HILLS BANCORPORATION

131 Main Street

Hills, Iowa 52235

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

To Be Held on April 21, 2003

This Proxy Statement is furnished to shareholders of Hills Bancorporation (the
"Company") in connection with the solicitation of proxies by the Board of
Directors of the Company for the Annual Meeting of Shareholders to be held April
21, 2003, and any adjournments thereof. This Proxy Statement and form of Proxy
enclosed herewith are first sent to the shareholders of the Company entitled
thereto on or about March 24, 2003.

If the accompanying Proxy is properly signed and returned and is not withdrawn
or revoked, the shares represented thereby will be voted in accordance with the
specifications thereon. If the manner of voting such shares is not indicated on
the Proxy, the shares will be voted FOR the election of the nominees for
directors named herein. Election of any nominee as a director requires a
majority of the votes cast by the shares entitled to vote at a meeting at which
a quorum is present.

Only shareholders of record at the close of business on March 17, 2003, are
entitled to notice of and to vote at the meeting. There were 1,501,054 shares of
Common Stock of the Company outstanding at the close of business on that date,
all of which will be entitled to vote. The presence, in person or by proxy, of
the holders of a majority of such outstanding shares is necessary to constitute
a quorum for the transaction of business at the meeting. Holders of the shares
of Common Stock are entitled to one vote per share standing in their names on
the record date on all matters. Shareholders do not have cumulative voting
rights. If the holder of shares abstains from voting on any matter, or if shares
are held by a broker which has indicated that it does not have discretionary
authority to vote on a particular matter, those shares will be counted for
quorum purposes, but will not be counted as votes cast with respect to any
matter to come before the meeting and will not affect the outcome of any matter.

The Company will bear the cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by officers, directors and regular
employees of the Company, without extra compensation, by telephone, facsimile or
personal contact. It will greatly assist the Company in limiting expense in
connection with the meeting if shareholders who do not expect to attend in
person will return signed proxies promptly whether they own a few or many
shares.

A shareholder may revoke his or her Proxy at any time prior to the voting
thereof by filing with the Secretary of the Company at the Company's principal
office at 131 Main Street, Hills, Iowa 52235, a written revocation or a duly
executed Proxy bearing a later date. A shareholder may also withdraw the Proxy
at the meeting at any time before it is exercised.

INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS

The Company has ten directors with staggered terms of office. Four directors are
to be elected at the 2003 Annual Meeting of shareholders to serve for a
three-year term. The Board of Directors has no reason to believe that any
nominee will be unable to serve as a director, if elected. However, in case any
nominee should become unavailable for election, the proxy will be voted for such
substitute, if any, as the Board of Directors may designate.

Each director of the Company also serves as a director of the Company's
wholly-owned subsidiary which is a commercial bank. The commercial bank is Hills
Bank and Trust Company (the "Bank"). The Company anticipates that, following the
election of the nominees set forth below, all directors of the Company will
continue to serve as directors of the Bank, being elected to such positions by
the vote of the Company as the sole shareholder of the Bank.

Set forth below are the names of the four persons nominated by the Board of
Directors for election as directors at the 2003 Annual Meeting along with
certain other information concerning such persons.

Name and Year Positions & Principal Occupation or
First Became Offices Held Employment During
a Director Age With Company the Past Five Years
- -----------------------------------------------------------------------------------------------------------------------

Directors Serving Until the
2006 Annual Meeting

Willis M. Bywater 64 Director & Executive officer and
1984-Company Vice President shareholder of Economy
1979-Bank Advertising Company
(commercial printing
and sales of advertising
specialties)

Thomas J. Gill, D.D.S. 56 Director Dentist - Private Practice
1993-Company
1993-Bank

Donald H. Gringer 68 Director Executive officer and
1988-Company shareholder of Gringer Feed
1988-Bank and Grain (grain elevator)

Dwight O. Seegmiller 50 Director & President of the Company
1986-Company President and the Bank
1986-Bank

INFORMATION CONCERNING DIRECTORS OTHER THAN NOMINEES

The following table sets forth certain information with respect to directors of
the Company who will continue to serve subsequent to the 2003 Annual Meeting and
who are not nominees for election at the 2003 Annual Meeting.

