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<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    ---------
                                    FORM 10-K

              Annual Report pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003       Commission File Number 0-32637
                                            -----

                            AMES NATIONAL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            IOWA                                        42-1039071
--------------------------------------------------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

     405 FIFTH STREET, AMES, IOWA                                       50010
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                 (515) 232-6251

              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE

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

                          COMMON STOCK, $5.00 PAR VALUE
                          -----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 (the
"Act")  during the  preceding  12 months (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes __X__  No _____

As of June 30,  2003,  the  aggregate  market  value  of  common  stock  held by
non-affiliates  of the  registrant,  based upon the  closing  sale price for the
registrant's  common  stock in the over the counter  market,  was  $137,170,267.
Shares of common stock beneficially owned by each executive officer and director
of the  registrant  and by each  person  who owns 5% or more of the  outstanding
common stock have been  excluded on the basis that such persons may be deemed to
be an affiliate of the registrant. This determination of affiliate status is not
necessarily a conclusive determination for any other purpose.

The number of shares  outstanding of the  registrant's  common stock on February
27, 2004, was 3,133,053.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  registrant's  definitive  proxy  statement,  as filed with the
Securities  and Exchange  Commission  on March 12,  2004,  are  incorporated  by
reference into Part III of this Form 10-K.

                                       1
<PAGE>
                                TABLE OF CONTENTS
                                                                            PAGE

Part I

Item 1.    Business....................................................        3
Item 2.    Properties..................................................       13
Item 3.    Legal Proceedings...........................................       13
Item 4.    Submission of Matters to a Vote of Shareholders.............       13

Part II

Item 5.    Market for Registrant's Common Stock and Related Shareholder
             Matters...................................................       14
Item 6.    Selected Financial Data.....................................       15
Item 7.    Management's Discussion and Analysis of Financial Condition
             and Results Of Operations.................................       15
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk..
Item 8.    Financial Statements and Supplementary Data.................       34
Item 9.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure..................................       36
Item 9A.   Controls and Procedures ....................................       55

Part III

Item 10.    Directors and Executive Officers of the Registrant.........       55
Item 11.    Executive Compensation.....................................       56
Item 12.    Security Ownership of Certain Beneficial Owners and
              Management and Related Shareholder Matters ..............       56
Item 13.    Certain Relationships and Related Transactions.............       56
Item 14.    Principal Accountant Fees and Services ....................       56

Part IV

Item 15.    Exhibits, Financial Statement Schedules and Reports
              on Form 8-K..............................................       56

                                       2
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

General

Ames  National  Corporation  (the  "Company")  is an Iowa  corporation  and bank
holding  company  registered  under the Bank  Holding  Company  Act of 1956,  as
amended.  The  Company  owns  100% of the  stock  of five  banking  subsidiaries
consisting of two national banks and three  state-chartered  banks, as described
below.  All of the Company's  operations  are conducted in the State of Iowa and
primarily  within the central Iowa counties of Boone,  Story and Marshall  where
the Company's banking  subsidiaries are located.  The Company does not engage in
any  material  business  activities  apart  from its  ownership  of its  banking
subsidiaries.  The principal executive offices of the Company are located at 405
Fifth Street, Ames, Iowa 50010 and its telephone number is (515) 232-6251.

The Company was organized and incorporated on January 21, 1975 under the laws of
the  State of Iowa to serve  as a  holding  company  for its  principal  banking
subsidiary,  First National Bank, Ames, Iowa ("First National") located in Ames,
Iowa.  In 1983,  the  Company  acquired  the stock of the State Bank & Trust Co.
("State  Bank")  located  in  Nevada,  Iowa;  in 1991,  the  Company,  through a
newly-chartered  state  bank  known as Boone  Bank & Trust Co.  ("Boone  Bank"),
acquired  certain  assets and assumed  certain  liabilities  of the former Boone
State Bank & Trust Company located in Boone, Iowa; in 1995, the Company acquired
the stock of the  Randall-Story  State Bank  ("Randall-Story  Bank")  located in
Story City, Iowa; and in 2002, the Company chartered and commenced operations of
a new national  banking  organization,  United Bank & Trust NA ("United  Bank"),
located  in  Marshalltown,   Iowa.  First  National,  State  Bank,  Boone  Bank,
Randall-Story  Bank  and  United  Bank  are  each  operated  as a  wholly  owned
subsidiary of the Company.  These five financial institutions are referred to in
this Form 10-K collectively as the "Banks" and individually as a "Bank".

The  principal  sources of Company  revenue are: (i) interest and fees earned on
loans made by the Banks; (ii) service charges on deposit accounts  maintained at
the Banks;  (iii) interest on fixed income  investments held by the Banks;  (iv)
fees on trust services provided by those Banks exercising trust powers;  and (v)
securities gains and dividends on equity investments held by the Company and the
Banks.

The Banks' lending  activities  consist  primarily of short-term and medium-term
commercial  and  residential  real  estate  loans,   agricultural  and  business
operating loans and lines of credit,  equipment loans,  vehicle loans,  personal
loans and lines of credit,  home improvement  loans and secondary  mortgage loan
origination.  The  Banks  also  offer a  variety  of  demand,  savings  and time
deposits,  cash  management  services,  merchant  credit card  processing,  safe
deposit boxes,  wire  transfers,  direct deposit of payroll and social  security
checks,  and automated teller machine and Internet  banking access.  Four of the
five Banks also offer trust services.

The Company provides  various  services to the Banks which include,  but are not
limited to, management assistance,  auditing services,  human resources services
and   administration,    compliance   management,   marketing   assistance   and
coordination,  loan review and assistance  with respect to computer  systems and
procedures.

Banking Subsidiaries

First  National Bank,  Ames,  Iowa.  First  National is a nationally  chartered,
commercial  bank  insured by the  Federal  Deposit  Insurance  Corporation  (the
"FDIC").  It was  organized in 1903 and became a wholly owned  subsidiary of the
Company in 1975 through a bank holding company  reorganization  whereby the then
shareholders  of First National  exchanged all of their First National stock for
stock in the Company. First National provides full-service banking to businesses
and  residents  within the Ames  community and  surrounding  area. It provides a
variety of  products  and  services  designed to meet the needs of the market it
serves.  It has an  experienced  staff of bank officers  including many who have
spent  the  majority  of their  banking  careers  with  First  National  and who
emphasize long-term customer relationships. First National conducts business out
of three full-service offices and one super market location,  all located in the
city of Ames.

As of December  31,  2003,  First  National  had capital of  $40,031,000  and 96
full-time equivalent  employees.  Full-time  equivalents represent the number of
people a business would employ if all its employees were employed on a full-time
basis. It is calculated by dividing the total number of hours worked by all full
and part-time employees by the number of hours a full-time individual would work
for a given period of time. First National had net income of $6,621,000 in 2003,
$6,294,000 in 2002 and $5,834,000 in 2001. Total assets as of December 31, 2003,
2002 and 2001 were $381,086,000, $375,341,000 and $349,702,000, respectively.
                                       3
<PAGE>

State Bank & Trust Co., Nevada,  Iowa.  State Bank is an Iowa,  state-chartered,
FDIC  insured  commercial  bank.  State Bank was acquired by the Company in 1983
through  a stock  transaction  whereby  the  then  shareholders  of  State  Bank
exchanged  all their State Bank stock for stock in the  Company.  State Bank was
organized in 1939 and provides  full-serve  banking to businesses  and residents
within the Nevada area from its main Nevada  location  and two  offices;  one in
McCallsburg,  Iowa and the other in Colo,  Iowa.  It is strong in  agricultural,
commercial and residential real estate lending.

As of December 31, 2003,  State Bank had capital of $11,230,000 and 23 full-time
equivalent  employees.  It had net income of $1,554,000  in 2003,  $1,501,000 in
2002 and $1,294,000 in 2001. Total assets as of December 31, 2003, 2002 and 2001
were $100,712,000, $104,079,000 and $94,004,000, respectively.

Boone Bank & Trust Co.,  Boone,  Iowa.  Boone Bank is an Iowa,  state-chartered,
FDIC insured  commercial  bank.  Boone Bank was organized in 1992 by the Company
under  a new  state  charter  in  connection  with  a  purchase  and  assumption
transaction  whereby Boone Bank  purchased  certain  assets and assumed  certain
liabilities  of the former  Boone State Bank & Trust  Company in exchange  for a
cash  payment.  It provides  full service  banking to  businesses  and residents
within the Boone  community  and  surrounding  area.  It is actively  engaged in
agricultural,  consumer and commercial lending, including real estate, operating
and  equipment  loans.  It  conducts  business  from its main  office and a full
service branch office, both located in Boone.

As of December 31, 2003,  Boone Bank had capital of $12,128,000 and 27 full-time
equivalent  employees.  It had net income of $1,920,000  in 2003,  $1,827,000 in
2002 and $1,302,000 in 2001. Total assets as of December 31, 2003, 2002 and 2001
were $110,712,000, $96,829,000 and $94,356,000, respectively.

Randall-Story  State Bank,  Story  City,  Iowa.  Randall-Story  Bank is an Iowa,
state-chartered,  FDIC insured commercial bank.  Randall-Story Bank was acquired
by the Company in 1995 through a stock transaction whereby the then shareholders
of Randall-Story Bank exchanged all their  Randall-Story Bank stock for stock in
the Company.  Randall-Story Bank was organized in 1928 and provides full-service
banking to Story City and the  surrounding  area from its main location in Story
City and a full service office in Randall,  Iowa.  While its primary emphasis is
in  agricultural  lending,  Randall-Story  Bank also  provides  the  traditional
lending services typically offered by community banks.

As of December 31, 2003,  Randall-Story  Bank had capital of  $7,759,000  and 15
full-time  equivalent  employees.  It  had  net  income  of  $810,000  in  2003,
$1,009,000  in 2002 and $692,000 in 2001.  Total assets as of December 31, 2003,
2002 and 2001 were $72,581,000, $64,946,000 and $63,680,000, respectively.

United  Bank &  Trust  NA,  Marshalltown,  Iowa.  United  Bank  is a  nationally
chartered,  commercial  bank insured by the FDIC. It was newly chartered in June
of 2002 and offers a broad range of deposit and loan products,  as well as trust
services to  customers  located in the  Marshalltown  and  surrounding  Marshall
County area.

As of December 31, 2003,  United Bank had capital of $4,959,000 and 16 full-time
equivalent employees.  It had a net loss in 2003 of $465,000 and for the six and
one-half  month period ended  December 31, 2002 of $524,000.  Total assets as of
December 31, 2003 and 2002 were $68,397,000 and $30,355,000, respectively.

Business Strategy and Operations

As a locally owned,  multi-bank  holding company,  the Company emphasizes strong
personal  relationships  to provide products and services that meet the needs of
the Banks' customers.  The Company seeks to achieve growth and maintain a strong
return on equity.  To accomplish these goals, the Banks focus on small to medium
size businesses  that  traditionally  wish to develop an exclusive  relationship
with a single bank. The Banks,  individually and collectively,  have the size to
give the  personal  attention  required by business  owners,  in addition to the
credit expertise to help businesses meet their goals.

                                       4
<PAGE>

The Banks offer a full range of deposit services that are typically available in
most financial institutions,  including checking accounts,  savings accounts and
time  deposits of various  types,  ranging from money market  accounts to longer
term  certificates  of deposit.  One major goal in developing the Banks' product
mix is to keep the product offerings as simple as possible, both in terms of the
number of products and the features and benefits of the individual services. The
transaction accounts and time certificates are tailored to each Bank's principal
market area at rates competitive in that Bank's market. In addition,  retirement
accounts such as IRAs (Individual  Retirement Accounts) are available.  The FDIC
insures all deposit  accounts up to the maximum amount.  The Banks solicit these
accounts from small-to-medium sized businesses in their respective primary trade
areas, and from individuals who live and/or work within these areas. No material
portion of the Banks'  deposits has been obtained from a single person or from a
few  persons.  Therefore,  the  Company  does not  believe  that the loss of the
deposits of any person or of a few persons  would have an adverse  effect on the
Banks' operations or erode their deposit base.

Loans are provided to creditworthy  borrowers  regardless of their race,  color,
national  origin,  religion,  sex, age, marital status,  disability,  receipt of
public  assistance  or any other basis  prohibited  by law.  The Banks intend to
fulfill this  commitment  while  maintaining  prudent credit  standards.  In the
course of fulfilling this obligation to meet the credit needs of the communities
which  they  serve,  the Banks give  consideration  to each  credit  application
regardless of the fact that the applicant may reside in a low to moderate income
neighborhood,  and without regard to the  geographic  location of the residence,
property or business within their market areas.

The Banks  provide  innovative,  quality  financial  products,  such as Internet
banking and trust  services that meet the banking  needs of their  customers and
communities.  The loan  programs and  acceptance  of certain loans may vary from
time-to-time  depending on the funds  available  and  regulations  governing the
banking  industry.  The Banks  offer all  basic  types of credit to their  local
communities and surrounding rural areas, including commercial,  agricultural and
consumer loans. The types of loans within these categories are as follows:

Commercial  Loans.  Commercial  loans are  typically  made to sole  proprietors,
partnerships,  corporations and other business  entities such as  municipalities
and  individuals  where the loan is to be used primarily for business  purposes.
These loans are  typically  secured by assets  owned by the  borrower  and often
times involve personal guarantees given by the owners of the business. The types
of loans the Banks offer include:

-    financing guaranteed under Small Business Administration programs
-    operating and working capital loans
-    loans to finance equipment and other capital purchases
-    commercial real estate loans
-    business lines of credit
-    term loans
-    loans to professionals
-    letters of credit

Agricultural  Loans.  The Banks by nature of their  location in central Iowa are
directly and indirectly involved in agriculture and agri-business  lending. This
includes short-term seasonal lending associated with cyclical crop and livestock
production,  intermediate  term lending for  machinery,  equipment  and breeding
stock  acquisition and long-term real estate lending.  These loans are typically
secured by the crops,  livestock,  equipment or real estate being financed.  The
basic  tenet of the Banks'  agricultural  lending  philosophy  is a blending  of
strong,  positive cash flow supported by an adequate collateral position,  along
with  a  demonstrated  capacity  to  withstand  short-term  negative  impact  if
necessary.   Applicable  governmental  subsidies  and  affiliated  programs  are
utilized if warranted to accomplish these  parameters.  Approximately 14% of the
Banks'  loans  have  been made for  agricultural  purposes.  The Banks  have not
experienced a material  adverse effect on their business as a result of defaults
on agricultural loans and do not anticipate at the present time experiencing any
such effect in the future.

Consumer  Loans.   Consumer  loans  are  typically  available  to  finance  home
improvements and consumer purchases, such as automobiles, household furnishings,
boats and  education.  These loans are made on both a secured  and an  unsecured
basis. The following types of consumer loans are available:

-    automobiles and trucks
-    boats and recreational vehicles
-    personal loans and lines of credit
-    home equity lines of credit
-    home improvement and rehabilitation loans
-    consumer real estate loans
                                       5
<PAGE>

Other types of credit  programs,  such as loans to nonprofit  organizations,  to
public entities,  for community  development and to other  governmental  offered
programs also are available.

First  National,  Boone Bank,  State Bank and United  Bank offer trust  services
typically  found  in  a  commercial  bank  with  trust  powers,   including  the
administration of estates,  conservatorships,  personal and corporate trusts and
agency  accounts.  The  Banks  also  provide  farm  management,  investment  and
custodial services for individuals, businesses and non-profit organizations.

The Banks earn fees from the origination of residential  mortgages that are sold
in the secondary  real estate market  without  retaining the mortgage  servicing
rights.

The Banks offer traditional  banking services,  such as safe deposit boxes, wire
transfers,  direct  deposit of payroll  and social  security  checks,  automated
teller machine access and automatic drafts (ACH) for various accounts.

Credit Management

The Company strives to achieve sound credit risk management. In order to achieve
this goal, the Company has established  uniform credit policies and underwriting
criteria  for the Banks' loan  portfolios.  The Banks  diversify in the types of
loans offered and are subject to regular credit  examinations,  annual  internal
loan audits and annual  review of large loans,  as well as quarterly  reviews of
loans  experiencing  deterioration  in credit quality.  The Company  attempts to
identify  potential problem loans early,  charge off loans promptly and maintain
an adequate  allowance  for loan  losses.  The Company  has  established  credit
guidelines for the Banks' lending portfolios which include  guidelines  relating
to the more commonly requested loan types, as follows:

Commercial  Real  Estate  Loans  -  Commercial  real  estate  loans,   including
agricultural  real estate loans,  are normally based on loan to appraisal  value
ratios of 75% and secured by a first priority lien position. Loans are typically
subject  to  interest  rate  adjustments  no less  frequently  than 5 years from
origination.  Fully  amortized  monthly  repayment  terms normally do not exceed
twenty  years.  Projections  and cash  flows that show  ability to service  debt
within the amortization period are required.  Property and casualty insurance is
required to protect the Banks' collateral interests. Commercial and agricultural
real estate loans represent approximately 42% of the loan portfolio.  Major risk
factors  for  commercial  real  estate  loans,  as well as the other  loan types
described  below,  include a  geographic  concentration  in  central  Iowa;  the
dependence  of the local  economy  upon  several  large  governmental  entities,
including Iowa State University and the Iowa Department of  Transportation;  and
the health of Iowa's agricultural sector that is dependent on weather conditions
and government programs.

Commercial and Agricultural Operating Lines - These loans are made to businesses
and farm  operations  with  terms up to  twelve  months.  The  credit  needs are
generally  seasonal with the source of repayment coming from the entity's normal
business  cycle.  Cash flow reviews are  completed  to establish  the ability to
service  the debt  within the terms of the loan.  A first  priority  lien on the
general assets of the business  normally  secures these types of loans.  Loan to
value limits vary and are dependent  upon the nature and type of the  underlying
collateral and the financial  strength of the borrower.  Crop and hail insurance
is required for most agricultural  borrowers.  Loans are generally guaranteed by
the principal(s).

Commercial and Agricultural  Term Loans - These loans are made to businesses and
farm  operations  to  finance  equipment,   breeding  stock  and  other  capital
expenditures. Terms are generally the lesser of five years or the useful life of
the asset.  Term loans are normally  secured by the asset being financed and are
often  additionally  secured with the general  assets of the  business.  Loan to
value is  generally  75% of the cost or value of the assets.  Loans are normally
guaranteed by the principal(s).  Commercial and agricultural  operating and term
loans represent approximately 20% of the loan portfolio.

Residential  First  Mortgage  Loans - Proceeds of these loans are used to buy or
refinance  the  purchase of  residential  real estate with the loan secured by a
first lien on the real estate. Most of the residential mortgage loans originated
by the Banks  (including  servicing  rights) are sold in the secondary  mortgage
market due to the higher interest rate risk inherent in the 15 and 30 year fixed
rate  terms  consumers  prefer.  Loans that are  originated  and not sold in the
secondary  market  generally have higher interest rates and have rate adjustment
periods  of no longer  than  seven  years.  The  maximum  amortization  of first
residential  real estate is 30 years. The  loan-to-value  ratios normally do not
exceed 80% without  credit  enhancements  such as mortgage  insurance.  Property
insurance  is required on all loans to protect the Banks'  collateral  position.
Loans  secured  by  one  to  four  family   residential   properties   represent
approximately 24% of the loan portfolio.

                                       6
<PAGE>

Home  Equity  Term  Loans - These  loans are  normally  for the  purpose of home
improvement or other consumer  purposes and are secured by a junior  mortgage on
residential  real  estate.  Loan-to-value  ratios  normally do not exceed 90% of
market value.

Home Equity  Lines of Credit - The Banks offer a home equity line of credit with
a maximum term of 60 months. These loans are secured by a junior mortgage on the
residential real estate and normally do not exceed a loan-to-market  value ratio
of 90% with the interest adjusted quarterly.

Consumer  Loans -  Consumer  loans  are  normally  made to  consumers  under the
following guidelines.  Automobiles - loans on new and used automobiles generally
will not exceed 80% and 75% of the value,  respectively.  Recreational  vehicles
and boats - 66% of the value.  Mobile home - maximum  term on these loans is 180
months with the  loan-to-value  ratio generally not exceeding 66%. Each of these
loans is secured by a first  priority lien on the assets and requires  insurance
to protect the Banks'  collateral  position.  Unsecured - The term for unsecured
loans  generally does not exceed 12 months.  Consumer and other loans  represent
approximately 6% of the loan portfolio.

Employees

At  December  31,  2003,  the  Banks  had a total  of 177  full-time  equivalent
employees and the Company had an additional 8 full-time  employees.  The Company
and Banks  provide their  employees  with a  comprehensive  program of benefits,
including  comprehensive  medical and dental  plans,  long-term  and  short-term
disability coverage,  and a 401(k) profit sharing plan. Management considers its
relations  with  employees  to be  satisfactory.  Unions  represent  none of the
employees.

Market Area

The Company  operates five commercial  banks with locations in Story,  Boone and
Marshall Counties in central Iowa.

First National is located in Ames,  Iowa with a population of 50,731.  The major
employers  are Iowa State  University,  Ames  Laboratories,  Iowa  Department of
Transportation,  Mary  Greeley  Medical  Center,  National  Veterinary  Services
Laboratory,  Ames Community Schools,  City of Ames,  Barilla,  Sauer-Danfoss and
McFarland Clinic.  First National's  primary business includes  providing retail
banking services and business and consumer lending. First National has a minimum
exposure to agricultural lending.

Boone Bank is located in Boone,  Iowa with a population of 12,800.  Boone is the
county seat of Boone  County.  The major  employers  are Fareway  Stores,  Inc.,
Patterson  Dental Supply Co., Union Pacific  Railroad,  and  Communication  Data
Services.  Boone Bank provides lending  services to the agriculture,  commercial
and real estate markets.

State Bank is located in Nevada,  Iowa with a population of 6,658. Nevada is the
county seat of Story County.  The major  employers are Print  Graphics,  General
Financial Supply,  Central Iowa Printing,  Burke  Corporation and Almaco.  State
Bank provides various types of loans with a major agricultural presence.

Randall-Story  Bank is located in Story City,  Iowa with a population  of 3,228.
The major employers are Pella Corporation,  Bethany Manor,  American  Packaging,
Precision Machine and Record Printing.  Located in a major agricultural area, it
has a strong presence in this type of lending. As a full service commercial bank
it provides a full line of products and services.

