |   | - |   |   |   | - |   |   |   | 1,783 |   |   |   | - |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | 18     |   |                            |   | 211 |   |   |   | - |   |   |   | - |   |   |   | 47 |   |   |   | - |   |
| Mortgage, multi-family                        |   |                   | -      |   |                            |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage, commercial                          |   |                   | 3,659  |   |                            |   | 222 |   |   |   | - |   |   |   | 178 |   |   |   | 1,157 |   |   |   | - |   |
| Loans to individuals                          |   |                   | -      |   |                            |   | 110 |   |   |   | - |   |   |   | - |   |   |   | 420 |   |   |   | - |   |
|                                          |   | $                      | 4,948  |   |                            | $      | 6,019 |   |   | $ | - |   |   | $ | 879 |   |   | $ | 4,983 |   |   | $ | - |   |
|                                          |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | December 31, 2005      |   |   |                            |   |   |   |   |   |   |   |   |   |   |
|                                          |   | Non-accrual loans      |   |   | Accruing loans past due 90 days |   |   | Restructured loans |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | (Amounts In Thousands) |   |   |                            |   |   |   |   |   |   |   |   |   |   |
|                                          |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agriculture                                   |   | $                      | -      |   |                            | $      | 162 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and financial                      |   |                   | -      |   |                            |   | 166 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate:                                  |   |                   |   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                   | 175    |   |                            |   | - |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, land development and commercial |   |                   | -      |   |                            |   | - |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, farmland                            |   |                   | -      |   |                            |   | 40 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, 1 to 4 family first liens           |   |                   | -      |   |                            |   | 921 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, 1 to 4 family junior liens          |   |                   | -      |   |                            |   | 162 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, multi-family                        |   |                   | -      |   |                            |   | 136 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, commercial                          |   |                   | -      |   |                            |   | - |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans to individuals                          |   |                   | -      |   |                            |   | 323 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                          |   | $                      | 175    |   |                            | $      | 1,910 |   |   | $ | - |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

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Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                                                          |   | Year Ended December 31, |   |
|-------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                          |   | 2009                    |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                                                          |   | (Amounts In Thousands)  |   |
|                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, beginning                                                            |   | $                       | 27,660 |   |   | $ | 19,710 |   |   | $ | 17,850 |   |   | $ | 15,360 |   |   | $ | 13,790 |   |
| Charge-offs:                                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agricultural                                                                  |   |                    | 82     |   |   |   | 99 |   |   |   | 343 |   |   |   | 40 |   |   |   | - |   |
| Commercial and financial                                                      |   |                    | 5,161  |   |   |   | 1,359 |   |   |   | 1,422 |   |   |   | 677 |   |   |   | 802 |   |
| Real estate:                                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential                                       |   |                    | 124    |   |   |   | 47 |   |   |   | 45 |   |   |   | 8 |   |   |   | 20 |   |
| Construction, land development and commercial                                 |   |                    | 312    |   |   |   | 15 |   |   |   | - |   |   |   | 13 |   |   |   | 30 |   |
| Mortgage, farmland                                                            |   |                    | 22     |   |   |   | - |   |   |   | 58 |   |   |   | - |   |   |   | - |   |
| Mortgage, 1 to 4 family first liens                                           |   |                    | 1,438  |   |   |   | 1,205 |   |   |   | 141 |   |   |   | 128 |   |   |   | 74 |   |
| Mortgage, 1 to 4 family junior liens                                          |   |                    | 1,626  |   |   |   | 964 |   |   |   | 321 |   |   |   | 308 |   |   |   | 128 |   |
| Mortgage, multi-family                                                        |   |                    | 398    |   |   |   | 92 |   |   |   | - |   |   |   | 72 |   |   |   | 65 |   |
| Mortgage, commercial                                                          |   |                    | 1,774  |   |   |   | 104 |   |   |   | 57 |   |   |   | - |   |   |   | 75 |   |
| Loans to individuals                                                          |   |                    | 515    |   |   |   | 604 |   |   |   | 531 |   |   |   | 627 |   |   |   | 981 |   |
|                                                                          |   |                    | 11,452 |   |   |   | 4,489 |   |   |   | 2,918 |   |   |   | 1,873 |   |   |   | 2,175 |   |
| Recoveries:                                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agricultural                                                                  |   |                    | 20     |   |   |   | 61 |   |   |   | 44 |   |   |   | 44 |   |   |   | 47 |   |
| Commercial and financial                                                      |   |                    | 415    |   |   |   | 340 |   |   |   | 479 |   |   |   | 643 |   |   |   | 441 |   |
| Real estate:                                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential                                       |   |                    | 49     |   |   |   | - |   |   |   | 2 |   |   |   | 2 |   |   |   | - |   |
| Construction, land development and commercial                                 |   |                    | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Mortgage, farmland                                                            |   |                    | 1      |   |   |   | 4 |   |   |   | 18 |   |   |   | 6 |   |   |   | 1 |   |
| Mortgage, 1 to 4 family first liens                                           |   |                    | 49     |   |   |   | 25 |   |   |   | 89 |   |   |   | 144 |   |   |   | - |   |
| Mortgage, 1 to 4 family junior liens                                          |   |                    | 187    |   |   |   | 79 |   |   |   | 130 |   |   |   | 44 |   |   |   | 1 |   |
| Mortgage, multi-family                                                        |   |                    | -      |   |   |   | 95 |   |   |   | 2 |   |   |   | - |   |   |   | 7 |   |
| Mortgage, commercial                                                          |   |                    | 7      |   |   |   | 33 |   |   |   | 58 |   |   |   | 27 |   |   |   | 6 |   |
| Loans to individuals                                                          |   |                    | 277    |   |   |   | 295 |   |   |   | 427 |   |   |   | 442 |   |   |   | 1,141 |   |
|                                                                          |   |                    | 1,005  |   |   |   | 932 |   |   |   | 1,249 |   |   |   | 1,352 |   |   |   | 1,644 |   |
| Net charge-offs                                                               |   |                    | 10,447 |   |   |   | 3,557 |   |   |   | 1,669 |   |   |   | 521 |   |   |   | 531 |   |
| Provision charged to expense (1)                                              |   |                    | 11,947 |   |   |   | 11,507 |   |   |   | 3,529 |   |   |   | 3,011 |   |   |   | 2,101 |   |
| Balance, ending                                                               |   | $                       | 29,160 |   |   | $ | 27,660 |   |   | $ | 19,710 |   |   | $ | 17,850 |   |   | $ | 15,360 |   |
|                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of net charge-offs (recoveries)during year to average loans outstanding |   |                    | 0.71   | % |   |   | 0.25 | % |   |   | 0.13 | % |   |   | 0.04 | % |   |   | 0.05 | % |

| (1) | For financial reporting purposes, management reviews the loan portfolio and determines the allowance for loan losses, which represents management’s judgment of the probable losses inherent in the Company’s loan portfolio.  The loan loss provision is the amount necessary to adjust the allowance to the level considered appropriate by management.  The adequacy of the allowance is reviewed quarterly and considers the impact of economic conditions on the borrowers’ ability to repay, loan collateral values, past collection experience, the risk characteristics of the loan portfolio and such other factors that deserve current recognition. The growth of the loan portfolio and the trends in problem and watch loans are significant elements in the determination of the provision for loan losses. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                            |   | 2009           |   |   | 2008                 |   |
|-------------------------------------------------|--------|----------------|--------|--------|----------------------|--------|
|                                            |   |           |   |   |                 |   |   | % of Loans |   |   |   |   |   |   |   |   | % of Loans |   |
|                                            |   | Amount         |   |   | % of Total Allowance |   |   | to Total Loans |   |   | Amount |   |   | % of Total Allowance |   |   | to Total Loans |   |
|                                            |   | (In Thousands) |   |   |                 |   |   |   |   |   | (In Thousands) |   |   |   |   |   |   |   |
| Agricultural                                    |   | $              | 2,967  |   |                 |   | 10.17 | % |   |   | 4.21 | % |   | $ | 2,258 |   |   |   | 8.17 | % |   |   | 4.29 | % |
| Commercial and financial                        |   |           | 7,090  |   |                 |   | 24.31 |   |   |   | 10.04 |   |   |   | 5,357 |   |   |   | 19.37 |   |   |   | 10.83 |   |
| Real estate:                                    |   |           |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |           | 836    |   |                 |   | 2.87 |   |   |   | 1.68 |   |   |   | 626 |   |   |   | 2.26 |   |   |   | 1.96 |   |
| Construction, land development and commercial   |   |           | 3,975  |   |                 |   | 13.63 |   |   |   | 6.26 |   |   |   | 3,986 |   |   |   | 14.41 |   |   |   | 7.41 |   |
| Mortgage, farmland                              |   |           | 1,417  |   |                 |   | 4.86 |   |   |   | 5.69 |   |   |   | 1,210 |   |   |   | 4.37 |   |   |   | 5.58 |   |
| Mortgage, 1 to 4 family first liens             |   |           | 6,091  |   |                 |   | 20.89 |   |   |   | 30.68 |   |   |   | 6,035 |   |   |   | 21.82 |   |   |   | 29.68 |   |
| Mortgage, 1 to 4 family junior liens            |   |           | 1,393  |   |                 |   | 4.78 |   |   |   | 7.49 |   |   |   | 1,346 |   |   |   | 4.87 |   |   |   | 7.82 |   |
| Mortgage, multi-family                          |   |           | 1,723  |   |                 |   | 5.91 |   |   |   | 12.40 |   |   |   | 1,569 |   |   |   | 5.67 |   |   |   | 12.06 |   |
| Mortgage, commercial                            |   |           | 3,019  |   |                 |   | 10.36 |   |   |   | 19.25 |   |   |   | 4,642 |   |   |   | 16.78 |   |   |   | 18.04 |   |
| Loans to individuals                            |   |           | 639    |   |                 |   | 2.19 |   |   |   | 1.66 |   |   |   | 611 |   |   |   | 2.21 |   |   |   | 1.78 |   |
| Obligations of state and political subdivisions |   |           | 10     |   |                 |   | 0.03 |   |   |   | 0.64 |   |   |   | 20 |   |   |   | 0.07 |   |   |   | 0.55 |   |
|                                            |   | $              | 29,160 |   |                 |   | 100.00 | % |   |   | 100.00 | % |   | $ | 27,660 |   |   |   | 100.00 | % |   |   | 100.00 | % |

|                                            |   | 2007   |   |   | 2006   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Agricultural                                    |   | $      | 1,614  |   |   |   | 8.19 | % |   |   | 4.37 | % |   | $ | 1,509 |   |   |   | 8.45 | % |   |   | 3.79 | % |
| Commercial and financial                        |   |   | 4,382  |   |   |   | 22.23 |   |   |   | 9.62 |   |   |   | 3,700 |   |   |   | 20.73 |   |   |   | 8.59 |   |
| Real estate:                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |   | 650    |   |   |   | 3.30 |   |   |   | 2.42 |   |   |   | 475 |   |   |   | 2.66 |   |   |   | 2.03 |   |
| Construction, land development and commercial   |   |   | 1,918  |   |   |   | 9.73 |   |   |   | 6.55 |   |   |   | 1,589 |   |   |   | 8.90 |   |   |   | 6.78 |   |
| Mortgage, farmland                              |   |   | 428    |   |   |   | 2.17 |   |   |   | 4.85 |   |   |   | 332 |   |   |   | 1.86 |   |   |   | 4.15 |   |
| Mortgage, 1 to 4 family first liens             |   |   | 4,616  |   |   |   | 23.42 |   |   |   | 30.84 |   |   |   | 4,566 |   |   |   | 25.58 |   |   |   | 32.43 |   |
| Mortgage, 1 to 4 family junior liens            |   |   | 1,262  |   |   |   | 6.40 |   |   |   | 8.42 |   |   |   | 1,206 |   |   |   | 6.75 |   |   |   | 8.56 |   |
| Mortgage, multi-family                          |   |   | 1,466  |   |   |   | 7.44 |   |   |   | 12.23 |   |   |   | 1,433 |   |   |   | 8.03 |   |   |   | 12.84 |   |
| Mortgage, commercial                            |   |   | 2,563  |   |   |   | 13.00 |   |   |   | 18.05 |   |   |   | 2,245 |   |   |   | 12.58 |   |   |   | 17.84 |   |
| Loans to individuals                            |   |   | 803    |   |   |   | 4.08 |   |   |   | 2.12 |   |   |   | 788 |   |   |   | 4.42 |   |   |   | 2.48 |   |
| Obligations of state and political subdivisions |   |   | 8      |   |   |   | 0.04 |   |   |   | 0.53 |   |   |   | 7 |   |   |   | 0.04 |   |   |   | 0.51 |   |
|                                            |   | $      | 19,710 |   |   |   | 100.00 | % |   |   | 100.00 | % |   | $ | 17,850 |   |   |   | 100.00 | % |   |   | 100.00 | % |
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                            |   | 2005   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Agricultural                                    |   | $      | 1,528  |   |   |   | 9.95   | %      |   |   | 3.78   | %      |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial and financial                        |   |   | 2,701  |   |   |   | 17.59  |   |   |   | 7.43   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate:                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |   | 345    |   |   |   | 2.25   |   |   |   | 1.66   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction, land development and commercial   |   |   | 1,031  |   |   |   | 6.71   |   |   |   | 5.55   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, farmland                              |   |   | 264    |   |   |   | 1.72   |   |   |   | 3.68   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, 1 to 4 family first liens             |   |   | 4,097  |   |   |   | 26.67  |   |   |   | 32.89  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, 1 to 4 family junior liens            |   |   | 958    |   |   |   | 6.23   |   |   |   | 7.69   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, multi-family                          |   |   | 1,501  |   |   |   | 9.77   |   |   |   | 14.09  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage, commercial                            |   |   | 2,179  |   |   |   | 14.19  |   |   |   | 19.94  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans to individuals                            |   |   | 750    |   |   |   | 4.89   |   |   |   | 2.82   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations of state and political subdivisions |   |   | 6      |   |   |   | 0.03   |   |   |   | 0.47   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | $      | 15,360 |   |   |   | 100.00 | %      |   |   | 100.00 | %      |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                            |   | December 31,           |    |
|-------------------------------------------------|--------|------------------------|---------|
|                                            |   | 2009                   |    |   | 2008 |   |   | 2007 |   |
|                                            |   | (Amounts In Thousands) |    |
| Carrying value:                                 |   |                   |    |   |   |   |   |   |   |
| Other securities (FHLB, FHLMC and FNMA)         |   | $                      | 99,090  |   |   | $ | 99,849 |   |   | $ | 104,965 |   |
| Stock of the Federal Home Loan Bank             |   |                   | 12,453  |   |   |   | 14,247 |   |   |   | 14,169 |   |
| Obligations of state and political subdivisions |   |                   | 102,555 |   |   |   | 100,463 |   |   |   | 94,634 |   |
|                                            |   | $                      | 214,098 |   |   | $ | 214,559 |   |   | $ | 213,768 |   |

|                                                         |   | December 31, 2009      |    |
|--------------------------------------------------------------|--------|------------------------|---------|
|                                                         |   | Carrying Value         |    |   | Weighted Average Yield |   |
|                                                         |   | (Amounts In Thousands) |    |
|                                                         |   |                   |    |   |   |   |
| Other securities (FHLB, FHLMC and FNMA), maturities:         |   |                   |    |   |   |   |
| Within 1 year                                                |   | $                      | 24,485  |   |   |   | 3.46 | % |
| From 1 to 5 years                                            |   |                   | 74,605  |   |   |   | 3.52 |   |
|                                                         |   | $                      | 99,090  |   |   |   |   |   |
|                                                         |   |                   |    |   |   |   |   |   |
| Stock of the Federal Home Loan Bank                          |   | $                      | 12,453  |   |   |   | 1.36 | % |
|                                                         |   |                   |    |   |   |   |   |   |
| Obligations of state and political subdivisions, maturities: |   |                   |    |   |   |   |   |   |
| Within 1 year                                                |   | $                      | 10,087  |   |   |   | 4.66 | % |
| From 1 to 5 years                                            |   |                   | 45,319  |   |   |   | 4.97 |   |
| From 5 to 10 years                                           |   |                   | 46,394  |   |   |   | 5.36 |   |
| Over 10 years                                                |   |                   | 755     |   |   |   | 6.12 |   |
|                                                         |   | $                      | 102,555 |   |   |   |   |   |
| Total                                                        |   | $                      | 214,098 |   |   |   |   |   |