Directors Serving Until the
2004 Annual Meeting

Michael E. Hodge 49 Director President and shareholder
2000-Company of Hodge Construction
2000-Bank Company

Richard W. Oberman 67 Director President,
1984-Company Oberman Farms, Inc.
1980-Bank

Sheldon E. Yoder, D.V.M. 50 Director President
1997-Company and shareholder of
1997-Bank Kalona Veterinary Clinic

Directors Serving Until the 2005 Annual Meeting

Theodore H. Pacha 54 Director President and owner of THEO
1990-Company Resources (Business Investment
1990-Bank and Consulting), May, 1999 to
present; previously executive
officer and owner of
Hawkeye Medical Supply,
Inc. (medical supplies)

Ann Marie Rhodes 49 Director The University of Iowa -
1993-Company Assistant to the Vice President
1993-Bank for Health Affairs and HIPAA
Privacy Officer, July 2002 to
present; Associate Counsel,
July 2000 to June 2002;
previously Vice President
for University Relations

Ronald E. Stutsman 63 Director Executive officer and
1984-Company shareholder of Eldon C.
1981-Bank Stutsman, Inc. (fertilizer plant)

None of the nominees or directors serves as a director of another company whose
securities are registered under the Securities Exchange Act of 1934 or a company
registered under the Investment Company Act of 1940.

INFORMATION CONCERNING THE BOARDS OF DIRECTORS

Board of Directors of Company

The Board of Directors of the Company meets on a regularly scheduled basis.
During 2002, the Board of Directors of the Company held an annual meeting and
twelve regular meetings. The Board of Directors of the Company has not
established any standing executive, nominating or compensation committees or
committees performing similar functions. During 2002, all directors of the
Company attended at least seventy-five percent of the total number of meetings
of the Board. Directors are compensated for attending meetings of the Board of
Directors of the Company at the rate of $200 per meeting.

The Board of Directors of the Company has established a committee (the "Audit
Committee") consisting of four non-employee directors. The Audit Committee
recommends to the Board of Directors the engagement of the independent auditors
and reviews with the independent auditors the scope and results of the audits,
the internal accounting controls and the professional services furnished by the
independent auditors. The Board of Directors has adopted a written charter for
the Audit committee. All four members of the Audit Committee are "independent"
as defined under the rules of the Nasdaq Stock Market. The Audit Committee met
one time in 2002. All members of the Audit Committee attended the meeting of the
Audit Committee held in 2002. Audit committee members are compensated by the
Bank.

The Board of Directors of the Company has established a committee (the
"Incentive Stock Committee") consisting of the nine non-employee directors (all
directors but Mr. Seegmiller) to administer and grant awards under the Hills
Bancorporation 2000 Stock Option and Incentive Plan (the "Incentive Stock
Plan"). The Incentive Stock Committee held one meeting during 2002. All members
of the Incentive Stock Committee attended that meeting. Directors are not
compensated for meetings of the Incentive Stock Committee.

During 2002, options to purchase up to 636 shares of the Company's Common Stock
(the "2002 Options") were granted to two officers, neither of which was an
executive officer. The exercise price of the 2002 Options is $82.00 per share,
and the 2002 Options vest in five years.

Board of Directors of Bank

The business and affairs of the Bank is managed directly by the Board of
Directors of the Bank, the membership of which is identical to that of the Board
of Directors of the Company. The Board of Directors of the Bank holds regular
monthly meetings. In 2002, the Board of Directors of the Bank had twelve regular
meetings and one special meeting. The Board of Directors of the Bank has
established the Trust Committee, Audit Committee, Loan Committee and Employee
Stock Ownership Plan ("ESOP") Committee as standing committees of the Board of
Directors. Directors Gringer, Pacha and Stutsman serve on the Trust Committee;
Directors Bywater, Gill, Hodge and Rhodes on the Audit Committee; Directors
Bywater, Hodge, Oberman, Pacha, Stutsman, and Yoder on the Loan Committee; and
Director Rhodes serves on the ESOP Committee. The three directors not appointed
to the Loan Committee are invited to attend meetings of that committee and are
compensated at the normal rate for each meeting attended. The Bank has
established no standing executive, nominating or compensation committees of the
Board of Directors or committees performing similar functions.

The Trust Committee is responsible for overseeing and annually reviewing the
status of all trusts for which the Bank's Trust Department acts in a fiduciary
capacity. The Trust Committee met twelve times during 2002. The Audit Committee
held six meetings during 2002 and is responsible for coordinating the audit
service with McGladrey & Pullen, LLP and addressing internal audit functions.
The Board of Directors has adopted a written charter for the audit committee.
The Loan Committee held twelve meetings during 2002 and is responsible for
review and oversight of the loan activities of the Bank. The ESOP Committee,
which is responsible for overseeing the ESOP in connection with which Hills
Trust Department serves as trustee, had three meetings during 2002. During 2002,
all of the directors of the Bank attended at least 75% of the total number of
meetings of the Board of Directors and the committees to which each director was
appointed.