United Bank is located in  Marshalltown,  Iowa with a population of 26,123.  The
major employers are Swift & Co., Fisher Controls International, Lenox Industries
and Marshalltown  Medical & Surgical  Center.  The newly chartered bank offers a
full line of loan, deposit, and trust services.

Competition

The  geographic  market  area  served by the Banks is  highly  competitive  with
respect to both loans and  deposits.  The Banks compete  principally  with other
commercial  banks,  savings  and  loan  associations,  credit  unions,  mortgage
companies, finance divisions of auto and farm equipment companies,  agricultural
suppliers and other financial service  providers.  Some of these competitors are
local,  while others are  statewide or  nationwide.  The major  commercial  bank
competitors  include F & M Bank, U.S. Bank National  Association and Wells Fargo
Bank,  each of which have a branch office or offices  within the Banks'  primary
trade areas.  Among the  advantages  such larger banks have are their ability to
finance extensive  advertising campaigns and to allocate their investment assets
to  geographic  regions  of  higher  yield  and  demand.  These  larger  banking
organizations  have much higher legal lending limits than the Banks and thus are
better able to finance large regional, national and global commercial customers.

                                       7
<PAGE>

As of  December  31,  2003,  there  were 25  FDIC  insured  institutions  having
approximately  57 offices or branch  offices  within  Boone,  Story and Marshall
County,  Iowa where the Banks' offices are located.  First National,  State Bank
and Randall-Story Bank together have the largest percentage of deposits in Story
County and Boone Bank has the highest percentage of deposits in Boone County.

In order to compete with the other financial institutions in their primary trade
areas, the Banks use, to the fullest extent possible,  the flexibility  which is
accorded by  independent  status.  This  includes  an  emphasis  on  specialized
services,  local  promotional  activity  and  personal  contacts  by the  Banks'
officers, directors and employees. In particular, the Banks compete for deposits
principally  by  offering   depositors  a  wide  variety  of  deposit  programs,
convenient  office  locations,  hours and other services.  The Banks compete for
loans  primarily by offering  competitive  interest rates,  experienced  lending
personnel and quality products and services.

The Banks also compete with the financial markets for funds. Yields on corporate
and  government  debt  securities  and  commercial  paper  affect the ability of
commercial banks to attract and hold deposits. Commercial banks also compete for
funds with equity, money market, and insurance products offered by brokerage and
insurance companies. This competitive trend will likely continue in the future.

The Company anticipates bank competition will continue to change materially over
the next  several  years as more  financial  institutions,  including  the major
regional and national banks, continue to consolidate.  Credit unions, because of
their income tax benefits, will continue to show substantial growth.

Supervision and Regulation

The following  discussion  generally  refers to certain statutes and regulations
affecting the banking  industry.  These  references  provide brief summaries and
therefore do not purport to be complete and are  qualified in their  entirety by
reference to those statutes and  regulations.  In addition,  due to the numerous
statutes and regulations that apply to and regulate the operation of the banking
industry, many are not referenced below.

The Company and the Banks are subject to extensive  federal and state regulation
and  supervision.  Regulation  and  supervision  of  financial  institutions  is
primarily  intended to protect  depositors and the FDIC rather than shareholders
of the  Company.  The laws and  regulations  affecting  banks  and bank  holding
companies have changed  significantly  over recent years,  particularly with the
passage of the Financial  Services  Modernization Act. There is reason to expect
that similar changes will continue in the future. Any change in applicable laws,
regulations or regulatory  policies may have a material  effect on the business,
operations  and  prospects of the Company.  The Company is unable to predict the
nature or the extent of the effects on its business and earnings that any fiscal
or monetary policies or new federal or state legislation may have in the future.

The Company

The Company is a bank holding  company by virtue of its  ownership of the Banks,
and is  registered  as such with the Board of Governors  of the Federal  Reserve
System (the "Federal  Reserve").  The Company is subject to regulation under the
Bank Holding  Company Act of 1956, as amended (the "BHCA"),  which  subjects the
Company and the Banks to supervision  and  examination  by the Federal  Reserve.
Under the BHCA, the Company files with the Federal Reserve annual reports of its
operations and such additional information as the Federal Reserve may require.

Source of Strength to the Banks.  The Federal  Reserve takes the position that a
bank  holding  company  is  required  to  serve  as a source  of  financial  and
managerial  strength to its subsidiary  banks and may not conduct its operations
in an unsafe  or  unsound  manner.  In  addition,  it is the  Federal  Reserve's
position that in serving as a source of strength to its subsidiary  banks,  bank
holding  companies  should use available  resources to provide  adequate capital
funds to its subsidiary  banks during periods of financial  stress or adversity.
It should also maintain the financial  flexibility and capital raising  capacity
to obtain additional resources for providing assistance to its subsidiary banks.
A bank holding company's failure to meet its obligations to serve as a source of
strength to its  subsidiary  banks will  generally be  considered by the Federal
Reserve to be an unsafe and  unsound  banking  practice  or a  violation  of the
Federal Reserve's regulations or both.

Federal Reserve Approval. Bank holding companies must obtain the approval of the
Federal Reserve before they: (i) acquire direct or indirect ownership or control
of any voting  stock of any bank if, after such  acquisition,  they would own or
control, directly or indirectly,  more than 5% of the voting stock of such bank;
(ii) merge or consolidate  with another bank holding  company;  or (iii) acquire
substantially all of the assets of any additional banks.

                                       8
<PAGE>

Non-Banking  Activities.  With certain exceptions,  the BHCA also prohibits bank
holding  companies  from  acquiring  direct or indirect  ownership or control of
voting stock in any company other than a bank or a bank holding  company  unless
the  Federal  Reserve  finds the  company's  business  to be  incidental  to the
business of banking. When making this determination, the Federal Reserve in part
considers  whether allowing a bank holding company to engage in those activities
would  offer  advantages  to the public  that would  outweigh  possible  adverse
effects. A bank holding company may engage in permissible non-banking activities
on a de novo basis, if the holding  company meets certain  criteria and notifies
the  Federal  Reserve  within  ten (10)  business  days after the  activity  has
commenced.

Under the Financial Services  Modernization Act, eligible bank holding companies
may elect  (with the  approval of the  Federal  Reserve) to become a  "financial
holding company." Financial holding companies are permitted to engage in certain
financial  activities  through  affiliates  which had previously been prohibited
activities  for  bank  holding  companies.  Such  financial  activities  include
securities and insurance  underwriting and merchant  banking.  At this time, the
Company has not elected to become a financial holding company, but may choose to
do so at some time in the future.

Control  Transactions.  The  Change in Bank  Control  Act of 1978,  as  amended,
requires  a person or group of persons  acquiring  "control"  of a bank  holding
company to  provide  the  Federal  Reserve  with at least 60 days prior  written
notice of the  proposed  acquisition.  Following  receipt  of this  notice,  the
Federal  Reserve  has 60  days to  issue  a  notice  disapproving  the  proposed
acquisition,  but the  Federal  Reserve  may extend  this time  period for up to
another 30 days. An acquisition may be completed  before the disapproval  period
expires  if the  Federal  Reserve  issues  written  notice of its  intent not to
disapprove the action. Under a rebuttable presumption established by the Federal
Reserve,  the  acquisition  of 10% or more of a class of voting  stock of a bank
holding  company with a class of securities  registered  under Section 12 of the
Securities Exchange Act of 1934, as amended, would constitute the acquisition of
control. In addition,  any "company" would be required to obtain the approval of
the Federal Reserve under the BHCA before  acquiring 25% (or 5% if the "company"
is a bank holding company) or more of the outstanding shares of the Company,  or
otherwise obtain control over the Company.

Affiliate  Transactions.  The Company and the Banks are deemed affiliates within
the meaning of the Federal Reserve Act, and transactions  between affiliates are
subject to certain restrictions.  Generally, the Federal Reserve Act: (i) limits
the extent to which the financial  institution or its subsidiaries may engage in
"covered  transactions"  with an affiliate;  and (ii) requires all  transactions
with  an  affiliate,  whether  or not  "covered  transactions,"  to be on  terms
substantially  the  same,  or at  least  as  favorable  to  the  institution  or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans,  purchase of assets,  issuance of a guarantee  and
similar transactions.

State Law on  Acquisitions.  Iowa law permits  bank  holding  companies  to make
acquisitions  throughout  the  state.  However,  Iowa  currently  has a  deposit
concentration  limit of 15% on the amount of  deposits in the state that any one
banking  organization can control and continue to acquire banks or bank deposits
(by acquisitions),  which applies to all depository  institutions doing business
in Iowa.

Banking Subsidiaries

Applicable  federal  and  state  statutes  and  regulations  governing  a bank's
operations  relate,  among  other  matters,  to capital  adequacy  requirements,
required reserves against deposits,  investments,  loans,  legal lending limits,
certain interest rates payable, mergers and consolidations, borrowings, issuance
of securities, payment of dividends, establishment of branches and dealings with
affiliated persons.

First  National and United Bank are national  banks  subject to primary  federal
regulation and supervision by the Office of the Comptroller of the Currency (the
"OCC").  The  FDIC,  as an  insurer  of the  deposits,  also  has  some  limited
regulatory authority over First National and United Bank. State Bank, Boone Bank
and Randall-Story  Bank are state banks subject to regulation and supervision by
the Iowa  Division  of  Banking.  The  three  state  Banks are also  subject  to
regulation and examination by the FDIC, which insures their respective  deposits
to the maximum extent permitted by law. The federal laws that apply to the Banks
regulate,  among other things,  the scope of their business,  their investments,
their reserves  against  deposits,  the timing of the  availability of deposited
funds and the  nature  and  amount of and  collateral  for  loans.  The laws and
regulations  governing  the Banks  generally  have been  promulgated  to protect
depositors  and the  deposit  insurance  fund  of the  FDIC  and not to  protect
stockholders of such institutions or their holding companies.

                                       9
<PAGE>

The OCC and FDIC each has  authority to prohibit  banks under their  supervision
from  engaging  in what it  considers  to be an unsafe and  unsound  practice in
conducting their business. The Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA")  requires federal banking regulators to adopt regulations
or  guidelines  in a number  of areas  to  ensure  bank  safety  and  soundness,
including  internal  controls,  credit  underwriting,  asset growth,  management
compensation,  ratios of classified assets to capital and earnings.  FDICIA also
contains   provisions  which  are  intended  to  change   independent   auditing
requirements,  restrict the activities of  state-chartered  insured banks, amend
various consumer banking laws, limit the ability of "undercapitalized  banks" to
borrow from the Federal Reserve's discount window, require regulators to perform
periodic on-site bank examinations and set standards for real estate lending.

Borrowing  Limitations.  Each of the  Banks is  subject  to  limitations  on the
aggregate  amount  of  loans  that it can  make to any one  borrower,  including
related entities.  Subject to numerous exceptions based on the type of loans and
collateral,  applicable  statutes and  regulations  generally limit loans to one
borrower of 15% of total equity and reserves. Each of the Banks is in compliance
with applicable loans to one borrower requirements.

FDIC Insurance. Generally, customer deposit accounts in banks are insured by the
FDIC for up to a maximum  amount of $100,000.  The FDIC has adopted a risk-based
insurance assessment system under which depository institutions contribute funds
to the FDIC  insurance  fund  based on their risk  classification.  The FDIC may
terminate  the deposit  insurance of any insured  depository  institution  if it
determines after an  administrative  hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law.

Capital  Adequacy  Requirements.  The  Federal  Reserve,  the  FDIC  and the OCC
(collectively,  the "Agencies") have adopted  risk-based  capital guidelines for
banks and bank holding  companies that are designed to make  regulatory  capital
requirements more sensitive to differences in risk profiles among banks and bank
holding  companies and account for off-balance  sheet items.  Failure to achieve
and maintain adequate capital levels may give rise to supervisory action through
the  issuance  of a capital  directive  to ensure the  maintenance  of  required
capital levels. Each of the Banks is in compliance with applicable capital level
requirements.

The current  guidelines  require  all  federally  regulated  banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common shareholders' equity,  qualifying
perpetual   preferred  stock  and  minority  interests  in  equity  accounts  of
consolidated subsidiaries,  but excludes goodwill and most other intangibles and
the allowance for loan and lease losses.  Tier 2 capital  includes the excess of
any  preferred  stock not  included  in Tier 1  capital,  mandatory  convertible
securities, hybrid capital instruments,  subordinated debt and intermediate term
preferred stock, 45% of unrealized gain of equity securities and general reserve
for loan and lease losses up to 1.25% of risk weighted assets. None of the Banks
has received  any notice  indicating  that it will be subject to higher  capital
requirements.

Under these guidelines,  banks' assets are given risk weights of 0%, 20%, 50% or
100%.  Most  loans are  assigned  to the 100% risk  category,  except  for first
mortgage  loans  fully  secured  by  residential  property  and,  under  certain
circumstances,  residential  construction loans (both carry a 50% rating).  Most
investment securities are assigned to the 20% category,  except for municipal or
state  revenue  bonds  (which have a 50% rating)  and direct  obligations  of or
obligations guaranteed by the United States Treasury or United States Government
Agencies (which have a 0% rating).

The Agencies have also  implemented a leverage  ratio,  which is equal to Tier 1
capital as a percentage of average total assets less intangibles,  to be used as
a  supplement  to the risk based  guidelines.  The  principal  objective  of the
leverage  ratio is to limit the maximum  degree to which a bank may leverage its
equity  capital  base.  The  minimum  required  leverage  ratio  for  top  rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis  points.  Any  institution  operating at or
near the 3% level is expected to be a strong  banking  organization  without any
supervisory,   financial  or  operational   weaknesses  or   deficiencies.   Any
institutions  experiencing or anticipating  significant growth would be expected
to maintain capital ratios, including tangible capital positions, well above the
minimum levels.

                                       10
<PAGE>

Prompt Corrective Action.  Regulations  adopted by the Agencies impose even more
stringent  capital  requirements.  The FDIC and other Agencies must take certain
"prompt corrective action" when a bank fails to meet capital  requirements.  The
regulations  establish and define five capital levels:  (i)  "well-capitalized,"
(ii) "adequately  capitalized,"  (iii)  "undercapitalized,"  (iv) "significantly
undercapitalized"  and (v) "critically  undercapitalized."  Increasingly  severe
restrictions  are imposed on the payment of dividends and management fees, asset
growth and other aspects of the operations of  institutions  that fall below the
category of being "adequately  capitalized".  Undercapitalized  institutions are
required to develop and implement  capital plans  acceptable to the  appropriate
federal  regulatory  agency.  Such  plans must  require  that any  company  that
controls the  undercapitalized  institution must provide certain guarantees that
the institution will comply with the plan until it is adequately capitalized. As
of February 27,  2004,  neither the Company nor any of the Banks were subject to
any  regulatory  order,  agreement  or directive to meet and maintain a specific
capital level for any capital measure.  Furthermore,  as of that same date, each
of the Banks was  categorized  as "well  capitalized"  under  regulatory  prompt
corrective action provisions.

Restrictions  on  Dividends.  Dividends  paid to the Company by the Banks is the
major  source  of  Company  cash  flow.  Various  federal  and  state  statutory
provisions limit the amount of dividends  banking  subsidiaries are permitted to
pay to their holding  companies  without  regulatory  approval.  Federal Reserve
policy further limits the  circumstances  under which bank holding companies may
declare  dividends.  For example, a bank holding company should not continue its
existing  rate of cash  dividends  on its common  stock unless its net income is
sufficient  to fully fund each  dividend  and its  prospective  rate of earnings
retention appears  consistent with its capital needs,  asset quality and overall
financial condition.  In addition,  the Federal Reserve and the FDIC have issued
policy  statements  which provide that insured banks and bank holding  companies
should generally pay dividends only out of current operating  earnings.  Federal
and state  banking  regulators  may also  restrict  the payment of  dividends by
order.

First National,  as a national bank,  generally may pay dividends from undivided
profits without restriction, provided that its surplus fund is at least equal to
its common stock capital fund. Boone Bank, Randall-Story Bank and State Bank are
also restricted  under Iowa law to paying  dividends only out of their undivided
profits.  Additionally, the payment of dividends by the Banks is affected by the
requirement to maintain adequate capital pursuant to applicable capital adequacy
guidelines and  regulations,  and the Banks generally are prohibited from paying
any dividends if, following payment thereof, the Bank would be undercapitalized.

Reserves  Against   Deposits.   The  Federal  Reserve  requires  all  depository
institutions to maintain reserves against their transaction  accounts (primarily
checking  accounts) and non-personal  time deposits.  Generally,  reserves of 3%
must be maintained  against total  transaction  accounts of  $38,800,000 or less
(subject to an exemption not in excess of the first  $6,600,000  of  transaction
accounts).  A reserve of $1,164,000 plus 10% of amounts in excess of $38,800,000
must be maintained in the event total transaction  accounts exceed  $38,800,000.
The balances maintained to meet the reserve  requirements imposed by the Federal
Reserve  may be used  to  satisfy  applicable  liquidity  requirements.  Because
required  reserves must be maintained in the form of vault cash or a noninterest
bearing  account  at  a  Federal  Reserve  Bank,  the  effect  of  this  reserve
requirement is to reduce the earning assets of the Banks.

Bank Offices.  Iowa law regulates the establishment of bank offices and thus may
affect the Company's future plans to establish  additional offices of its Banks.
Pursuant to amendments to Iowa law effective February 21, 2002, current Iowa law
permits a state bank to establish up to three (3) offices anywhere in the state.
Until  July  1,  2004,  and  in  addition  to the  three  offices  which  may be
established  anywhere  in the state,  a bank may only  establish  a bank  office
inside the boundaries of the county in which the principal  place of business of
the state bank is located and those  counties  contiguous  to or cornering  upon
such  county.  The number of offices a state bank may  establish in a particular
municipality or urban complex may also be limited depending upon the population.
Effective July 1, 2004, the  geographical  restrictions on bank office locations
will be repealed. Finally, until July 1, 2004, Iowa law restricts the ability of
a  bank  to  establish  a de  novo  office  within  the  limits  of a  municipal
corporation where there is an already established state or national bank or bank
office.

                                       11
<PAGE>

Regulatory Developments

In 2000,  the  Financial  Services  Modernization  Act was  enacted  which:  (i)
repealed  historical  restrictions  on preventing  banks from  affiliating  with
securities firms; (ii) broadens the activities that may be conducted by national
banks and  banking  subsidiaries  of holding  companies;  and (iii)  provides an
enhanced  framework for  protecting  the privacy of consumers'  information.  In
addition,  bank holding  companies  may be owned,  controlled or acquired by any
company engaged in financially related activities, as long as such company meets
regulatory  requirements.  To the extent that this legislation  permits banks to
affiliate with financial services companies, the banking industry may experience
further consolidation.

Regulatory Enforcement Authority

The  enforcement  powers  available to federal and state banking  regulators are
substantial  and  include,  among  other  things,  the  ability to assess  civil
monetary penalties,  to issue cease-and-desist or removal orders and to initiate
injunctive  actions against  banking  organizations  and  institution-affiliated
parties.  In general,  enforcement  actions must be initiated for  violations of
laws and  regulations  and  unsafe  or  unsound  practices.  Other  actions,  or
inactions, may provide the basis for enforcement action, including misleading or
untimely reports filed with regulatory authorities. Applicable law also requires
public disclosure of final enforcement actions by the federal banking agencies.

National Monetary Policies

In addition to being affected by general economic  conditions,  the earnings and
growth  of the Banks  are  affected  by the  regulatory  authorities'  policies,
including the Federal Reserve.  An important  function of the Federal Reserve is
to regulate the money supply,  credit  conditions and interest rates.  Among the
instruments  used to implement  these  objectives are open market  operations in
U.S.  Government  securities,  changes  in  reserve  requirements  against  bank
deposits and the Federal Reserve Discount Rate, which is the rate charged member
banks to borrow from the Federal  Reserve Bank.  These  instruments  are used in
varying  combinations  to influence  overall growth and  distribution of credit,
bank loans,  investments  and deposits,  and their use may also affect  interest
rates charged on loans or paid on deposits.

The monetary  policies of the Federal  Reserve have had a material impact on the
operating  results of  commercial  banks in the past and are  expected to have a
similar  impact in the future.  Also  important  in terms of effect on banks are
controls on interest  rates paid by banks on deposits and types of deposits that
may be offered by banks.  The Depository  Institutions  Deregulation  Committee,
created by Congress in 1980,  phased out  ceilings on the rate of interest  that
may be paid on deposits by commercial  banks and savings and loan  associations,
with the result  that the  differentials  between  the  maximum  rates banks and
savings and loans can pay on deposit accounts have been  eliminated.  The effect
of  deregulation  of deposit  interest rates has been to increase banks' cost of
funds and to make banks more sensitive to fluctuation in market rates.

Availability of Information on Company Website

The Company files periodic  reports with the Securities and Exchange  Commission
("SEC"),  including annual reports on Form 10-K,  quarterly reports on Form 10-Q
and current  reports on Form 8-K. The Company makes  available on or through its
website free of charge all periodic  reports  filed by the Company with the SEC,
including  any  amendments to such  reports,  as soon as reasonably  practicable
after such reports have been  electronically  filed with the SEC. The address of
the Company's website on the Internet is: www.amesnational.com.

The  Company  will  provide a paper copy of these  reports  free of charge  upon
written or telephonic  request  directed to John P. Nelson,  Vice  President and
Secretary,  405 Fifth  Street,  Ames,  Iowa 50010 or (515)  232-6251 or by email
request at info@amesnational.com.

                                       12
<PAGE>

ITEM 2.  PROPERTIES

The Company's  office is housed in the main office of First National  located at
405 Fifth Street, Ames, Iowa and occupies  approximately 3,357 square feet. This
space is leased by the Company from First National pursuant to a lease agreement
that provides the Company will make available for use by First National an equal
amount of interior space at the Company's  building  located at 2330 Lincoln Way
in lieu of rental  payments.  The main office is owned by First National free of
any  mortgage and consists of  approximately  45,000  square feet and includes a
drive through banking facility.  In addition to its main office,  First National
conducts its business through two full-service  offices,  the North Grand office
and the University office, and one super-market  location,  the Cub Food office.
All offices are located within the city of Ames. The North Grand office is owned
by First National free of any mortgage.  The  University  office is located in a
16,000 square foot multi-tenant  property owned by the Company.  A 24-year lease
agreement  with the Company was modified in 2002 to provide that an equal amount
of interior space will be made available to the Company at First National's main
office at 405  Fifth  Street in lieu of rental  payments.  First  National  will
continue to rent the drive-up  facilities of approximately  1,850 square feet at
this  location  for $1,200 per  month.  The Cub Foods  office is leased by First
National  from Super Valu Stores  under a 20 year lease with a five year initial
term and three, five year renewal options.  The current annual rental payment is
$19,000.