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                                                      |   | December 31,           |
|---------------------------------------------------------------------------|--------|------------------------|
|                                                                      |   | 2009                   |   |   | Rate |   |   | 2008 |   |   | Rate |   |   | 2007 |   |   | Rate |   |
|                                                                      |   | (Amounts In Thousands) |
| Average noninterest-bearing deposits                                      |   | $                      | 170,627 |   |   |   | - |   |   | $ | 155,017 |   |   |   | - |   |   | $ | 137,271 |   |   |   | - |   |
| Average interest-bearing demand deposits                                  |   |                   | 219,545 |   |   |   | 0.63 | % |   |   | 182,554 |   |   |   | 0.86 | % |   |   | 157,483 |   |   |   | 1.43 | % |
| Average savings deposits                                                  |   |                   | 321,208 |   |   |   | 0.98 |   |   |   | 255,026 |   |   |   | 1.33 |   |   |   | 261,914 |   |   |   | 2.30 |   |
| Average time deposits                                                     |   |                   | 643,413 |   |   |   | 3.22 |   |   |   | 588,691 |   |   |   | 4.06 |   |   |   | 575,738 |   |   |   | 4.69 |   |
|                                                                      |   | $                      | 1,354,793 |   |   |   |   |   |   | $ | 1,181,288 |   |   |   |   |   |   | $ | 1,132,406 |   |   |   |   |   |
|                                                                      |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time certificates issued in amounts of $100,000 or more with maturity in: |   | Amount                 |   |   | Rate |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
|                                                                      |   | (Amounts In Thousands) |
| 3 months or less                                                          |   | $                      | 26,900 |   |   |   | 2.61 | % |   | $ | 19,976 |   |   |   | 3.59 | % |   | $ | 33,857 |   |   |   | 4.89 | % |
| 3 through 6 months                                                        |   |                   | 31,870 |   |   |   | 3.50 |   |   |   | 21,483 |   |   |   | 3.15 |   |   |   | 36,111 |   |   |   | 4.96 |   |
| 6 through 12 months                                                       |   |                   | 43,597 |   |   |   | 2.24 |   |   |   | 57,300 |   |   |   | 3.40 |   |   |   | 38,525 |   |   |   | 4.81 |   |
| Over 12 months                                                            |   |                   | 72,542 |   |   |   | 3.01 |   |   |   | 63,151 |   |   |   | 4.12 |   |   |   | 22,666 |   |   |   | 4.61 |   |
|                                                                      |   | $                      | 174,909 |   |   |   |   |   |   | $ | 161,910 |   |   |   |   |   |   | $ | 131,159 |   |   |   |   |   |

----

Table of Contents 

| Item 1. | Business (Continued) |
|---------|----------------------|

|                                                 |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                 |   |   |   |   |   |   |   |   |   |
| Return on average assets                             |   |   | 0.88   | %      |   |   | 0.83   | %      |   |   | 1.02 | % |
| Return on average stockholders' equity               |   |   | 11.01  |   |   |   | 10.42  |   |   |   | 13.06 |   |
| Dividend payout ratio                                |   |   | 25.28  |   |   |   | 28.90  |   |   |   | 23.99 |   |
| Average stockholders' equity to average assets ratio |   |   | 7.99   |   |   |   | 7.98   |   |   |   | 7.78 |   |

|                                        |   | 2009                   |   |   | 2008   |   |    | 2007   |   |
|---------------------------------------------|--------|------------------------|--------|--------|--------|--------|---------|--------|--------|
|                                        |   | (Amounts In Thousands) |   |
|                                        |   |                   |   |   |   |   |    |   |   |
| Outstanding balance as of December 31       |   | $                      | 68,534 |   |   | $      | 99,937  |   |   | $ | 87,076 |   |
| Weighted average interest rate at year end  |   |                   | 0.76   | %      |   |   | 1.20    | %      |   |   | 3.90 | % |
| Maximum month-end balance                   |   |                   | 83,920 |   |   |   | 110,492 |   |   |   | 87,076 |   |
| Average month-end balance                   |   |                   | 40,810 |   |   |   | 84,119  |   |   |   | 51,880 |   |
| Weighted average interest rate for the year |   |                   | 1.48   | %      |   |   | 2.09    | %      |   |   | 4.15 | % |

|                                        |   | 2009                   |    |   | 2008   |   |    | 2007   |   |
|---------------------------------------------|--------|------------------------|---------|--------|--------|--------|---------|--------|--------|
|                                        |   | (Amounts In Thousands) |    |
|                                        |   |                   |    |   |   |   |    |   |   |
| Outstanding balance as of December 31       |   | $                      | 225,000 |   |   | $      | 265,000 |   |   | $ | 265,348 |   |
| Weighted average interest rate at year end  |   |                   | 4.59    | %      |   |   | 4.79    | %      |   |   | 4.93 | % |
| Maximum month-end balance                   |   |                   | 265,000 |   |   |   | 265,348 |   |   |   | 265,348 |   |
| Average month-end balance                   |   |                   | 237,556 |   |   |   | 261,399 |   |   |   | 248,804 |   |
| Weighted average interest rate for the year |   |                   | 4.73    | %      |   |   | 4.92    | %      |   |   | 5.03 | % |

----

Table of Contents 

| Item 1A. | Risk Factors |
|----------|--------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

----

Table of Contents 

| Item 1A. | Risk Factors (Continued) |
|----------|--------------------------|

| Item 1B. | Unresolved Staff Comments |
|----------|---------------------------|

----

Table of Contents 

| Item 2. | Properties |
|---------|------------|

| Location of Branch            |   | Approximate Square Feet |   | Status |
|-------------------------------|--------|-------------------------|--------|--------|
|                          |   |                    |   |   |   |   |
| 3905 Blairs Ferry Road NE     |   | Cedar Rapids, Iowa      |   | 1,700  |   | Leased |
| modular temporary bank office |   |                    |   |   |   |   |
|                          |   |                    |   |   |   |   |
| 240 3rd Avenue SE             |   | Cedar Rapids, Iowa      |   | 7,000  |   | Leased |
|                          |   |                    |   |   |   |   |
| 3610 Williams Boulevard SW    |   | Cedar Rapids, Iowa      |   | 8,200  |   | Owned |
|                          |   |                    |   |   |   |   |
| 1009 2nd Street               |   | Coralville, Iowa        |   | 23,000 |   | Owned |
|                          |   |                    |   |   |   |   |
| 2771 Oakdale Boulevard        |   | Coralville, Iowa        |   | 6,600  |   | Leased |
| Trust and Wealth Management   |   |                    |   |   |   |   |
|                          |   |                    |   |   |   |   |
| 201 South Clinton Street      |   | Iowa City, Iowa         |   | 5,800  |   | Leased |
|                          |   |                    |   |   |   |   |
| 1401 South Gilbert Street     |   | Iowa City, Iowa         |   | 15,400 |   | Owned |
|                          |   |                    |   |   |   |   |
| 2621 Muscatine Avenue         |   | Iowa City, Iowa         |   | 5,800  |   | Owned |
|                          |   |                    |   |   |   |   |
| Oaknoll Retirement Residence  |   | Iowa City, Iowa         |   | NA     |   | NA |
| limited purpose office        |   |                    |   |   |   |   |
|                          |   |                    |   |   |   |   |
| 120 5th Street                |   | Kalona, Iowa            |   | 6,400  |   | Owned |
|                          |   |                    |   |   |   |   |
| 103 West Main Street          |   | Lisbon, Iowa            |   | 3,000  |   | Owned |
|                          |   |                    |   |   |   |   |
| 800 11th Street               |   | Marion, Iowa            |   | 8,400  |   | Owned |
|                          |   |                    |   |   |   |   |
| 720 First Avenue SE           |   | Mount Vernon, Iowa      |   | 4,200  |   | Owned |
|                          |   |                    |   |   |   |   |
| 25 Highway 965 North          |   | North Liberty, Iowa     |   | 2,800  |   | Owned |
|                          |   |                    |   |   |   |   |
| 229 8th Avenue                |   | Wellman, Iowa           |   | 2,000  |   | Owned |

----

Table of Contents 

| Item 3. | Legal Proceedings |
|---------|-------------------|

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

----

Table of Contents 

PART 

| Item 5. | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
|---------|------------------------------------------------------------------------------------------------------------------|

| Year |   | Number of Shares Traded |    |   | Number of Transactions |   |   | High Selling Price |   |   | Low Selling Price |   |
|------|--------|-------------------------|---------|--------|------------------------|--------|--------|--------------------|--------|--------|-------------------|--------|
| 2009 |   |                    | 116,157 |   |                   |   | 83     |               |   | $      | 57.00             |   |   | $ | 52.50 | (1) |
| 2008 |   |                    | 96,781  |   |                   |   | 77     |               |   | $      | 55.00             |   |   | $ | 53.00 | (2) |
| 2007 |   |                    | 31,699  |   |                   |   | 46     |               |   |   | 53.00             |   |   |   | 50.00 | (3) |

|   | (1) | 2009 transactions included repurchases by the Company of 39,806 shares of stock under the 2005 Stock Repurchase Program.  2009 transactions made under the 2005 Stock Repurchase Program were made at prices that ranged from $52.50 to $55.00 per share.  All transactions under the 2005 Stock Repurchase Program were at a price equal to the most recent quarterly independent appraisal of the shares of the Company's common stock. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | 2008 transactions included repurchases by the Company of 63,469 shares of stock under the 2005 Stock Repurchase Program.  2008 transactions made under the 2005 Stock Repurchase Program were made at prices that ranged from $53.00 to $55.00 per share. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | 2007 transactions included repurchases by the Company of 25,492 shares of stock under the 2005 Stock Repurchase Program.  2007 transactions made under the 2005 Stock Repurchase Program were made at prices that ranged from $50.00 to $53.00 per share. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents 

| Item 5. | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued) |
|---------|------------------------------------------------------------------------------------------------------------------------------|

|                     |   | 2004   |   |   | 2005   |   |   | 2006   |   |   | 2007   |   |   | 2008   |   |   | 2009   |   |
|--------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| HILLS BANCORPORATION     |   | $      | 100.00 |   |   | $      | 128.22 |   |   | $      | 140.28 |   |   | $      | 151.25 |   |   | $      | 159.65 |   |   | $ | 156.39 |   |
|                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| REGIONAL-SOUTHWEST BANKS |   | $      | 100.00 |   |   | $      | 102.20 |   |   | $      | 112.68 |   |   | $      | 124.57 |   |   | $      | 74.71 |   |   | $ | 108.56 |   |
|                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NASDAQ MARKET INDEX      |   | $      | 100.00 |   |   | $      | 104.64 |   |   | $      | 118.97 |   |   | $      | 105.55 |   |   | $      | 97.23 |   |   | $ | 95.37 |   |

----

Table of Contents 

| Item 5. | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued) |
|---------|------------------------------------------------------------------------------------------------------------------------------|

| Plan Category                                              |   | Number of securitiesto be issued upon exerciseof outstanding options,warrants and rights(a) |   |   | Weighted-average exerciseprice of outstandingoptions, warrants and rights(b) |   |   | Number of securities remainingavailable for future issuance underequity compensation plans[excluding securities reflected in column (a)](c) |   |
|------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity compensation plans approved by security holders     |   |                                                                                        | 33,360 |   |                                                                         | $      | 32.88  |                                                                                                                                        |   |   | 90,513 |   |
| Equity compensation plans not approved by security holders |   |                                                                                        | -      |   |                                                                         |   | -      |                                                                                                                                        |   |   | - |   |
| Total                                                      |   |                                                                                        | 33,360 |   |                                                                         | $      | 32.88  |                                                                                                                                        |   |   | 90,513 |   |

| Period in 2009            |   | Total number of shares purchased |   |   | Average price paid per share |   |   | Total number of shares purchased as part of publicly announced plans or programs |   |   | Maximum number of shares that may yet be purchased under the plans or programs |   |
|---------------------------|--------|----------------------------------|--------|--------|------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
| October 1 to October 31   |   |                             | 3,433  |   |                         | $      | 53.00  |                                                                             |   |   | 190,111                                                                        |   |   |   | 559,889 |   |
| November 1 to November 30 |   |                             | 3,559  |   |                         |   | 53.00  |                                                                             |   |   | 193,670                                                                        |   |   |   | 556,330 |   |
| December 1 to December 31 |   |                             | 3,018  |   |                         |   | 53.00  |                                                                             |   |   | 196,688                                                                        |   |   |   | 553,312 |   |
| Total                     |   |                             | 10,010 |   |                         | $      | 53.00  |                                                                             |   |   | 196,688                                                                        |   |   |   | 553,312 |   |

----

Table of Contents 

| Item 6. | Selected Financial Data |
|---------|-------------------------|

|                                                 |   | 2009   |      |   | 2008   |   |      | 2007   |   |   | 2006      |   |   | 2005   |      |
|------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|
|                                                 |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| YEAR-END TOTALS (Amounts in Thousands)               |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| Total assets                                         |   | $      | 1,830,626 |   |   | $      | 1,780,793 |   |   | $      | 1,661,098 |   |   | $      | 1,551,233 |   |   | $ | 1,433,649 |   |
| Investment securities                                |   |   | 214,098   |   |   |   | 214,559   |   |   |   | 213,768   |   |   |   | 190,984   |   |   |   | 209,001 |   |
| Loans held for sale                                  |   |   | 7,976     |   |   |   | 8,490     |   |   |   | 6,792     |   |   |   | 3,808     |   |   |   | 702 |   |
| Loans, net                                           |   |   | 1,503,981 |   |   |   | 1,469,840 |   |   |   | 1,352,599 |   |   |   | 1,279,227 |   |   |   | 1,141,716 |   |
| Deposits                                             |   |   | 1,347,427 |   |   |   | 1,237,886 |   |   |   | 1,143,926 |   |   |   | 1,107,409 |   |   |   | 1,036,414 |   |
| Federal Home Loan Bank borrowings                    |   |   | 225,000   |   |   |   | 265,000   |   |   |   | 265,348   |   |   |   | 235,379   |   |   |   | 223,161 |   |
| Redeemable common stock                              |   |   | 22,900    |   |   |   | 23,815    |   |   |   | 22,205    |   |   |   | 20,940    |   |   |   | 20,634 |   |
| Stockholders' equity                                 |   |   | 151,775   |   |   |   | 139,362   |   |   |   | 130,690   |   |   |   | 118,639   |   |   |   | 109,479 |   |
|                                                 |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| EARNINGS (Amounts in Thousands)                      |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Interest income                                      |   | $      | 96,195    |   |   | $      | 97,475    |   |   | $      | 96,928    |   |   | $      | 87,618    |   |   | $ | 74,403 |   |
| Interest expense                                     |   |   | 37,141    |   |   |   | 43,481    |   |   |   | 49,952    |   |   |   | 42,362    |   |   |   | 30,363 |   |
| Provision for loan losses                            |   |   | 11,947    |   |   |   | 11,507    |   |   |   | 3,529     |   |   |   | 3,011     |   |   |   | 2,101 |   |
| Other income                                         |   |   | 18,909    |   |   |   | 16,670    |   |   |   | 15,984    |   |   |   | 14,611    |   |   |   | 12,808 |   |
| Other expenses                                       |   |   | 44,813    |   |   |   | 39,461    |   |   |   | 36,150    |   |   |   | 34,364    |   |   |   | 32,861 |   |
| Income taxes                                         |   |   | 5,218     |   |   |   | 5,556     |   |   |   | 7,138     |   |   |   | 6,933     |   |   |   | 6,684 |   |
| Net income                                           |   |   | 15,985    |   |   |   | 14,140    |   |   |   | 16,143    |   |   |   | 15,559    |   |   |   | 15,202 |   |
|                                                 |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| PER SHARE                                            |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Net income:                                          |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Basic                                                |   | $      | 3.61      |   |   | $      | 3.16      |   |   | $      | 3.59      |   |   | $      | 3.42      |   |   | $ | 3.34 |   |
| Diluted                                              |   |   | 3.60      |   |   |   | 3.15      |   |   |   | 3.57      |   |   |   | 3.39      |   |   |   | 3.32 |   |
| Cash dividends                                       |   |   | 0.91      |   |   |   | 0.91      |   |   |   | 0.86      |   |   |   | 0.81      |   |   |   | 0.75 |   |
| Book value as of December 31                         |   |   | 34.32     |   |   |   | 31.38     |   |   |   | 29.11     |   |   |   | 26.34     |   |   |   | 24.00 |   |
| Increase (decrease) in book value due to:            |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| ESOP obligation                                      |   |   | (5.18     | )      |   |   | (5.36     | )      |   |   | (4.95     | )      |   |   | (4.65     | ) |   |   | (4.52 | ) |
| Accumulated other comprehensive income (loss)        |   |   | 0.95      |   |   |   | 0.82      |   |   |   | 0.14      |   |   |   | (0.28     | ) |   |   | (0.39 | ) |
|                                                 |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| SELECTED RATIOS                                      |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Return on average assets                             |   |   | 0.88      | %      |   |   | 0.83      | %      |   |   | 1.02      | %      |   |   | 1.04      | % |   |   | 1.12 | % |
| Return on average equity                             |   |   | 11.01     |   |   |   | 10.42     |   |   |   | 13.06     |   |   |   | 13.74     |   |   |   | 14.47 |   |
| Net interest margin                                  |   |   | 3.55      |   |   |   | 3.47      |   |   |   | 3.24      |   |   |   | 3.31      |   |   |   | 3.56 |   |
| Average stockholders' equity to average total assets |   |   | 7.99      |   |   |   | 7.98      |   |   |   | 7.78      |   |   |   | 7.56      |   |   |   | 7.73 |   |
| Dividend payout ratio                                |   |   | 25.28     |   |   |   | 28.90     |   |   |   | 23.99     |   |   |   | 23.75     |   |   |   | 22.44 |   |

