HILLS BANK AND TRUST COMPANY

                           DEFERRED COMPENSATION PLAN




THIS AGREEMENT, entered into this 1st day of September, 1995, between Hills Bank
and Trust Company,  a Corporation  organized under the laws of the State of Iowa
(Employer) and James G. Pratt (Employee).

In consideration  of the agreements  hereinafter  contained,  the parties hereto
agree as follows:

1.    The Employer  agrees to provide the Employee with a deferred  compensation
      arrangement in conjunction with his employment with the Employer.

2.   (a)    The Employee  shall be given the  opportunity to elect to reduce
            his  salary by  executing  a salary  reduction  agreement  on a form
            provided by the Employer.  Said agreement shall be executed prior to
            the first  pay  period  to which it is to be  applicable,  and shall
            specify  the  amount and  method of  reduction  in the salary of the
            Employee.  The  agreement  shall limit the annual amount that can be
            deferred  into  the plan by the  employee  to no more  than  fifteen
            percent of said Employee's stated compensation.

     (b)    In  addition  to the  amounts  credited  to this  plan  pursuant  to
            paragraph 2(a) above, the Employer may elect to credit an additional
            amount to the plan.  Said amount must be  determined by the Employer
            prior to the end of the calendar  year in which it is to be credited
            to the plan.  It is the intent of the  Employer  to credit an amount
            into this plan  equal to the  benefit  the  Employee  is not able to
            receive  in the  Employer's  qualified  plans due to  statutory  and
            administrative limitations.

3.          (a) The  Employer  shall  credit to a book  reserve  ("the  deferred
            compensation  account") any such amounts that the Employee elects to
            defer pursuant to paragraph  2(a) above and any  additional  amounts
            which the  Employer  elects to  credit to the plan  during  the year
            pursuant to paragraph 2(b) above. Amounts to be credited pursuant to
            paragraph  2(a) shall be credited as of the last day of the month in
            which the salary reduction is made.  Amounts to be credited pursuant
            to paragraph 2(b) shall be credited as of the date(s)  designated by
            the Employer.

      (b)   Other than the establishment of the deferred  compensation  account,
            the  Employer  shall not be required to set aside or in any way fund
            any amounts  credited to the deferred  compensation  plan under this
            agreement.  Such book reserve shall  constitute an obligation on the
            part of the Employer  that shall be satisfied  only from the general
            assets of the Employer.

      (c)   The deferred  compensation  account  will be adjusted  annually by a
            growth factor to be determined as follows:

            A.  Amounts  deferred by the  Employee  during the year shall accrue
                interest  at a rate  equal  to the one  year  treasury  constant
                maturity  rate,  adjusted on each June 30 and  December 31. Such
                interest  accruals shall be calculated  from the last day of the
                month that the  Employee's  salary  deferral  is credited to the
                deferred  compensation  account up to December 31 of the year of
                such deferral.

                The account  shall also be credited with  interest,  at the same
                rate,  on any amounts paid to the Employee  from the  Employee's
                deferred  compensation  account  during the year.  Such interest
                shall  be  calculated  from  January  1 of the  year of  payment
                through  the end of  month  prior to the  month  in  which  such
                payment to the Employee is made.

            B.  The balance of the Employee's deferred  compensation  account as
                of January 1 of each year shall be adjusted as of December 31 of
                the same year by a factor representing the change in the S&P 500
                Index for that  year.  The  adjustment  shall be  calculated  by
                multiplying the January 1 balance (less any payments made to the
                Employee  during the year) by a ratio  equal to the S&P Index at
                December 31 divided by the S&P Index as of the previous  January
                1.
                Such adjustment can be either positive or negative.


<PAGE>


5.    The value of the deferred compensation account shall constitute the entire
      amount of  deferred  compensation  due to the  Employee  pursuant  to this
      agreement.

6.    The benefits to be paid to the Employee shall be as follows:

      (a)   In the event of  termination  of  employment,  for whatever  reason,
            prior  to the  attainment  of age  60,  the  value  of the  deferred
            compensation   account   shall  be  paid  in  full  as  soon  as  is
            administratively  possible  after  the end of the  calendar  year of
            termination.  If the value of the deferred  compensation  account at
            the  end of  the  calendar  year  of  termination  is in  excess  of
            $100,000, the Employer shall have the option to pay fifty percent of
            the  deferred  compensation  account  as  soon  as  administratively
            possible  after the end of the calendar year of  termination  and to
            pay the balance of the account as soon as administratively  possible
            after the end of the calendar  year  following  the calendar year of
            termination.  For this  purpose,  the  value of the  balance  of the
            deferred  compensation  account  after the initial  payment shall be
            determined  as  of  December  31 of  the  year  after  the  year  of
            termination.