State Bank  conducts  its  business  from its main office  located at 1025 Sixth
Street,  Nevada,  Iowa and from two additional  full-service  offices located in
McCallsburg and Colo, Iowa. All of these properties are owned by State Bank free
of any mortgage.

Boone Bank  conducts  its  business  from its main office  located at 716 Eighth
Street, Boone, Iowa and from one additional  full-service office also located in
Boone, Iowa. All properties are owned by Boone Bank free of any mortgage.

Randall-Story  Bank  conducts its business  from its main office  located at 606
Broad  Street,  Story City,  Iowa and from one  additional  full-service  office
located in Randall,  Iowa. All of these  properties  are owned by  Randall-Story
Bank free of any mortgage.

United Bank  conducts  its business  from its main office  located at 2101 South
Center Street, Marshalltown, Iowa. The 5,200 square foot premise was constructed
in 2002. The property is owned by United Bank free of any mortgage.

The only  property  onwed by the Company  owns is located at 2330  Lincoln  Way,
Ames, Iowa consisting of a multi tenant building of approximately  16,000 square
feet.  First National  leases 5,422 square feet of this building to serve as its
University Office. 800 square feet of the remaining space is currently leased to
two tenants who occupy the space for business  purposes and the remaining  7,058
square feet of rentable space is currently unoccupied.  The Company entered into
a real estate contract on July 14, 2003 to purchase real estate adjacent to 2330
Lincoln Way at 2318 Lincoln Way for a total purchase price of $400,000. The 2318
Lincoln Way property  consists of a single story commercial  building with 2,400
square  feet of leased  space  that is  currently  occupied  by one  tenant  for
business  purposes.  As of  February  27,  2004,  the  contract  has not closed;
however,  the  agreement  specifies  that the closing of the contract  will take
place no later than July 31, 2006.

ITEM 3.  LEGAL PROCEEDINGS

The Banks are from time to time parties to various legal actions  arising in the
normal course of business.  The Company  believes that there is no threatened or
pending  proceeding against the Company or any of the Banks which, if determined
adversely,  would have a material  adverse  effect on the  business or financial
condition of the Company or the Banks.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

There were no matters  submitted  to a vote of the  shareholders  of the Company
during the fourth quarter of 2003.

                                       13
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

On February 27, 2004, the Company had  approximately 615 shareholders of record.
The Company's  common stock is traded in the  over-the-counter  market under the
symbol "ATLO".  Trading in the Company's  common stock is,  however,  relatively
limited.  Market makers in the stock include Piper Jaffray, 515 Grand Ave, Ames,
Iowa 50010  (515-233-4064);  Howe Barnes  Investments,  Inc.,  135 So.  LaSalle,
Chicago,  IL 60603  (312-655-3000);  and Monroe Securities,  Inc., 47 State St.,
Rochester,  NY  14614  (800-766-5560).  Based  on  information  provided  to and
gathered by the Company on an informal basis, the Company believes that the high
and low sales price for the common  stock on a per share  basis  during the last
two years is as follows (which prices do not include retail  mark-up,  mark-down
or commissions):

              2003                                            2002
---------------------------------                -------------------------------
          Sales Price                                      Market Price
---------------------------------                -------------------------------
Quarter           High      Low                  Quarter          High      Low
--------------------------------------------------------------------------------
   1st .......   $48.90   $46.05                    1st .......  $40.00   $39.00
   2nd .......    55.25    51.50                    2nd .......   45.00    40.00
   3rd .......    57.25    53.10                    3rd .......   46.75    43.00
   4th .......    59.75    56.75                    4th .......   47.50    45.90

The  Company  declared  aggregate  annual  cash  dividends  in 2003  and 2002 of
$7,142,000 and  $6,820,000,  respectively,  or $2.28 per share in 2003 and $2.18
per share in 2002. On February 11, 2004, the Company  declared an aggregate cash
dividend of $1,441,000 or $.46 per share.  Quarterly  dividends  declared during
the last two years were as follows:

                                          2003                       2002
                                   ---------------------------------------------
                                     Cash dividends             Cash dividends
Quarter                            declared per share         declared per share
--------------------------------------------------------------------------------

  1st                                     $0.44                      $0.42
  2nd                                      0.92                       0.88
  3rd                                      0.46                       0.44
  4th                                      0.46                       0.44

The  decision  to declare any such cash  dividends  in the future and the amount
thereof rests within the discretion of the Board of Directors of the Company and
will  be  subject  to,  among  other  things,   the  future  earnings,   capital
requirements  and  financial  condition  of the Company  and certain  regulatory
restrictions imposed on the payment of dividends by the Banks. Such restrictions
are  discussed  in greater  detail in  Management's  Discussion  and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.

                                       14
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following  financial  data of the Company for the five years ended  December
31, 2003 through 1999 is derived from the Company's historical audited financial
statements and related footnotes. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the consolidated  financial statements and related
notes contained elsewhere in this Annual Report.
<TABLE>
                                                                    Year Ended December 31
                                             ------------------------------------------------------------------
                                                       (dollars in thousands, except per share amounts)
                                             ------------------------------------------------------------------
                                                  2003         2002         2001          2000           1999
                                             ------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME DATA
Interest income ..........................   $   35,314    $   36,270    $   41,474    $   44,018    $   40,361
Interest expense .........................       10,339        11,663        18,883        24,261        19,981
                                             ------------------------------------------------------------------
Net interest income ......................       24,975        24,607        22,591        19,757        20,380
Provision for loan losses ................          645           688           898           460           166
                                             ------------------------------------------------------------------
Net interest income after provision for
loan losses ..............................       24,330        23,919        21,693        19,297        20,214
Noninterest income .......................        6,435         5,135         5,080         4,130         5,750
Noninterest expense ......................       14,819        13,276        11,587        10,712        11,208
                                             ------------------------------------------------------------------
Income before provision for income tax ...       15,946        15,778        15,186        12,715        14,756
Provision for income tax .................        4,321         4,438         4,639         3,596         4,429
                                             ------------------------------------------------------------------
Net Income ...............................   $   11,625    $   11,340    $   10,547    $    9,119    $   10,327
                                             ==================================================================

DIVIDENDS AND EARNINGS PER SHARE DATA
Cash dividends declared ..................   $    7,142    $    6,820    $    5,187    $    4,932    $    4,664
CAsh dividends declared per share ........         2.28          2.18          1.66          1.58          1.50
Basic and diluted earnings per share .....         3.71          3.63          3.38          2.92          3.31
Weighted average shares outstanding ......    3,131,224     3,127,285     3,123,885     3,120,375     3,118,427

BALANCE SHEET DATA
Total assets .............................   $  752,786    $  677,229    $  622,280    $  619,385    $  605,881
Net loans ................................      355,533       329,593       323,043       344,015       309,652
Deposits .................................      619,549       550,622       511,509       493,429       484,620
Stockholders' equity .....................      107,325       101,523        93,622        86,177        76,073
Equity to assets ratio ...................       14.26%        14.99%        15.04%        13.91%        12.56%

FIVE YEAR FINACNIAL PERFORMANCE
Net income ...............................   $   11,625    $   11,340    $   10,547    $    9,119    $   10,327
Average assets ...........................      726,945       635,816       616,971       626,560       594,441
Average stockholders' equity .............      104,141        98,282        91,373        80,081        80,074

Return on assets (net income divided
  by average assets) .....................        1.60%         1.78%         1.71%         1.46%         1.74%
Return on equity (net income by
  average equity) ........................       11.16%        11.54%        11.54%        11.39%        12.90%
Efficiency ratio (noninterest expense
  divided by noninterest income plus
  net interest income) ...................       47.18%        44.64%        41.87%        44.84%        42.89%
Dividend payout ratio (dividends per
  share divided by net income per share) .       61.46%        60.05%        49.11%        54.11%        45.32%
Dividend yield (dividends per share
  divided by closing year-end market
  price) .................................        3.91%         4.69%         4.15%         2.87%         2.73%
Equity to assets ratio (average equity
  divided by average assets) .............       14.33%        15.46%        14.81%        12.78%        13.47%
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Overview

Ames National  Corporation  (Company) is a bank holding  company  established in
1975 that owns and operates five bank subsidiaries  (Banks) in central Iowa. The
following discussion is provided for the consolidated  operations of the Company
and its Banks,  First National,  State Bank, Boone Bank,  Randall-Story Bank and
United Bank. The purpose of this  discussion is to focus on significant  factors
affecting the Company's financial condition and results of operations.

                                       15
<PAGE>

The Company does not engage in any material  business  activities apart from its
ownership  of the  Banks.  Products  and  services  offered by the Banks are for
commercial and consumer purposes  including loans,  deposits and trust services.
The Banks also offer investment  services  through a third-party  broker dealer.
The Company employs eight individuals to assist with financial reporting,  human
resources,  audit,  compliance,  technology  systems  and  the  coordination  of
management  activities,  in addition  to 177  full-time  equivalent  individuals
employed by the Banks.

The Company's primary competitive  strategy is to utilize seasoned and competent
Bank  management and local decision making  authority to provide  customers with
faster response times and more flexibility in the products and services offered.
This strategy is viewed as providing an opportunity to increase revenues through
creating a competitive advantage over other financial institutions.  The Company
also strives to remain  operationally  efficient to provide better profitability
while enabling the Company to offer more competitive loan and deposit rates.

The  principal  sources of Company  revenues and cashflow  are: (i) interest and
fees earned on loans made by the Banks; (ii) service charges on deposit accounts
maintained at the Banks;  (iii) interest on fixed income investments held by the
Banks;  (iv) fees on trust  services  provided by those Banks  exercising  trust
powers; and (v) securities gains and dividends on equity investments held by the
Company and the Banks.  The  Company's  principal  expenses  are:  (i)  interest
expense on deposit  accounts and other  borrowings;  (ii)  salaries and employee
benefits;  (iii) data processing  costs  associated with  maintaining the Bank's
loan and deposit  functions;  and (iv) occupancy  expenses for  maintaining  the
Banks'  facilities.  The largest  component  contributing  to the  Company's net
income is net interest income,  which is the difference  between interest earned
on  earning  assets  (primarily  loans and  investments)  and  interest  paid on
interest bearing liabilities  (primarily deposits and other borrowings).  One of
management's principal functions is to manage the spread between interest earned
on earning assets and interest paid on interest bearing liabilities in an effort
to maximize  net interest  income  while  maintaining  an  appropriate  level of
interest rate risk.

The  Company  reported  record  net  income of  $11,625,000  for the year  ended
December 31, 2003 compared to $11,340,000 and $10,547,000 reported for the years
ended December 31, 2002 and 2001,  respectively.  This represents an increase of
2.5% when  comparing  2003 and 2002, and an increase of 7.5% when comparing 2002
and 2001. The improvement in net income for 2003 can be attributed  primarily to
higher net interest income, secondary market income and security gains. The gain
in earnings in 2002 over 2001 relate primarily to much lower interest expense in
2002.  Earnings per share for 2003 were a record $3.71 compared to $3.63 in 2002
and $3.38 in 2001.  United Bank,  which commenced  operation in June of 2002, is
expected to be  profitable  in 2004 in contrast to the  $465,000  loss posted in
2003. The other four Banks continued profitable operations during 2003.

The Company's return on average equity for 2003 was 11.16% versus 11.54% in both
2002 and 2001.  The decline in return on average  equity is primarily the result
of a higher average level of equity in 2003 relating to net unrealized  gains on
securities  available for sale.  The average net  unrealized  gain on securities
available for sale was $8,287,000 in 2003 as compared to $6,225,000 in 2002. The
Company's  return on average assets for 2003 was 1.60% compared to 1.78% in 2002
and 1.71% in 2001.  The  decline in the return on average  assets in 2003 can be
attributable to growth in assets and the operating loss generated by United Bank
as a newly chartered bank.

The following  management  discussion and analysis will provide a summary review
of important items relating to:

o    Challenges
o    Key Performance Indicators and Industry Results
o    Income Statement Review
o    Balance Sheet Review
o    Asset Quality and Credit Risk Management
o    Liquidity and Capital Resources
o    Interest Rate Risk
o    Inflation
o    Forward-Looking Statements and Business Risks

                                       16
<PAGE>

Challenges

Management  has identified  certain  challenges  that may negatively  impact the
Company's  revenues in the future and is  attempting  to position the Company to
best respond to those challenges.

o    Interest  rates at historic  lows may present a challenge to the Company by
     increasing the possibility of a rapid increase in interest  rates.  Such an
     increase  may  negatively  impact  the  Company's  net  interest  margin if
     interest expense increases more quickly than interest income. The Company's
     earning assets  (primarily its loan and investment  portfolio)  have longer
     maturities than its interest bearing  liabilities  (primarily  deposits and
     other  borrowings);  therefore,  in a  rising  interest  rate  environment,
     interest  expense will increase  more quickly than  interest  income as the
     interest bearing  liabiliites  reprice more quickly than earning assets. In
     response to this challenge, the Banks model quarterly the changes in income
     that would  result  from  various  changes in  interest  rates.  Management
     believes   Bank  assets  have  the   appropriate   maturity  and  repricing
     characteristics  to optimize  earnings  and the Banks'  interest  rate risk
     positions.

o    The volume of  mortgage  loan  refinancing  is expected to decline in 2004.
     This  slowdown  will have a negative  impact on the  Company's  noninterest
     income as the refinancing activity generated record secondary market income
     of  $1,155,000  in  2003.   The  Banks  are  focusing  more   attention  on
     relationships  with  local  real  estate  agents in an effort to expand the
     mortgage  loan fees derived from home  purchases  as  refinancing  activity
     begins to diminish.

o    The Company's  market in central Iowa has numerous  banks,  credit  unions,
     investment  and  insurance   companies   competing  for  similar   business
     opportunities.  This competitive  environment will continue to put downward
     pressure on the Banks' net interest margins and thus affect  profitability.
     Activities the Company is  undertaking  to address this  challenge  include
     additional  focus on  improving  customer  service,  packaging  products to
     provide  more  convenience  for  customers,   and  remaining  operationally
     efficient to maintain profitability with lower net interest margins.

o    A potential  challenge to the Company's  earnings would be poor performance
     in the Company's equity portfolio, thereby reducing the historical level of
     realized  security gains.  The Company invests capital that may be utilized
     for future  expansion  in a portfolio of  primarily  financial  and utility
     stocks  totaling  nearly $25 million as of December 31,  2003.  The Company
     focuses on stocks that have historically paid dividends that may lessen the
     negative effects of a bear market.

Key Performance Indicators and Industry Results

Certain  key  performance  indicators  for  the  Company  and the  industry  are
presented  in the  following  chart.  The  industry  figures are compiled by the
Federal  Deposit  Insurance  Corporation  (FDIC)  and  are  derived  from  9,182
commercial  banks and  savings  institutions  insured  by the  FDIC.  Management
reviews  these  indicators  on a quarterly  basis for purposes of comparing  the
Company's performance from quarter to quarter and to determine how the Company's
operations compare to the industry as a whole.

Selected Indicators for the Company and the Industry

                                      Year Ended December 31,
                    ------------------------------------------------------------
                           2003                2002                 2001
                    ------------------------------------------------------------
                    Company   Industry   Company   Industry   Company   Industry

Return on assets .     1.60%    1.38%      1.78%     1.30%      1.71%     1.14%

Return on equity .    11.16%   15.04%     11.54%    14.14%     11.54%    12.97%

Net interest .....     4.02%    3.73%      4.51%     3.96%      4.19%     3.78%

Efficiency ratio .    47.18%   56.59%     44.64%    56.00%     41.87%    57.72%

Capital ratio ....    14.33%    7.88%     15.46%     7.87%     14.81%     7.78%

Key performances indicators include:

o    Return on Assets

     This ratio is  calculated by dividing net income by average  assets.  It is
     used to  measure  how  effectively  the  assets  of the  Company  are being
     utilized in  generating  income.  Although the  Company's  return on assets
     ratio  compares  favorably to that of the industry,  this ratio declined in
     2003 as  compared  to 2002 as assets  grew more  quickly in relation to net
     income, primarily as the result of the growth at United Bank.

                                       17
<PAGE>

o    Return on Equity

     This ratio is  calculated by dividing net income by average  equity.  It is
     used to  measure  the net income or return the  Company  generated  for the
     shareholders'  equity  investment in the Company.  The Company's  return on
     equity  ratio is below that of the  industry  primarily  as a result of the
     higher  level of  capital  the  Company  maintains  for  future  growth and
     acquisitions.  The  Company's  return on equity is  trending  downward as a
     result of its  increasing  total  equity  capital.  In 1999,  total  equity
     capital totaled $76,073,000  (including a net unrealized loss on securities
     available  for sale of  $2,026,000)  compared  to  December  31, 2003 total
     equity  capital  of  $107,325,000   (including  net  unrealized   gains  on
     securities of $8,916,000).

o    Net Interest Margin

     The ratio is calculated by dividing net interest  income by average earning
     assets.  Earning assets are primarily made up of loans and investments that
     earn  interest.  This ratio is used to measure how well the Company is able
     maintain  interest rates on earning assets above those of  interest-bearing
     liabilities,  which is the  interest  expense  paid on  deposit  and  other
     borrowings.  The Company's net interest  margin  compares  favorably to the
     industry;  however,  management  expects  the  competitive  nature  of  the
     Company's  market  environment  to put downward  pressure on the  Company's
     margin.

o    Efficiency Ratio

     This ratio is  calculated by dividing  noninterest  expense by net interest
     income and  noninterest  income.  The ratio is a measure  of the  Company's
     ability to manage  noninterest  expenses.  The Company's  efficiency  ratio
     compares  favorably to the industry's  average.  The costs  associated with
     chartering United Bank have increased the ratio the past two years.

o    Capital Ratio

     The capital ratio is calculated by dividing  total equity  capital by total
     assets.  It measures  the level of assets that are funded by  shareholders'
     equity.  Given an equal  level of risk in the  financial  condition  of two
     companies,  the higher the capital  ratio,  generally the more  financially
     sound the company. The Company's capital ratio is significantly higher than
     the industry average.

Industry Results

The FDIC Quarterly Banking Profile reported the following results for the fourth
quarter of 2003:

Led by rising income at  credit-card  lenders and large  commercial  banks,  the
9,182  commercial  banks and savings  institutions  insured by the FDIC reported
record-high  earnings  in the  fourth  quarter of 2003,  the fourth  consecutive
quarter that  industry  earnings  have set a record.  Net income  totaled  $31.1
billion,  an increase of $755 million  (2.5%) over the third  quarter,  and $5.7
billion (22.3%) more than the industry earned in the fourth quarter of 2002. The
average return on assets was 1.38%, up from 1.36% in the third quarter, and well
above the 1.22% of a year earlier.  The greatest  improvement  in  profitability
occurred at large  institutions,  whose  earnings  had been  depressed by credit
losses on loans to large corporate borrowers and by weakness in market-sensitive
noninterest  revenues.  Fewer than half of all  institutions  (45.0%) reported a
return  on  assets  of 1% or higher  for the  quarter.  Slightly  more than half
(52.7%)  reported  increased net income  compared to the fourth quarter of 2002,
but only 45.4% reported higher quarterly return on assets.

Income Statement Review

The following highlights a comparative discussion of the major components of net
income and their impact for the last three years.

Critical Accounting Policies

The discussion  contained in this Item 7 and other  disclosures  included within
this  report  are  based  on  the  Company's  audited   consolidated   financial
statements.  These  statements  have been prepared in accordance with accounting
principles  generally  accepted in the United  States of America.  The financial
information  contained in these  statements is, for the most part,  based on the
financial  effects  of  transactions  and  events  that have  already  occurred.
However, the preparation of these statements requires management to make certain
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses.

                                       18
<PAGE>

The  Company's  significant  accounting  policies are described in the "Notes to
Consolidated Financial Statements"  accompanying the Company's audited financial
statements.  Based on its consideration of accounting  policies that involve the
most complex and subjective  estimates and judgments,  management has identified
its most critical accounting policy to be that related to the allowance for loan
losses.

The allowance for loan losses is established through a provision for loan losses
that is treated as an expense and charged  against  earnings.  Loans are charged
against  the   allowance   for  loan  losses  when   management   believes  that
collectibility  of the  principal  is  unlikely.  The Company has  policies  and
procedures for  evaluating  the overall  credit  quality of its loan  portfolio,
including  timely  identification  of potential  problem  loans.  On a quarterly
basis,  management  reviews the  appropriate  level for the  allowance  for loan
losses  incorporating a variety of risk  considerations,  both  quantitative and
qualitative.   Quantitative   factors  include  the  Company's  historical  loss
experience,   delinquency  and  charge-off  trends,   collateral  values,  known
information  about  individual  loans and  other  factors.  Qualitative  factors
include the general  economic  environment in the Company's  market area and the
expected trend of the economic  conditions.  To the extent actual results differ
from forecasts and management's  judgment,  the allowance for loan losses may be
greater or lesser than future charge-offs.

Average Balances and Interest Rates

The  following  two tables are used to  calculate  the  Company's  net  interest
margin.  The first table  includes the Company's  average assets and the related
income to  determine  the  average  yield on earning  assets.  The second  table
includes the average  liabilities  and related  expense to determine the average
rate paid on interest bearing  liabilities.  The net interest margin is equal to
the interest income less the interest expense divided by average earning assets.