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Table of Contents 

| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation |
|---------|--------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

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

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

| · | Net loans totaling $1.512 billion. |
|--------|------------------------------------|

| · | Loan growth, net of allowance for loan losses, in 2009 of $33.6 million. |
|--------|--------------------------------------------------------------------------|

| · | Deposit growth of $109.5 million in 2009.  Deposits increased to $1.347 billion and included $13.0 million of brokered deposits. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

| · | Short-term borrowings decreased $31.4 million. |
|--------|------------------------------------------------|

| · | Federal Home Loan Bank borrowings decreased $40.0 million. |
|--------|------------------------------------------------------------|

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Table of Contents 

| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

| · | Stockholders’ equity increased $12.4 million to $151.8 million in 2009, with dividends having been paid in 2009 of $4.0 million. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

| Year End Amounts (Amounts In Thousands)          |   | 2009   |      |   | 2008   |   |      | 2007   |   |   | 2006      |   |   | 2005   |      |
|--------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|--------|--------|--------|-----------|
|                                             |   |   |      |   |   |   |      |   |   |   |      |   |   |   |      |
| Total assets                                     |   | $      | 1,830,626 |   |   | $      | 1,780,793 |   |   | $      | 1,661,098 |   |   | $      | 1,551,233 |   |   | $ | 1,433,649 |   |
| Investment securities                            |   |   | 214,098   |   |   |   | 214,559   |   |   |   | 213,768   |   |   |   | 190,984   |   |   |   | 209,001 |   |
| Loans, net of allowance for losses ("Net Loans") |   |   | 1,511,957 |   |   |   | 1,478,330 |   |   |   | 1,359,391 |   |   |   | 1,283,035 |   |   |   | 1,142,418 |   |
| Deposits                                         |   |   | 1,347,427 |   |   |   | 1,237,886 |   |   |   | 1,143,926 |   |   |   | 1,107,409 |   |   |   | 1,036,414 |   |
| Federal Home Loan Bank borrowings                |   |   | 225,000   |   |   |   | 265,000   |   |   |   | 265,348   |   |   |   | 235,379   |   |   |   | 223,161 |   |
| Stockholders' equity                             |   |   | 151,775   |   |   |   | 139,362   |   |   |   | 130,690   |   |   |   | 118,639   |   |   |   | 109,479 |   |

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

| Year   |   | Net Income     |   |   | % Increase (Decrease) |   |   | E.P.S.- Diluted |   |
|--------|--------|----------------|--------|--------|-----------------------|--------|--------|-----------------|--------|
|   |   | (In Thousands) |   |   |                  |   |   |            |   |
| 2009   |   | $              | 15,985 |   |                  |   | 13.05  | %               |   | $ | 3.60 |   |
| 2008   |   |           | 14,140 |   |                  |   | (12.41 | )               |   |   | 3.15 |   |
| 2007   |   |           | 16,143 |   |                  |   | 3.75   |            |   |   | 3.57 |   |
| 2006   |   |           | 15,559 |   |                  |   | 2.35   |            |   |   | 3.39 |   |
| 2005   |   |           | 15,202 |   |                  |   | 7.09   |            |   |   | 3.32 |   |

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Table of Contents 

| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

|                             |   | Change In              |    |   | Change In |   |   | Increase (Decrease) |   |
|----------------------------------|--------|------------------------|---------|--------|-----------|--------|--------|---------------------|--------|
|                             |   | Average                |    |   | Average   |   |   | Volume              |   |   | Rate |   |   | Net |   |
|                             |   | Balance                |    |   | Rate      |   |   | Changes             |   |   | Changes |   |   | Change |   |
|                             |   | (Amounts In Thousands) |    |
| Interest income:                 |   |                   |    |   |      |   |   |                |   |   |   |   |   |   |   |
| Loans, net                       |   | $                      | 73,375  |   |      |   | (0.34  | )%                  |   | $ | 4,657 |   |   | $ | (4,998 | ) |   | $ | (341 | ) |
| Taxable securities               |   |                   | (3,834  | )      |      |   | (0.71  | )                   |   |   | (191 | ) |   |   | (757 | ) |   | $ | (948 | ) |
| Nontaxable securities            |   |                   | 2,371   |   |      |   | (0.15  | )                   |   |   | 127 |   |   |   | (144 | ) |   | $ | (17 | ) |
| Federal funds sold               |   |                   | 33,784  |   |      |   | (1.89  | )                   |   |   | 37 |   |   |   | - |   |   | $ | 37 |   |
|                             |   | $                      | 105,696 |   |      |   |   |                |   | $ | 4,630 |   |   | $ | (5,899 | ) |   | $ | (1,269 | ) |
| Interest expense:                |   |                   |    |   |      |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits |   | $                      | 36,991  |   |      |   | (0.23  | )%                  |   | $ | (321 | ) |   | $ | 502 |   |   | $ | 181 |   |
| Savings deposits                 |   |                   | 66,182  |   |      |   | (0.36  | )                   |   |   | (1,142 | ) |   |   | 1,402 |   |   | $ | 260 |   |
| Time deposits                    |   |                   | 54,722  |   |      |   | (0.84  | )                   |   |   | (2,222 | ) |   |   | 5,377 |   |   | $ | 3,155 |   |
| Short-term borrowings            |   |                   | (43,029 | )      |      |   | (0.64  | )                   |   |   | 912 |   |   |   | 275 |   |   | $ | 1,187 |   |
| FHLB borrowings                  |   |                   | (23,844 | )      |      |   | (0.17  | )                   |   |   | 1,206 |   |   |   | 413 |   |   | $ | 1,619 |   |
|                             |   | $                      | 91,022  |   |      |   |   |                |   | $ | (1,567 | ) |   | $ | 7,969 |   |   | $ | 6,402 |   |
| Change in net interest income    |   |                   |    |   |      |   |   |                |   | $ | 3,063 |   |   | $ | 2,070 |   |   | $ | 5,133 |   |

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

|                          |   | Change In              |    |   | Effect Of |   |   | Effect Of |   |   |   |   |
|-------------------------------|--------|------------------------|---------|--------|-----------|--------|--------|-----------|--------|--------|--------|--------|
|                          |   | Average                |    |   | Volume    |   |   | Rate      |   |   | Net    |   |
|                          |   | Balance                |    |   | Changes   |   |   | Changes   |   |   | Change |   |
|                          |   | (Amounts In Thousands) |    |
| Interest-earning assets       |   | $                      | 103,788 |   |      | $      | 7,773  |      |   | $      | (7,112 | )      |   | $ | 661 |   |
| Interest-bearing liabilities  |   |                   | 75,970  |   |      |   | (2,927 | )         |   |   | 9,398  |   |   |   | 6,471 |   |
| Change in net interest income |   |                   |    |   |      | $      | 4,846  |      |   | $      | 2,286  |   |   | $ | 7,132 |   |

| (Tax Equivalent Basis)                                                                          |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                            |   |   |   |   |   |   |   |   |   |
| Yield on average interest-earning assets                                                        |   |   | 5.69   | %      |   |   | 6.15   | %      |   |   | 6.52 | % |
| Rate on average interest-bearing liabilities                                                    |   |   | 2.52   |   |   |   | 3.15   |   |   |   | 3.84 |   |
| Net interest spread                                                                             |   |   | 3.17   |   |   |   | 3.00   |   |   |   | 2.68 |   |
| Effect of noninterest-bearing funds                                                             |   |   | 0.38   |   |   |   | 0.47   |   |   |   | 0.56 |   |
| Net interest margin (tax equivalent interest income divided by average interest-earning assets) |   |   | 3.55   | %      |   |   | 3.47   | %      |   |   | 3.24 | % |

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

----

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

|                                           |   | Repricing   |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |
|------------------------------------------------|--------|-------------|----------|--------|--------|--------|---------|-----------|--------|--------|--------|--------|--------|--------|---------|--------|--------|---------|---------|--------|----------|
|                                           |   | Maturities  |     |   | Days   |   |    | More Than |   |   |   |   |
|                                           |   | Immediately |     |   |   | 2-30   |    |      |   | 31-90  |   |   |   | 91-180 |    |   |   | 181-365 |    |   | One Year |   |   | Total |   |
|                                           |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |
| Earning assets:                                |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |
| Federal funds sold                             |   | $           | 854      |   |   | $      | -       |      |   | $      | -      |   |   | $      | -       |   |   | $       | -       |   |     | $ | - |   |   | $ | 854 |   |
| Investment securities                          |   |        | -        |   |   |   | 2,985   |      |   |   | 9,085  |   |   |   | 7,465   |   |   |    | 14,465  |   |     |   | 180,098 |   |   |   | 214,098 |   |
| Loans                                          |   |        | 8,604    |   |   |   | 184,289 |      |   |   | 45,476 |   |   |   | 62,842  |   |   |    | 116,022 |   |     |   | 1,123,884 |   |   |   | 1,541,117 |   |
| Total                                          |   |        | 9,458    |   |   |   | 187,274 |      |   |   | 54,561 |   |   |   | 70,307  |   |   |    | 130,487 |   |     |   | 1,303,982 |   |   |   | 1,756,069 |   |
| Sources of funds:                              |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |   |   |   |
| Interest-bearing checking and savings accounts |   |        | 61,677   |   |   |   | -       |      |   |   | -      |   |   |   | -       |   |   |    | -       |   |     |   | 482,565 |   |   |   | 544,242 |   |
| Certificates of deposit                        |   |        | -        |   |   |   | 30,308  |      |   |   | 54,744 |   |   |   | 120,334 |   |   |    | 131,488 |   |     |   | 282,153 |   |   |   | 619,027 |   |
| Other borrowings -                             |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |   |   |   |
| FHLB                                           |   |        | -        |   |   |   | 40,000  |      |   |   | -      |   |   |   | -       |   |   |    | -       |   |     |   | 185,000 |   |   |   | 225,000 |   |
| Federal funds and repurchase agreements        |   |        | 68,534   |   |   |   | -       |      |   |   | -      |   |   |   | -       |   |   |    | -       |   |     |   | - |   |   |   | 68,534 |   |
|                                           |   |        | 130,211  |   |   |   | 70,308  |      |   |   | 54,744 |   |   |   | 120,334 |   |   |    | 131,488 |   |     |   | 949,718 |   |   |   | 1,456,803 |   |
| Other sources, primarily noninterest-bearing   |   |        | -        |   |   |   | -       |      |   |   | -      |   |   |   | -       |   |   |    | -       |   |     |   | 184,158 |   |   |   | 184,158 |   |
| Total sources                                  |   |        | 130,211  |   |   |   | 70,308  |      |   |   | 54,744 |   |   |   | 120,334 |   |   |    | 131,488 |   |     |   | 1,133,876 |   |   |   | 1,640,961 |   |
| Interest                                       |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |   |   |   |
| Rate Gap                                       |   | $           | (120,753 | )      |   | $      | 116,966 |      |   | $      | (183   | )      |   | $      | (50,027 | )      |   | $       | (1,001  | )      |     | $ | 170,106 |   |   | $ | 115,108 |   |
|                                           |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |   |   |   |
| Cumulative Interest                            |   |        |     |   |   |   |    |      |   |   |   |   |   |   |    |   |   |    |    |   |     |   |   |   |   |   |   |   |
| Rate Gap at December 31, 2009                  |   | $           | (120,753 | )      |   | $      | (3,787  | )         |   | $      | (3,970 | )      |   | $      | (53,997 | )      |   | $       | (54,998 | )      |     | $ | 115,108 |   |   |   |   |   |

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

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| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

|                      |   |   |    |   |     |   |   |              |   |   | To Be Well        |   |
|---------------------------|--------|--------|---------|--------|----------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                      |   |   |    |   |     |   |   | For Capital       |   |   | Capitalized Under |   |
|                      |   |   |    |   |     |   |   | Adequacy          |   |   | Prompt Corrective |   |
|                      |   | Actual |    |   | Purposes |   |   | Action Provisions |   |
|                      |   | Amount |    |   | Ratio    |   |   | Ratio             |   |   | Ratio             |   |
| As of December 31, 2009:  |   |   |    |   |     |   |   |              |   |   |              |   |
| Company:                  |   |   |    |   |     |   |   |              |   |   |              |   |
| Total risk-based capital  |   | $      | 186,095 |   |     |   | 12.94  | %                 |   |   | 8.00              | %      |   |   | 10.00 | % |
| Tier 1 risk-based capital |   |   | 167,976 |   |     |   | 11.68  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 167,976 |   |     |   | 9.20   |              |   |   | 4.00              |   |   |   | 5.00 |   |
| Bank:                     |   |   |    |   |     |   |   |              |   |   |              |   |   |   |   |   |
| Total risk-based capital  |   |   | 184,992 |   |     |   | 12.87  |              |   |   | 8.00              |   |   |   | 10.00 |   |
| Tier 1 risk-based capital |   |   | 166,890 |   |     |   | 11.61  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 166,890 |   |     |   | 9.14   |              |   |   | 4.00              |   |   |   | 5.00 |   |

----

Table of Contents 

| Item 7. | Management's Discussion and Analysis of Financial Condition And Results of Operation (Continued) |
|---------|--------------------------------------------------------------------------------------------------|

|                           |   | Payments Due By Period |    |
|--------------------------------|--------|------------------------|---------|
|                           |   | (Amounts In Thousands) |    |
|                           |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   |                   |    |   | Less Than |   |   | One - |   |   | Three - |   |   | More Than |   |
|                           |   | Total                  |    |   | One Year |   |   | Three Years |   |   | Five Years |   |   | Five Years |   |
| Contractual obligations:       |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term debt obligations     |   | $                      | 225,000 |   |   | $ | 40,000 |   |   | $ | - |   |   | $ | - |   |   | $ | 185,000 |   |
| Operating lease obligations    |   |                   | 1,726   |   |   |   | 313 |   |   |   | 535 |   |   |   | 431 |   |   |   | 447 |   |
| Total contractual obligations: |   | $                      | 226,726 |   |   | $ | 40,313 |   |   | $ | 535 |   |   | $ | 431 |   |   | $ | 185,447 |   |
|                           |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other commitments:             |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Lines of credit                |   | $                      | 289,927 |   |   | $ | 203,811 |   |   | $ | 72,919 |   |   | $ | 10,640 |   |   | $ | 2,557 |   |
| Standby letters of credit      |   |                   | 9,724   |   |   |   | 9,724 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total other commitments        |   | $                      | 299,651 |   |   | $ | 213,535 |   |   | $ | 72,919 |   |   | $ | 10,640 |   |   | $ | 2,557 |   |