      (b)   In the event of  termination  of  employment,  for whatever  reason,
            after the  attainment of age 60, the deferred  compensation  account
            shall be paid in 10 annual  installments  commencing in the calendar
            year  following  the  year  of   termination  of  employment.   Each
            installment  shall  be  determined  by  dividing  the  value  of the
            deferred compensation account as of the end of the calendar year, by
            the number of installment  payments  remaining to be made.  Payments
            made   under   this   paragraph   shall   be  made  as  soon  as  is
            administratively possible following the end of each calendar year.

            If the deferred  compensation account decreases to less than $10,000
            as of  the  end of any  calendar  year  after  payments  under  this
            paragraph  have  commenced,  the  Employer  shall  have the right to
            accelerate the payment of the remaining balance in a single lump-sum
            payment.

      (c)   In  the  event  that  the  Employee's  employment  is  decreased  to
            part-time  status  after the  attainment  of age 60, the Board shall
            have the right to commence  distributions  pursuant to paragraph (b)
            above as if the Employee has terminated  employment in the year that
            his status  changes to part-time.  The Board shall have the right to
            elect  to  commence  distribution  by the end of any  calendar  year
            during or after the change in employment  status with  distributions
            beginning  in the  following  year (but not later  than the year the
            employee  attains age 65). Once  distributions  have commenced under
            this  paragraph  they  will  continue   pursuant  to  paragraph  (b)
            regardless of subsequent changes in employment status.

      (d)   If the Employee is still  employed at age 65, payment shall commence
            pursuant  to  paragraph  (b)  above  as if the  Employee  terminated
            employment in the year he reaches age 65.

7.    In the event of the death of the Employee prior to the complete payment of
      benefits  payable  pursuant  to this  plan,  payments  will  commence,  or
      continue in favor of the beneficiary designated by the Employee to receive
      such payments.  The beneficiary may be designated or changed  (without the
      consent of any prior  beneficiaries) by the Employee on a form provided by
      the Employer.  If no such beneficiary has been designated by the Employee,
      or if no designated  beneficiary shall survive the Employee,  payments due
      pursuant to this plan shall be paid to the personal  representative of the
      Employee's estate.

8.    If  payments  are to be  made to a  beneficiary  due to the  death  of the
      Employee,  said  beneficiary  shall  be  given  the  option  of  naming  a
      designated beneficiary.

9.    Nothing  contained in this  agreement and no action taken  pursuant to the
      provisions  of this  Agreement  shall  create or be  construed to create a
      trust of any kind,  or a fiduciary  relationship  between the Employer and
      the Employee, his designated beneficiary or any other person. In the event
      that the  Employer  would  decide to fund any  obligation  due under  this
      agreement,  such funds shall continue for all purposes to be a part of the
      general funds of the Employer and no person other than the Employer  shall
      by virtue of the provisions  contained in this agreement have any interest
      in such funds.  To the extent that any person  acquires a right to receive
      payments from the Employer pursuant to this agreement, such right shall be
      no  greater  than  the  right of any  unsecured  general  creditor  of the
      Employer.

10.   The rights of the  Employee or any other person to the payment of deferred
      compensation or other benefits under this agreement shall not be assigned,
      pledged  or  encumbered  except  by will or by the  laws  of  descent  and
      distribution.

<PAGE>


11.   All distributions made under this agreement shall be paid in cash, subject
      to any required federal or state tax  withholding.  The Employee shall not
      have the right to receive a  distribution  of shares of stock or any other
      property.

12.   Nothing  contained  herein  shall  be  construed  as  conferring  upon the
      Employee  the right to continue in the  employment  of the Employer in any
      capacity.

13.   The  Employer  shall  have the full  power  and  authority  to  interpret,
      construe and administer  this Plan and the Employer's  interpretation  and
      construction  thereof, and actions thereunder,  including any valuation of
      the deferred  compensation  account,  or the amount of or the recipient of
      the payment to be made  therefrom,  shall be binding and conclusive on all
      persons for all purposes.

14.   The Employer  reserves the right to discontinue  the Employee's  option to
      elect a  salary  reduction  amount  at any time  prior  to the  Employee's
      execution of salary reduction agreement.

15.   This  agreement  shall be construed in  accordance  with and governed by 
      the laws of the State of Iowa.

IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its
duly authorized officers and employees as of the 1st day of September, 1995.


                                                HILLS BANK AND TRUST COMPANY


                                             By:



                                             By: /s/ James G. Pratt
                                                 -------------------------------
                                                 Employer
                                                 James G. Pratt
                                                 Employee