ASSETS
<TABLE>
                                               2003                          2002                          2001
                                   ---------------------------   ----------------------------   ----------------------------
                                   Average              Yield/   Average                Yield   Average               Yield
                                   Balance    Revenue    Rate    Balance    Revenue      Rate   Balance    Revenue     Rate
      (dollars in thousands)       -----------------------------------------------------------------------------------------
<S>                                <C>       <C>        <C>      <C>        <C>         <C>     <C>        <C>        <C>
Interest-earning assets
Loans:
  Commercial ...................   $ 38,288   $  2,163   5.65%   $ 42,948   $  3,042     7.08%  $ 49,081   $  4,107    8.37%
  Agricultural .................     25,962      1,783   6.87%     25,274      1,895     7.50%    28,302      2,492    8.81%
  Real estate ..................    264,494     16,909   6.39%    229,805     16,929     7.37%   240,382     19,458    8.09%
  Consumer and other ...........     21,068      1,342   6.37%     19,494      1,341     6.88%    23,675      1,834    7.75%
                                   -----------------------------------------------------------------------------------------
Total loans (including fees) ...   $349,812   $ 22,197   6.35%   $317,521   $ 23,207     7.31%  $341,440   $ 27,891    8.17%

Investment securities:
  Taxable ......................   $162,273   $  7,925   4.88%   $142,089   $  8,414     5.92%   $146,213   $  9,303   6.36%
  Tax-exempt ...................    101,482      6,820   6.72%     78,171      5,797     7.42%     68,001      5,210   7.66%
                                   -----------------------------------------------------------------------------------------
Total investment securities ....   $263,755   $ 14,745   5.59%   $220,260   $ 14,211     6.45%   $214,214   $ 14,513   6.78%

Interest bearing deposits ......   $  4,511   $     62   1.37%   $    534   $     14     2.62%   $    251   $     13   5.18%
Federal funds sold .............     60,293        628   1.04%     51,206        810     1.58%     25,953        829   3.19%
                                   -----------------------------------------------------------------------------------------
Total Interest-earning assets ..   $678,371   $ 37,632   5.55%   $589,521   $ 38,242     6.49%   $581,858   $ 43,246   7.43%

Noninterest-earning assets

Cash and due from banks ........   $ 27,733                      $ 28,206                        $ 21,040
Premises and equipment, net ....      8,599                         7,912                           5,892
Other, less allowance for loan
  losses .......................     12,242                        10,177                           8,181
                                   --------                      --------                        --------
Total noninterest-earning assets   $ 48,574                      $ 46,295                        $ 35,113
                                   --------                      --------                        --------

TOTAL ASSETS ...................   $726,945                      $635,816                        $616,971
                                   ========                      ========                        ========
<FN>
1    Average loan balance  includes  nonaccrual  loans, if any.  Interest income
     collected on nonaccrual loans has been included.

2    Tax-exempt  income has been  adjusted  to a  tax-equivalent  basis using an
     incremental tax rate of 34%.
</FN>
</TABLE>

                                       19
<PAGE>

Average Balances and Interest Rates (continued)

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
                                              2003                           2002                           2001
                                 ----------------------------    ---------------------------    ---------------------------
                                  Average    Revenue/   Yield    Average    Revenue/   Yield    Average    Revenue/   Yield
                                  Balance    Expense     Rate    Balance    Expense     Rate    Balance    Expense     Rate
    (dollars in thousands)        -----------------------------------------------------------------------------------------
<S>                               <C>        <C>        <C>      <C>        <C>        <C>      <C>        <C>        <C>
Interest-bearing liabilities
Deposits:
  Savings, NOW accounts,
    and money markets .........   $298,885   $  2,758    0.92%   $260,426   $  3,393    1.30%   $228,908   $  5,727    2.50%
  Time deposits < $100,000 ....    170,534      5,480    3.21%    152,703      6,107    4.00%    158,625      8,736    5.51%
  Time deposits > $100,000 ....     65,759      1,807    2.75%     51,428      1,898    3.69%     58,253      3,329    5.71%
                                  --------------------------------------------------------------------------------------------
Total deposits ................   $535,178   $ 10,045    1.88%   $464,557   $ 11,398    2.45%   $445,786   $ 17,792    3.99%
Other borrowed funds ..........     19,588        293    1.50%     13,887        265    1.91%     23,008      1,091    4.74%
                                  ------------------------------------------------------------------------------------------
Total Interest-bearing ........   $554,766   $ 10,338    1.86%   $478,444   $ 11,663    2.44%   $468,794   $ 18,883    4.03%
                                  ------------------------------------------------------------------------------------------

Noninterest-bearing liabilities

Demand deposits ...............   $ 59,614                       $ 53,318                       $ 51,113
Other liabilities .............      8,424                          5,772                          5,691
                                  --------                       --------                       --------

Stockholders' equity ..........   $104,141                       $ 98,282                       $ 91,373
                                  --------                       --------                       --------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ..........   $726,945                       $635,816                       $616,971
                                  ========                       ========                       ========

Net interest income ...........              $ 27,294    4.02%              $ 26,579    4.51%              $ 24,363    4.19%
                                             ========                       ========                       ========
Spread Analysis:
  Interest income/average
    assets ....................              $ 37,632    5.18%              $ 38,242    6.01%              $ 43,246    7.01%
  Interest expense/average
    assets ....................                10,338    1.42%                11,663    1.83%                18,883    3.06%
  Net interest income/average .                27,294    3.76%                26,579    4.18%                24,363    3.95%
</TABLE>

Rate and Volume Analysis

The rate and  volume  analysis  is used to  determine  how much of the change in
interest  income or  expense  is the result of a change in volume or a change in
interest rate. For example,  real estate  interest income  decreased  $20,000 in
2003 compared to 2002. An increased volume of real estate loans added $2,384,000
in income in 2003; however, lower interest rates reduced interest income in 2003
by $2,404,000, a net difference of $20,000.

                                       20
<PAGE>

The following  table sets forth,  on a  tax-equivalent  basis,  a summary of the
changes in net interest income resulting from changes in volume and rates.

<TABLE>
        (dollars in thousands)                 2003 Compared to 2002             2002 Compared to 2001
                                           ------------------------------   -----------------------------
                                           Volume       Rate      Total      Volume      Rate      Total
                                           --------------------------------------------------------------
<S>                                        <C>        <C>        <C>        <C>        <C>        <C>
Interest income
Loans:
  Commercial ...........................   $  (307)   $  (572)   $  (879)   $  (477)   $  (588)   $(1,065)
  Agricultural .........................        50       (162)      (112)      (250)      (347)      (597)
  Real estate ..........................     2,384     (2,404)       (20)      (836)    (1,693)    (2,529)
  Consumer and other ...................       104       (103)         1       (301)      (192)      (493)
                                           --------------------------------------------------------------
Total loans (including fees) ...........   $ 2,231    $(3,241)   $(1,010)   $(1,864)   $(2,820)   $(4,684)
Investment securities:
  Taxable ..............................   $ 1,103    $(1,592)   $  (489)   $  (257)   $  (632)   $  (889)
  Tax-exempt ...........................     1,608       (585)     1,023        755       (168)       587
                                           --------------------------------------------------------------
Total investment
securities .............................   $ 2,711    $(2,177)   $   534    $   498    $  (800)   $  (302)
Interest bearing deposits with banks ...        58        (10)        48         10         (9)         1
Federal funds sold .....................       127       (309)      (182)       538       (557)       (19)
                                           --------------------------------------------------------------
Total Interest-earning assets ..........   $ 5,127    $(5,737)   $  (610)   $  (818)   $(4,186)   $(5,004)
Interest-bearing liabilities
Deposits:
  Savings, NOW accounts, and money
    markets ............................   $   452    $(1,086)   $  (634)   $   704    $(3,038)   $(2,334)
  Time deposits < $100,000 .............       663     (1,290)      (627)      (314)    (2,315)    (2,629)
  Time deposits > $100,000 .............       457       (548)       (91)      (431)    (1,000)    (1,431)
                                           --------------------------------------------------------------
Total deposits .........................   $ 1,572    $(2,924)   $(1,352)   $   (41)   $(6,353)   $(6,394)
Other borrowed funds ...................        93        (68)        25       (330)      (496)      (826)
                                           --------------------------------------------------------------
Total Interest-bearing liabilities .....   $ 1,665    $(2,992)   $(1,327)   $  (371)   $(6,849)   $(7,220)
                                           --------------------------------------------------------------
Net interest income/earning assets .....   $ 3,462    $(2,745)   $   717    $  (447)   $ 2,663    $ 2,216
                                           ==============================================================

<FN>
1    The change in interest due to both volume and yield/rate has been allocated
     to change due to volume and change due to  yield/rate  in proportion to the
     absolute value of the change in each.
</FN>
</TABLE>

Net Interest Income

The  Company's  largest  component  contributing  to net income is net  interest
income, which is the difference between interest earned on earning assets (which
are  primarily  loans and  investments)  and interest  paid on interest  bearing
liabilities (which are primarily  deposits and other borrowings).  The volume of
and  yields  earned on  earning  assets  and the volume of and the rates paid on
interest  bearing  liabilities  determine  net interest  income.  See the tables
preceding  this paragraph for additional  detail.  Interest  earned and interest
paid is also affected by general economic  conditions,  particularly  changes in
market interest rates,  and by government  policies and the action of regulatory
authorities.  Net interest  income divided by average earning assets is referred
to as net interest  margin.  For the years December 31, 2003, 2002 and 2001, the
Company's  net interest  margin was 4.02%,  4.51% and 4.19%,  respectively.  The
decline in the net interest  margin in 2003 is  attributable to growth in assets
and  repricing of loans and  investments  at lower yields than those  attainable
prior to 2003. The Banks' net interest margins,  excluding United Bank, declined
by  approximately  30 basis points while the net interest margin for United Bank
in 2003 was 1.53% on average  earning  assets of  $54,847,000.  The improved net
interest margin in 2002 as compared to 2001 is attributable to the Company being
able to lower rates paid on deposits  and other  borrowings  more  quickly  than
rates declined on loans and investments.

Unless interest rates increase significantly in 2004, management expects average
yields on assets will  likely fall again in 2004 as assets  continue to reprice.
Also,  the high level of  competition  in the local markets will continue to put
downward pressure on the net interest margin of the Company into the foreseeable
future.  Currently,  the Company's largest market,  Ames, Iowa, has seven banks,
three  thrifts,  four  credit  unions and  several  other  financial  investment
companies.  Multiple banks are also located in the Company's  other  communities
creating similarly competitive environments.

                                       21
<PAGE>

Net interest income during 2003, 2002 and 2001 totaled $24,975,000,  $24,608,000
and $22,591,000,  respectively,  representing a 1.50% increase in 2003 from 2002
and an 8.93% increase in 2002 compared to 2001. Income earned on a higher volume
of earning assets exceeded the interest expense on interest bearing  liabilities
utilized to fund those assets  allowing the Company to increase its net interest
income in 2003 compared to 2002. The higher net interest  income in 2002 results
from the Company being able to lower rates paid on deposits and other borrowings
more quickly than rates declined on loans and  investments.  Interest expense in
2003 verus 2002 was 11.35%  lower  compared to a much larger  reduction  in 2002
compared to 2001 to 38.23% reflecting the decline in market interest rates.

Provision for Loan Losses

The provision for loan losses reflects  management's  judgment of the expense to
be  recognized in order to maintain an adequate  allowance for loan losses.  The
Company  provided  $645,000 for loan losses  during 2003 compared to $688,000 in
2002 and $898,000 in 2001.  Provision expense was higher in 2001 versus 2002 and
2003 as the result of  deterioration  in the commercial lease portfolio in 2001.
The growth of the loan  portfolio  and  necessary  loan  reserves at United Bank
increased the provision for loan losses by $314,000 in 2003 compared to $166,000
in 2002 which represented 48.65% of the Company's provision expense in 2003. See
the Asset Quality and Credit Risk  Management  discussion for additional  detail
with regard to loan loss provision expense.

Management  believes  the  allowance  for loan  losses to be  adequate to absorb
probable  losses  in  the  current  portfolio.  This  statement  is  based  upon
management's  continuing  evaluation  of  inherent  risks  in the  current  loan
portfolio, current levels of classified assets and general economic factors. The
Company will continue to monitor the allowance  and make future  adjustments  to
the allowance as conditions dictate.

Noninterest Income and Expense

Total noninterest income is comprised primarily of fee based revenues from trust
and agency  services,  bank related service charges on deposit  activities,  net
securities gains generated primarily by the Company's equity holdings,  merchant
and ATM fees related to electronic  processing of merchant and cash transactions
and secondary market income.

Noninterest income during 2003, 2002 and 2001 totaled $6,435,000, $5,135,000 and
$5,080,000, respectively, representing a 25.33% increase in 2003 from 2002 and a
1.08%  increase in 2002  compared  2001.  Both  secondary  market income and net
securities gains increased over 56% in 2003 from 2002. Low interest rates fueled
a record year in secondary market income through  mortgage  refinancings and the
Company realized a higher level of securities gains through  liquidating  equity
holdings that no longer fit the Company's long term  investment  strategy.  Both
secondary market income and net security gains are expected to be lower in 2004.
The  increased   non  interest   income  in  2002  is  the  result  of  improved
profitability of trust,  secondary market and automated teller machine business,
offset by lower security gains.

Noninterest  expense for the Company  consists of all operating  expenses  other
than interest  expense on deposits and other borrowed funds.  Historically,  the
Company has not had any material expenses  relating to discontinued  operations,
extraordinary  losses or  adjustments  from a change in  accounting  principles.
Salaries  and  employee  benefits  are the largest  component  of the  Company's
operating expenses and comprise 61.03% of noninterest expenses in 2003.

Noninterest expense during 2003, 2002 and 2001 totaled $14,820,000,  $13,276,000
and  $11,587,000,  respectively,  representing an 11.63% increase in 2003 versus
2002 and a 14.57% increase in 2002 compared to 2001. An increase in salaries and
employee  benefits  was the largest  contributor  to the  increase in  operating
expenses in both 2003 and 2002.  United Bank had operating  expenses in 2003 and
2002 of $1,418,000 and $698,000,  respectively,  increasing all overhead expense
categories  in  comparison  to those  of 2001.  Another  factor  leading  to the
increase in operating  expenses in 2003 was the additional  employees and higher
salaries at First  National.  The percentage of  noninterest  expense to average
assets  was 2.04% in 2003,  compared  to 2.09% and 1.88%  during  2002 and 2001,
respectively.

Provision for Income Taxes

The  provision  for  income  taxes  for  2003,  2002 and  2001  was  $4,321,000,
$4,438,000 and $4,639,000, respectively. This amount represents an effective tax
rate of 27.10%  during  2003,  compared  to 28.13% and 30.54% for 2002 and 2001,
respectively.  The  Company's  marginal  federal tax rate is currently  35%. The
difference  between the  Company's  effective and marginal tax rate is primarily
related to investments made in tax exempt securities.

                                       22
<PAGE>

Balance Sheet Review

The  Company's  ssets are  comprised  primarily of loans and  investment  bonds.
Average  earning asset maturity or repricing  dates are less than five years for
the combined portfolios as the assets are funded for the most part by short term
deposits  with  either  immediate  availability  or less  than one year  average
maturities.  This exposes the Company to risk with regard to changes in interest
rates  that  are  more  fully  explained  in  Item 7A of  this  Report  entitled
"Quantitative and Qualitative Disclosures about Interest Rate Risk".

Total assets increased to $752,786,000 in 2003 compared to $677,229,000 in 2002,
an 11.16%  increase.  The growth of United Bank to  $68,397,000  in total assets
from the $30,355,000  posted at the end of 2002 was the most  significant  asset
growth factor. Boone Bank and Randall-Story Bank also posted double digit growth
in assets.

Loan Portfolio

Net loans  (defined as gross loans less deferred loan fees and the allowance for
loans losses) for the year ended  December 31, 2003,  increased to  $355,533,000
from $329,543,000 as of December 31, 2002, an increase of 7.89%. The increase in
loan volume can be primarily attributed to growth in the commercial,  commercial
real  estate and  residential  loan  portfolios  at United  Bank.  Loans are the
primary  contributor  to the  Company's  revenues  and  cashflows.  The  average
tax-equivalent  yield on loans  was 76 and 86 basis  points  higher  in 2003 and
2002, respectively, than the investment portfolio yields for the same periods in
the previous year excluding  short term federal funds sold and interest  bearing
deposit with banks.

Types of Loans

The following  table sets forth the  composition of the Company's loan portfolio
for the past five years ending at December 31, 2003.
<TABLE>
                                   ----------------------------------------------------
                                     2003       2002       2001       2000       1999
      (dollars in thousands)       ----------------------------------------------------
<S>                                <C>        <C>        <C>        <C>        <C>
Real Estate
  Construction .................   $ 13,126   $ 13,518   $ 12,677   $ 12,221   $  9,062
  1-4 family residential .......     84,645     81,239     84,379     97,663     89,171
  Commercial ...................    150,723    136,351    117,211    112,415     98,840
  Agricultural .................     24,297     21,693     21,029     21,095     19,999
Commercial .....................     38,555     40,097     45,631     53,955     48,920
Agricultural ...................     27,815     26,022     27,367     28,199     25,575
Consumer and other .............     23,242     19,921     20,920     24,576     23,897
                                   ----------------------------------------------------
Total loans ....................    362,403    338,841    329,214    350,124    315,464
Deferred loan fees, net ........        819        777        725        736        826
                                   ----------------------------------------------------
Total loans net of deferred fees   $361,584   $338,064   $328,489   $349,388   $314,638
                                   ====================================================
</TABLE>

The Company's loan portfolio  consists of real estate loans,  commercial  loans,
agricultural  loans and consumer  loans.  As of December  31, 2003,  gross loans
totaled  approximately  $362 million,  which equals  approximately  58% of total
deposits and 48% of total assets. For the Company's peer group, 347 bank holding
companies with total assets of $500 to $1,000 million,  loan to deposit ratio as
of September 30, 2003 was a much higher 83%. The primary factor  relating to the
lower loan to deposit ratio for the Company compared to peer group averages is a
more conservative underwriting philosophy. As of December 31, 2003, the majority
of the loans  were  originated  directly  by the Banks to  borrowers  within the
Banks' principal market areas. There are no foreign loans outstanding during the
years presented.

Real estate loans  include  various types of loans for which the Banks hold real
property as collateral and consist of loans  primarily on commercial  properties
and single family  residences.  Real estate loans typically have fixed rates for
up to five years,  with the  Company's  loan policy  having a maximum fixed rate
maturity  of up to 15 years.  The  majority  of  construction  loan volume is to
contractors to construct  commercial  buildings and generally have maturities of
up to 12 months.  The Banks originate  residential real estate loans for sale to
the secondary market for a fee.

                                       23
<PAGE>

Commercial  loans consist  primarily of loans to businesses for various purposes
including revolving lines to finance current operations,  floor-plans, inventory
and accounts  receivable;  capital  expenditure  loans to finance  equipment and
other fixed  assets;  and letters of credit.  These loans  generally  have short
maturities,  have either  adjustable or fixed rates and are unsecured or secured
by inventory, accounts receivable, equipment and/or real estate.

Agricultural loans play an important part in the Banks' loan portfolios. Iowa is
a major  agricultural state and is a national leader in both grain and livestock
production.  The Banks play a significant role in their communities in financing
operating, livestock and real estate activities for area producers.

Consumer loans include loans extended to individuals  for household,  family and
other  personal  expenditures  not secured by real  estate.  The majority of the
Banks'  consumer  lending is for  vehicles,  consolidation  of  personal  debts,
household appliances and improvements.

The interest  rates charged on loans vary with the degree of risk and the amount
and maturity of the loan.  Competitive  pressures,  market interest  rates,  the
availability  of funds and  government  regulation  further  influence  the rate
charged on a loan.  The Banks follow a loan policy,  which has been  approved by
both the boards of  directors  of the Company and the Banks,  and is overseen by
both Company and Bank  management.  These  policies  establish  lending  limits,
review and grading criteria and other guidelines such as loan administration and
allowance  for loan losses.  Loans are approved by the Banks' board of directors
and/or  designated  officers  in  accordance  with  respective   guidelines  and
underwriting  policies  of the  Company.  Loans to one  borrower  are limited by
applicable  state  and  federal  banking  laws.  Credit  limits  generally  vary
according to the type of loan and the individual loan officer's experience.

Maturities  and  Sensitivities  of  Loans to  Changes  in  Interest  Rates as of
December 31, 2003

The  contractual  maturities of the Company's loan portfolio are as shown below.
Actual  maturities may differ from  contractual  maturities  because  individual
borrowers  may have  the  right  to  prepay  loans  with or  without  prepayment
penalties.  The  maturity  of fixed rate loans and the volume of  variable  rate
loans are relevant as an indicator of the Company's  ability to reprice loans in
relation to changes in market interest rates.

                                               After one
                                                year but
                                     Within      within       After
                                    One Year   five years  five years     Total
       (dollars in thousands)       --------------------------------------------

Real Estate
  Construction .................    $ 10,868    $  2,110    $    148    $ 13,126
  1-4 family residential .......       3,807      34,544      46,294      84,645
  Commercial ...................      14,504     104,023      32,196     150,723
  Agricultural .................       1,317       5,296      17,684      24,297
Commercial .....................      22,835      13,804       1,916      38,555
Agricultural ...................      17,992       5,446       4,377      27,815
Consumer and other .............       3,804      12,908       6,530      23,242
                                    --------------------------------------------
Total loans ....................    $ 75,127    $178,131    $109,145    $362,403
                                    ============================================

                                                    After one
                                                    year but
                                                     within              After
                                                   five years         five years
                                                   -----------------------------
Loan maturities after one year with:
Fixed rates ............................            $150,610            $ 21,456
Variable rates .........................              27,521              87,689
                                                    ----------------------------
                                                    $178,131            $109,145

Loans Held For Sale

Mortgage  origination  funding awaiting delivery to the secondary market totaled
$859,000  and  $2,713,000  as of  December  31,  2003  and  2002,  respectively.
Residential  mortgage  loans are  originated  by the  Banks and sold to  several
secondary  mortgage market outlets based upon customer  product  preferences and
pricing  considerations.  The  mortgages  are sold in the  secondary  market  to
eliminate  interest rate risk and to generate secondary market fee income. It is
not  anticipated  at the  present  time that loans  held for sale will  become a
significant portion of total assets.

                                       24
<PAGE>

Investment Portfolio

Total  investments  as of December  31, 2003 were  $323,116,000,  an increase of
$78,541,000  or 32% from the prior year end. As of  December  31, 2003 and 2002,
the investment portfolio comprised 43% and 36%, respectively, of total assets.

The following  table  presents the market values,  which  represent the carrying
values due to the available-for-sale classification, of the Company's investment
portfolio as of December 31, 2003, 2002 and 2001,  respectively.  This portfolio
provides the Company  with a  significant  amount of liquidity  since all of the
investments are considered available for sale as of December 31, 2003 and 2002.