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Table of Contents 

| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
|----------|------------------------------------------------------------|

----

Table of Contents 

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

|                    |   | 2010                   |    |   | 2011   |   |    | 2012   |   |   | 2013   |   |   | 2014   |    |   | Thereafter |   |    | Total  |   |   | Fair Value |   |
|-------------------------|--------|------------------------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|------------|--------|---------|--------|--------|--------|------------|--------|
|                    |   | (Amounts In Thousands) |    |
| Assets:                 |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |
| Loans, fixed:           |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |
| Balance                 |   | $                      | 140,825 |   |   | $      | 68,811  |   |   | $      | 77,015 |   |   | $      | 211,647 |   |       | $      | 184,668 |   |   | $      | 76,233     |   |   | $ | 759,199 |   |   | $ | 756,129 |   |
| Average interest rate   |   |                   | 6.04    | %      |   |   | 6.22    | %      |   |   | 6.54   | %      |   |   | 5.86    | %      |       |   | 5.84    | %      |   |   | 5.35       | %      |   |   | 5.94 | % |   |   |   |   |
|                    |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Loans, variable:        |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance                 |   | $                      | 246,530 |   |   | $      | 68,962  |   |   | $      | 48,998 |   |   | $      | 194,444 |   |       | $      | 164,071 |   |   | $      | 50,937     |   |   | $ | 773,942 |   |   | $ | 759,222 |   |
| Average interest rate   |   |                   | 5.00    | %      |   |   | 6.42    | %      |   |   | 6.18   | %      |   |   | 5.79    | %      |       |   | 5.52    | %      |   |   | 5.54       | %      |   |   | 5.55 | % |   |   |   |   |
|                    |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Investments (1):        |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance                 |   | $                      | 47,025  |   |   | $      | 40,959  |   |   | $      | 47,787 |   |   | $      | 16,072  |   |       | $      | 15,106  |   |   | $      | 47,149     |   |   | $ | 214,098 |   |   | $ | 214,098 |   |
| Average interest rate   |   |                   | 3.16    | %      |   |   | 3.85    | %      |   |   | 3.60   | %      |   |   | 5.10    | %      |       |   | 5.05    | %      |   |   | 5.37       | %      |   |   | 4.16 | % |   |   |   |   |
|                    |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Liabilities:            |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Liquid deposits (2):    |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance                 |   | $                      | 544,242 |   |   | $      | -       |   |   | $      | -      |   |   | $      | -       |   |       | $      | -       |   |   | $      | -          |   |   | $ | 544,242 |   |   | $ | 544,242 |   |
| Average interest rate   |   |                   | 0.61    | %      |   |   | 0.00    | %      |   |   | 0.00   | %      |   |   | 0.00    | %      |       |   | 0.00    | %      |   |   | 0.00       | %      |   |   | 0.61 | % |   |   |   |   |
|                    |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Deposits, certificates: |   |                   |    |   |   |   |    |   |   |   |   |   |   |   |    |   |       |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance                 |   | $                      | 336,874 |   |   | $      | 162,990 |   |   | $      | 95,908 |   |   | $      | 12,650  |   |       | $      | 10,605  |   |   | $      | -          |   |   | $ | 619,027 |   |   | $ | 622,481 |   |
| Average interest rate   |   |                   | 2.82    | %      |   |   | 3.01    | %      |   |   | 2.60   | %      |   |   | 3.69    | %      |       |   | 3.10    | %      |   |   | 0.00       | %      |   |   | 2.86 | % |   |   |   |   |

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

| (2) | Includes NOW and other demand, savings and money market funds. |
|-----|----------------------------------------------------------------|

| Item 8. | Consolidated Financial Statements and Supplementary Data |
|---------|----------------------------------------------------------|

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|   | KPMG LLP2500 Ruan Center666 Grand AvenueDes Moines, IA 50309 |
|--------|--------------------------------------------------------------|

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Table of Contents 

| CONSOLIDATED BALANCE SHEETS                                                                                    |   |
|----------------------------------------------------------------------------------------------------------------|--------|
| December 31, 2009 and 2008                                                                                     |   |
| (Amounts In Thousands, Except Shares)                                                                          |   |
|                                                                                                           |   |   |   |   |   |   |
| ASSETS                                                                                                         |   | 2009 |   |   | 2008 |   |
| Cash and cash equivalents (Note 10)                                                                            |   | $ | 24,095 |   |   | $ | 22,575 |   |
| Investment securities available for sale at fair value                                                         |   |   |   |   |   |   |   |   |
| (amortized cost 2009 $194,844 ; 2008 $194,402) (Notes 1, 2 and 6)                                              |   |   | 201,645 |   |   |   | 200,312 |   |
| Stock of Federal Home Loan Bank                                                                                |   |   | 12,453 |   |   |   | 14,247 |   |
| Loans held for sale                                                                                            |   |   | 7,976 |   |   |   | 8,490 |   |
| Loans, net of allowance for loan losses (2009 $29,160; 2008 $27,660) (Notes 1, 3, 7, and 11)                   |   |   | 1,503,981 |   |   |   | 1,469,840 |   |
| Property and equipment, net (Note 4)                                                                           |   |   | 26,417 |   |   |   | 23,606 |   |
| Tax credit real estate                                                                                         |   |   | 18,777 |   |   |   | 12,065 |   |
| Accrued interest receivable                                                                                    |   |   | 9,677 |   |   |   | 10,437 |   |
| Deferred income taxes, net (Note 9)                                                                            |   |   | 8,892 |   |   |   | 8,959 |   |
| Other real estate                                                                                              |   |   | 3,227 |   |   |   | 5,155 |   |
| Goodwill                                                                                                       |   |   | 2,500 |   |   |   | 2,500 |   |
| Prepaid FDIC insurance                                                                                         |   |   | 6,947 |   |   |   | - |   |
| Other assets                                                                                                   |   |   | 4,039 |   |   |   | 2,607 |   |
|                                                                                                           |   | $ | 1,830,626 |   |   | $ | 1,780,793 |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                           |   |   |   |   |   |   |   |   |
| Liabilities                                                                                                    |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits                                                                                   |   | $ | 184,158 |   |   | $ | 169,299 |   |
| Interest-bearing deposits (Note 5)                                                                             |   |   | 1,163,269 |   |   |   | 1,068,587 |   |
| Total deposits                                                                                                 |   |   | 1,347,427 |   |   |   | 1,237,886 |   |
| Short-term borrowings (Note 6)                                                                                 |   |   | 68,534 |   |   |   | 99,937 |   |
| Federal Home Loan Bank borrowings (Note 7)                                                                     |   |   | 225,000 |   |   |   | 265,000 |   |
| Accrued interest payable                                                                                       |   |   | 2,341 |   |   |   | 2,914 |   |
| Other liabilities                                                                                              |   |   | 12,649 |   |   |   | 11,879 |   |
|                                                                                                           |   |   | 1,655,951 |   |   |   | 1,617,616 |   |
| Commitments and Contingencies (Notes 8 and 14)                                                                 |   |   |   |   |   |   |   |   |
|                                                                                                           |   |   |   |   |   |   |   |   |
| Redeemable Common Stock Held By Employee Stock Ownership Plan (ESOP) (Note 8)                                  |   |   | 22,900 |   |   |   | 23,815 |   |
|                                                                                                           |   |   |   |   |   |   |   |   |
| Stockholders' Equity (Note 10)                                                                                 |   |   |   |   |   |   |   |   |
| Capital stock, no par value; authorized 10,000,000 shares; issued 2009 4,618,962 shares; 2008 4,597,427 shares |   |   | - |   |   |   | - |   |
| Paid in capital                                                                                                |   |   | 14,582 |   |   |   | 13,447 |   |
| Retained earnings                                                                                              |   |   | 166,120 |   |   |   | 154,176 |   |
| Accumulated other comprehensive income                                                                         |   |   | 4,200 |   |   |   | 3,649 |   |
| Treasury stock at cost (2009 196,688 shares; 2008 156,882 shares)                                              |   |   | (10,227 | ) |   |   | (8,095 | ) |
|                                                                                                           |   |   | 174,675 |   |   |   | 163,177 |   |
| Less maximum cash obligation related to ESOP shares (Note 8)                                                   |   |   | 22,900 |   |   |   | 23,815 |   |
|                                                                                                           |   |   | 151,775 |   |   |   | 139,362 |   |
|                                                                                                           |   | $ | 1,830,626 |   |   | $ | 1,780,793 |   |

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Table of Contents 

| CONSOLIDATED STATEMENTS OF INCOME                                               |   |
|---------------------------------------------------------------------------------|--------|
| Years Ended December 31, 2009, 2008 and 2007                                    |   |
| (Amounts In Thousands, Except Per Share Amounts)                                |   |
|                                                                            |   | 2009 |   |   | 2008 |   |   | 2007 |   |
| Interest income:                                                                |   |   |   |   |   |   |   |   |   |
| Loans, including fees                                                           |   | $ | 88,982 |   |   | $ | 89,341 |   |   | $ | 88,743 |   |
| Investment securities:                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                         |   |   | 3,786 |   |   |   | 4,734 |   |   |   | 4,706 |   |
| Nontaxable                                                                      |   |   | 3,372 |   |   |   | 3,382 |   |   |   | 3,154 |   |
| Federal funds sold                                                              |   |   | 55 |   |   |   | 18 |   |   |   | 325 |   |
| Total interest income                                                           |   |   | 96,195 |   |   |   | 97,475 |   |   |   | 96,928 |   |
| Interest expense:                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                        |   |   | 25,269 |   |   |   | 28,865 |   |   |   | 35,277 |   |
| Short-term borrowings                                                           |   |   | 631 |   |   |   | 1,818 |   |   |   | 2,151 |   |
| FHLB borrowings                                                                 |   |   | 11,241 |   |   |   | 12,860 |   |   |   | 12,524 |   |
| Total interest expense                                                          |   |   | 37,141 |   |   |   | 43,543 |   |   |   | 49,952 |   |
| Net interest income                                                             |   |   | 59,054 |   |   |   | 53,932 |   |   |   | 46,976 |   |
| Provision for loan losses (Note 3)                                              |   |   | 11,947 |   |   |   | 11,507 |   |   |   | 3,529 |   |
| Net interest income after provision for loan losses                             |   |   | 47,107 |   |   |   | 42,425 |   |   |   | 43,447 |   |
| Other income:                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net gain on sale of loans                                                       |   |   | 3,874 |   |   |   | 1,274 |   |   |   | 934 |   |
| Trust fees                                                                      |   |   | 3,517 |   |   |   | 3,917 |   |   |   | 3,928 |   |
| Service charges and fees                                                        |   |   | 7,970 |   |   |   | 7,907 |   |   |   | 7,861 |   |
| Rental revenue on tax credit real estate                                        |   |   | 1,193 |   |   |   | 1,043 |   |   |   | 685 |   |
| Other noninterest income                                                        |   |   | 2,355 |   |   |   | 2,529 |   |   |   | 2,576 |   |
|                                                                            |   |   | 18,909 |   |   |   | 16,670 |   |   |   | 15,984 |   |
| Other expenses:                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                                  |   |   | 21,693 |   |   |   | 20,287 |   |   |   | 19,353 |   |
| Occupancy                                                                       |   |   | 2,898 |   |   |   | 2,363 |   |   |   | 2,344 |   |
| Furniture and equipment                                                         |   |   | 3,729 |   |   |   | 3,527 |   |   |   | 3,482 |   |
| Office supplies and postage                                                     |   |   | 1,366 |   |   |   | 1,319 |   |   |   | 1,329 |   |
| Advertising and business development                                            |   |   | 1,703 |   |   |   | 1,788 |   |   |   | 1,859 |   |
| Outside services                                                                |   |   | 5,956 |   |   |   | 5,469 |   |   |   | 5,268 |   |
| Rental expenses on tax credit real estate                                       |   |   | 1,849 |   |   |   | 1,558 |   |   |   | 971 |   |
| FDIC insurance assessment                                                       |   |   | 2,778 |   |   |   | 865 |   |   |   | 132 |   |
| Loss on extinguishment of debt - Federal Home Loan Bank borrowings              |   |   | 584 |   |   |   | - |   |   |   | - |   |
| Net loss (gain) on sale of other real estate owned and other repossessed assets |   |   | 1,054 |   |   |   | 96 |   |   |   | (14 | ) |
| Flood-related expenses                                                          |   |   | 40 |   |   |   | 852 |   |   |   | - |   |
| Other noninterest expenses                                                      |   |   | 1,163 |   |   |   | 1,275 |   |   |   | 1,426 |   |
|                                                                            |   |   | 44,813 |   |   |   | 39,399 |   |   |   | 36,150 |   |
| Income before income taxes                                                      |   |   | 21,203 |   |   |   | 19,696 |   |   |   | 23,281 |   |
| Income taxes (Note 9)                                                           |   |   | 5,218 |   |   |   | 5,556 |   |   |   | 7,138 |   |
| Net income                                                                      |   | $ | 15,985 |   |   | $ | 14,140 |   |   | $ | 16,143 |   |
|                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per share:                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                           |   | $ | 3.61 |   |   | $ | 3.16 |   |   | $ | 3.59 |   |
| Diluted                                                                         |   |   | 3.60 |   |   |   | 3.15 |   |   |   | 3.57 |   |

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Table of Contents 

|                                                                                                      |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                                           |   |
| Years Ended December 31, 2009, 2008 and 2007                                                              |   |
| (Amounts In Thousands)                                                                                    |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |
|                                                                                                      |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |
| Net income                                                                                                |   | $      | 15,985 |   |   | $      | 14,140 |   |   | $ | 16,143 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income,                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized gains on securities:                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains arising during the year, net of income taxes 2009 $340; 2008 $1,860; 2007 $1,185 |   |   | 551    |   |   |   | 3,002  |   |   |   | 1,912 |   |
|                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                                      |   | $      | 16,536 |   |   | $      | 17,142 |   |   | $ | 18,055 |   |