Directors of the Bank who are not employees of the Bank (all directors but Mr.
Seegmiller) receive a retainer of $5,000 per year and $300 for each meeting of
the Board of Directors attended. Willis M. Bywater, the Chairman of the Board of
the Bank, receives an additional $2,500 per year as a retainer fee. Directors of
the Bank who are not employees of the Bank are compensated for serving on the
various committees of the Bank's Board of Directors at the rate of $200 per
meeting attended.

Audit Fees

The aggregate amount of fees billed for professional services rendered for the
audit of the Company's annual financial statements for the most recent fiscal
year and the review of the financial statements included in the Company's Forms
10-Q filed with the Securities and Exchange Commission was $61,640.

All Other Fees

The aggregate amount of fees billed for non-audit services rendered by McGladrey
& Pullen, LLP and RSM McGladrey, Inc. for the most recent fiscal year was
$72,429 including consulting services, income tax services, attestation required
pursuant to the Federal Deposit Insurance Corporation Improvement Act, and
Information Systems Controls Review. There were no fees for Financial
Information Systems Design and Implementation. The Audit Committee has
considered whether the provision of these non-audit services is compatible with
maintaining the independence of McGladrey & Pullen, LLP.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

Set forth in the following table is certain information on each person who is
known to the Board of Directors to be the beneficial owner as of March 13, 2003
of more than 5% of the Company's Common Stock, which is the only class of equity
securities which the Company has outstanding.

Amount and Nature of Beneficial Ownership

Total Shares Sole Voting Shared Voting
Name and Address of Beneficially and Investment and Investment Percent of
Beneficial Owner Owned Power Power Class
- --------------------------------------------------------------------------------------------------------------

Hills Bank and Trust 147,172 0 147,172 (1) 9.80%
Company, as trustee
of the Hills Bank
and Trust Company
Employee Stock
Ownership Plan
(the "ESOP")
131 Main Street
Hills, Iowa 52235
<FN>
NOTE:

(1) Consists of shares of Company Common Stock allocated to the accounts of
employees of the Bank eligible to participate in the ESOP. Employees are
entitled to direct the trustee how to vote shares allocated to their
accounts.
</FN>

The following table sets forth certain information as of March 13, 2003 as to
the number of shares of the Company's Common Stock beneficially owned by each
director, nominee for director, executive officer and by the executive officers
and directors as a group.

Amount and Nature of Beneficial Ownership

Total Shares Sole Voting Shared Voting
Beneficially and Investment and Investment Percent of
Name Owned Power Power Class (3)
- --------------------------------------------------------------------------------------------------

Directors
Willis M. Bywater ................... 27,260 15,850 11,410 1.81%
Thomas J. Gill, D.D.S ............... 2,304 2,304 0 .15%
Donald H. Gringer ................... 2,928 2,928 0 .19%
Michael E. Hodge .................... 1,206 306 900 .08%
Richard W. Oberman .................. 15,504 4,524 10,980 1.03%
Theodore H. Pacha ................... 2,904 2,904 0 .19%
Ann Marie Rhodes .................... 2,055 2,055 0 .14%
Dwight O. Seegmiller ................ 40,867 39,667 1,200 2.73%
Ronald E. Stutsman .................. 15,802 4,107 11,695 1.05%
Sheldon E. Yoder .................... 2,693 2,693 0 .18%

Non-Director Executive Officers
Thomas J. Cilek ..................... 19,326 14,706 4,620 1.29%
James G. Pratt ...................... 23,410 18,490 4,920 1.56%
All Directors and ................... 156,259 110,534 45,725 10.29%
Executive Officers as a
group (12 persons)
<FN>
NOTES:

(1) This figure includes 2,055 shares subject to currently exercisable stock
options granted in 1993 for six of the directors of the Company and 2,055
shares subject to currently exercisable stock options granted in 1997 to
one director pursuant to the Hills Bancorporation 1993 Incentive Stock
Plan. The exercise price of the options granted in 1993 is $25.34 per
share. The exercise price of the options granted in 1997 is $40.00 per
share. These options were granted in tandem with dividend equivalents.
These options will expire on the earlier of April 19, 2003 or two years
after the director's term of service on the Board of Directors of the
Company ends.

(2) This figure includes shares held by the ESOP which have been allocated to
the executive officers for voting purposes. The following number of shares
have been allocated under the ESOP to the executive officers for voting
purposes: Mr. Seegmiller - 13,741; Mr. Cilek - 9,023; Mr. Pratt - 11,095;
all executive officers as a group - 33,859. Also includes 2,394 shares
subject to currently exercisable stock options granted in 1993 to Mr.
Pratt, an executive officer of the Company.