                                                2003         2002         2001
                   (dollars in thousands)     ----------------------------------

U.S. treasury securities ................     $  2,229     $  4,208     $ 12,548
U.S. government agencies ................      118,637       85,780       60,858
State and political subdivisions ........      105,963       70,516       63,109
Corporate bonds .........................       63,586       56,357       51,106
Equity securities .......................       32,701       27,714       26,157
                                              ----------------------------------
Total ...................................     $323,116     $244,575     $213,778
                                              ==================================

Investments  in  states  and  political   subdivisions  represent  purchases  of
municipal bonds located primarily in the state of Iowa and contiguous states.

Investment in other securities  includes corporate debt obligations of companies
located and doing business  throughout the United States.  The debt  obligations
were all within  the  credit  ratings  acceptable  under the  Banks'  investment
policies.  As of December 31, 2003, the Company did not have  securities  from a
single issuer,  except for the United States  Government or its agencies,  which
exceeded  10%  of  consolidated  stockholders'  equity.  The  equity  securities
portfolio  consists primarily of financial and utility stocks as of December 31,
2003, 2002, and 2001.

Investment Maturities as of December 31, 2003

The  investments in the following  table are reported by  contractual  maturity.
Expected maturities may differ from contractual maturities because borrowers may
have  the  right  to call or  prepay  obligations  with  or  without  prepayment
penalties. The maturities of the investments are relevant as an indicator of the
Company's  ability to reprice  these  earning  assets in  relation to changes in
market interest rates.
<TABLE>
                                                 After one    After five
                                                  year but     years but
                                      Within       within        within       After
                                     One Year    five years    ten years    ten years     Total
      (dollars in thousands)         ------------------------------------------------------------
<S>                                  <C>         <C>          <C>           <C>         <C>
U.S. treasury ....................   $  1,690    $     --      $    539     $     --     $  2,229
U.S. government agencies .........     15,378      55,930        36,753       10,576      118,637
States and political subdivisions       7,806      22,847        41,637       33,673      105,963
Corporate bonds ..................      3,056      37,304        22,722          504       63,586
                                     ------------------------------------------------------------
Total ............................   $ 27,930    $116,081      $101,651     $ 44,753     $290,415

Weighted average yield
U.S. treasury ....................      4.22%         --%          5.19%         --%        4.44%
U.S. government agencies .........      4.98%       3.63%          4.30%       4.89%        4.11%
States and political subdivisions*      5.61%       6.27%          6.91%       6.36%        6.50%
Corporate bonds ..................      6.21%       5.02%          5.82%       6.40%        5.37%
                                     ------------------------------------------------------------
Total ............................      5.25%       4.60%          5.71%       6.01%        5.26%

<FN>
*    Yields on tax-exempt  obligations of states and political subdivisions have
     been computed on a tax-equivalent basis.
</FN>
</TABLE>

Deposits

Total deposits equaled $619,461,000 and $550,622,000 as of December 31, 2003 and
2002,  respectively.  The increase of  $68,927,000  can be attributed to deposit
growth at four of the five Banks with United Bank and First National posting the
largest increases of $36,997,000 and $20,717,000, respectively. Average deposits
for the year ended  December  31,  2003 were  $76,917,000  higher  than the same
period in 2002. Deposit categories seeing the largest balance increases were NOW
accounts and other time certificates under $100,000.

                                       25
<PAGE>

The Company's primary source of funds is customer deposits. The Company attempts
to attract noninterest-bearing deposits, which are a low cost funding source. In
addition,  the Banks offer a variety of  interest-bearing  accounts  designed to
attract   both   short-term   and    longer-term    deposits   from   customers.
Interest-bearing  accounts earn interest at rates established by Bank management
based on  competitive  market  factors and the Company's  need for funds.  While
nearly 64% of the Banks'  certificates of deposit mature in the next year, it is
anticipated  that a  majority  of  these  certificates  will  be  renewed.  Rate
sensitive certificates of deposits in excess of $100,000 are subject to somewhat
higher  volatility with regard to renewal volume as the Banks adjust rates based
upon funding needs. In the event a substantial  volume of  certificates  are not
renewed,  the Company has sufficient  liquid assets and borrowing  lines to fund
significant  runoff.  A  sustained  reduction  in  deposit  volume  would have a
significant  negative  impact on the  Company's  operation  and  liquidity.  The
Company  traditionally  has not  relied  upon  brokered  deposits  and  does not
anticipate utilizing such funds at the present time.

Average Deposits by Type

The following  table sets forth the average  balances for each major category of
deposit and the weighted  average  interest  rate paid for  deposits  during the
years ended December 31, 2003, 2002 and 2001.
<TABLE>
                                             2003                2002                2001
                                      --------------------------------------------------------
                                       Amount    Rate      Amount    Rate      Amount    Rate
          (dollars in thousands)      --------------------------------------------------------
<S>                                   <C>        <C>      <C>        <C>      <C>        <C>
Noninterest bearing demand deposits   $ 59,614     --%    $ 53,318     --%    $ 51,113     --%
Interest bearing demand deposits ..    130,138   0.70%     115,494   1.00%     103,529   2.01%
Money market deposits .............    143,478   1.20%     120,446   1.71%     101,267   3.23%
Savings deposits ..................     25,269   0.50%      24,486   0.71%      24,112   1.56%
Time certificates < $100,000 ......    170,534   3.21%     152,703   4.00%     158,625   5.51%
Time certificates > $100,000 ......     65,759   2.75%      51,428   3.69%      58,253   5.71%
                                      --------            --------            --------
                                      $594,792            $517,875            $496,899
                                      ========            ========            ========
</TABLE>

Deposit Maturity

The  following  table  shows  the  amounts  and  remaining  maturities  of  time
certificates  of deposit  that had  balances of $100,000 and over as of December
31, 2003, 2002 and 2001.

                                               2003          2002         2001
         (dollars in thousands)              -----------------------------------
3 months or less .....................       $23,801       $15,162       $16,771
Over 3 through 12 months .............        29,896        25,939        24,590
Over 12 through 36 months ............        11,374         9,281         4,765
Over 36 months .......................         4,416         4,182         1,590
                                             -----------------------------------
Total ................................       $69,487       $54,564       $47,716
                                             ===================================

Borrowed Funds

Borrowed funds that may be utilized by the Company are comprised of Federal Home
Loan Bank (FHLB)  advances,  federal funds purchased and repurchase  agreements.
Borrowed funds are an alternative  funding source to deposits and can be used to
fund the Company's  assets and  unforeseen  liquidity  needs.  FHLB advances are
loans from the FHLB that can mature daily or have longer maturities for fixed or
floating rates of interest.  Federal funds  purchased are borrowings  from other
banks  that  mature  daily.   Securities  sold  under  agreement  to  repurchase
(repurchase  agreements)  are  similar  to  deposits  as they are funds  lent by
various Bank  customers;  however,  the bank pledges  investment  securities  to
secure such borrowings.  The Company's  repurchase  agreements  normally reprice
daily.  The Company does not have any FHLB advances or federal  funds  purchased
outstanding as of December 31, 2003.

                                       26
<PAGE>

The following table summarizes the outstanding amount of and the average rate on
borrowed funds as of December 31, 2003, 2002 and 2001.
<TABLE>
                                    2003               2002                2001
                              ----------------   -----------------   -----------------
                                       Average             Average             Average
                              Balance   Rate     Balance     Rate    Balance     Rate
  (dollars in thousands)      --------------------------------------------------------
<S>                           <C>      <C>       <C>       <C>       <C>       <C>
FHLB advances .............   $    --     --%    $    --      --%    $ 1,000    5.21%
Federal funds purchased and
repurchase agreements .....    18,199   1.39%     18,326    1.50%     10,596    2.54%
                              --------------------------------------------------------
Total .....................   $18,199   1.39%    $18,326    1.50%    $11,596    2.77%
                              ========================================================
</TABLE>

Average Annual Borrowed Funds

The following  table sets forth the average amount of, the average rate paid and
maximum  outstanding  balance on borrowed funds for the years ended December 31,
2003, 2002 and 2001.
<TABLE>
                                                   2003                2002                2001
                                             ---------------------------------------------------------
                                             Average   Average   Average   Average   Average   Average
                                             Balance    Rate     Balance    Rate     Balance     Rate
         (dollars in thousands)              ---------------------------------------------------------
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>
FHLB advances ............................   $    --      --     $    47    4.26%    $ 8,791    6.29%
Federal funds purchased
& repurchase agreements ..................    19,588    1.48%     13,840    1.91%     14,217    3.78%
                                             ---------------------------------------------------------
Total ....................................   $19,588    1.48%    $13,887    1.91%    $23,008    4.74%


Maximum Amount Outstanding during the year
  FHLB advances ..........................        --             $ 1,000             $16,000
  Federal funds purchased
  and repurchase agreements ..............   $22,728             $18,326             $25,400
</TABLE>

Off Balance Sheet Arrangements

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business.  These financial  instruments  include commitments to
extend  credit and standby  letters of credit.  These  instruments  involve,  to
varying degrees,  elements of credit risk in excess of the amount  recognized in
the balance sheet.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit is  represented  by the  contractual  amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet  instruments.  A summary
of the Company's commitments at December 31, 2003 and 2002 is as follows:

       (dollars in thousands)                              2003            2002
                                                         -----------------------

Commitments to extend credit ...................         $71,100         $59,410
Standby letters of credit ......................           1,741           1,490
                                                         -----------------------
                                                         $72,841         $60,900
                                                         =======================

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since many
of the  commitments  are expected to expire  without being drawn upon, the total
commitment amounts do not necessarily  represent future cash  requirements.  The
Bank evaluates each customer's  creditworthiness  on a case-by-case  basis.  The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party.

                                       27
<PAGE>

Standby  letters of credit are  conditional  commitments  issued by the Banks to
guarantee the performance of a customer to a third-party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.  Collateral held varies
and is required in instances  which the Banks deem  necessary.  In the event the
customer does not perform in accordance with the terms of the agreement with the
third  party,  the Banks would be required to fund the  commitment.  The maximum
potential  amount of future  payments  the Banks  could be  required  to make is
represented  by the  contractual  amount  shown  in the  summary  above.  If the
commitments  were funded,  the Banks would be entitled to seek recovery from the
customer.  At  December  31,  2003 and 2002,  no amounts  have been  recorded as
liabilities for the Bank's potential obligations under these guarantees.

Asset Quality Review and Credit Risk Management

The Company's  credit risk is centered in the loan portfolio,  which on December
31, 2003 totaled  $355,533,000  as compared to  $329,543,000  as of December 31,
2002, an increase of 7.87%. Net loans comprise 47% of total assets as of the end
of 2003.  The object in managing  loan  portfolio  risk is to reduce the risk of
loss resulting from a customer's  failure to perform according to the terms of a
transaction and to quantify and manage credit risk on a portfolio  basis. As the
following chart indicates,  the Company's credit risk management efforts reflect
an improving trend with regard to non-performing assets that total $2,346,000 as
of December 31, 2003.  The Company's  level of problem assets as a percentage of
assets of 0.31% compares favorably to the average for FDIC insured  institutions
as of September 30, 2003 of 0.77%.

Non-performing Assets

The   following   table  sets  forth   information   concerning   the  Company's
non-performing assets for the past five years ending December 31, 2003.

                                      ------------------------------------------
                                       2003     2002     2001     2000     1999
        (dollars in thousands)        ------------------------------------------

Non-performing assets:
Nonaccrual loans ..................   $1,756   $2,015   $2,692   $2,663   $  405
Loans 90 days or more past due ....      431      394      797      242      723
Restructured loans ................       --       --       --       --       --
                                      ------------------------------------------
                                       2,187    2,409    3,489    2,905    1,128
Other real estate owned ...........      159      295      159       75       41
                                      ------------------------------------------
Total non-performing assets .......   $2,346   $2,704   $3,648   $2,980   $1,169
                                      ==========================================

The accrual of interest on non-accrual  and other impaired loans is discontinued
at 90 days or when, in the opinion of management,  the borrower may be unable to
meet  payments as they become due. When interest  accrual is  discontinued,  all
unpaid accrued interest is reversed.  Interest income is subsequently recognized
only to the extent cash payments are received.  Interest  income on restructured
loans is recognized  pursuant to the terms of the new loan  agreement.  Interest
income on other  impaired  loans is  monitored  and based  upon the terms of the
underlying  loan  agreement.  However,  the recorded net  investment in impaired
loans,  including  accrued  interest,  is  limited to the  present  value of the
expected cash flows of the impaired loan or the observable  fair market value of
the loan's collateral.

Outstanding  loans of $200,000  were placed on  non-accrual  status in 2003 with
total non-accrual loans equaling $1,756,000 as of December 31, 2003. Outstanding
loans  of  $383,000  were  placed  on  non-accrual  status  in 2002  with  total
non-accrual loans equaling $2,015,000 as of December 31, 2002. Outstanding loans
of $886,000  were placed on  non-accrual  status in 2001 with total  non-accrual
loans  equaling  $2,692,000 as of December 31, 2001. A real estate loan at First
National  with a December 31, 2003 and 2002 balance of $1,305,000 is the largest
non-performing  asset.  For the years ended  December 31,  2003,  2002 and 2001,
interest income, which would have been recorded under the original terms of such
loans was  approximately  $179,000,  $160,000 and $243,000,  respectively,  with
$177,000,  $17,000 and $114,000,  respectively,  recorded. Loans greater than 90
days past due and still accruing interest were $431,000 and $394,000 at December
31, 2003 and 2002, respectively.

                                       28
<PAGE>

Summary of the Allowance for Loan Losses

The provision for loan losses  represents an expense charged against earnings to
maintain an adequate allowance for loan losses. The allowance for loan losses is
management's  best estimate of probable losses inherent in the loan portfolio as
of the balance sheet date.  Factors  considered in  establishing  an appropriate
allowance include: an assessment of the financial  condition of the borrower;  a
realistic  determination  of value and adequacy of  underlying  collateral;  the
condition of the local economy and the condition of the specific industry of the
borrower; an analysis of the levels and trends of loan categories;  and a review
of delinquent and classified loans.

The adequacy of allowance  for loan losses is evaluated  quarterly by management
and the  respective  Bank  boards.  This  evaluation  focuses on  specific  loan
reviews,  changes in the type and volume of the loan portfolio given the current
and forecasted  economic  conditions and historical loss experience.  Any one of
the following  conditions may result in the review of a specific  loan:  concern
about whether the customer's  cash flow or net worth are sufficient to repay the
loan; delinquent status; criticism of the loan in a regulatory examination;  the
accrual of interest has been suspended; or other reasons including when the loan
has other special or unusual characteristics which warrant special monitoring.

While  management  uses  available  information  to  recognize  losses on loans,
further  reductions in the carrying  amounts of loans may be necessary  based on
changes in local economic conditions.  In addition,  regulatory agencies,  as an
integral part of their examination  process,  periodically  review the estimated
losses on loans.  Such agencies may require the Company to recognize  additional
losses based on their judgment about  information  available to them at the time
of their examination.

Analysis of the Allowance for Loan Losses

The Company's policy is to charge-off loans when, in management's  opinion,  the
loan is deemed  uncollectible,  although  concerted efforts are made to maximize
future recoveries.  The following table sets forth information regarding changes
in the Company's allowance for loan losses for the most recent five years.
<TABLE>
                                      --------------------------------------------------------
                                         2003        2002        2001        2000       1999
          (dollars in thousands)      --------------------------------------------------------
<S>                                   <C>         <C>         <C>         <C>         <C>
Balance at beginning of period ....   $  5,758    $  5,446    $  5,373    $  4,986    $  4,846
Charge-offs:
Real Estate
   Construction ...................         24          --          --          --          --
   1-4 Family Residential .........          5          --          --          --          --
   Commercial .....................         --          40          --          --          18
   Agricultural ...................         --          --          --          --          --
Commercial ........................        392         235         768          55          --
Agricultural ......................         --          --          --          --          --
Consumer and other ................         43         155          83          96          41
                                      --------------------------------------------------------
                                           464         430         852         151          59
Recoveries:
Real Estate
   Construction ...................         --          --          --          --          --
   1-4 Family Residential .........         --          20          --          --          --
   Commercial .....................         --          --          --          --          16
   Agricultural ...................         --          --          --          --          --
Commercial ........................        100          14           8          66          --
Agricultural ......................         --          --          --          --          --
Consumer and other ................         12          20          19          12          17
                                      --------------------------------------------------------
                                           112          54          27          78          33

Net charge-offs (recoveries) ......        352         376         825          73          26
Additions charged to

operations ........................        645         688         898         460         166
                                      --------------------------------------------------------
Balance at end of period ..........   $  6,051    $  5,758    $  5,446    $  5,373    $  4,986


Average Loans Outstanding .........   $349,812    $317,521    $341,440    $339,115    $299,064

Ratio of net charge-offs during the
period to average loans
outstanding .......................       0.10%       0.12%       0.24%       0.02%       0.01%

Ratio of allowance for loan losses
to total loans net of deferred fees       1.67%       1.70%       1.65%       1.54%       1.58%
</TABLE>

                                       29
<PAGE>

The  allowance  for loan losses  increased to  $6,051,000  at the end of 2003 in
comparison to the allowance of $5,758,000 at year end 2002.  The increase can be
primarily  attributed  to the growth of general  reserves at United Bank.  As of
December  31,  2003 and  2002,  United  Bank had  allowance  for loan  losses of
$480,000 and $166,000,  respectively. The increase in the reserve levels in 2002
relate primarily to First National as the result of higher specific reserves for
two problem credits  identified by management prior to 2002 and a large specific
reserve for a newly downgraded  problem loan in 2002.  Problem commercial leases
identified  at First  National  in 2001 led to  higher  provision  expense,  net
charge-offs and specific  reserves as credit weaknesses were identified in 2001.
General reserve allocations remained consistent in 2003 with prior years.

General  reserves for loan  categories  normally range from 1.00 to 1.30% of the
outstanding loan balances. As loan volume increases,  the general reserve levels
increase with that growth. As the previous table indicates, loan provisions have
stabilized  since 2001 as net charge-offs,  loan loss provision  expense and the
allowance for loan losses to total loans are similar for the twelve months ended
2003 and 2002. The general  reserve loss factors have remained  consistent  over
the five-year period presented. The allowance relating to commercial real estate
and 1-4 family residential loans are the largest reserve components.  Commercial
real estate  loans have  higher  general  reserve  levels than other real estate
loans as  management  perceives  more  risk in this  type of  lending.  Elements
contributing  to the higher risk level include  susceptibility  of businesses to
changing  environmental  factors such as the economic business cycle, the larger
individual loan amounts, a limited number of buyers and the specialized uses for
some  properties.  As of December  31, 2003,  commercial  real estate loans have
general  reserves of 1.30% and 1-4 family  residential  loans,  which management
generally  considers lower risk, have general  reserves of 1.00%. The estimation
methods and  assumptions  used in  determining  the allowance for the five years
presented have remained consistent.

Loans that the Banks have  identified  as having higher risk levels are reviewed
individually  in an effort to establish  adequate loss reserves.  These reserves
are considered specific reserves and are directly impacted by the credit quality
of  the  underlying  loans.  Normally,  as  the  actual  or  expected  level  of
non-performing loans increase, the specific reserves also increase. For December
31, 2003 and 2002, specific reserves increased $146,000 or 8.65% and $386,000 or
29.65%,  respectively,  over prior  periods.  In 2003,  specific  allocations to
problem  agricultural  real  estate  loans was the  largest  contributor  to the
increase in the specific reserve level when compared to year end 2002.  Specific
allocations  for  commercial  real estate loans  triggered  the increase in 2002
while commercial  leases  contributed to the increase in total reserve levels in
2001.  The specific  reserves  are  dependent  upon  assumptions  regarding  the
liquidation value of collateral and the cost of recovering  collateral including
legal fees. Changing the amount of specific reserves on individual loans has had
the largest impact on the  reallocation  of the reserve among different parts of
the portfolio.

Other factors that are considered  when  determining the adequacy of the reserve
include loan  concentrations,  loan growth,  the economic outlook and historical
losses. The Company's  concentration  risks include geographic  concentration in
central Iowa; the local  economy's  dependence  upon several large  governmental
entity  employers,  including Iowa State  University and the Iowa  Department of
Transportation;  and the health of Iowa's  agricultural  sector that in turn, is
dependent on weather conditions and government programs. No significant reserves
have been established for local and national  economic  conditions over the last
five-year period as the economic outlook has generally been favorable.  However,
no  assurances  can be made that  losses  will  remain at the  favorable  levels
experienced over the past five years.

                                       30
<PAGE>

Allocation of the Allowance for Loan Losses

The following table sets forth information  concerning the Company's  allocation
of the allowance for loan losses.
<TABLE>
                              2003              2002                2001               2000              1999
(dollars in thousands)  ----------------   ---------------     --------------     --------------     --------------
                        Amount     % *     Amount     % *      Amount    % *      Amount     % *     Amount     % *
                        --------------------------------------------------------------------------------------------
<S>                     <C>       <C>      <C>       <C>       <C>       <C>      <C>       <C>      <C>      <C>
Balance at end of
  Deceember 31,
  applicable to:
    Real Estate
      Construction ...  $  196     3.62%   $  210     3.99%    $  178     3.99%   $  163     3.49%   $   91    2.87%
      1-4 family .....     948    23.36%      892    23.98%       980    23.98%    1,088    27.89%      899   28.27%
      Commercial .....   2,663    41.59%    2,453    40.24%     1,704    40.24%    1,619    32.11%    1,536   31.33%
      Agricultural ...     458     6.70%      302     6.40%       279     6.40%      315     6.03%      237    6.34%
  Commercial ........      775    10.64%      910    11.83%       938    11.83%      754    15.41%      573   15.51%
  Agricultural ......      488     7.68%      504     7.68%       457     7.68%      421     8.05%      541    8.11%
  Consumer and other.      255     6.41%      235     5.88%       258     5.88%      538     7.02%      560    7.58%
  Unallocated .......      268                252                 652                475                549
                        --------------------------------------------------------------------------------------------
                        $6,051      100%   $5,758      100%    $5,446      100%   $5,373       100%   $4,986    100%
                        ============================================================================================
<FN>
* Percent of loans in each category to total loans.
</FN>
</TABLE>

Liquidity and Capital Resources

Liquidity  management  is the process by which the  Company,  through its Banks'
Asset and Liability  Committees  (ALCO),  ensures that adequate liquid funds are
available to meet its financial  commitments on a timely basis,  at a reasonable
cost and within acceptable risk tolerances.  These  commitments  include funding
credit  obligations  to  borrowers,  funding of  mortgage  originations  pending
delivery  to  the  secondary  market,  withdrawals  by  depositors,  maintaining
adequate   collateral  for  pledging  for  public  funds,   trust  deposits  and
borrowings,  paying  dividends to shareholders,  payment of operating  expenses,
funding capital expenditures and maintaining deposit reserve requirements.