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Table of Contents 

|                                                   |   |    |   |   |     |   |    |          |   |   |       |   |   |     |    |   |   |   |
|--------------------------------------------------------|--------|---------|--------|--------|----------|--------|---------|---------------|--------|--------|------------|--------|--------|----------|---------|--------|--------|--------|
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        |   |
| Years Ended December 31, 2009, 2008 and 2007           |   |
| (Amounts In Thousands, Except Share Amounts)           |   |
|                                                   |   |    |   |   |     |   |    |          |   |   | Maximum    |   |   |     |    |   |   |   |
|                                                   |   |    |   |   |     |   |    |          |   |   | Cash       |   |   |     |    |   |   |   |
|                                                   |   |    |   |   |     |   |    | Accumulated   |   |   | Obligation |   |   |     |    |   |   |   |
|                                                   |   |    |   |   |     |   |    | Other         |   |   | Related    |   |   |     |    |   |   |   |
|                                                   |   | Paid In |   |   | Retained |   |    | Comprehensive |   |   | To ESOP    |   |   | Treasury |    |   |   |   |
|                                                   |   | Capital |   |   | Earnings |   |    | Income (Loss) |   |   | Shares     |   |   | Stock    |    |   | Total  |   |
|                                                   |   |    |   |   |     |   |    |          |   |   |       |   |   |     |    |   |   |   |
| Balance, December 31, 2006                             |   | $       | 12,364 |   |     | $      | 131,852 |          |   | $      | (1,265     | )      |   | $        | (20,940 | )      |   | $      | (3,372 | ) |   | $ | 118,639 |   |
| Issuance of 13,030 shares of common stock              |   |    | 326    |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 326 |   |
| Forfeiture of 1,169 shares of common stock             |   |    | (54    | )      |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (54 | ) |
| Share-based compensation                               |   |    | 42     |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 42 |   |
| Income tax benefit related to share-based compensation |   |    | 145    |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 145 |   |
| Change related to ESOP shares                          |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | (1,265  | )      |   |   | - |   |   |   | (1,265 | ) |
| Net income                                             |   |    | -      |   |     |   | 16,143  |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 16,143 |   |
| Cash dividends ($.86 per share)                        |   |    | -      |   |     |   | (3,873  | )             |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (3,873 | ) |
| Purchase of 25,492 shares of common stock              |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | (1,325 | ) |   |   | (1,325 | ) |
| Other comprehensive income                             |   |    | -      |   |     |   | -       |          |   |   | 1,912      |   |   |     | -       |   |   |   | - |   |   |   | 1,912 |   |
| Balance, December 31, 2007                             |   | $       | 12,823 |   |     | $      | 144,122 |          |   | $      | 647        |   |   | $        | (22,205 | )      |   | $      | (4,697 | ) |   | $ | 130,690 |   |
| Issuance of 15,093 shares of common stock              |   |    | 527    |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 527 |   |
| Forfeiture of 1,186 shares of common stock             |   |    | (51    | )      |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (51 | ) |
| Share-based compensation                               |   |    | 21     |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 21 |   |
| Income tax benefit related to share-based compensation |   |    | 127    |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 127 |   |
| Change related to ESOP shares                          |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | (1,610  | )      |   |   | - |   |   |   | (1,610 | ) |
| Net income                                             |   |    | -      |   |     |   | 14,140  |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 14,140 |   |
| Cash dividends ($.91 per share)                        |   |    | -      |   |     |   | (4,086  | )             |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (4,086 | ) |
| Purchase of 63,469 shares of common stock              |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | (3,398 | ) |   |   | (3,398 | ) |
| Other comprehensive income                             |   |    | -      |   |     |   | -       |          |   |   | 3,002      |   |   |     | -       |   |   |   | - |   |   |   | 3,002 |   |
| Balance, December 31, 2008                             |   | $       | 13,447 |   |     | $      | 154,176 |          |   | $      | 3,649      |   |   | $        | (23,815 | )      |   | $      | (8,095 | ) |   | $ | 139,362 |   |
| Issuance of 22,371 shares of common stock              |   |    | 1,070  |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 1,070 |   |
| Forfeiture of 836 shares of common stock               |   |    | (41    | )      |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (41 | ) |
| Share-based compensation                               |   |    | 62     |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 62 |   |
| Income tax benefit related to share-based compensation |   |    | 44     |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 44 |   |
| Change related to ESOP shares                          |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | 915     |   |   |   | - |   |   |   | 915 |   |
| Net income                                             |   |    |   |   |     |   | 15,985  |          |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | 15,985 |   |
| Cash dividends ($.91 per share)                        |   |    | -      |   |     |   | (4,041  | )             |   |   | -          |   |   |     | -       |   |   |   | - |   |   |   | (4,041 | ) |
| Purchase of 39,806 shares of common stock              |   |    | -      |   |     |   | -       |          |   |   | -          |   |   |     | -       |   |   |   | (2,132 | ) |   |   | (2,132 | ) |
| Other comprehensive income                             |   |    | -      |   |     |   | -       |          |   |   | 551        |   |   |     | -       |   |   |   | - |   |   |   | 551 |   |
| Balance, December 31, 2009                             |   | $       | 14,582 |   |     | $      | 166,120 |          |   | $      | 4,200      |   |   | $        | (22,900 | )      |   | $      | (10,227 | ) |   | $ | 151,775 |   |

----

Table of Contents 

|                                                                                                   |   |   |     |   |   |   |     |   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                  |   |
| Years Ended December 31, 2009, 2008 and 2007                                                           |   |
| (Amounts In Thousands)                                                                                 |   |
|                                                                                                   |   |   |     |   |   |   |     |   |   |
|                                                                                                   |   |   |     |   |   |   |     |   |   |
|                                                                                                   |   | 2009   |     |   | 2008   |   |     | 2007   |   |
| Cash Flows from Operating Activities                                                                   |   |   |     |   |   |   |     |   |   |
| Net income                                                                                             |   | $      | 15,985   |   |   | $      | 14,140   |   |   | $ | 16,143 |   |
| Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: |   |   |     |   |   |   |     |   |   |   |   |   |
| Depreciation                                                                                           |   |   | 2,414    |   |   |   | 2,237    |   |   |   | 2,249 |   |
| Provision for loan losses                                                                              |   |   | 11,947   |   |   |   | 11,507   |   |   |   | 3,529 |   |
| Share-based compensation                                                                               |   |   | 62       |   |   |   | 21       |   |   |   | 42 |   |
| Compensation expensed through issuance of common stock                                                 |   |   | 111      |   |   |   | 234      |   |   |   | 133 |   |
| Excess tax benefits related to share-based compensation                                                |   |   | (44      | )      |   |   | (127     | )      |   |   | (145 | ) |
| Forfeiture of common stock                                                                             |   |   | (41      | )      |   |   | (51      | )      |   |   | (54 | ) |
| Provision for deferred income taxes                                                                    |   |   | (273     | )      |   |   | (3,088   | )      |   |   | (1,303 | ) |
| Flood-related loss on disposal of property and equipment                                               |   |   | -        |   |   |   | 345      |   |   |   | - |   |
| Net loss (gain) on sale of other real estate owned and other repossessed assets                        |   |   | 1,054    |   |   |   | 96       |   |   |   | (14 | ) |
| Decrease (increase) in accrued interest receivable                                                     |   |   | 760      |   |   |   | 954      |   |   |   | (1,099 | ) |
| Amortization of discount on investment securities, net                                                 |   |   | 768      |   |   |   | 424      |   |   |   | 310 |   |
| Increase in prepaid FDIC insurance                                                                     |   |   | (6,947   | )      |   |   | -        |   |   |   | - |   |
| (Increase) decrease in other assets                                                                    |   |   | (1,388   | )      |   |   | (3,724   | )      |   |   | 474 |   |
| Increase in accrued interest and other liabilities                                                     |   |   | 197      |   |   |   | 2,940    |   |   |   | 2,049 |   |
| Loans originated for sale                                                                              |   |   | (291,169 | )      |   |   | (131,577 | )      |   |   | (114,169 | ) |
| Proceeds on sales of loans                                                                             |   |   | 295,557  |   |   |   | 131,153  |   |   |   | 112,119 |   |
| Net gain on sales of loans                                                                             |   |   | (3,874   | )      |   |   | (1,274   | )      |   |   | (934 | ) |
| Net cash and cash equivalents provided by operating activities                                         |   |   | 25,119   |   |   |   | 24,210   |   |   |   | 19,330 |   |
|                                                                                                   |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash Flows from Investing Activities                                                                   |   |   |     |   |   |   |     |   |   |   |   |   |
| Proceeds from maturities of investment securities:                                                     |   |   |     |   |   |   |     |   |   |   |   |   |
| Available for sale                                                                                     |   |   | 48,428   |   |   |   | 47,473   |   |   |   | 36,592 |   |
| Held to maturity                                                                                       |   |   | -        |   |   |   | -        |   |   |   | 170 |   |
| Purchases of investment securities available for sale                                                  |   |   | (47,844  | )      |   |   | (43,826  | )      |   |   | (56,758 | ) |
| Loans made to customers, net of collections                                                            |   |   | (51,771  | )      |   |   | (129,869 | )      |   |   | (78,030 | ) |
| Proceeds on sale of other real estate owned and other repossessed assets                               |   |   | 6,557    |   |   |   | 1,025    |   |   |   | 1,143 |   |
| Purchases of property and equipment                                                                    |   |   | (5,225   | )      |   |   | (4,968   | )      |   |   | (1,408 | ) |
| Investment in tax credit real estate, net                                                              |   |   | (6,712   | )      |   |   | (3,262   | )      |   |   | (1,692 | ) |
| Net cash used in investing activities                                                                  |   |   | (56,567  | )      |   |   | (133,427 | )      |   |   | (99,983 | ) |

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|                                                                  |   |   |    |   |   |   |    |   |   |
|-----------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)                     |   |
| Years Ended December 31, 2009, 2008 and 2007                          |   |
| (Amounts In Thousands)                                                |   |
|                                                                  |   |   |    |   |   |   |    |   |   |
|                                                                  |   |   |    |   |   |   |    |   |   |
|                                                                  |   | 2009   |    |   | 2008   |   |    | 2007   |   |
| Cash Flows from Financing Activities                                  |   |   |    |   |   |   |    |   |   |
| Net increase in deposits                                              |   |   | 109,541 |   |   |   | 93,960  |   |   |   | 36,517 |   |
| Net (decrease) increase in short-term borrowings                      |   |   | (31,403 | )      |   |   | 12,861  |   |   |   | 28,013 |   |
| Borrowings from FHLB                                                  |   |   | -       |   |   |   | 20,000  |   |   |   | 60,000 |   |
| Payments on FHLB borrowings                                           |   |   | (40,000 | )      |   |   | (20,348 | )      |   |   | (30,031 | ) |
| Borrowings from FRB                                                   |   |   | -       |   |   |   | 1,650   |   |   |   | 9,000 |   |
| Payments on FRB borrowings                                            |   |   | -       |   |   |   | (1,650  | )      |   |   | (9,000 | ) |
| Stock options exercised                                               |   |   | 959     |   |   |   | 293     |   |   |   | 193 |   |
| Excess tax benefits related to share-based compensation               |   |   | 44      |   |   |   | 127     |   |   |   | 145 |   |
| Purchase of treasury stock                                            |   |   | (2,132  | )      |   |   | (3,398  | )      |   |   | (1,325 | ) |
| Dividends paid                                                        |   |   | (4,041  | )      |   |   | (4,086  | )      |   |   | (3,873 | ) |
| Net cash provided by financing activities                             |   |   | 32,968  |   |   |   | 99,409  |   |   |   | 89,639 |   |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                      |   | $      | 1,520   |   |   | $      | (9,808  | )      |   | $ | 8,986 |   |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash and cash equivalents:                                            |   |   |    |   |   |   |    |   |   |   |   |   |
| Beginning of year                                                     |   |   | 22,575  |   |   |   | 32,383  |   |   |   | 23,397 |   |
| End of year                                                           |   | $      | 24,095  |   |   | $      | 22,575  |   |   | $ | 32,383 |   |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Supplemental Disclosures                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash payments for:                                                    |   |   |    |   |   |   |    |   |   |   |   |   |
| Interest paid to depositors                                           |   | $      | 25,842  |   |   | $      | 29,178  |   |   | $ | 35,550 |   |
| Interest paid on other obligations                                    |   |   | 11,872  |   |   |   | 14,616  |   |   |   | 14,675 |   |
| Income taxes paid                                                     |   |   | 7,854   |   |   |   | 7,592   |   |   |   | 7,877 |   |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Noncash financing activities:                                         |   |   |    |   |   |   |    |   |   |   |   |   |
| (Decrease) increase in maximum cash obligation related to ESOP shares |   | $      | (915    | )      |   | $      | 1,610   |   |   | $ | 1,265 |   |
| Transfers to other real estate owned                                  |   |   | 5,074   |   |   |   | 5,756   |   |   |   | 850 |   |

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|                                                                                                                          |   | Year Ended December 31, |      |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                                                                          |   | 2009                    |      |   | 2008 |   |   | 2007 |   |
|                                                                                                                          |   | (Amounts In Thousands)  |      |
| Computation of weighted average number of basic and diluted shares:                                                           |   |                    |      |   |   |   |   |   |   |
| Common shares outstanding at the beginning of the year                                                                        |   |                    | 4,440,545 |   |   |   | 4,490,107 |   |   |   | 4,503,738 |   |
| Weighted average number of net shares issued (redeemed)                                                                       |   |                    | (17,843   | ) |   |   | (22,122 | ) |   |   | (4,158 | ) |
| Weighted average shares outstanding (basic)                                                                                   |   |                    | 4,422,702 |   |   |   | 4,467,985 |   |   |   | 4,499,580 |   |
| Weighted average of potential dilutive shares attributable to stock options granted, computed under the treasury stock method |   |                    | 12,812    |   |   |   | 15,202 |   |   |   | 19,495 |   |
| Weighted average number of shares (diluted)                                                                                   |   |                    | 4,435,514 |   |   |   | 4,483,187 |   |   |   | 4,519,075 |   |
|                                                                                                                          |   |                    |      |   |   |   |   |   |   |   |   |   |
| Net income (In Thousands)                                                                                                     |   | $                       | 15,985    |   |   | $ | 14,140 |   |   | $ | 16,143 |   |
|                                                                                                                          |   |                    |      |   |   |   |   |   |   |   |   |   |
| Earnings per share:                                                                                                           |   |                    |      |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                         |   | $                       | 3.61      |   |   | $ | 3.16 |   |   | $ | 3.59 |   |
| Diluted                                                                                                                       |   | $                       | 3.60      |   |   | $ | 3.15 |   |   | $ | 3.57 |   |

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

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

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

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|                                     |   | December 31, 2009      |   |
|------------------------------------------|--------|------------------------|--------|
|                                     |   | Level 1                |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                     |   | (Amounts in Thousands) |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| Investment securities available for sale |   | $                      | 99,090 |   |   | $ | 102,555 |   |   | $ | - |   |   | $ | 201,645 |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                    |   | $                      | 99,090 |   |   | $ | 102,555 |   |   | $ | - |   |   | $ | 201,645 |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   | December 31, 2008      |   |
|                                     |   | Level 1                |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                     |   | (Amounts in Thousands) |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment securities available for sale |   | $                      | 99,849 |   |   | $ | 100,463 |   |   | $ | - |   |   | $ | 200,312 |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                    |   | $                      | 99,849 |   |   | $ | 100,463 |   |   | $ | - |   |   | $ | 200,312 |   |

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|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   | Year Ended   |   |
|-----------------------|--------|------------------------|--------|--------|-------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------------|--------|
|                  |   | December 31, 2009      |   |   | December 31, 2009 |   |
|                  |   | Level 1                |   |   | Level 2           |   |   | Level 3 |   |   | Total  |   |   | Total Losses |   |
|                  |   | (Amounts in Thousands) |   |   |              |   |
|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   |         |   |
| Loans (1)             |   | $                      | -      |   |              | $      | 9,905  |    |   | $      | -      |   |   | $            | 9,905  |   |   | $ | 3,040 |   |
| Foreclosed assets (2) |   |                   | -      |   |              |   | 1,396  |    |   |   | -      |   |   | $            | 1,396  |   |   |   | 608 |   |
| Total                 |   | $                      | -      |   |              | $      | 11,301 |    |   | $      | -      |   |   | $            | 11,301 |   |   | $ | 3,648 |   |
|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   |         |   |   |   |   |   |   |
|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   |         |   |   |   | Year Ended |   |
|                  |   | December 31, 2008      |   |   | December 31, 2008 |   |
|                  |   | Level 1                |   |   | Level 2           |   |   | Level 3 |   |   | Total  |   |   | Total Losses |   |
|                  |   | (Amounts in Thousands) |   |   |              |   |   |
|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   |         |   |   |   |   |   |   |
| Loans (1)             |   | $                      | -      |   |              | $      | 4,850  |    |   | $      | -      |   |   | $            | 4,850  |   |   | $ | 1,417 |   |
|                  |   |                   |   |   |              |   |   |    |   |   |   |   |   |         |   |   |   |   |   |   |
| Total                 |   | $                      | -      |   |              | $      | 4,850  |    |   | $      | -      |   |   | $            | 4,850  |   |   | $ | 1,417 |   |