(3) Includes, for each such person, shares that are deemed to be beneficially
owned by such person (a) because such shares are subject to options
currently exercisable by such person or (b) because such shares are held by
the ESOP and have been allocated to such person with shared voting power,
as noted in Notes 1 and 2.
</FN>

EXECUTIVE COMPENSATION AND BENEFITS

Summary Compensation Table

The following table provides certain summary information concerning compensation
paid or accrued by the Company and the Bank for the last three fiscal years with
respect to Mr. Seegmiller, as President of the Company, and to the other two
executive officers of the Company:

Annual Compensation Long Term Compensation
-------------------------------- ----------------------
Awards
Name and -----------------------
Principal Securities All Other
Position Year Salary ($) Bonus ($) (1) Underlying Options/SARS Compensation ($) (2)
- --------------------------------------------------------------------------------------------------------------------

Dwight O. Seegmiller ....... 2002 275,400 9,540 0 42,902
President of ............. 2001 270,000 11,700 0 25,246
Company and .............. 2000 206,428 54,843 0 51,819
Banks

Thomas J. Cilek ............ 2002 172,910 0 0 19,465
Secretary of ............. 2001 169,512 0 0 17,150
Company; Senior .......... 2000 159,512 28,150 0 22,302
Vice President
of Bank

James G. Pratt ............. 2002 208,658 2,866 0 23,421
Treasurer of ............. 2001 204,540 5,154 0 17,534
Company; ................. 2000 159,512 39,150 0 23,650
Senior Vice
President of Bank
<FN>

Notes:

(1) Consists of additional cash compensation paid in lieu of contributions to
the ESOP and the Hills Bank and Trust Company Profit Sharing Plan (the
"Profit Sharing Plan") that could not be made by the Company because of
Internal Revenue Code limits on such contributions.

(2) For each of the named executive officers, the figures shown consist
partially of contributions in the following amounts made by the Bank to the
ESOP and the Profit Sharing Plan for the specified year:
</FN>

Year Dwight O. Seegmiller Thomas J. Cilek James G. Pratt
- --------------------------------------------------------------------------------

2002 $18,000 $15,562 $18,000
2001 15,300 15,256 15,300
2000 15,300 15,300 15,300

The remaining portion of the figures shown consist of above-market returns on
deferred compensation accrued during the specified year based on the change in
the value of the Company's common stock.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end Option
/SAR Values

Number of Securities Underlying Value of Unexercised
Shares Unexercised Options/SARS at In-the Money Options/SARS at
Acquired on Value FY-End(#) FY-End ($)
Name Exercise (#) Realized ($)(1) Exercisable/Unexercisable(2)(3) Exercisable/Unexercisable (4)
- ------------------------------------------------------------------------------------------------------------------------

Dwight O. Seegmiller 0 $ 0 -0-/-0- -0-/-0-

Thomas J. Cilek 2,000 141,603 -0-/-0- -0-/-0-

James G. Pratt 0 0 2,394/-0- $148,021/-0-
<FN>

Notes:

(1) Value realized is the difference between the fair market value of the stock
when the options were exercised and the option price of $26.17. Added to
this value is an amount equal to the dividend equivalents paid on the
option shares exercised which was $10.97 per share. Each participant paid
ordinary income taxes rates on these non-qualified stock options for the
value realized and the Company received an income tax deduction.

(2) Options were granted in tandem with dividend equivalents. Dividend
equivalents entitle the holder of the option to receive, upon exercise of
the option, a cash payment equal to the dividends paid with respect to the
shares purchased from the date the option was granted through the date the
option was exercised.

(3) All options granted were subject to a five-year vesting requirement and are
now fully vested.

(4) These dollar values were calculated by determining the difference between
the fair market value of the securities underlying the options and the
exercise or base price of the options at fiscal year-end. Options were
granted at an exercise price equal to the then fair market value of the
underlying stock which was determined by the Incentive Stock Committee of
the Board of Directors to be equal to the then book value per share
($26.17) of the stock. The fair market value of stock as of December 31,
2002 is $88.00 per share. Since no established trading market exists for
the Company's common stock the price of $88.00 is based on the last known
selling price in December, 2002. The book value per share of the stock as
of December 31, 2002 is $67.31 computed on the same method as the $26.17
book value used at the date the options were granted.
</FN>

Employee Stock Ownership Plan

The Bank sponsors a tax-qualified income plan for the employees of the Bank
known as the Hills Bank and Trust Company Employee Stock Ownership Plan (the
"ESOP"). The ESOP is described in and operated in accordance with the provisions
of the written plan document. The Bank is the trustee of the ESOP assets. The
ESOP is a defined contribution plan designed primarily to reward eligible
employees for long and loyal service by providing them with retirement benefits.
The ESOP is designed and intended to invest primarily in Common Stock issued by
the Company and, in so doing, to provide for employee participation in the
equity ownership of the Company. The ESOP may also provide benefits in the event
of death, disability or other termination of employment prior to retirement. Any
benefits payable under the ESOP will be based solely upon the amounts
contributed for the benefit of a participant and any changes in the value of
those contributions while they are held in the ESOP. The total number of
participants in the ESOP as of January 1, 2003, was 323.