Liquidity is derived primarily from core deposit growth and retention; principal
and interest payments on loans; principal and interest payments,  sale, maturity
and prepayment of investment securities;  net cash provided from operations; and
access to other funding  sources.  Other funding  sources  include federal funds
purchased lines, Federal Home Loan Bank (FHLB) advances and other capital market
sources.

As of December 31, 2003,  the level of  liquidity  and capital  resources of the
Company  remain at a satisfactory  level and compare  favorably to that of other
FDIC insured  institutions.  Management  believes that the  Company's  liquidity
sources  will  be  sufficient  to  support  its  existing   operations  for  the
foreseeable future.

The liquidity and capital resources discussion will cover the follows topics:

o    Review the Company's Current Liquidity Sources
o    Review of the Statements of Cash Flows
o    Company Only Cash Flows
o    Review of Commitments for Capital Expenditures, Cash Flow Uncertainties and
     Known Trends in Liquidity and Cash Flows Needs
o    Capital Resources

Review of the Company's Current Liquidity Sources

Liquid assets of cash on hand, balances due from other banks, federal funds sold
and interest-bearing  deposits in financial  institutions for December 31, 2003,
2002, and 2001 totaled $58,725,000, $85,189,000, and $72,059,000,  respectively.
The lower  balance of liquid  assets as of December  31, 2003 relates to a lower
level of federal funds sold and correspondent bank balances.  Federal funds sold
have  been   utilized  to  fund  loan  growth  and   investment   purchases  and
correspondent  compensating  balances were abnormally high at the end of 2002 as
First  National  transitioned  to a new  correspondent  bank  to  process  check
clearings.  The increase in liquidity in 2002 was the result of diminished  loan
demand, increased deposit levels and maintaining a higher level of federal funds
sold as a result of historically low investment yields.

                                       31
<PAGE>

Other  sources of liquidity  available to the Banks at December 31, 2003 include
outstanding lines of credit with the Federal Home Loan Bank of Des Moines,  Iowa
of $27,336,000 and federal funds borrowing  capacity at  correspondent  banks of
$37,500,000.  The  Company  did not have any  outstanding  FHLB  advances  as of
December 31, 2003 and  securities  sold under  agreement to  repurchase  totaled
$18,198,000.

Total  investments  as of  December  31,  2003  were  $323,116,000  compared  to
$244,575,000  as of year end 2002. At December 31, 2003 and 2002, the investment
portfolio as a percentage of average assets was 43% and 36%, respectively.  This
provides the Company  with a  significant  amount of liquidity  since all of the
investments  are  classified  as available  for sale as of December 31, 2003 and
2002.

The  investment  portfolio  serves an important  role in the overall  context of
balance  sheet  management  in  terms  of  balancing  capital   utilization  and
liquidity. The decision to purchase or sell securities is based upon the current
assessment  of economic and  financial  conditions,  including the interest rate
environment,  liquidity and credit  considerations.  The  portfolio's  scheduled
maturities represent a significant source of liquidity.

Review of Statements of Cash Flows

Operating cash flows for December 31, 2003, 2002, and 2001 totaled  $14,828,000,
$13,803,000,  and $7,773,000,  respectively.  The primary  variance in operating
cash flows in 2003 compared to 2002 was the source of cash provided in 2003 from
accrued expenses and other  liabilities that was a use of cash in 2002. The 2003
increase in accrued  expenses was  associated  with property  tax,  vacation and
income tax expenses,  while in 2002 lower market interest rates caused a decline
in the  level  of  accrued  interest  on  deposits.  The  combined  effect  is a
$1,082,000  increase in 2003  operating cash flows compared to the cash flows of
2002.  A change  in loans  held for sale was the  primary  reason  for the lower
operating cash flow in 2001.

Net  cash  used in  investing  activities  for  December  31,  2003 and 2002 was
$96,479,000  and  $43,819,000,  respectively,  while  2001  reflected  net  cash
provided by investing activity of $16,254,000.  The largest investing activities
were the  purchase of U.S.  government  agency  bonds,  municipal  bonds and the
funding of commercial real estate loans in both 2003 and 2002. In contrast, 2001
investing  cash flows  reflect  declining  loan demand and a lower level of bond
purchases that resulted in an increased level of federal funds sold.

Net cash provided by financing activities for December 31, 2003 and 2002 totaled
$61,944,000  and  $39,245,000,  respectively,  while in 2001,  net cash  used in
finance  activities  totaled  $10,343,000.  Growth in  deposits  was the primary
source of financing  funds in 2003 and 2002.  However,  the repayment of federal
funds  purchased and other  borrowings was the primary use of financing funds in
2001.  As of December  31,  2003,  the Company  did not have any  external  debt
financing,  off balance sheet financing arrangements,  or derivative instruments
linked to its stock.

Company Only Cash Flows

The Company's  liquidity on an  unconsolidated  basis is heavily  dependent upon
dividends  paid to the  Company  by the Banks.  The  Company  requires  adequate
liquidity to pay its expenses and pay stockholder dividends.  In 2003, dividends
from the Banks  amounted to $7,868,000  compared to $5,978,000 in 2002.  Various
federal and state  statutory  provisions  limit the amount of dividends  banking
subsidiaries are permitted to pay to their holding companies without  regulatory
approval.  Federal Reserve policy further limits the  circumstances  under which
bank  holding  companies  may declare  dividends.  For  example,  a bank holding
company  should not continue its existing  rate of cash  dividends on its common
stock unless its net income is  sufficient  to fully fund each  dividend and its
prospective  rate of  earnings  retention  appears  consistent  with its capital
needs, asset quality and overall financial condition.  In addition,  the Federal
Reserve and the FDIC have issued  policy  statements  which provide that insured
banks and bank holding  companies  should  generally pay  dividends  only out of
current  operating  earnings.  Federal  and state  banking  regulators  may also
restrict the payment of dividends by order.

First National,  as a national bank,  generally may pay dividends from undivided
profits without restriction, provided that its surplus fund is at least equal to
its common stock capital fund. Boone Bank, Randall-Story Bank and State Bank are
also restricted  under Iowa law to paying  dividends only out of their undivided
profits.  United Bank is not expected to generate  sufficient earning to pay any
dividends  in 2004.  Additionally,  the  payment  of  dividends  by the Banks is
affected by the requirement to maintain  adequate capital pursuant to applicable
capital  adequacy  guidelines  and  regulations,  and the  Banks  generally  are
prohibited from paying any dividends if,  following  payment  thereof,  the Bank
would be undercapitalized.

                                       32
<PAGE>

The  Company  has  unconsolidated   interest  bearing  deposits  and  marketable
investment  securities  totaling  $35,243,000  that are  presently  available to
provide additional liquidity to the Banks.

Review of Commitments  for Capital  Expenditures,  Cash Flow  Uncertainties  and
Known Trends in Liquidity and Cash Flows Needs

No material capital expenditures or material changes in the capital resource mix
are anticipated at this time.  Commitments to extend credit totaled  $71,100,000
as of December 31, 2003 compared to a total of  $59,410,000  at the end of 2002.
The timing of these credit  commitments  varies with the  underlying  borrowers;
however, the Company has satisfactory  liquidity to fund these obligations as of
December 31, 2003. The primary cash flow  uncertainty  would be a sudden decline
in deposits causing the Banks to liquidate securities.  Historically,  the Banks
have maintained an adequate level of short term  marketable  investments to fund
the  temporary  declines  in  deposit  balances.  There  are no known  trends in
liquidity  and cash flows  needs as of  December  31, 2003 that are a concern to
management.

Capital Resources

The Company's total  stockholders'  equity increased to $107,325,000 at December
31, 2003, from $101,523,000 at December 31, 2002. At December 31, 2003 and 2002,
stockholders'  equity as a  percentage  of total  assets was 14.26% and  14.99%,
respectively.  Total  equity  increased  due to  retention  of earnings and from
appreciation  in the Company's  and Banks'  investment  portfolios.  The capital
levels of the Company  currently exceed applicable  regulatory  guidelines as of
December 31, 2003.

Interest Rate Risk

Interest rate risk refers to the impact that a change in interest rates may have
on the Company's  earnings and capital.  Management's  objectives are to control
interest rate risk and to ensure  predictable and consistent  growth of earnings
and  capital.  Interest  rate risk  management  focuses on  fluctuations  in net
interest income identified through computer  simulations to evaluate volatility,
varying interest rate, spread and volume assumptions. The risk is quantified and
compared against tolerance levels.

The Company uses a third-party  computer software simulation modeling program to
measure its exposure to potential  interest  rate changes.  For various  assumed
hypothetical  changes in market interest rates,  numerous other  assumptions are
made such as prepayment  speeds on loans, the slope of the Treasury yield curve,
the rates and volumes of the Company's deposits and the rates and volumes of the
Company's  loans.  This analysis  measures the estimated  change in net interest
income in the event of hypothetical changes in interest rates.

Another  measure of  interest  rate  sensitivity  is the gap  ratio.  This ratio
indicates the amount of interest-earning  assets repricing within a given period
in comparison to the amount of interest-bearing liabilities repricing within the
same period of time. A gap ratio of 1.0 indicates a matched  position,  in which
case the effect on net interest  income due to interest rate  movements  will be
minimal.  A gap ratio of less than 1.0  indicates  that  more  liabilities  than
assets  reprice  within the time period and a ratio  greater than 1.0  indicates
that more assets reprice than liabilities.

The  simulation  model  process  provides a dynamic  assessment of interest rate
sensitivity,  whereas a static interest rate gap table is compiled as of a point
in time.  The model  simulations  differ from a  traditional  gap  analysis as a
traditional gap analysis does not reflect the multiple  effects of interest rate
movement on the entire  range of assets and  liabilities  and ignores the future
impact of new business strategies.

Inflation

The primary impact of inflation on the Company's operations is to increase asset
yields, deposit costs and operating overhead. Unlike most industries,  virtually
all of the assets and  liabilities  of a financial  institution  are monetary in
nature. As a result,  interest rates generally have a more significant impact on
a  financial   institution's   performance  than  they  would  on  non-financial
companies. Although interest rates do not necessarily move in the same direction
or to the same extent as the price of goods and services, increases in inflation
generally have resulted in increased  interest  rates.  The effects of inflation
can  magnify  the growth of assets  and,  if  significant,  require  that equity
capital increase at a faster rate than would be otherwise necessary.

                                       33
<PAGE>

Forward-Looking Statements and Business Risks

The discussion in the foregoing Management Discussion and Analysis and elsewhere
in this  Report  contains  forward-looking  statements  about the  Company,  its
business and its prospects.  Forward-looking statements can be identified by the
fact that they do not relate strictly to historical or current facts. They often
include use of the words "believe",  "expect",  "anticipate",  "intend", "plan",
"estimate" or words of similar meaning,  or future or conditional  verbs such as
"will", "would",  "should",  "could" or "may".  Forward-looking  statements,  by
their nature, are subject to risks and uncertainties.  A number of factors, many
of which are beyond the Company's control, could cause actual conditions, events
or results to differ  significantly from those described in the  forward-looking
statements.  Such risks and  uncertainties  with respect to the Company include,
but are not limited to, those related to the economic  conditions,  particularly
in the areas in which the Company and the Banks  operate,  competitive  products
and pricing,  fiscal and monetary  policies of the U.S.  government,  changes in
governmental  regulations affecting financial institutions (including regulatory
fees and capital  requirements),  changes in prevailing  interest rates,  credit
risk  management and  asset/liability  management,  the financial and securities
markets and the availability of and costs associated with sources of liquidity.

These factors may not  constitute all factors that could cause actual results to
differ  materially from those discussed in any  forward-looking  statement.  The
Company operates in a continually  changing  business  environment and new facts
emerge from time to time.  It cannot  predict such factors nor can it assess the
impact,  if any,  of such  factors on its  financial  position or its results of
operations. Accordingly, forward-looking statements should not be relied upon as
a predictor of actual  results.  The Company  disclaims  any  responsibility  to
update any forward-looking statement provided in this document.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's  market risk is comprised  primarily of interest rate risk arising
from its core banking  activities of making loans and taking deposits.  Interest
rate risk is the risk that changes in market interest rates may adversely affect
the Company's net interest income.  Management  continually develops and applies
strategies to mitigate this risk. Management does not believe that the Company's
primary  market risk  exposure and how that exposure was managed in 2003 changed
when compared to 2002.

Based on a simulation  modeling analysis  performed as of December 31, 2003, the
following  table  presents the  estimated  change in net interest  income in the
event of  hypothetical  changes in  interest  rates for the  various  rate shock
levels:

Net Interest Income at Risk

Estimated Change in Net Interest Income for Year Ending December 31, 2003

                                                  $ Change            % Change
                                                  ------------------------------
(dollars in thousands)

+200 Basis Points ........................         $   586                2.2%
+100 Basis Points ........................             311                1.2%
-100 Basis Points ........................            (957)              -3.6%
-200 Basis Points ........................          (3,186)             -11.8%

As shown above,  at December 31, 2003, the estimated  effect of an immediate 200
basis point increase in interest rates would increase the Company's net interest
income by 2.2% or  approximately  $586,000 in 2004.  The estimated  effect of an
immediate  200 basis point  decrease in rates would  decrease the  Company's net
interest  income by 11.8% or  approximately  $3,186,000  in 2004.  The Company's
Asset Liability  Management Policy establishes  parameters for a 200 basis point
change in  interest  rates.  Under  this  policy,  the  Company  and the  Banks'
objective  is to properly  structure  the  balance  sheet to prevent a 200 basis
point change in interest rates from causing a decline in net interest  income by
more than 15% in one year compared to the base year that hypothetically  assumes
no change in interest rates.

Computations  of the prospective  effects of hypothetical  interest rate changes
are  based  on  numerous  assumptions.  Actual  values  may  differ  from  those
projections set forth above.  Further,  the  computations do not contemplate any
actions  the  Company may  undertake  in response to changes in interest  rates.
Current interest rates on certain liabilities are at a level that does not allow
for significant repricing should market interest rates decline considerably.

                                       34
<PAGE>

Contractual Maturity or Repricing

The following  table sets forth the estimated  maturity or  re-pricing,  and the
resulting interest sensitivity gap, of the Company's interest-earning assets and
interest-bearing  liabilities  and the cumulative  interest  sensitivity  gap at
December 31, 2003. The expected maturities are presented on a contractual basis.
Actual maturities may differ from contractual  maturities  because of prepayment
assumptions, early withdrawal of deposits and competition.
<TABLE>
                                       Less than      Three       One to        Over
                                         three      months to      five         five      Cumulative
                                         months     one year       years        years        Total
        (dollars in thousands)         -------------------------------------------------------------
<S>                                    <C>          <C>          <C>          <C>         <C>
Interest - earning assets
Interest-bearing deposits with banks   $   5,364    $     500    $     500    $      --    $   6,364
Federal funds sold .................      20,380           --           --           --       20,380
Investments * ......................       7,256       20,674      116,081      179,105      323,116
Loans ..............................      58,115       36,253      196,999       71,036      362,403
Loans held for sale
                                       -------------------------------------------------------------
Total interest - earning
assets .............................   $  91,115    $  57,427    $ 313,580    $ 250,141    $ 712,263
                                       =============================================================

Interest - bearing liabilities
Interest bearing demand deposits ...   $ 138,308    $      --    $      --    $      --    $ 138,308
Money market and savings deposits ..     166,387           --           --           --      166,387
Time certificates < $100,000 .......      22,682       78,639       72,529          144      173,994
Time certificates > $100,000 .......      23,801       29,896       15,790           --       69,487
Other borrowed funds ...............      18,198           --           --           --       18,198
                                       -------------------------------------------------------------
Total interest - bearing liabilities   $ 369,376    $ 108,535    $  88,319    $     144    $ 566,374

Interest sensitivity gap ...........   ($278,261)   ($ 51,108)   $ 225,261    $ 249,997    $ 145,889
                                       =============================================================

Cumulative interest sensitivity gap    ($278,261)   ($329,369)   ($104,108)   $ 145,889    $ 145,889
                                       =============================================================

Cumulative interest sensitivity

gap as a percent of total assets ...     -36.96%      -43.75%      -13.83%       19.38%
                                       ================================================
<FN>
*    Investments with maturities over 5 years include the market value of equity
     securities of $32,701.
</FN>
</TABLE>

As of December  31, 2003,  the  Company's  cumulative  gap ratios for assets and
liabilities  repricing within three months and within one year were .37 and .44,
respectively,  meaning  more  liabilities  than assets are  scheduled to reprice
within these periods. This situation suggests that a decrease in market interest
rates may benefit net interest income and that an increase in interest rates may
negatively impact the Company.  The liability  sensitive gap position is largely
the result of  classifying  the  interest  bearing NOW  accounts,  money  market
accounts and savings accounts as immediately  repriceable.  Certain shortcomings
are inherent in the method of analysis  presented in the  foregoing  table.  For
example, although certain assets and liabilities may have similar maturities and
periods to repricing,  they may react  differently to changes in market interest
rates.  Also,  interest rates on assets and liabilities may fluctuate in advance
of changes in market  interest  rates,  while interest rates on other assets and
liabilities may follow changes in market interest rates.  Additionally,  certain
assets have features that restrict changes in the interest rates of such assets,
both on a short-term basis and over the lives of such assets.

                                       35
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                          Independent Auditor's Report



The Board of Directors
Ames National Corporation and Subsidiaries
Ames, Iowa

We have audited the  accompanying  consolidated  balance sheets of Ames National
Corporation  and  subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period then ended December 31, 2003.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Ames  National
Corporation and subsidiaries as of December 31, 2003 and 2002 and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2003 in  conformity  with  accounting  principles  generally
accepted in the United States of America.

/s/ McGladrey & Pullen, LLP
---------------------------


Des Moines, Iowa
January 23, 2004

                                       36

<PAGE>

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
<TABLE>

ASSETS                                                             2003             2002
---------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>
Cash and due from banks (Note 2) ...........................   $  31,982,144    $  51,688,784
Federal funds sold .........................................      20,380,000       32,500,000
Interest bearing deposits in financial institutions ........       6,363,538        1,000,000
Securities available-for-sale (Note 3) .....................     323,115,914      244,575,026
Loans receivable, net (Note 4) .............................     355,533,119      329,593,051
Loans held for sale ........................................         859,139        2,713,446
Bank premises and equipment, net (Note 5) ..................       8,377,807        8,726,397
Accrued income receivable ..................................       5,842,247        5,849,017
Other assets ...............................................         332,556          582,849
                                                               ------------------------------
        Total assets .......................................   $ 752,786,464    $ 677,228,570
                                                               ==============================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits (Note 6)
    Demand, noninterest bearing ............................   $  71,372,534    $  62,557,937
     NOW accounts ..........................................     138,308,140      121,325,104
     Savings and money market ..............................     166,387,319      153,296,259
     Time, $100,000 and over ...............................      69,486,570       54,564,283
     Other time ............................................     173,993,964      158,878,796
                                                               ------------------------------
        Total deposits .....................................     619,548,527      550,622,379

Federal funds purchased and securities sold under agreements
  to repurchase ............................................      18,198,403       18,325,574
Dividend payable ...........................................       1,441,204        1,376,752
Deferred income taxes (Note 8) .............................       3,238,665        2,879,057
Accrued expenses and other liabilities .....................       3,034,670        2,501,952
                                                               ------------------------------
        Total liabilities ..................................     645,461,469      575,705,714
                                                               ------------------------------

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY (Note 10)
  Common stock, $5 par value, authorized 6,000,000 shares;
    issued 2003 and 2002 3,153,230 shares; outstanding 2003
    3,133,053 shares, 2002 3,128,982 shares ................      15,766,150       15,766,150
  Additional paid-in capital ...............................      25,351,979       25,354,014
  Retained earnings ........................................      58,400,660       53,917,544
  Treasury stock, at cost; 2003 20,177 shares,
    2002 24,248 shares .....................................      (1,109,735)      (1,333,640)
  Accumulated other comprehensive income, net unrealized
    gain on securities available-for-sale ..................       8,915,941        7,818,788
                                                               ------------------------------
        Total stockholders' equity .........................     107,324,995      101,522,856
                                                               ------------------------------

        Total liabilities and stockholders' equity .........   $ 752,786,464    $ 677,228,570
                                                               ==============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       37
<PAGE>

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003, 2002 and 2001
<TABLE>
                                                     2003           2002         2001
-----------------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>
Interest and dividend income:
  Loans, including fees .......................   $22,197,335   $23,207,184   $27,891,379
  Securities:
    Taxable ...................................     7,510,671     7,931,041     8,714,486
    Tax-exempt ................................     3,604,641     2,938,423     2,876,432
  Federal funds sold ..........................       628,203       810,675       829,083
  Dividends ...................................     1,372,890     1,383,350     1,162,176
                                                  ---------------------------------------
                                                   35,313,740    36,270,673    41,473,556
                                                  ---------------------------------------
Interest expense:
  Deposits ....................................    10,045,178    11,397,125    17,791,314
  Other borrowed funds ........................       293,604       265,845     1,091,319
                                                  ---------------------------------------
                                                   10,338,782    11,662,970    18,882,633
                                                  ---------------------------------------

        Net interest income ...................    24,974,958    24,607,703    22,590,923

Provision for loan losses (Note 4) ............       645,447       688,431       897,540
                                                  ---------------------------------------
        Net interest income after provision for
        loan losses ...........................    24,329,511    23,919,272    21,693,383
                                                  ---------------------------------------
Noninterest income:
  Trust department income .....................     1,225,099     1,032,500       948,499
  Service fees ................................     1,513,964     1,492,344     1,585,036
  Securities gains, net (Note 3) ..............     1,395,320       889,923     1,197,050
  Gain on sales of loans held for sale ........     1,155,311       739,907       589,215
  Merchant and ATM fees .......................       513,832       405,667       282,072
  Other .......................................       631,949       574,473       478,172
                                                  ---------------------------------------
        Total noninterest income ..............     6,435,475     5,134,814     5,080,044
                                                  ---------------------------------------