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

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

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|                                    |   |      |    |   | Gross      |   |   | Gross      |   |   | Estimated |   |
|-----------------------------------------|--------|-----------|---------|--------|------------|--------|--------|------------|--------|--------|-----------|--------|
|                                    |   | Amortized |    |   | Unrealized |   |   | Unrealized |   |   | Fair      |   |
|                                    |   | Cost      |    |   | Gains      |   |   | (Losses)   |   |   | Value     |   |
|                                    |   |      |    |
| December 31, 2009:                      |   |      |    |   |       |   |   |       |   |   |      |   |
| Other securities (FHLB, FHLMC and FNMA) |   | $         | 95,745  |   |       | $      | 3,355  |       |   | $      | (10       | )      |   | $ | 99,090 |   |
| State and political subdivisions        |   |      | 99,099  |   |       |   | 3,562  |       |   |   | (106      | )      |   |   | 102,555 |   |
| Total                                   |   | $         | 194,844 |   |       | $      | 6,917  |       |   | $      | (116      | )      |   | $ | 201,645 |   |
|                                    |   |      |    |   |       |   |   |       |   |   |      |   |   |   |   |   |
| December 31, 2008:                      |   |      |    |   |       |   |   |       |   |   |      |   |   |   |   |   |
| Other securities (FHLB, FHLMC and FNMA) |   | $         | 95,642  |   |       | $      | 4,207  |       |   | $      | -         |   |   | $ | 99,849 |   |
| State and political subdivisions        |   |      | 98,760  |   |       |   | 1,774  |       |   |   | (71       | )      |   |   | 100,463 |   |
| Total                                   |   | $         | 194,402 |   |       | $      | 5,981  |       |   | $      | (71       | )      |   | $ | 200,312 |   |

|                                   |   | Amortized |    |   | Fair   |   |
|----------------------------------------|--------|-----------|---------|--------|--------|--------|
|                                   |   | Cost      |    |   | Value  |   |
|                                   |   |      |    |
|                                   |   |      |    |   |   |   |
| Due in one year or less                |   | $         | 34,124  |   |   | $      | 34,572 |   |
| Due after one year through five years  |   |      | 115,089 |   |   |   | 119,924 |   |
| Due after five years through ten years |   |      | 44,903  |   |   |   | 46,394 |   |
| Due over ten years                     |   |      | 728     |   |   |   | 755 |   |
| Total                                  |   | $         | 194,844 |   |   | $      | 201,645 |   |

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|                                  |   | Less than 12 months |   |   | 12 months or more |   |   | Total      |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|------------|--------|
| 2009                                  |   |                |   |   |              |   |   | Unrealized |   |   |   |   |   |   |   |   |   |   |   | Unrealized |   |   |   |   |   |   |   |   |   |   |   | Unrealized |   |   |   |   |
| Description                           |   |  #             |   |   | Fair Value        |   |   | Loss       |   |   | % |   |   | # |   |   | Fair Value |   |   | Loss |   |   | % |   |   |  # |   |   | Fair Value |   |   | Loss |   |   | % |   |
| of Securities                         |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other securities                      |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (FHLB, FHLMC and FNMA)                |   |                | 1      |   |              | $      | 996    |       |   | $ | (10 | ) |   |   | 1.00 | % |   |   | - |   |   | $ | - |   |   | $ | - |   |   |   | - |   |   |   | 1 |   |   | $ | 996 |   |   | $ | (10 | ) |   |   | 1.00 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions      |   |                | 35     |   |              |   | 7,929  |       |   |   | (106 | ) |   |   | 1.34 | % |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 35 |   |   |   | 7,929 |   |   |   | (106 | ) |   |   | 1.34 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   |                | 36     |   |              | $      | 8,925  |       |   | $ | (116 | ) |   |   | 1.30 | % |   |   | - |   |   | $ | - |   |   | $ | - |   |   |   | - |   |   |   | 36 |   |   | $ | 8,925 |   |   | $ | (116 | ) |   |   | 1.30 | % |

|                                  |   | Less than 12 months |   |   | 12 months or more |   |   | Total      |   |
|---------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|------------|--------|
| 2008                                  |   |                |   |   |              |   |   | Unrealized |   |   |   |   |   |   |   |   |   |   |   | Unrealized |   |   |   |   |   |   |   |   |   |   |   | Unrealized |   |   |   |   |
| Description                           |   |  #             |   |   | Fair Value        |   |   | Loss       |   |   | % |   |   | # |   |   | Fair Value |   |   | Loss |   |   | % |   |   |  # |   |   | Fair Value |   |   | Loss |   |   | % |   |
| of Securities                         |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other securities                      |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (FHLB, FHLMC and FNMA)                |   |                | -      |   |              | $      | -      |       |   | $ | - |   |   |   | - |   |   |   | - |   |   | $ | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |   | $ | - |   |   | $ | - |   |   |   | - |   |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions      |   |                | 27     |   |              |   | 8,538  |       |   |   | (56 | ) |   |   | 0.66 | % |   |   | 10 |   |   |   | 1,684 |   |   |   | (15 | ) |   |   | 0.89 | % |   |   | 37 |   |   |   | 10,222 |   |   |   | (71 | ) |   |   | 0.69 | % |
|                                  |   |                |   |   |              |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities |   |                | 27     |   |              | $      | 8,538  |       |   | $ | (56 | ) |   |   | 0.66 | % |   |   | 10 |   |   | $ | 1,684 |   |   | $ | (15 | ) |   |   | 0.89 | % |   |   | 37 |   |   | $ | 10,222 |   |   | $ | (71 | ) |   |   | 0.69 | % |

----

Table of Contents 

|                                            |   | December 31,           |      |
|-------------------------------------------------|--------|------------------------|-----------|
|                                            |   | 2009                   |      |   | 2008 |   |
|                                            |   | (Amounts In Thousands) |      |
|                                            |   |                   |      |   |   |   |
| Agricultural                                    |   | $                      | 64,598    |   |   | $ | 64,198 |   |
| Commercial and financial                        |   |                   | 153,997   |   |   |   | 162,170 |   |
| Real estate:                                    |   |                   |      |   |   |   |   |   |
| Construction, 1 to 4 family residential         |   |                   | 25,821    |   |   |   | 29,343 |   |
| Construction, land development and commercial   |   |                   | 95,955    |   |   |   | 111,006 |   |
| Mortgage, farmland                              |   |                   | 87,300    |   |   |   | 83,499 |   |
| Mortgage, 1 to 4 family first liens             |   |                   | 470,328   |   |   |   | 444,474 |   |
| Mortgage, 1 to 4 family junior liens            |   |                   | 114,742   |   |   |   | 117,086 |   |
| Mortgage, multi-family                          |   |                   | 190,180   |   |   |   | 180,525 |   |
| Mortgage, commercial                            |   |                   | 295,070   |   |   |   | 270,158 |   |
| Loans to individuals                            |   |                   | 25,405    |   |   |   | 26,823 |   |
| Obligations of state and political subdivisions |   |                   | 9,745     |   |   |   | 8,218 |   |
|                                            |   | $                      | 1,533,141 |   |   | $ | 1,497,500 |   |
| Less allowance for loan losses                  |   |                   | 29,160    |   |   |   | 27,660 |   |
|                                            |   | $                      | 1,503,981 |   |   | $ | 1,469,840 |   |

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Table of Contents 

|                                          |   | Year Ended December 31, |   |
|-----------------------------------------------|--------|-------------------------|--------|
|                                          |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                          |   | (Amounts In Thousands)  |   |
|                                          |   |                    |   |   |   |   |   |   |   |
| Balance, beginning                            |   | $                       | 27,660 |   |   | $ | 19,710 |   |   | $ | 17,850 |   |
| Charge-offs:                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Agricultural                                  |   |                    | 82     |   |   |   | 99 |   |   |   | 343 |   |
| Commercial and financial                      |   |                    | 5,161  |   |   |   | 1,359 |   |   |   | 1,422 |   |
| Real estate:                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                    | 124    |   |   |   | 47 |   |   |   | 45 |   |
| Construction, land development and commercial |   |                    | 312    |   |   |   | 15 |   |   |   | - |   |
| Mortgage, farmland                            |   |                    | 22     |   |   |   | - |   |   |   | 58 |   |
| Mortgage, 1 to 4 family first liens           |   |                    | 1,438  |   |   |   | 1,205 |   |   |   | 141 |   |
| Mortgage, 1 to 4 family junior liens          |   |                    | 1,626  |   |   |   | 964 |   |   |   | 321 |   |
| Mortgage, multi-family                        |   |                    | 398    |   |   |   | 92 |   |   |   | - |   |
| Mortgage, commercial                          |   |                    | 1,774  |   |   |   | 104 |   |   |   | 57 |   |
| Loans to individuals                          |   |                    | 515    |   |   |   | 604 |   |   |   | 531 |   |
|                                          |   |                    | 11,452 |   |   |   | 4,489 |   |   |   | 2,918 |   |
| Recoveries:                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
| Agricultural                                  |   |                    | 20     |   |   |   | 61 |   |   |   | 44 |   |
| Commercial and financial                      |   |                    | 415    |   |   |   | 340 |   |   |   | 479 |   |
| Real estate:                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Construction, 1 to 4 family residential       |   |                    | 49     |   |   |   | - |   |   |   | 2 |   |
| Mortgage, farmland                            |   |                    | 1      |   |   |   | 4 |   |   |   | 18 |   |
| Mortgage, 1 to 4 family first liens           |   |                    | 49     |   |   |   | 25 |   |   |   | 89 |   |
| Mortgage, 1 to 4 family junior liens          |   |                    | 187    |   |   |   | 79 |   |   |   | 130 |   |
| Mortgage, multi-family                        |   |                    | -      |   |   |   | 95 |   |   |   | 2 |   |
| Mortgage, commercial                          |   |                    | 7      |   |   |   | 33 |   |   |   | 58 |   |
| Loans to individuals                          |   |                    | 277    |   |   |   | 295 |   |   |   | 427 |   |
|                                          |   |                    | 1,005  |   |   |   | 932 |   |   |   | 1,249 |   |
| Net charge-offs                               |   |                    | 10,447 |   |   |   | 3,557 |   |   |   | 1,669 |   |
| Provision charged to expense                  |   |                    | 11,947 |   |   |   | 11,507 |   |   |   | 3,529 |   |
| Balance, ending                               |   | $                       | 29,160 |   |   | $ | 27,660 |   |   | $ | 19,710 |   |

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Table of Contents 

|                                                                                    |   | 2009                   |   |   | 2008   |   |   | 2007   |   |
|-----------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                    |   | (Amounts In Thousands) |   |
|                                                                                    |   |                   |   |   |   |   |   |   |   |
| Non-performing loans receivable for which there is a related allowance for loan losses  |   | $                      | 5,720  |   |   | $      | 9,050  |   |   | $ | 4,950 |   |
| Non-performing loans receivable for which there is no related allowance for loan losses |   |                   | 69,545 |   |   |   | 43,136 |   |   |   | 34,633 |   |
| Total                                                                                   |   | $                      | 75,265 |   |   | $      | 52,186 |   |   | $ | 39,583 |   |
|                                                                                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Related allowance for credit losses on non-performing loans                             |   | $                      | 1,336  |   |   | $      | 3,551  |   |   | $ | 355 |   |
| Average balance of non-performing loans (includes non-accrual and restructed loans)     |   |                   | 70,305 |   |   |   | 41,447 |   |   |   | 32,246 |   |
| Nonaccrual loans (included as non-performing loans)                                     |   |                   | 5,360  |   |   |   | 2,535  |   |   |   | 4,948 |   |
| Loans past due ninety days or more and still accruing                                   |   |                   | 7,009  |   |   |   | 5,049  |   |   |   | 6,019 |   |
| Restructured loans (included as non-performing loans)                                   |   |                   | 15,135 |   |   |   | 4,478  |   |   |   | - |   |
| Interest income recognized on non-performing loans                                      |   |                   | 3,979  |   |   |   | 2,582  |   |   |   | 2,554 |   |
| Interest income forfeited on non-accrual loans                                          |   |                   | 391    |   |   |   | 163    |   |   |   | 279 |   |

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Table of Contents 

|                          |   | December 31,           |   |
|-------------------------------|--------|------------------------|--------|
|                          |   | 2009                   |   |   | 2008 |   |
|                          |   | (Amounts In Thousands) |   |
|                          |   |                   |   |   |   |   |
| Land                          |   | $                      | 5,598  |   |   | $ | 5,598 |   |
| Buildings and improvements    |   |                   | 23,650 |   |   |   | 20,107 |   |
| Furniture and equipment       |   |                   | 20,030 |   |   |   | 18,143 |   |
|                          |   |                   | 49,278 |   |   |   | 43,848 |   |
| Less accumulated depreciation |   |                   | 22,861 |   |   |   | 20,242 |   |
| Net                           |   | $                      | 26,417 |   |   | $ | 23,606 |   |

|                    |   | December 31,           |      |
|-------------------------|--------|------------------------|-----------|
|                    |   | 2009                   |      |   | 2008 |   |
|                    |   | (Amounts In Thousands) |      |
|                    |   |                   |      |   |   |   |
| NOW and other demand    |   | $                      | 209,440   |   |   | $ | 191,101 |   |
| Savings                 |   |                   | 334,802   |   |   |   | 263,670 |   |
| Time, $100,000 and over |   |                   | 174,909   |   |   |   | 161,910 |   |
| Other time              |   |                   | 444,118   |   |   |   | 451,906 |   |
|                    |   | $                      | 1,163,269 |   |   | $ | 1,068,587 |   |

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Table of Contents 

|                                     |   | December 31,           |    |
|------------------------------------------|--------|------------------------|---------|
|                                     |   | 2009                   |    |   | 2008 |   |
|                                     |   | (Amounts In Thousands) |    |
| Due in one year or less                  |   | $                      | 336,874 |   |   | $ | 357,052 |   |
| Due after one year through two years     |   |                   | 162,990 |   |   |   | 165,621 |   |
| Due after two years through three years  |   |                   | 95,908  |   |   |   | 71,179 |   |
| Due after three years through four years |   |                   | 12,650  |   |   |   | 9,307 |   |
| Due over four years                      |   |                   | 10,605  |   |   |   | 10,657 |   |
|                                     |   | $                      | 619,027 |   |   | $ | 613,816 |   |

|                                                                                                                                       |   | December 31,           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                                                       |   | 2009                   |   |   | 2008 |   |
|                                                                                                                                       |   | (Amounts In Thousands) |   |
| Federal funds purchased, secured by other securities (FHLB, FHLMC and FNMA)                                                                |   | $                      | 33,066 |   |   | $ | 53,387 |   |
| Repurchase agreements with customers, renewable daily, interest payable monthly, secured by other securities (FHLB, FHLMC and FNMA)        |   |                   | 33,505 |   |   |   | 38,499 |   |
| Repurchase agreements with customers, interest fixed, maturities of less than one year, secured by other securities (FHLB, FHLMC and FNMA) |   |                   | 1,963  |   |   |   | 8,051 |   |
|                                                                                                                                       |   | $                      | 68,534 |   |   | $ | 99,937 |   |

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Table of Contents 

|                                               |   | 2009                   |    |   | 2008   |   |
|----------------------------------------------------|--------|------------------------|---------|--------|--------|--------|
| (Effective interest rates as of December 31, 2009) |   | (Amounts In Thousands) |    |
|                                               |   |                   |    |   |   |   |
| Due 2009                                           |   | $                      | -       |   |   | $      | 40,000 |   |
| Due 2010, 5.77% to 6.61%                           |   |                   | 40,000  |   |   |   | 40,000 |   |
| Due 2015, 3.70% to 4.56%                           |   |                   | 60,000  |   |   |   | 60,000 |   |
| Due 2016, 4.46% to 4.69%                           |   |                   | 45,000  |   |   |   | 45,000 |   |
| Due 2017, 4.09% to 4.89%                           |   |                   | 60,000  |   |   |   | 60,000 |   |
| Due 2018, 3.65%                                    |   |                   | 20,000  |   |   |   | 20,000 |   |
|                                               |   | $                      | 225,000 |   |   | $      | 265,000 |   |