Participating employees are entitled to direct the trustee of the ESOP how to
vote the Common Stock of the Company held for their benefit and allocated to
their accounts under the ESOP. The trustee of the ESOP will have voting
discretion with regard to all other Common Stock of the Company owned by the
ESOP, if any. All Common Stock of the Company owned by the ESOP has been
allocated to participating employees.

Each calendar year the Bank contributes to the ESOP such amount as may be
determined by the Board of Directors or as may be required to make any payments
of principal and interest due on any loan made to the trustee of the ESOP. The
ESOP does not require or allow contributions by participating employees.
Distributions of benefits from the ESOP to plan participants or their
beneficiaries can be made either in cash or in Common Stock of the Company. In
recent years, distributions have been made partly in cash and partly in Common
Stock of the Company. Subject to certain exceptions, contributions to the ESOP
are fully vested after seven (7) years of service with the Bank.

The following table indicates the amount accrued pursuant to the ESOP for each
named executive officer or group during 2002:

Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- --------------------------------------------------------------------------------

Dwight O. Seegmiller Director and President of the $ 2,000
Company; Director and President
of the Banks

Thomas J. Cilek Secretary of the Company; $ 1,729
Senior Vice President of the Bank

James G. Pratt Treasurer of the Company; $ 2,000
Senior Vice President of the Bank

All Executive Officers
as a group (3 persons) $ 5,729
All Other Participating
Employees (320 persons) $86,876

Profit Sharing Plan

The Bank is the trustee of the Hills Bank and Trust Company Profit Sharing Plan
(the "Profit Sharing Plan"). The Profit Sharing Plan is operated in accordance
with the provisions of the written plan document. Employees of the Bank are
eligible to participate in the Profit Sharing Plan. The Profit Sharing Plan,
like the ESOP, is designed primarily to reward eligible employees for long and
loyal service by providing them with retirement benefits. The Profit Sharing
Plan is a defined contribution plan and is invested in assets other than equity
securities of the Company. Any benefits payable under the Profit Sharing Plan
will be based solely upon the amounts contributed by the Bank for the benefit of
a participant and any changes in the value of those contributions while they are
held in the Profit Sharing Plan. The Profit Sharing Plan does not require or
allow contributions by participating employees. Subject to certain exceptions,
contributions to the Profit Sharing Plan are fully vested after seven (7) years
of service with the Bank.

The following table indicates the amount accrued pursuant to the Profit Sharing
Plan for each named executive officer or group during 2002:

Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- --------------------------------------------------------------------------------

Dwight O. Seegmiller Director and President of the
Company; Director and President
of the Banks $ 16,000

Thomas J. Cilek Secretary of the Company;
Senior Vice President of the Bank $ 13,833

James G. Pratt Treasurer of the Company;
Senior Vice President of the Bank $ 16,000

All Executive Officers
as a Group (3 persons) $ 45,833
All Other Participating
Employees (320 persons) $695,007

Performance Graph

The performance graph omitted herein provides information regarding cumulative,
five year shareholder returns on an indexed basis of the Company's Common Stock
as compared with NASDAQ Market Index and the Regional-Southwest Banks Index
prepared by Media General Financial Services of Richmond, Virginia. The latter
index reflects the performance of thirty-nine bank holding companies operating
principally in the Midwest as selected by Media General Financial Services. The
indexes assume the investment of $100 on December 31, 1997 in Company Common
Stock, the NASDAQ Index and the Regional-Southwest Banks Index, with all
dividends reinvested.

The data points used in the omitted graphical presentation is as follows:

1997 1998 1999 2000 2001 2002
----------------------------------------------------

Hills Bancorporation ...... $100.00 $123.84 $152.78 $171.53 $186.10 $203.95
Regional-Southwest Banks .. $100.00 $ 87.98 $ 79.23 $102.23 $108.14 $122.16
Nasdaq Market Index ....... $100.00 $141.04 $248.76 $156.35 $124.64 $ 86.94

Compensation Committee Interlocks and Insider Participation

Except as otherwise noted below, all compensation decisions affecting the
executive officers of the Company and the Bank are made by the Board of
Directors of the Bank, as the executive officers are employees of the Bank. The
Board of Directors of the Bank has not established a compensation committee. Mr.
Seegmiller, President of the Bank, serves on the Board of Directors of the Bank,
but does not participate in deliberations or voting on decisions concerning
compensation of executive officers. Although Mr. Seegmiller does make a
recommendation to the Board of Directors regarding the compensation of Mr. Cilek
and Mr. Pratt, no recommendation is made by Mr. Seegmiller regarding his own
compensation. After making such recommendations, Mr. Seegmiller is excused from
the meeting and the Board of Directors deliberates and votes upon the
compensation to be paid to each of the three executive officers. Decisions
regarding the award of stock options to the three executive officers pursuant to
the Company's Incentive Stock Plan are made by an Incentive Stock Committee of
the Board of Directors of the Company consisting of the nine non-employee
directors (all directors but Mr. Seegmiller).