Noninterest expense:
  Salaries and employee benefits (Note 7) .....     9,044,896     8,074,181     6,834,588
  Data processing .............................     2,188,488     1,934,006     1,772,726
  Occupancy expenses ..........................     1,088,438       927,287       726,049
  Other operating expenses ....................     2,497,692     2,340,098     2,253,920
                                                  ---------------------------------------
        Total noninterest expense .............    14,819,514    13,275,572    11,587,283
                                                  ---------------------------------------

        Income before income taxes ............    15,945,472    15,778,514    15,186,144

Provision for income taxes (Note 8) ...........     4,320,787     4,438,376     4,638,806
                                                  ---------------------------------------

        Net income ............................   $11,624,685   $11,340,138   $10,547,338
                                                  =======================================

Basic earnings per share (Note 1) .............   $      3.71   $      3.63   $      3.38
                                                  =======================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       38
<PAGE>

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2003, 2002 and 2001
<TABLE>
                                                                                                       Accumulated
                                                                  Additional                               Other           Total
                                      Comprehensive    Common      Paid-in     Retained     Treasury   Comprehensive   Stockholders'
                                          Income       Stock       Capital     Earnings       Stock     Income (Loss)       Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>          <C>          <C>          <C>           <C>           <C>
Balance, December 31, 2000 .........                $15,766,150  $25,428,994  $44,036,378  $(1,677,605)  $2,623,544     $86,177,461
  Comprehensive income:
    Net income .....................   $10,547,338           --           --   10,547,338           --           --      10,547,338
    Other comprehensive income,
      unrealized gains on securities,
      net of reclassification
      adjustment, net of tax (Note 3)    1,973,070           --           --           --           --    1,973,070       1,973,070
                                       -----------
        Total comprehensive income .   $12,520,408
                                       ===========
  Cash dividends declared, $1.66 per
    share ..........................                         --           --   (5,186,705)          --           --      (5,186,705)
  Sale of 2,936 shares of treasury
    stock ..........................                         --      (35,966)          --      146,800           --         110,834
                                                    --------------------------------------------------------------------------------
Balance, December 31, 2001 .........                 15,766,150   25,393,028   49,397,011   (1,530,805)   4,596,614      93,621,998
  Comprehensive income:
    Net income .....................   $11,340,138           --           --   11,340,138           --           --      11,340,138
    Other comprehensive income,
      unrealized gains on securities,
      net of reclassification
      adjustment, net of tax (Note 3)    3,222,174           --           --           --           --    3,222,174       3,222,174
                                       -----------
        Total comprehensive income ..  $14,562,312
                                       ===========
  Cash dividends declared, $2.18 per
    share ...........................                         --          --   (6,819,605)          --           --      (6,819,605)
  Sale of 3,753 shares of treasury
    stock ...........................                         --     (39,014)          --      197,165           --         158,151
                                                     -------------------------------------------------------------------------------
Balance, December 31, 2002 ..........                 15,766,150  25,354,014   53,917,544   (1,333,640)   7,818,788     101,522,856
  Comprehensive income:
    Net income ......................  $11,624,685            --          --   11,624,685           --           --      11,624,685
    Other comprehensive income,
      unrealized gains on securities,
      net of reclassification
      adjustment, net of tax (Note 3)    1,097,153            --          --           --           --    1,097,153       1,097,153
                                       -----------
        Total comprehensive income ..  $12,721,838
                                       ===========
  Cash dividends declared, $2.28 per
    share ...........................                         --          --   (7,141,569)          --           --      (7,141,569)
  Sale of 4,071 shares of treasury
    stock ...........................                         --      (2,035)          --      223,905           --         221,870
                                                     -------------------------------------------------------------------------------
Balance, December 31, 2003 ..........                 15,766,150  25,351,979   58,400,660   (1,109,735)   8,915,941     107,324,995
                                                     ===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       39
<PAGE>

AMES NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
<TABLE>

                                                                                       2003              2002              2001
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income ...................................................................   $  11,624,685    $  11,340,138    $  10,547,338
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for loan losses ..................................................         645,447          688,431          897,540
    Amortization and accretion .................................................         563,612           51,495          (58,859)
    Depreciation ...............................................................       1,030,377          996,180          642,835
    Provision for deferred taxes ...............................................        (284,751)        (200,013)        (129,614)
    Securities gains, net ......................................................      (1,395,320)        (889,923)      (1,197,050)
    Change in assets and liabilities:
      (Increase) decrease in loans held for sale ...............................       1,854,307        2,582,434       (4,480,280)
      (Increase) decrease in accrued income receivable .........................           6,770          128,336        1,043,261
      (Increase) decrease in other assets ......................................         250,293         (344,372)         820,285
      Increase (decrease) in accrued expenses and other liabilities ............         532,718         (549,337)        (312,376)
                                                                                   -----------------------------------------------
        Net cash provided by operating activities ..............................      14,828,138       13,803,369        7,773,080
                                                                                   -----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities available-for-sale ....................................    (194,136,066)     (86,337,490)     (47,350,981)
  Proceeds from sale of securities available-for-sale ..........................       9,299,986       26,635,715       23,282,181
  Proceeds from maturities and calls of securities available-for-sale ..........     108,868,412       34,855,926       47,385,595
  Net decrease (increase) in interest bearing deposits in financial institutions      (5,363,538)        (750,000)          98,174
  Net decrease (increase) in federal funds sold ................................      12,120,000       (3,150,000)     (29,105,000)
  Net decrease (increase) in loans .............................................     (26,585,515)     (12,534,196)      24,554,301
  Purchase of bank premises and equipment ......................................        (681,787)      (2,538,922)      (2,610,189)
                                                                                   -----------------------------------------------
        Net cash provided by (used in) investing activities ....................     (96,478,508)     (43,818,967)      16,254,081
                                                                                   -----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase in deposits .........................................................      68,926,148       39,113,124       18,080,400
  Increase (decrease) in federal funds purchased
    and securities sold under agreements to repurchase .........................        (127,171)       6,729,400      (23,411,245)
  Dividends paid ...............................................................      (7,077,117)      (6,755,449)      (5,123,026)
  Proceeds from issuance of treasury stock .....................................         221,870          158,151          110,834
                                                                                   -----------------------------------------------
        Net cash provided by (used in) financing activities ....................      61,943,730       39,245,226      (10,343,037)
                                                                                   -----------------------------------------------

        Net increase (decrease) in cash and cash equivalents ...................     (19,706,640)       9,229,628       13,684,124

CASH AND CASH EQUIVALENTS
Beginning ......................................................................      51,688,784       42,459,156       28,775,032
                                                                                   -----------------------------------------------
Ending .........................................................................   $  31,982,144    $  51,688,784    $  42,459,156
                                                                                   ===============================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash payments for:
  Interest .....................................................................   $  10,504,715    $  12,211,439    $  19,749,270
  Income taxes .................................................................       4,553,669        4,725,572        4,321,320
</TABLE>

See Notes to Consolidated Financial Statements.

                                       40
<PAGE>

AMES NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Note 1.  Summary of Significant Accounting Policies

Description  of  business:  Ames  National  Corporation  and  subsidiaries  (the
Company) operates in the commercial banking industry through its subsidiaries in
Ames,  Boone,  Story  City,  Nevada and  Marshalltown,  Iowa.  Loan and  deposit
customers are located primarily in Story, Boone,  Hamilton and Marshall counties
and adjacent counties in Iowa.

Segment  information:  The Company uses the "management  approach" for reporting
information  about  segments in annual and  interim  financial  statements.  The
management  approach  is based  on the way the  chief  operating  decision-maker
organizes segments within a company for making operating decisions and assessing
performance.   Based  on  the  "management  approach"  model,  the  Company  has
determined that its business is comprised of one operating segment: banking. The
banking segment generates revenues through personal, business,  agricultural and
commercial lending, management of the investment securities portfolio, providing
deposit account services and providing trust services.

Consolidation:  The consolidated  financial  statements  include the accounts of
Ames   National   Corporation   (the  Parent   Company)  and  its   wholly-owned
subsidiaries,  First National Bank,  Ames, Iowa; State Bank & Trust Co., Nevada,
Iowa; Boone Bank & Trust Co., Boone, Iowa; Randall-Story State Bank, Story City,
Iowa; and United Bank & Trust NA, Marshalltown, Iowa (collectively,  the Banks).
All significant  intercompany  transactions and balances have been eliminated in
consolidation.

Use of estimates:  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.  Material  estimates that are particularly  susceptible to
significant change in the near term relate to the determination of the allowance
for loan losses and fair value of financial instruments.

Cash and cash  equivalents:  For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and amounts due from banks. The Company reports
net cash flows for customer loan  transactions,  deposit  transactions and short
term borrowings with maturities of 90 days or less.

Securities  available-for-sale:  Securities available-for-sale consist of equity
securities and debt securities not classified as trading or held-to-maturity and
are carried at fair value.  Unrealized holding gains and losses, net of deferred
income  taxes,  are  reported  in a  separate  component  of  accumulated  other
comprehensive  income until  realized.  Realized gains and losses on the sale of
such securities are determined using the specific  identification method and are
reflected in the consolidated  statements of income.  Premiums and discounts are
recognized  in  interest  income  using the  interest  method over the period to
maturity or call date of the related security.

Unrealized losses judged to be other than temporary are charged to operations.

Loans held for sale: Loans held for sale are the loans the Banks have the intent
to sell in the  foreseeable  future.  They are carried at the lower of aggregate
cost or market value. Net unrealized  losses,  if any, are recognized  through a
valuation allowance by charges to income. Gains and losses on sales of loans are
recognized at settlement dates and are determined by the difference  between the
sale proceeds and the carrying value of the loans.

Loans:  Loans are stated at the principal  amount  outstanding,  net of deferred
loan fees and the  allowance  for loan losses.  Interest on loans is credited to
income as earned based on the principal amount outstanding. The Banks' policy is
to discontinue  the accrual of interest  income on any loan 90 days or more past
due unless the loans are well  collateralized  and in the process of collection.
Income on nonaccrual  loans is  subsequently  recognized only to the extent that
cash payments are received.  Nonaccrual  loans are returned to an accrual status
when,  in the opinion of  management,  the  financial  position of the  borrower
indicates  there is no  longer  any  reasonable  doubt as to timely  payment  of
principal or interest.

                                       41
<PAGE>

Allowance  for loan losses:  The  allowance  for loan losses is  maintained at a
level deemed  appropriate  by management to provide for known and inherent risks
in the loan portfolio.  The allowance is based upon a continuing  review of past
loan loss experience, current economic conditions, and the underlying collateral
value securing the loans. Loans which are deemed to be uncollectible are charged
off and deducted from the  allowance.  Recoveries on loans  charged-off  and the
provision for loan losses are added to the allowance.

A loan is considered  impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement.  Factors  considered by management in determining  impairment include
payment status,  collateral  value, and the probability of collecting  scheduled
principal and interest  payments  when due.  Impairment is measured on a loan by
loan basis for commercial and construction  loans by either the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's  obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment.  Accordingly,  the Company does not separately  identify  individual
consumer and residential loans for impairment disclosures.

Premises  and  equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation.  Depreciation expense is computed using straight-line
and  accelerated  methods  over the  estimated  useful  lives of the  respective
assets.  Depreciable  lives range from 3 to 7 years for  equipment  and 15 to 39
years for premises.

Trust  department  assets:  Property  held for  customers in fiduciary or agency
capacities is not included in the accompanying  consolidated  balance sheets, as
such items are not assets of the Banks.

Income taxes:  Deferred tax assets and liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and are  measured  using  enacted  tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and  liabilities  is  recognized  in  income in the  period  that  includes  the
enactment date.

The Company files a  consolidated  federal  income tax return,  with each entity
computing its taxes on a separate  company  basis.  For state tax purposes,  the
Banks file  franchise  tax returns,  while the Parent  Company files a corporate
income tax return.

Comprehensive  income:  Accounting  principles generally require that recognized
revenue,  expenses, gains and losses be included in net income. Although certain
changes  in assets  and  liabilities,  such as  unrealized  gains and  losses on
available-for-sale  securities,  are  reported  as a separate  component  of the
equity  section of the balance  sheet,  such items,  along with net income,  are
components  of  comprehensive  income.  Gains and  losses on  available-for-sale
securities  are  reclassified  to net income as the gains or losses are realized
upon  sale  of  the  securities.  Other-than-temporary  impairment  charges  are
reclassified to net income at the time of the charge.

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

   Cash and due from banks, federal funds sold and interest-bearing  deposits in
   financial institutions: The recorded amount of these assets approximates fair
   value.

   Securities  available-for-sale:  Fair values of securities available-for-sale
   are based on bid prices  published in financial  newspapers,  bid  quotations
   received  from  securities  dealers,  or  quoted  market  prices  of  similar
   instruments,  adjusted for differences between the quoted instruments and the
   instruments being valued.

   Loans  held for  sale:  The fair  value of loans  held for sale are  based on
   prevailing market prices.

   Loans:  The fair value of loans is calculated by  discounting  scheduled cash
   flows through the estimated  maturity using estimated  market discount rates,
   which  reflect the credit and interest  rate risk  inherent in the loan.  The
   estimate of maturity is based on the historical  experience,  with repayments
   for each loan  classification  modified,  as required,  by an estimate of the
   effect  of  current   economic   and  lending   conditions.   The  effect  of
   nonperforming  loans is  considered  in assessing the credit risk inherent in
   the fair value estimate.

                                       42
<PAGE>

   Deposit liabilities: Fair values of deposits with no stated maturity, such as
   noninterest-bearing  demand  deposits,  savings and NOW  accounts,  and money
   market  accounts,  are  equal  to the  amount  payable  on  demand  as of the
   respective  balance sheet date.  Fair values of  certificates  of deposit are
   based on the discounted value of contractual cash flows. The discount rate is
   estimated using the rates currently offered for deposits of similar remaining
   maturities.  The fair value estimates do not include the benefit that results
   from the low-cost funding provided by the deposit liabilities compared to the
   cost of borrowing funds in the market.

   Other  borrowings:  The  carrying  amounts of  federal  funds  purchased  and
   securities sold under agreements to repurchase approximate fair value because
   of the short-term nature of the instruments.

   Accrued income receivable and accrued interest payable:  The carrying amounts
   of accrued income receivable and interest payable approximate fair value.

   Limitations: Fair value estimates are made at a specific point in time, based
   on  relevant  market   information   and  information   about  the  financial
   instrument.  Because  no  market  exists  for a  significant  portion  of the
   Company's financial instruments,  fair value estimates are based on judgments
   regarding future expected loss experience,  current economic conditions, risk
   characteristics of various financial  instruments,  and other factors.  These
   estimates are subjective in nature and involve  uncertainties  and matters of
   significant  judgment and,  therefore,  cannot be determined  with precision.
   Changes in assumptions could significantly affect the estimates.

Earnings per share:  Basic earnings per share  computations  for the years ended
December 31, 2003,  2002 and 2001, were determined by dividing net income by the
weighted-average  number of common  shares  outstanding  during  the years  then
ended. The Company had no potentially dilutive securities outstanding during the
periods presented.

The following  information  was used in the  computation  of basic  earnings per
share for the years ended December 31, 2003, 2002, and 2001.

                                            2003           2002          2001
                                         ---------------------------------------
Basic earning per share computation:
  Net income .........................   $11,624,685   $11,340,138   $10,547,338
  Weighted average common
    shares outstanding ...............     3,131,224     3,127,285     3,123,885
                                         ---------------------------------------
        Basic earnings per share......   $      3.71   $      3.63   $      3.38
                                         =======================================

New Accounting Pronouncements

The Financial Accounting Standards Board has issued Statement 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging".  This Statement amends and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities  under  Statement  133.  The  Statement  was  effective  for
contracts  entered  into or  modified  after  June  30,  2003  and  for  hedging
relationships designated after June 30, 2003. Implementation of the Statement on
July 1, 2003 did not have a  significant  impact on the  consolidated  financial
statements.

The Financial  Accounting  Standards Board has issued Statement 150, "Accounting
for Certain Financial  Instruments with  Characteristics of both Liabilities and
Equity".  This Statement  established standards for how an issuer classifies and
measures certain financial  instruments with characteristics of both liabilities
and equity and  requires  that certain  freestanding  financial  instruments  be
reported as liabilities in the balance sheet. For the Company, the Statement was
effective  July 1,  2003 and  implementation  had no  significant  impact on the
consolidated financial statements.

The Financial Accounting Standards Board has issued Interpretation (FIN) No. 45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  to  Others,  an  interpretation  of FASB
Statements No. 5, 57, and 107, and a rescission of FASB  Interpretation No. 34".
This Interpretation elaborates on the financial statements about its obligations
under guarantees issued and clarifies that a guarantor is required to recognize,
at inception of a guarantee,  a liability  for the fair value of the  obligation
undertaken.  The effect of implementation on the Company's financial  statements
was not material.

                                       43
<PAGE>

The Financial  Accounting Standard Board has issued  Interpretation (FIN) No. 46
"Consolidation  of Variable Interest  Entities,  an interpretation of Accounting
Research  Bulletin  No.  51".  FIN  46  establishes   accounting   guidance  for
consolidation of variable  interest  entities (VIE) that function to support the
activities of the primary  beneficiary.  The primary beneficiary of a VIE entity
is the entity that absorbs a majority of the VIE's expected  losses,  receives a
majority  of the  VIE's  expected  residual  returns,  or both,  as a result  of
ownership,  controlling  interest,  contractual  relationship  or other business
relationship  with a VIE.  Prior to the  implementation  of FIN 46,  VIE's  were
generally  consolidated  by an enterprise  when the enterprise had a controlling
financial  interest  through  ownership of a majority of voting  interest in the
entity.  The  provisions  of FIN 46 are  effective  for existing  VIEs the first
period ending after  December 15, 2003.  The Company has not identified any VIEs
and the implementation of FIN 46 has had no impact on the consolidated financial
statements.

The Accounting  Standards  Executive  Committee has issued Statement of Position
03-3,  Accounting for Certain Loans or Debit Securities  Acquired in a Transfer.
This  Statement  applies to all loans  acquired in a transfer,  including  those
acquired in the acquisition of a bank or a branch,  and provides that such loans
be  accounted  for at fair value with no  allowance  for loan  losses,  or other
valuation  allowance,  permitted  at the  time of  acquisition.  The  difference
between cash flows  expected at the  acquisition  date and the investment in the
loan  should be  recognized  as interest  income  over the life of the loan.  If
contractually  required  payments  for  principal  and  interest  are less  than
expected cash flows, this amount should not be recognized as a yield adjustment,
a loss accrual,  or a valuation  allowance.  For the Company,  this Statement is
effective for calendar year 2005 and, early adoption, although permitted, is not
planned.  No  significant  impact  is  expected  on the  consolidated  financial
statements at the time of adoption.

Note 2.  Restrictions on Cash and Due from Banks

The Federal Reserve Bank requires member banks to maintain  certain cash and due
from  bank  reserves.   The  subsidiary  banks'  reserve   requirements  totaled
approximately  $14,375,000  and  $7,418,000  at  December  31,  2003  and  2002,
respectively.

Note 3.  Debt and Equity Securities

The amortized cost of securities  available for sale and their  approximate fair
values at December 31, 2003 and 2002, are summarized below:
<TABLE>
                                                                          Gross            Gross
                                       Amortized       Unrealized       Unrealized       Estimated
                                          Cost           Gains           (Losses)        Fair Value
                                     ---------------------------------------------------------------
<S>                                  <C>             <C>              <C>              <C>
2003:
  U.S. treasury ..................   $   2,158,571   $      70,341    $          --    $   2,228,912
  U.S. government agencies .......     117,321,783       1,728,234         (412,733)     118,637,284
  State and political subdivisions     103,411,430       3,087,981         (536,295)     105,963,116
  Corporate bonds ................      59,991,655       3,639,909          (45,868)      63,585,696
  Equity securities ..............      26,080,188       6,796,873         (176,155)      32,700,906
                                     ---------------------------------------------------------------
                                     $ 308,963,627   $  15,323,338    $  (1,171,051)   $ 323,115,914
                                     ===============================================================
2002:
  U.S. treasury ..................   $   4,058,028   $     150,313    $          --    $   4,208,341
  U.S. government agencies .......      82,797,531       2,982,650               --       85,780,181
  State and political subdivisions      67,711,678       2,899,680          (95,702)      70,515,656
  Corporate bonds ................      53,041,832       3,439,554         (124,469)      56,356,917
  Equity securities ..............      24,555,182       4,429,505       (1,270,756)      27,713,931
                                     ---------------------------------------------------------------
                                     $ 232,164,251   $  13,901,702    $  (1,490,927)   $ 244,575,026
                                     ===============================================================
</TABLE>

The   amortized   cost   and   estimated   fair   value   of   debt   securities
available-for-sale  as of December  31,  2003,  are shown  below by  contractual
maturity.  Expected  maturities will differ from contractual  maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
                                                     Amortized        Estimated
                                                        Cost         Fair Value
                                                   -----------------------------

Due in one year or less ......................     $ 27,567,407     $ 27,930,313
Due after one year through five years ........      113,050,065      116,080,787
Due after five years through ten years .......       97,729,993      101,651,232
Due after ten years ..........................       44,535,974       44,752,676
                                                   -----------------------------
                                                    282,883,439      290,415,008
Equity securities ............................       26,080,188       32,700,906
                                                   -----------------------------
                                                   $308,963,627     $323,115,914
                                                   =============================

                                       44
<PAGE>

At December 31, 2003 and 2002, securities with a carrying value of approximately
$49,758,000 and $39,076,000,  respectively, were pledged as collateral on public
deposits,  securities sold under agreements to repurchase and for other purposes
as required or permitted by law.

Gross realized gains and gross  realized  losses on sales of  available-for-sale
securities  were  $1,395,320  and none  respectively,  in 2003,  $1,087,290  and
$197,367, respectively, in 2002, $1,200,323 and $3,273, respectively, in 2001.