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Table of Contents 

|                    |   | 2009   |       |   | 2008   |   |
|-------------------------|--------|--------|------------|--------|--------|--------|
|                    |   |   |       |   |   |   |
| Shares held by the ESOP |   |   | 432,043    |   |   |   | 433,001 |   |
| Fair value per share    |   | $      | 53.00      |   |   | $      | 55.00 |   |
| Maximum cash obligation |   | $      | 22,900,000 |   |   | $      | 23,815,000 |   |

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Table of Contents 

|                       |   | Number of Shares |    |   | Weighted-AverageExercise Price |   |   | Weighted-AverageRemaining ContractualTerm (Years) |   |   | AggregateIntrinsic Value(In Thousands) |   |
|----------------------------|--------|------------------|---------|--------|--------------------------------|--------|--------|---------------------------------------------------|--------|--------|----------------------------------------|--------|
| Balance, December 31, 2006 |   |             | 57,195  |   |                           | $      | 26.79  |                                              |   |   |                                   |   |   |   |
| Granted                    |   |             | 4,580   |   |                           |   | 52.00  |                                              |   |   |                                   |   |   |   |
| Exercised                  |   |             | (10,410 | )      |                           |   | 18.55  |                                              |   |   |                                   |   |   |   |
| Forfeited                  |   |             | (3,000  | )      |                           |   | 25.67  |                                              |   |   |                                   |   |   |   |
| Balance, December 31, 2007 |   |             | 48,365  |   |                           |   | 31.02  |                                              |   |   | 5.05                                   |   |   | $ | 1,500 |   |
| Granted                    |   |             | -       |   |                           |   | -      |                                              |   |   |                                   |   |   |   |   |   |
| Exercised                  |   |             | (10,705 | )      |                           |   | 27.37  |                                              |   |   |                                   |   |   |   |   |   |
| Balance, December 31, 2008 |   |             | 37,660  |   |                           |   | 32.05  |                                              |   |   | 4.36                                   |   |   |   | 1,207 |   |
| Granted                    |   |             | 20,000  |   |                           |   | 53.00  |                                              |   |   |                                   |   |   |   |   |   |
| Exercised                  |   |             | (20,300 | )      |                           |   | 47.21  |                                              |   |   |                                   |   |   |   |   |   |
| Forfeited                  |   |             | (4,000  | )      |                           |   | 53.00  |                                              |   |   |                                   |   |   |   |   |   |
| Balance, December 31, 2009 |   |             | 33,360  |   |                           |   | 32.88  |                                              |   |   | 3.60                                   |   |   |   | 1,097 |   |

|                    |   | 2009          |   | 2008   |   | 2007            |
|-------------------------|--------|---------------|--------|--------|--------|-----------------|
|                    |   |          |   |   |   |            |
| Risk-free interest rate |   | 0.06%         |   | n/a    |   | 5.21%           |
| Expected option life    |   |  21 days |   | n/a    |   |  7.5 years |
| Expected volatility     |   | 57.70%        |   | n/a    |   | 25.33%          |
| Expected dividends      |   | 1.65%         |   | n/a    |   | 1.69%           |

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Table of Contents 

| Exercise Price |   |   | Number Outstanding |   | Remaining Contractual Life |   | Number Exercisable |   |
|----------------|--------|--------|--------------------|--------|----------------------------|--------|--------------------|--------|
|           |   |   |               |   |                       |   |               |   |
| $              | 25.67  |   |               |   | 6,475                      |   | 17 Months          |   |   | 6,475 |   |
|           | 29.33  |   |               |   | 14,925                     |   | 36 Months          |   |   | 14,925 |   |
|           | 33.67  |   |               |   | 3,000                      |   | 48 Months          |   |   | 3,000 |   |
|           | 34.50  |   |               |   | 2,940                      |   | 52 Months          |   |   | 2,940 |   |
|           | 36.25  |   |               |   | 1,440                      |   | 57 Months          |   |   | 1,440 |   |
|           | 52.00  |   |               |   | 4,580                      |   | 89 Months          |   |   | - |   |
|           |   |   |               |   | 33,360                     |   |               |   |   | 28,780 |   |

|      |   | 2009                   |   |   | 2008   |   |   | 2007   |   |
|-----------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|
|      |   | (Amounts In Thousands) |   |
|      |   |                   |   |   |   |   |   |   |   |
| Current:  |   |                   |   |   |   |   |   |   |   |
| Federal   |   | $                      | 4,480  |   |   | $      | 7,242  |   |   | $ | 7,091 |   |
| State     |   |                   | 1,011  |   |   |   | 1,402  |   |   |   | 1,350 |   |
| Deferred: |   |                   |   |   |   |   |   |   |   |   |   |   |
| Federal   |   |                   | (237   | )      |   |   | (2,684 | )      |   |   | (1,133 | ) |
| State     |   |                   | (36    | )      |   |   | (404   | )      |   |   | (170 | ) |
|      |   | $                      | 5,218  |   |   | $      | 5,556  |   |   | $ | 7,138 |   |

----

Table of Contents 

|                                           |   | December 31,           |   |
|------------------------------------------------|--------|------------------------|--------|
|                                           |   | 2009                   |   |   | 2008 |   |
|                                           |   | (Amounts In Thousands) |   |
| Deferred income tax assets:                    |   |                   |   |   |   |   |
| Allowance for loan losses                      |   | $                      | 11,154 |   |   | $ | 10,580 |   |
| Deferred compensation                          |   |                   | 1,940  |   |   |   | 1,833 |   |
| Accrued expenses                               |   |                   | 687    |   |   |   | 472 |   |
| State net operating loss                       |   |                   | 396    |   |   |   | 358 |   |
| Gross deferred tax assets                      |   |                   | 14,177 |   |   |   | 13,243 |   |
| Valuation allowance                            |   |                   | (396   | ) |   |   | (358 | ) |
| Deferred tax asset, net of valuation allowance |   |                   | 13,781 |   |   |   | 12,885 |   |
| Deferred income tax liabilities:               |   |                   |   |   |   |   |   |   |
| Property and equipment                         |   |                   | 1,375  |   |   |   | 936 |   |
| Unrealized gains on investment securities      |   |                   | 2,601  |   |   |   | 2,261 |   |
| Goodwill                                       |   |                   | 511    |   |   |   | 447 |   |
| Other                                          |   |                   | 402    |   |   |   | 282 |   |
| Gross deferred tax liabilities                 |   |                   | 4,889  |   |   |   | 3,926 |   |
| Net deferred income tax assets                 |   | $                      | 8,892  |   |   | $ | 8,959 |   |

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Table of Contents 

|                                            |   | Year Ended December 31, |   |
|-------------------------------------------------|--------|-------------------------|--------|
|                                            |   | 2009                    |   |   | 2008 |   |   | 2007 |   |
|                                            |   | (Amounts In Thousands)  |   |
|                                            |   |                    |   |   |   |   |   |   |   |
| Consolidated statements of income               |   | $                       | 273    |   |   | $ | 3,088 |   |   | $ | 1,303 |   |
| Consolidated statements of stockholders' equity |   |                    | (340   | ) |   |   | (1,860 | ) |   |   | (1,185 | ) |
|                                            |   | $                       | (67    | ) |   | $ | 1,228 |   |   | $ | 118 |   |

|                                                  |   | 2009                   |   |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------|--------|------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                  |   |                   |   |   | % Of   |   |   |   |   |   | % Of |   |   |   |   |   | % Of |   |
|                                                  |   |                   |   |   | Pretax |   |   |   |   |   | Pretax |   |   |   |   |   | Pretax |   |
|                                                  |   | Amount                 |   |   | Income |   |   | Amount |   |   | Income |   |   | Amount |   |   | Income |   |
|                                                  |   | (Amounts In Thousands) |   |
|                                                  |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expected tax expense                                  |   | $                      | 7,421  |   |   |   | 35.0   | %      |   | $ | 6,893 |   |   |   | 35.0 | % |   | $ | 8,148 |   |   |   | 35.0 | % |
| Tax-exempt interest                                   |   |                   | (1,312 | )      |   |   | (6.2   | )      |   |   | (1,300 | ) |   |   | (6.6 | ) |   |   | (1,230 | ) |   |   | (5.2 | ) |
| Interest expense limitation                           |   |                   | 150    |   |   |   | 0.7    |   |   |   | 180 |   |   |   | 0.9 |   |   |   | 212 |   |   |   | 0.9 |   |
| State income taxes, net of federal income tax benefit |   |                   | 634    |   |   |   | 3.0    |   |   |   | 649 |   |   |   | 3.3 |   |   |   | 767 |   |   |   | 3.3 |   |
| Income tax credits                                    |   |                   | (1,637 | )      |   |   | (7.7   | )      |   |   | (711 | ) |   |   | (3.6 | ) |   |   | (566 | ) |   |   | (2.4 | ) |
| Other                                                 |   |                   | (38    | )      |   |   | (0.2   | )      |   |   | (155 | ) |   |   | (0.8 | ) |   |   | (193 | ) |   |   | (0.9 | ) |
|                                                  |   | $                      | 5,218  |   |   |   | 24.6   | %      |   | $ | 5,556 |   |   |   | 28.2 | % |   | $ | 7,138 |   |   |   | 30.7 | % |

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Table of Contents 

|                      |   |   |    |   |     |   |   |              |   |   | To Be Well        |   |
|---------------------------|--------|--------|---------|--------|----------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                      |   |   |    |   |     |   |   | For Capital       |   |   | Capitalized Under |   |
|                      |   |   |    |   |     |   |   | Adequacy          |   |   | Prompt Corrective |   |
|                      |   | Actual |    |   | Purposes |   |   | Action Provisions |   |
|                      |   | Amount |    |   | Ratio    |   |   | Ratio             |   |   | Ratio             |   |
| As of December 31, 2009:  |   |   |    |   |     |   |   |              |   |   |              |   |
| Company:                  |   |   |    |   |     |   |   |              |   |   |              |   |
| Total risk-based capital  |   | $      | 186,095 |   |     |   | 12.94  | %                 |   |   | 8.00              | %      |   |   | 10.00 | % |
| Tier 1 risk-based capital |   |   | 167,976 |   |     |   | 11.68  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 167,976 |   |     |   | 9.20   |              |   |   | 4.00              |   |   |   | 5.00 |   |
| Bank:                     |   |   |    |   |     |   |   |              |   |   |              |   |   |   |   |   |
| Total risk-based capital  |   |   | 184,992 |   |     |   | 12.87  |              |   |   | 8.00              |   |   |   | 10.00 |   |
| Tier 1 risk-based capital |   |   | 166,890 |   |     |   | 11.61  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 166,890 |   |     |   | 9.14   |              |   |   | 4.00              |   |   |   | 5.00 |   |

----

Table of Contents 

|                      |   |   |    |   |     |   |   |              |   |   | To Be Well        |   |
|---------------------------|--------|--------|---------|--------|----------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                      |   |   |    |   |     |   |   | For Capital       |   |   | Capitalized Under |   |
|                      |   |   |    |   |     |   |   | Adequacy          |   |   | Prompt Corrective |   |
|                      |   | Actual |    |   | Purposes |   |   | Action Provisions |   |
|                      |   | Amount |    |   | Ratio    |   |   | Ratio             |   |   | Ratio             |   |
| As of December 31, 2008:  |   |   |    |   |     |   |   |              |   |   |              |   |
| Company:                  |   |   |    |   |     |   |   |              |   |   |              |   |
| Total risk-based capital  |   | $      | 174,402 |   |     |   | 12.64  | %                 |   |   | 8.00              | %      |   |   | 10.00 | % |
| Tier 1 risk-based capital |   |   | 157,028 |   |     |   | 11.38  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 157,028 |   |     |   | 8.99   |              |   |   | 4.00              |   |   |   | 5.00 |   |
| Bank:                     |   |   |    |   |     |   |   |              |   |   |              |   |   |   |   |   |
| Total risk-based capital  |   |   | 174,154 |   |     |   | 12.63  |              |   |   | 8.00              |   |   |   | 10.00 |   |
| Tier 1 risk-based capital |   |   | 156,795 |   |     |   | 11.38  |              |   |   | 4.00              |   |   |   | 6.00 |   |
| Leverage ratio            |   |   | 156,795 |   |     |   | 8.98   |              |   |   | 4.00              |   |   |   | 5.00 |   |
|                      |   |   |    |   |     |   |   |              |   |   |              |   |   |   |   |   |

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Table of Contents 

|                                            |   | Year Ended December 31, |    |
|-------------------------------------------------|--------|-------------------------|---------|
|                                            |   | 2009                    |    |   | 2008 |   |
|                                            |   | (Amounts In Thousands)  |    |
|                                            |   |                    |    |   |   |   |
| Balance, beginning                              |   | $                       | 41,210  |   |   | $ | 38,136 |   |
| Net (decrease) due to change in related parties |   |                    | (5,174  | ) |   |   | - |   |
| Advances                                        |   |                    | 64,637  |   |   |   | 70,783 |   |
| Collections                                     |   |                    | (69,821 | ) |   |   | (67,709 | ) |
| Balance, ending                                 |   | $                       | 30,852  |   |   | $ | 41,210 |   |

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|                                                                       |   | 2009                   |      |   | 2008       |   |
|----------------------------------------------------------------------------|--------|------------------------|-----------|--------|------------|--------|
|                                                                       |   | Carrying               |      |   | Estimated  |   |   | Carrying |   |   | Estimated |   |
|                                                                       |   | Amount                 |      |   | Fair Value |   |   | Amount |   |   | Fair Value |   |
|                                                                       |   | (Amounts In Thousands) |      |
|                                                                       |   |                   |      |   |       |   |   |   |   |   |   |   |
| Cash and due from banks                                                    |   | $                      | 24,095    |   |       | $      | 24,095 |   |   | $ | 22,575 |   |   | $ | 22,575 |   |
| Investment securities                                                      |   |                   | 214,098   |   |       |   | 214,098 |   |   |   | 214,559 |   |   |   | 214,559 |   |
| Loans                                                                      |   |                   | 1,511,957 |   |       |   | 1,515,351 |   |   |   | 1,478,330 |   |   |   | 1,565,525 |   |
| Accrued interest receivable                                                |   |                   | 9,677     |   |       |   | 9,677 |   |   |   | 10,437 |   |   |   | 10,437 |   |
| Deposits                                                                   |   |                   | 1,347,427 |   |       |   | 1,350,881 |   |   |   | 1,237,886 |   |   |   | 1,237,886 |   |
| Federal funds purchased and securities sold under agreements to repurchase |   |                   | 68,534    |   |       |   | 68,534 |   |   |   | 99,937 |   |   |   | 99,937 |   |
| Borrowings from Federal Home Loan Bank                                     |   |                   | 225,000   |   |       |   | 242,562 |   |   |   | 265,000 |   |   |   | 275,727 |   |
| Accrued interest payable                                                   |   |                   | 2,341     |   |       |   | 2,341 |   |   |   | 2,914 |   |   |   | 2,914 |   |
|                                                                       |   |                   |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |   | Face Amount            |      |   |       |   |   |   | Face Amount |   |   |   |   |   |
|                                                                       |   |                   |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Off-balance sheet instruments:                                             |   |                   |      |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Loan commitments                                                           |   | $                      | 289,927   |   |       | $      | - |   |   | $ | 309,305 |   |   | $ | - |   |
| Letters of credit                                                          |   |                   | 9,724     |   |       |   | - |   |   |   | 12,365 |   |   |   | - |   |