Willis M. Bywater, a member of the Board of Directors of the Bank and the
Incentive Stock Committee, participated in deliberations concerning executive
compensation matters during 2002. Under rules of the Securities and Exchange
Commission, the Bank is required to disclose that it has had certain business
relationships during 2002 with Economy Advertising Company, a commercial
printing and specialty advertising firm. Mr. Bywater is an executive officer and
principal shareholder of Economy Advertising Company. During 2002, the Bank paid
the sum of $220,701 to Economy Advertising Company for commercial printing
services and for the purchase of calendars and other specialty advertising
items. The Bank contemplates that it will purchase a similar amount of goods and
services from Economy Advertising Company during 2003. Such business
relationships have been entered into in the ordinary course of business of the
Bank and, in the opinion of management, the prices charged for the goods and
services provided by Economy Advertising Company are at least as favorable to
the Bank as prices generally charged by similar businesses in the area for such
goods and services.

The Board of Directors of the Bank does not believe that the participation by
Mr. Bywater in the deliberations concerning executive compensation has provided
the executive officers of the Bank with more favorable compensation arrangements
than would have been the case absent his participation in such deliberations.

REPORT ON EXECUTIVE COMPENSATION

Under rules established by the Securities and Exchange Commission, the Company
is required to provide certain information in regard to the compensation and
benefits provided to Dwight Seegmiller, as President of the Company and the
Bank, and the other two executive officers of the Company and the Bank. The
disclosure requirements for these three individuals (the "executive officers")
include information set forth in various compensation tables contained in this
Proxy Statement and a report explaining the rationale and matters considered in
making fundamental executive compensation decisions affecting those individuals.
Decisions regarding executive officer salaries, bonuses and contributions to the
ESOP and, beginning in 1994, the Profit Sharing Plan are made by the Board of
Directors of the Bank, with Mr. Seegmiller abstaining from deliberations and
voting on such matters. Decisions regarding the grant of awards to executive
officers pursuant to the Incentive Stock Plan are made by the Incentive Stock
Committee of the Board of Directors of the Company, consisting of the nine
non-employee directors (all directors but Mr. Seegmiller). In fulfillment of the
disclosure requirements, the Board of Directors of the Bank and the Incentive
Stock Committee of the Company have prepared the following report.

Compensation Policy

This report describes the current compensation policy as endorsed by the Board
of Directors of the Bank and the Incentive Stock Committee and the resulting
actions taken in arriving at 2002 compensation as reported in the various
compensation tables. The executive compensation program of the Bank has been
designed to:

o provide a pay for performance policy that differentiates compensation
amounts based upon corporate and individual performance;

o provide compensation opportunities which are comparable to those offered by
other Iowa-based financial institutions, thus allowing the Bank to compete
for and retain talented executives who are essential to the long-term
success of the Company and the Bank; and

o align the interest of the executive officers with the long-term interest of
the Company's shareholders through the ownership of Company Common Stock.

The executive compensation program is comprised of salary, opportunities for
annual cash bonuses, participation in the ESOP and opportunities for long-term
incentives pursuant to awards granted under the Incentive Stock Plan and,
beginning in 1994, participation in the Profit Sharing Plan. An executive
officer's salary is based on a number of factors, including the Bank's
performance as compared to internally established goals for the most recently
ended fiscal year and to the performance of other Iowa-based financial
institutions, the individual officer's level of responsibility within the Bank
and comparisons to salaries paid to officers holding similar positions in other
Iowa-based financial institutions. The award of an annual cash bonus is made in
the discretion of the Board of Directors and not pursuant to any formal plan or
formula. A bonus, if granted, is based on the individual performance of the
executive officer and the achievement of financial performance goals of the
Bank, as established in the Bank's annual budget and business plan. The Bank, as
plan sponsor of the ESOP, makes an annual ESOP contribution which is allocated
among all participating employees of the Bank, including the executive officers,
based on their annual salaries. In 2002, the Bank, as sponsor of the Profit
Sharing Plan, made a Profit Sharing Plan contribution which was allocated among
all participating employees of the Bank, including the executive officers, based
on their annual salaries. The amount of the ESOP contribution and the amount of
the Profit Sharing Plan contribution are determined in the discretion of the
Board of Directors and are based on the achievement of financial performance
goals of the Bank as established in the Bank's annual budget and business plan.
The Incentive Stock Committee uses the award of stock options to officers to
align their interests with those of the shareholders; however, significant
vesting periods are also used to encourage retention as employees. The amount of
options granted is determined by reviewing the practices of other financial
institutions based on information provided by an outside consultant to the Board
of Directors.