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| CONDENSED BALANCE SHEETS                            |   |
|-----------------------------------------------------|--------|
| December 31, 2009 and 2008                          |   |
| (Amounts In Thousands)                              |   |
|                                                |   |   |   |   |   |   |
| ASSETS                                              |   | 2009 |   |   | 2008 |   |
|                                                |   |   |   |   |   |   |
| Cash at subsidiary bank                             |   | $ | 1,013 |   |   | $ | 212 |   |
| Investment in subsidiary bank                       |   |   | 173,590 |   |   |   | 162,944 |   |
| Other assets                                        |   |   | 1,366 |   |   |   | 1,249 |   |
| Total assets                                        |   | $ | 175,969 |   |   | $ | 164,405 |   |
|                                                |   |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                |   |   |   |   |   |   |   |   |
|                                                |   |   |   |   |   |   |   |   |
| Liabilities                                         |   | $ | 1,294 |   |   | $ | 1,228 |   |
| Redeemable common stock held by ESOP                |   |   | 22,900 |   |   |   | 23,815 |   |
| Stockholders' equity:                               |   |   |   |   |   |   |   |   |
| Capital stock                                       |   |   | 14,582 |   |   |   | 13,447 |   |
| Retained earnings                                   |   |   | 166,120 |   |   |   | 154,176 |   |
| Accumulated other comprehensive income              |   |   | 4,200 |   |   |   | 3,649 |   |
| Treasury stock at cost                              |   |   | (10,227 | ) |   |   | (8,095 | ) |
|                                                |   |   | 174,675 |   |   |   | 163,177 |   |
| Less maximum cash obligation related to ESOP shares |   |   | 22,900 |   |   |   | 23,815 |   |
| Total stockholders' equity                          |   |   | 151,775 |   |   |   | 139,362 |   |
| Total liabilities and stockholders' equity          |   | $ | 175,969 |   |   | $ | 164,405 |   |

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| CONDENSED STATEMENTS OF INCOME                                                    |   |
|-----------------------------------------------------------------------------------|--------|
| Years Ended December 31, 2009, 2008 and 2007                                      |   |
| (Amounts In Thousands)                                                            |   |
|                                                                              |   |   |   |   |   |   |   |   |   |
|                                                                              |   | 2009 |   |   | 2008 |   |   | 2007 |   |
|                                                                              |   |   |   |   |   |   |   |   |   |
| Interest on checking account and investment securities                            |   | $ | - |   |   | $ | - |   |   | $ | 18 |   |
| Dividends received from subsidiary                                                |   |   | 6,042 |   |   |   | 7,042 |   |   |   | 4,376 |   |
| Other expenses                                                                    |   |   | (234 | ) |   |   | (255 | ) |   |   | (273 | ) |
| Income before income tax benefit and equity in undistributed income of subsidiary |   |   | 5,808 |   |   |   | 6,787 |   |   |   | 4,121 |   |
| Income tax benefit                                                                |   |   | 82 |   |   |   | 89 |   |   |   | 89 |   |
|                                                                              |   |   | 5,890 |   |   |   | 6,876 |   |   |   | 4,210 |   |
| Equity in undistributed income of subsidiary                                      |   |   | 10,095 |   |   |   | 7,264 |   |   |   | 11,933 |   |
| Net income                                                                        |   | $ | 15,985 |   |   | $ | 14,140 |   |   | $ | 16,143 |   |

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| CONDENSED STATEMENTS OF CASH FLOWS                      |   |
|---------------------------------------------------------|--------|
| Years Ended December 31, 2009, 2008 and 2007            |   |
| (Amounts In Thousands)                                  |   |
|                                                    |   |   |   |   |   |   |   |   |   |
|                                                    |   | 2009 |   |   | 2008 |   |   | 2007 |   |
| Cash flows from operating activities:                   |   |   |   |   |   |   |   |   |   |
| Net income                                              |   | $ | 15,985 |   |   | $ | 14,140 |   |   | $ | 16,143 |   |
| Noncash items included in net income:                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in undistributed income of subsidiary            |   |   | (10,095 | ) |   |   | (7,264 | ) |   |   | (11,933 | ) |
| Share-based compensation                                |   |   | 62 |   |   |   | 21 |   |   |   | 42 |   |
| Compensation expensed through issuance of common stock  |   |   | 111 |   |   |   | 234 |   |   |   | 133 |   |
| Excess tax benefits related to share-based compensation |   |   | (44 | ) |   |   | (127 | ) |   |   | (145 | ) |
| Forfeiture of common stock                              |   |   | (41 | ) |   |   | (51 | ) |   |   | (54 | ) |
| Increase in other assets                                |   |   | (72 | ) |   |   | (92 | ) |   |   | (216 | ) |
| Increase in liabilities                                 |   |   | 65 |   |   |   | 158 |   |   |   | 164 |   |
| Net cash provided by operating activities               |   |   | 5,971 |   |   |   | 7,019 |   |   |   | 4,134 |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options exercised                                 |   |   | 959 |   |   |   | 293 |   |   |   | 193 |   |
| Excess tax benefits related to share-based              |   |   |   |   |   |   |   |   |   |   |   |   |
| compensation                                            |   |   | 44 |   |   |   | 127 |   |   |   | 145 |   |
| Purchase of treasury stock                              |   |   | (2,132 | ) |   |   | (3,398 | ) |   |   | (1,325 | ) |
| Dividends paid                                          |   |   | (4,041 | ) |   |   | (4,086 | ) |   |   | (3,873 | ) |
| Net cash used in financing activities                   |   |   | (5,170 | ) |   |   | (7,064 | ) |   |   | (4,860 | ) |
| Increase (decrease) in cash                             |   |   | 801 |   |   |   | (45 | ) |   |   | (726 | ) |
| Cash balance:                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of year                                       |   |   | 212 |   |   |   | 257 |   |   |   | 983 |   |
| Ending of year                                          |   | $ | 1,013 |   |   | $ | 212 |   |   | $ | 257 |   |

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|                                                         |   | 2009                   |    |   | 2008   |   |
|--------------------------------------------------------------|--------|------------------------|---------|--------|--------|--------|
|                                                         |   | (Amounts In Thousands) |    |
| Firm loan commitments and unused portion of lines of credit: |   |                   |    |   |   |   |
| Home equity loans                                            |   | $                      | 37,705  |   |   | $      | 38,519 |   |
| Credit cards                                                 |   |                   | 43,658  |   |   |   | 35,407 |   |
| Commercial, real estate and home construction                |   |                   | 78,783  |   |   |   | 86,073 |   |
| Commercial lines and real estate purchase loans              |   |                   | 129,781 |   |   |   | 149,306 |   |
| Outstanding letters of credit                                |   |                   | 9,724   |   |   |   | 12,365 |   |

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| Year ending December 31: |   | (Amounts In Thousands) |
|--------------------------|--------|------------------------|
| 2010                     |   |                   | 313 |   |
| 2011                     |   |                   | 269 |   |
| 2012                     |   |                   | 266 |   |
| 2013                     |   |                   | 257 |   |
| 2014                     |   |                   | 174 |   |
| Thereafter               |   |                   | 447 |   |
|                     |   | $                      | 1,726 |   |

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|                       |   | Quarter Ended |   |
|----------------------------|--------|---------------|--------|
|                       |   | March         |   |   | June |   |   | September |   |   | December |   |   | Year |   |
| 2009                       |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income            |   | $             | 23,868 |   |   | $ | 24,075 |   |   | $ | 24,040 |   |   | $ | 24,212 |   |   | $ | 96,195 |   |
| Interest expense           |   |          | 9,958  |   |   |   | 9,746 |   |   |   | 9,069 |   |   |   | 8,368 |   |   |   | 37,141 |   |
| Net interest income        |   | $             | 13,910 |   |   | $ | 14,329 |   |   | $ | 14,971 |   |   | $ | 15,844 |   |   | $ | 59,054 |   |
| Provision for loan losses  |   |          | 2,436  |   |   |   | 3,481 |   |   |   | 2,357 |   |   |   | 3,673 |   |   |   | 11,947 |   |
| Other income               |   |          | 4,726  |   |   |   | 5,049 |   |   |   | 4,681 |   |   |   | 4,453 |   |   |   | 18,909 |   |
| Other expense              |   |          | 10,844 |   |   |   | 11,859 |   |   |   | 11,126 |   |   |   | 10,984 |   |   |   | 44,813 |   |
| Income before income taxes |   | $             | 5,356  |   |   | $ | 4,038 |   |   | $ | 6,169 |   |   | $ | 5,640 |   |   |   | 21,203 |   |
| Income taxes               |   |          | 1,367  |   |   |   | 1,108 |   |   |   | 1,436 |   |   |   | 1,307 |   |   |   | 5,218 |   |
| Net income                 |   | $             | 3,989  |   |   | $ | 2,930 |   |   | $ | 4,733 |   |   | $ | 4,333 |   |   | $ | 15,985 |   |
|                       |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share   |   | $             | 0.90   |   |   | $ | 0.66 |   |   | $ | 1.07 |   |   | $ | 0.98 |   |   | $ | 3.61 |   |
| Diluted earnings per share |   |          | 0.90   |   |   |   | 0.66 |   |   |   | 1.06 |   |   |   | 0.98 |   |   |   | 3.60 |   |
|                       |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2008                       |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income            |   | $             | 24,573 |   |   | $ | 24,092 |   |   | $ | 24,399 |   |   | $ | 24,411 |   |   | $ | 97,475 |   |
| Interest expense           |   |          | 12,070 |   |   |   | 10,865 |   |   |   | 10,371 |   |   |   | 10,175 |   |   |   | 43,481 |   |
| Net interest income        |   | $             | 12,503 |   |   | $ | 13,227 |   |   | $ | 14,028 |   |   | $ | 14,236 |   |   | $ | 53,994 |   |
| Provision for loan losses  |   |          | 587    |   |   |   | 5,172 |   |   |   | 1,026 |   |   |   | 4,722 |   |   |   | 11,507 |   |
| Other income               |   |          | 4,310  |   |   |   | 4,248 |   |   |   | 4,072 |   |   |   | 4,040 |   |   |   | 16,670 |   |
| Other expense              |   |          | 9,253  |   |   |   | 10,092 |   |   |   | 10,327 |   |   |   | 9,789 |   |   |   | 39,461 |   |
| Income before income taxes |   | $             | 6,973  |   |   | $ | 2,211 |   |   | $ | 6,747 |   |   | $ | 3,765 |   |   |   | 19,696 |   |
| Income taxes               |   |          | 2,184  |   |   |   | 361 |   |   |   | 2,058 |   |   |   | 953 |   |   |   | 5,556 |   |
| Net income                 |   | $             | 4,789  |   |   | $ | 1,850 |   |   | $ | 4,689 |   |   | $ | 2,812 |   |   | $ | 14,140 |   |
|                       |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share   |   | $             | 1.07   |   |   | $ | 0.41 |   |   | $ | 1.05 |   |   | $ | 0.63 |   |   | $ | 3.16 |   |
| Diluted earnings per share |   |          | 1.06   |   |   |   | 0.41 |   |   |   | 1.05 |   |   |   | 0.63 |   |   |   | 3.15 |   |

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PART 

|   |   |                                                                                                                                                                                  | Form 10-K |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
| (a)    | 1.     | Financial Statements                                                                                                                                                                  | Reference |
|   |   |                                                                                                                                                                                  |      |
|   |   | Independent registered public accounting firm's report on the financial statements                                                                                                    | 62        |
|   |   | Consolidated balance sheets as of December 31, 2009 and 2008                                                                                                                          | 63        |
|   |   | Consolidated statements of income for the years ended December 31, 2009, 2008, and 2007                                                                                               | 64        |
|   |   | Consolidated statements of comprehensive income for the years ended December 31, 2009, 2008 and 2007                                                                                  |   65 |
|   |   | Consolidated statements of stockholders' equity for the years ended December 31, 2009, 2008 and 2007                                                                                  |   66 |
|   |   | Consolidated statements of cash flows for the years ended December 31, 2009, 2008 and 2007                                                                                            |   67 |
|   |   | Notes to consolidated financial statements                                                                                                                                            | 69        |
|   |   |                                                                                                                                                                                  |      |
|   | 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                                                                                                                                                                              |      |
|   |   |                                                                                                                                                                                  |      |
|   | 3.1    | Articles of Incorporation filed as Exhibit 3 of Form 10-K for the year ended December 31, 1993 are incorporated by reference.                                                         |      |
|   |   |                                                                                                                                                                                  |      |
|   | 3.2    | By-Laws filed as Exhibit 3 of Form 10-K for the year ended December 31, 1993 are incorporated by reference.                                                                           |      |
|   |   |                                                                                                                                                                                  |      |
|   | 10.1   | 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.                              |
|   |   |                                                                                                                                                                                  |      |
|   | 10.2   | 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.                                  |
|   |   |                                                                                                                                                                                  |      |
|   | 10.3   | 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.                           |      |
|   |   |                                                                                                                                                                                  |      |
|   | 10.4   | Material Contract (2000 Stock Option and Incentive Plan) filed as Exhibit A to the Hills Bancorporation Proxy Statement dated March 23, 2001 is incorporated by reference.            |      |
|   |   |                                                                                                                                                                                  |      |
|   | 11     | Statement Regarding Computation of Basic and Diluted Earnings Per Share on Page 104.                                                                                                  |      |
|   |   |                                                                                                                                                                                  |      |
|   | 21     | Subsidiary of the Registrant is Attached on Page 105.                                                                                                                                 |      |
|   |   |                                                                                                                                                                                  |      |
|   | 23     | Consent of Independent Registered Public Accounting Firm is Attached on Page 106.                                                                                                     |      |
|   |   | KPMG LLP                                                                                                                                                                              |      |
|   |   |                                                                                                                                                                                  |      |
|   | 31     | Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 on Pages 107 - 108.                                                                                                |      |
|   |   |                                                                                                                                                                                  |      |
|   | 32     | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 on Page 109.                                                                                                       |      |
|   |   |                                                                                                                                                                                  |      |
| (b)    |   | Reports on Form 8-K:                                                                                                                                                                  |      |
|   |   |                                                                                                                                                                                  |      |
|   |   | The Registrant filed no reports on Form 8-K for the three months ended December 31, 2009.                                                                                             |      |

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|                                                                                                                                                                                                          | HILLS BANCORPORATION                                                  |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Dwight O. Seegmiller                                           |
|                                                                                                                                                                                                          | Dwight O. Seegmiller, Director, President and Chief Executive Officer |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/James G. Pratt                                                 |
|                                                                                                                                                                                                          | James G. Pratt, Secretary, 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. |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
|                                                                                                                                                                                                          | DIRECTORS OF THE REGISTRANT                                           |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Willis M. Bywater                                              |
|                                                                                                                                                                                                          | Willis M. Bywater, Director                                           |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Michael S. Donovan                                             |
|                                                                                                                                                                                                          | Michael S. Donovan, Director                                          |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Thomas J. Gill                                                 |
|                                                                                                                                                                                                          | Thomas J. Gill, Director                                              |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Michael E. Hodge                                               |
|                                                                                                                                                                                                          | Michael E. Hodge, Director                                            |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/James A. Nowak                                                 |
|                                                                                                                                                                                                          | James A. Nowak, Director                                              |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Theodore H. Pacha                                              |
|                                                                                                                                                                                                          | Theodore H. Pacha, Director                                           |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/John W. Phelan                                                 |
|                                                                                                                                                                                                          | John W. Phelan, Director                                              |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Ann M. Rhodes                                                  |
|                                                                                                                                                                                                          | Ann M. Rhodes, Director                                               |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Ronald E. Stutsman                                             |
|                                                                                                                                                                                                          | Ronald E. Stutsman, Director                                          |   |   |
|                                                                                                                                                                                                          |                                                                  |   |   |   |
| Date:  March 10, 2010                                                                                                                                                                               | By: /s/Sheldon E. Yoder                                               |
|                                                                                                                                                                                                          | Sheldon E. Yoder, Director                                            |   |   |

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|    |                                                               | Page Number        |
|---------|--------------------------------------------------------------------|--------------------|
|    |                                                               | In The Sequential  |
| Exhibit |                                                               | Numbering System   |
| Number  | Description                                                        | For 2009 Form 10-K |
|    |                                                               |               |
| 11      | Statement Re Computation of Basic and Diluted Earnings Per Share   | 104                |
|    |                                                               |               |
| 21      | Subsidiary of the Registrant                                       | 105                |
|    |                                                               |               |
| 23      | Consent of Independent Registered Public Accounting Firm, KPMG LLP | 106                |
|    |                                                               |               |
| 31      | Certifications under Section 302 of the Sarbanes-Oxley Act of 2002 | 107-108            |
|    |                                                               |               |
| 32      | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002 | 109                |

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