In 1993, Section 162(m) of the Internal Revenue Code was amended to place limits
on the deductibility of compensation in excess of $1 million paid to executive
officers of publicly held companies. The Board of Directors of the Bank does not
believe, however, that the amendment has had or will have any impact on the
compensation policies followed by the Board.

President's Compensation

Mr. Seegmiller's base salary was increased to $275,400 for 2002 from $270,000
the prior year. The base salary reflected consideration of (i) an assessment of
the Bank's performance during 2001 as compared to goals set in the Bank's annual
budget and business plan for 2001, (ii) a comparison of the Bank's performance
as compared with that of other Iowa-based financial institutions, and (iii)
compensation data provided by comparative industry surveys. Each year,
management of the Bank prepares, and the Board of Directors approves, an annual
budget and business plan containing financial performance goals measured
primarily in terms of earnings per share, asset quality, return on assets and
return on stockholders' equity. In setting Mr. Seegmiller's salary for 2002, the
Board reviewed the goals established for 2001 and determined that such goals had
been achieved by the Bank. The Board also reviewed the Bank's performance as
compared to that of other Iowa-based financial institutions of similar asset
size. Compensation data for other Iowa-based financial institutions of similar
asset size is also provided through surveys independently prepared by the Iowa
Bankers Association. The survey reviewed by the Board in setting Mr.
Seegmiller's 2002 salary contained information on salaries paid during 2001 to
the chief executive officers of 13 Iowa-based banks with deposits in excess of
$225 million. While the foregoing factors are not specifically weighted in the
decision-making process, primary emphasis is placed on the Bank's performance
during the previous year as compared to the internally-established goals. Review
of comparable compensation data is used primarily as a check to ensure that the
salary established is within the range of salaries paid to other chief executive
officers of Iowa-based financial institutions. Although the Board reviewed a
number of objective factors as described above in setting Mr. Seegmiller's
salary for 2002, the amount was based on a subjective determination by the
Board.

Mr. Seegmiller was awarded no cash bonus in 2002. Mr. Seegmiller received
additional compensation that represents the contributions, which the Bank did
not make due to limitations under statutory and administrative rules, to the
ESOP and the Profit Sharing Plan.

A contribution of $18,000 was made to Mr. Seegmiller's ESOP and Profit Sharing
Plan accounts during 2002. The size of the contribution (as limited by the
Internal Revenue Code) was determined as a function of Mr. Seegmiller's 2002
salary and the size of the contribution made by the Bank, as plan sponsor, to
the ESOP and Profit Sharing Plan for the benefit of all employees of the Bank
eligible to participate in the ESOP and Profit Sharing Plan. For 2002, the ESOP
and Profit Sharing Plan contributions made by the Bank amounted to 9% of the
aggregate salaries paid to all Bank's employees eligible to participate in the
plans. The size of the ESOP and Profit Sharing Plan contributions are determined
by the Board of Directors in its discretion based on its assessment of whether
the Bank achieved the goals established in the annual budget and business plan
for 2002. Once the size of the ESOP and Profit Sharing Plan contributions were
determined, such contributions were allocated among the ESOP and Profit Sharing
Plan accounts of all eligible employees of the Bank, including Mr. Seegmiller,
based on their annual salaries for 2002.

Compensation for Other Executive Officers

Effective January 1, 2002, the Board of Directors increased the base salaries of
the two other executives, Mr. Cilek and Mr. Pratt, to $172,910 and $208,658
respectively. No cash bonuses were awarded in 2002. The salaries were based on
the same considerations as the compensation decisions for the President of the
Bank and those considerations described under the Compensation Policy.
Additionally, contributions were made to the ESOPaccounts and the Profit Sharing
Plan accounts of the other two executive officers, the size of which were
determined in accordance with the same procedure as used for all employees of
the Bank.

BOARD OF DIRECTORS
HILLS BANK AND TRUST COMPANY

Incentive Stock Committee
Hills Bancorporation

Willis M. Bywater Theodore H. Pacha
Thomas J. Gill, D.D.S. Ann Marie Rhodes
Donald H. Gringer Ronald E. Stutsman
Michael E. Hodge Sheldon E. Yoder
Richard W. Oberman

LOANS TO AND CERTAIN OTHER TRANSACTIONS WITH

EXECUTIVE OFFICERS AND DIRECTORS

Certain of the officers and directors of the Company, their associates or
members of their families, were customers of, and have had transactions with,
the Bank from time to time in the ordinary course of business, and additional
transactions may be expected to take place in the ordinary course of business in
the future. All loans and commitments included in such transactions have been
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons.
In the opinion of management of the Bank, such loan transactions do not involve
more than the normal risk of collectibility or present other unfavorable
features.

During the past year, the Bank and the Company have maintained business
relationships with certain companies partially owned or operated by members of
the Board of Directors of the Company through the purchase of varying amounts of
goods and services from such companies. All such business relationships have
been entered into in the ordinary course of business of the Bank and the Company
and, in the opinion of management, the prices charged for such goods and
services have been at least as favorable to the Bank and the Company as prices
generally charged by similar businesses in the area for such goods and services.
Management of the Company anticipates that the Bank and the Company will
continue to maintain such business relationships on a similar basis to the
extent that such goods and services are required by the Bank and the Company in
the future.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

McGladrey & Pullen, LLP, Certified Public Accountants, provided auditing
services to the Company during the Company's fiscal year ended December 31,
2002. A representative of McGladrey & Pullen, LLP is expected to be present at
the Annual Meeting with the opportunity to make a statement if he desires to do
so and he is also expected to be available to respond to appropriate questions.

The Board of Directors of the Company has not selected a principal accountant to
provide auditing services for the Company in 2003. The audit committee is in the
process of reviewing whether McGladrey and Pullen, LLP's provision of auditing
and non-audit services will be compatible with maintaining the independence of
McGladrey and Pullen, LLP. Depending on the results of this review, the Board of
Directors may select a different accountant to provide auditing services for the
Company in 2003. As of the date of this report, no requests for proposals for
audit services have been solicited.

The report of the Audit Committee that follows shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement or future filings into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates the information by reference, and shall not otherwise
be deemed filed under such Acts.

Audit Committee Report

March 11, 2003

To the Board of Directors:

The Audit Committee consists of the following members of the Board of Directors:
Willis M. Bywater, Thomas J. Gill, Michael E. Hodge, and Ann Marie Rhodes. Each
of the members of the Audit Committee is independent as defined under the rules
of the NASDAQ Stock Market.

We have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2002.

We have discussed with the independent auditors, McGladrey & Pullen, L.L.P., the
matters required to be discussed by Statement of Auditing Standards No. 61,
Communication with Auditing Committees, as amended, issued by the Auditing
Standards Board of the American Institute of Certified Public Accountants.

We have received and reviewed the written disclosures and the letter from
McGladrey & Pullen, L.L.P., required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, issued by the
Independence Standard Board, and have discussed with the auditors the auditors'
independence.

Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10K for the year ended December 31, 2002
for filing with the Securities and Exchange Commission.

Audit Committee

Willis M. Bywater
Thomas J. Gill
Michael E. Hodge
Ann Marie Rhodes

PROPOSALS BY SHAREHOLDERS

Shareholder proposals intended to be presented at the Annual Meeting of
Shareholders to be held in 2004 must be received by the Company no later than
December 5, 2003 for inclusion in the Company's proxy statement and form of
proxy relating to that meeting. Proposals should be submitted to the Company at
its principal executive offices at 131 Main Street, Hills, Iowa 52235.

AVAILABILITY OF FORM 10-K REPORT

Copies of the Company's Annual Report to the Securities and Exchange Commission
(Form 10-K) including the financial statements and schedules thereto for the
fiscal year of the Company ended December 31, 2002, will be mailed when
available without charge (except for exhibits) to a holder of shares of the
Common Stock of the Company upon written request to James G. Pratt, Treasurer,
Hills Bancorporation, 131 Main Street, Hills, Iowa 52235.

OTHER MATTERS

Management of the Company knows of no other matters which will be presented for
consideration at the Annual Meeting of Shareholders other than those stated in
the Notice of Annual Meeting which is part of this Proxy Statement, and
management does not intend itself to present any such other business. If any
other matters do properly come before the meeting, it is intended that the
persons named in the accompanying proxy will vote thereon in accordance with
their judgment. The proxy will also have the power to vote for the adjournment
of the meeting from time to time.

A copy of the Annual Report of the Company for the year ended December 31, 2002,
is mailed to shareholders together with this Proxy Statement. Such report is not
incorporated in this Proxy Statement and is not to be considered a part of the
proxy soliciting material.

By Order of the Board of Directors

Dwight O. Seegmiller
President

March 24, 2003
Hills, Iowa