The  components  of other  comprehensive  income (loss) - net  unrealized  gains
(losses) on securities available-for-sale for the years ended December 31, 2003,
2002, and 2001, were as follows:
<TABLE>
                                                2003           2002           2001
                                            -----------------------------------------
<S>                                         <C>            <C>            <C>
Unrealized holding gains arising
  during the period .....................   $ 3,136,832    $ 6,002,497    $ 4,329,954
Reclassification adjustment for net gains
  realized in net income ................    (1,395,320)      (889,923)    (1,197,050)
                                            -----------------------------------------
        Net unrealized gains
        before tax effect ...............     1,741,512      5,112,574      3,132,904
Tax effect ..............................      (644,359)    (1,890,400)    (1,159,834)
                                            -----------------------------------------
        Other comprehensive income
        net unrealized gains
        on securities ...................   $ 1,097,153    $ 3,222,174    $ 1,973,070
                                            =========================================
</TABLE>

Unrealized losses and fair value,  aggregated by investment  category and length
of time that  individual  securities  have been in a continuous  unrealized loss
position, as of December 31, 2003 are summarized as follows:
<TABLE>
                                             Less than 12 Months            12 Months or More                    Total
                                       -----------------------------   ----------------------------    -----------------------------
                                           Fair          Unrealized        Fair         Unrealized        Fair          Unrealized
                                           Value           Losses          Value           Losses         Value            Losses
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>             <C>             <C>             <C>             <C>
Securities available for sale:
  U.S. Treasury securities .........   $         --    $         --    $         --    $         --    $         --    $         --
  U.S. government agencies .........     31,608,073        (412,733)             --              --      31,608,073        (412,733)
  State and political subsidivisions     22,823,408        (507,233)        628,846         (29,062)     23,452,254        (536,295)
  Corporate obligations ............     15,160,687         (45,868)             --              --      15,160,687         (45,868)
  Equity securities ................             --              --       3,242,200        (176,155)      3,242,200        (176,155)
                                       --------------------------------------------------------------------------------------------
                                       $ 69,592,168    $   (965,834)   $  3,871,046    $   (205,217)   $ 73,463,214    $ (1,171,051)
                                       ============================================================================================
</TABLE>

For all of the above investment securities,  the unrealized losses are generally
due to changes in interest  rates or general  market  conditions,  as such,  are
considered to be temporary, by the Company.

Note 4.  Loans Receivable

The  composition  of loans  receivable  at  December  31,  2003 and 2002,  is as
follows:

                                                   2003                2002
                                             ----------------------------------

Commercial and agricultural ..........       $  66,369,814        $  66,119,092
Real estate ..........................         272,790,845          250,087,154
Consumer .............................          13,208,113           11,061,689
Other ................................          10,034,281            8,859,704
                                             ----------------------------------
                                               362,403,053          336,127,639
Less:
  Allowance for loan losses ..........          (6,050,989)          (5,757,694)
  Deferred loan fees .................            (818,945)            (776,894)
                                             ----------------------------------
                                             $ 355,533,119        $ 329,593,051
                                             ==================================

                                       45
<PAGE>

Changes in the allowance  for loan losses for the year ended  December 31, 2003,
2002 and 2001 are as follows:

                                          2003           2002           2001
                                      -----------------------------------------

Balance, beginning ................   $ 5,757,694    $ 5,445,671    $ 5,373,167
  Provision for loan losses .......       645,447        688,431        897,540
  Recoveries of loans charged-off .       111,926         53,805         27,131
  Loans charged-off ...............      (464,078)      (430,213)      (852,167)
                                      -----------------------------------------
Balance, ending ...................   $ 6,050,989    $ 5,757,694    $ 5,445,671
                                      =========================================

Loans are made in the normal  course of  business  to  directors  and  executive
officers  of the  Company  and to their  affiliates.  The terms of these  loans,
including  interest rates and  collateral,  are similar to those  prevailing for
comparable  transactions  with others and do not involve more than a normal risk
of collectibility.

Loan  transactions  with  related  parties  were as follows  for the years ended
December 31, 2003 and 2002:

                                                   2003                 2002
                                               --------------------------------

Balance, beginning of year .............       $  7,791,668        $  4,755,229
  New loans ............................         19,425,895          11,533,030
  Repayments ...........................        (16,650,452)         (8,365,219)
  Change in status .....................            424,173            (131,372)
                                               --------------------------------
Balance, end of year ...................       $ 10,991,284        $  7,791,668
                                               ================================

At December 31, 2003 and 2002, the Company had impaired  loans of  approximately
$2,187,075 and $2,409,000,  respectively.  The allowance for loan losses related
to these impaired loans was approximately  $134,000 and $212,000 at December 31,
2003 and 2002,  respectively.  The average  balances  of impaired  loans for the
years  ended  December  31,  2003 and  2002,  were  $2,050,154  and  $2,532,000,
respectively.  For the years ended  December 31, 2003,  2002,  and 2001 interest
income which would have been recorded under the original terms of such loans was
approximately  $179,000,  $160,000,  and $243,000  respectively,  with $177,000,
$17,000 and $114,000,  respectively,  recorded.  Loans greater than 90 days past
due and still  accruing  interest  were  approximately  $431,000 and $394,000 at
December 31, 2003 and 2002, respectively.

The amount the Company  will  ultimately  realize  from these loans could differ
materially  from their carrying value because of future  developments  affecting
the underlying  collateral or the borrowers'  ability to repay the loans.  As of
December 31, 2003,  there were no material  commitments to lend additional funds
to customers whose loans were classified as impaired.

Note 5.  Bank Premises and Equipment

The major  classes of bank  premises  and  equipment  and the total  accumulated
depreciation as of December 31, 2003 and 2002, are as follows:

                                                       2003              2002
                                                   -----------------------------

Land .......................................       $ 1,284,771       $ 1,284,771
Buildings and improvements .................         9,120,088         9,178,368
Furniture and equipment ....................         5,721,259         5,945,231
                                                   -----------------------------
                                                    16,126,118        16,408,370

Less accumulated depreciation ..............         7,748,311         7,681,973
                                                   -----------------------------
                                                   $ 8,377,807       $ 8,726,397
                                                   =============================

                                       46
<PAGE>

Note 6.  Deposits

At December 31, 2003, the maturities of time deposits are as follows:

Years ended December 31,
2004                                                             $ 155,017,653
2005                                                                42,955,122
2006                                                                17,372,503
2007                                                                19,113,326
2008                                                                 8,877,984
Thereafter                                                             143,946
                                                                 -------------
                                                                 $ 243,480,534
                                                                 =============

Interest expense on deposits is summarized as follows:

                                         2003            2002            2001
                                     -------------------------------------------

NOW accounts ...................     $   909,137     $ 1,155,459     $ 2,060,963
Savings and money market .......       1,849,238       2,237,034       3,665,428
Time, $100,000 and over ........       1,807,047       1,897,855       3,329,175
Other time .....................       5,479,756       6,106,777       8,735,748
                                     -------------------------------------------
                                     $10,045,178     $11,397,125     $17,791,314
                                     ===========================================

Note 7.  Employee Benefit Plans

The Company has a stock purchase plan with the objective of  encouraging  equity
interests  by  officers,  employees,  and  directors  of  the  Company  and  its
subsidiaries to provide additional  incentive to improve banking performance and
retain  qualified  individuals.  The  purchase  price of the  shares is the fair
market value of the stock based upon current market trading activity.  The terms
of the plan provide for the issuance of up to 14,000  shares of common stock per
year for a ten-year period commencing in 1999 and continuing through 2008.

Prior to 2002,  the  Company had a qualified  401(k)  profit-sharing  plan and a
qualified money purchase pension plan. The qualified money purchase pension plan
was merged into the 401(k)  profit-sharing  plan beginning  January 1, 2002 with
the merged plans  covering  substantially  all  employees.  The Company  matches
employee  contributions up to a maximum of 2% of qualified compensation and also
contributes an amount equal to 5% of the participating  employee's compensation.
In addition,  contributions can be made on a discretionary basis by the combined
Company on behalf of the employees.  For the years ended December 31, 2003, 2002
and 2001, Company contributions to the merged plans were approximately $659,000,
$607,000, and $473,000, respectively.

Note 8.  Income Taxes

The components of income tax expense for the year ended December 31, 2003,  2002
and 2001 are as follows:

                                  Current            Deferred            Total
                               -------------------------------------------------
2003:
  Federal ..............       $ 3,482,686        $  (266,898)       $ 3,215,788
  State ................         1,122,852            (17,853)         1,104,999
                               -------------------------------------------------
                               $ 4,605,538        $  (284,751)       $ 4,320,787
                               =================================================

2002:
  Federal ..............       $ 3,819,350        $  (184,965)       $ 3,634,385
  State ................           819,039            (15,048)           803,991
                               -------------------------------------------------
                               $ 4,638,389        $  (200,013)       $ 4,438,376
                               =================================================

2001:
  Federal ..............       $ 4,028,481        $  (110,851)       $ 3,917,630
  State ................           739,939            (18,763)           721,176
                               -------------------------------------------------
                               $ 4,768,420        $  (129,614)       $ 4,638,806
                               =================================================

                                       47
<PAGE>

Total income tax expense differed from the amounts computed by applying the U.S.
federal  income tax rate of 35% to income before income taxes is a result of the
following for the years ended December 31, 2003, 2002 and 2001:

                                          2003           2002           2001
                                      -----------------------------------------

Computed "expected" tax expense ...   $ 5,580,915    $ 5,364,695    $ 5,163,289
Tax exempt interest and dividends .    (1,577,116)    (1,356,187)    (1,222,985)
State taxes and other .............       316,988        429,868        698,502
                                      -----------------------------------------
                                      $ 4,320,787    $ 4,438,376    $ 4,638,806
                                      =========================================

The tax effects of temporary  differences that give rise to significant portions
of the  deferred tax assets and  deferred  liabilities  at December 31, 2003 and
2002, are as follows:

                                                        2003             2002
                                                    ---------------------------

Deferred tax assets:
  Allowance for loan losses ....................    $ 1,741,344     $ 1,636,575
  Other ........................................        297,041         161,867
                                                    ---------------------------
        Total gross deferred tax assets ........      2,038,385       1,798,442
                                                    ---------------------------

Deferred tax liabilities:
  Unrealized gain on securities ................     (5,236,346)     (4,591,984)
  Other ........................................        (40,704)        (85,515)
                                                    ---------------------------
        Total gross deferred tax liabilities ...     (5,277,050)     (4,677,499)
                                                    ---------------------------

        Net deferred tax liabilities ...........    $(3,238,665)    $(2,879,057)
                                                    ===========================

At December 31, 2003 and 2002,  income taxes currently  payable of approximately
$390,000 and $338,000,  respectively, are included in accrued interest and other
liabilities.

Note 9.  Commitments, Contingencies and Concentrations of Credit Risk

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business.  These financial  instruments  include commitments to
extend  credit and standby  letters of credit.  These  instruments  involve,  to
varying degrees,  elements of credit risk in excess of the amount  recognized in
the balance sheet.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit is  represented  by the  contractual  amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet  instruments.  A summary
of the Company's commitments at December 31, 2003 and 2002 is as follows:

                                                     2003                2002
                                                  ------------------------------

Commitments to extend credit .............        $71,100,000        $59,410,000
Standby letters of credit ................          1,741,000          1,490,000
                                                  ------------------------------
                                                  $72,841,000        $60,900,000
                                                  ==============================

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since many
of the  commitments  are expected to expire  without being drawn upon, the total
commitment amounts do not necessarily  represent future cash  requirements.  The
Bank evaluates each customer's  creditworthiness  on a case-by-case  basis.  The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party.

Standby  letters of credit are  conditional  commitments  issued by the Banks to
guarantee the performance of a customer to a third-party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.  Collateral held varies
and is required in instances  which the Banks deem  necessary.  In the event the
customer does not perform in accordance with the terms of the agreement with the
third  party,  the Banks would be required to fund the  commitment.  The maximum
potential  amount of future  payments  the Banks  could be  required  to make is
represented  by the  contractual  amount  shown  in the  summary  above.  If the
commitments  were funded,  the Banks would be entitled to seek recovery from the
customer.  At  December  31,  2003 and 2002,  no amounts  have been  recorded as
liabilities for the Bank's potential obligations under these guarantees.

                                       48
<PAGE>

In the normal  course of  business,  the Company is  involved  in various  legal
proceedings.  In the opinion of  management,  any liability  resulting from such
proceedings would not have a material adverse effect on the Company's  financial
statements.

Concentrations  of credit risk: The Banks originate real estate,  consumer,  and
commercial loans,  primarily in Story,  Boone,  Hamilton and Marshall  Counties,
Iowa,  and  adjacent   counties.   Although  the  Banks  have  diversified  loan
portfolios,  a substantial portion of their borrowers' ability to repay loans is
dependent upon economic conditions in the Banks' market areas.

Note 10. Regulatory Matters

The Company and its subsidiary banks are subject to various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory - and possible
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Company's  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Company must meet  specific  capital  guidelines  that involve  quantitative
measures of the  Company's  assets,  liabilities  and certain  off-balance-sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to regulatory  accounting practices.
The Company's capital amounts and classification are also subject to qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and each  subsidiary  bank to maintain  minimum  amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2003  and  2002,  that the  Company  and each  subsidiary  bank met all  capital
adequacy requirements to which they are subject.

As of December 31, 2003, the most recent  notification  from the federal banking
regulators  categorized  the  subsidiary  banks as well  capitalized  under  the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
adequately capitalized the banks must maintain minimum total risk-based,  Tier I
risk-based,  and Tier I leverage  ratios as set forth in the  table.  Management
believes  there are no  conditions or events since that  notification  that have
changed the  institution's  category.  The Company's and each of the  subsidiary
bank's  actual  capital  amounts and ratios as of December 31, 2003 and 2002 are
also presented in the table.
<TABLE>
                                                                                             To Be Well
                                                                                          Capitalized Under
                                                                        For Capital       Prompt Corrective
                                                        Actual        Adequacy Purposes   Action Provisions
                                                 ----------------------------------------------------------
                                                  Amount      Ratio    Amount     Ratio   Amount     Ratio
                                                 ----------------------------------------------------------
<S>                                              <C>          <C>      <C>        <C>    <C>         <C>
As of December 31, 2003:
  Total capital (to risk- weighted assets):
    Consolidated .............................   $104,460     20.3%   $ 41,261     8.0%  $    --       --%
    Boone Bank & Trust .......................     12,284     14.9       6,613     8.0     8,267     10.0
    First National Bank ......................     40,460     16.0      20,264     8.0    25,330     10.0
    Randall-Story State Bank .................      7,902     15.5       4,069     8.0     5,087     10.0
    State Bank & Trust .......................     11,509     18.2       5,048     8.0     6,310     10.0
    nited Bank & Trust .......................      5,491     12.0       3,653     8.0     4,566     10.0

Tier 1 capital ( to risk- weighted assets):
  Consolidated ...............................   $ 98,409     19.1%   $ 20,630     4.0%     --     --
  Boone Bank & Trust .........................     11,333     13.7       3,307     4.0     4,960      6.0%
  First National Bank ........................     37,354     14.7      10,132     4.0    15,198      6.0
  Randall-Story State Bank ...................      7,266     14.3       2,035     4.0     3,052      6.0
  State Bank & Trust .........................     10,719     17.0       2,524     4.0     3,786      6.0
  United Bank & Trust ........................      5,011     11.0       1,826     4.0     2,740      6.0

Tier 1 capital ( to average- weighted assets):
  Consolidated ...............................   $ 98,409     13.0%     30,330     4.0%     --     --
  Boone Bank & Trust .........................     11,333     10.2       4,442     4.0     5,553      5.0%
  First National Bank ........................     37,354      9.8      15,179     4.0    18,974      5.0
  Randall-Story State Bank ...................      7,266     10.2       2,840     4.0     3,551      5.0
  State Bank & Trust .........................     10,719      9.9       4,343     4.0     5,429      5.0
  United Bank & Trust ........................      5,011      7.3       2,741     4.0     3,426      5.0
</TABLE>

                                       49
<PAGE>

<TABLE>
                                                                                          To Be Well
                                                                                       Capitalized Under
                                                                      For Capital      Prompt Corrective
                                                       Actual      Adequacy Purposes   Action Provisions
                                                 -------------------------------------------------------
                                                  Amount    Ratio   Amount     Ratio   Amount     Ratio
                                                 -------------------------------------------------------
<S>                                              <C>        <C>     <C>        <C>     <C>        <C>
As of December 31, 2002:
  Total capital (to risk- weighted assets):
  Consolidated ...............................   $99,398    21.8%   $36,439     8.0%   $    --      --%
  Boone Bank & Trust .........................    11,516    15.3      6,006     8.0      7,508     10.0
  First National Bank ........................    38,650    16.4     18,878     8.0     23,598     10.0
  Randall-Story State Bank ...................     7,684    15.9      3,855     8.0      4,819     10.0
  State Bank & Trust .........................    11,087    17.1      5,181     8.0      6,476     10.0
  United Bank & Trust ........................     4,642    31.0      1,198     8.0      1,497     10.0

Tier 1 capital ( to risk- weighted assets):
  Consolidated ...............................   $93,704    20.6%   $18,220     4.0%   $    --       --%
  Boone Bank & Trust .........................    10,577    14.1      3,003     4.0      4,504      6.0
  First National Bank ........................    35,700    15.1      9,439     4.0     14,159      6.0
  Randall-Story State Bank ...................     7,081    14.7      1,927     4.0      2,891      6.0
  State Bank & Trust .........................    10,276    15.9      2,590     4.0      3,886      6.0
  United Bank & Trust ........................     4,476    29.9        599     4.0        898      6.0

Tier 1 capital ( to average- weighted assets):
  Consolidated ...............................   $93,704    14.1%    26,669     4.0%   $    --       --%
  Boone Bank & Trust .........................    10,577    10.6      3,995     4.0      4,993      5.0
  First National Bank ........................    35,700     9.8     14,565     4.0     18,206      5.0
  Randall-Story State Bank ...................     7,081    11.0      2,585     4.0      3,231      5.0
  State Bank & Trust .........................    10,276    10.0      4,126     4.0      5,157      5.0
  United Bank & Trust ........................     4,476    18.1        990     4.0      1,238      5.0
</TABLE>

Note 11. Fair Value of Financial Instruments

The estimated fair values of the Company's  financial  instruments (as described
in Note 1) as of December 31, 2003 and 2002 were as follows:
<TABLE>
                                                                      2003                          2002
                                                          ---------------------------------------------------------
                                                            Carrying        Fair          Carrying         Fair
                                                             Amount         Value          Amount          Value
                                                          ---------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>
Financial assets:
  Cash and due from banks .............................   $ 31,982,144   $ 31,982,144   $ 51,688,784   $ 51,688,784
  Federal funds sold ..................................     20,380,000     20,380,000     32,500,000     32,500,000
  Interest-bearing deposits ...........................      6,363,538      6,363,538      1,000,000      1,000,000
  Securities available-for-sale .......................    323,115,914    323,115,914    244,575,026    244,575,026
  Loans, net ..........................................    355,533,119    358,891,066    329,593,051    338,551,554
  Loans held for sale .................................        859,139        859,139      2,713,446      2,713,446
  Accrued income receivable ...........................      5,842,247      5,842,247      5,849,017      5,849,017
Financial liabilities:
  Deposits ............................................    619,548,527    623,208,058    550,622,379    555,271,000
  Other borrowings ....................................     18,198,403     18,198,403     18,325,574     18,325,574
  Accrued interest ....................................      1,361,819      1,361,819      1,527,752      1,527,752


                                                             Notional     Unrealized      Notional      Unrealized
                                                              Amount      Gain (Loss)      Amount       Gain (Loss)
                                                          ----------------------------------------------------------

Off-balance sheet items:
  Commitments to extend credit ........................   $ 71,100,000   $         --   $ 59,410,000   $         --
  Standby letters of credit ...........................      1,741,000             --      1,490,000             --
</TABLE>

                                       50
<PAGE>

Note 12. Ames National Corporation (Parent Company Only) Financial Statements

Information relative to the Parent Company's balance sheets at December 31, 2003
and 2002,  and  statements of income and cash flows for each of the years in the
three-year period ended December 31, 2003, is as follows:

                             BALANCE SHEETS
                       December 31, 2003 and 2002
<TABLE>
                                                          2003            2002
                                                     ------------------------------
<S>                                                  <C>              <C>
ASSETS

Cash and due from banks ..........................   $       1,213    $       6,602
Interest-bearing deposits in banks ...............       1,588,995        1,396,656
Securities available-for-sale ....................      33,654,060       27,874,394
Investment in bank subsidiaries ..................      76,105,383       73,646,869
Loans receivable, net ............................            --            706,968
Premises and equipment, net ......................         475,551          517,707
Accrued income receivable ........................         151,335          213,133
Other assets .....................................           7,198          155,785
                                                     ------------------------------
        Total assets .............................   $ 111,983,735    $ 104,518,114
                                                     ==============================

LIABILITIES
  Dividends payable ..............................   $   1,441,204    $   1,376,752
  Deferred income taxes ..........................       2,528,955        1,266,922
  Accrued expenses and other liabilities .........         688,581          351,584
                                                     ------------------------------
        Total liabilities ........................       4,658,740        2,995,258
                                                     ------------------------------

STOCKHOLDERS' EQUITY
  Common stock ...................................      15,766,150       15,766,150
  Additional paid-in capital .....................      25,351,979       25,354,014
  Retained earnings ..............................      58,400,660       53,917,544
  Treasury stock, at cost ........................      (1,109,735)      (1,333,640)
  Accumulated other comprehensive income .........       8,915,941        7,818,788
                                                     ------------------------------
        Total equity .............................     107,324,995      101,522,856
                                                     ------------------------------

        Total liabilities and stockholders' equity   $ 111,983,735    $ 104,518,114
                                                     ==============================
</TABLE>

                                       51
<PAGE>
                              STATEMENTS OF INCOME

                  Years Ended December 31, 2003, 2002 and 2001
<TABLE>
                                                  2003          2002          2001
                                              ---------------------------------------
<S>                                           <C>           <C>           <C>
Operating income:
  Equity in net income of bank subsidiaries   $10,440,180   $10,108,107   $ 9,122,748
  Interest ................................       542,640       745,488       953,071
  Dividends ...............................       962,049       979,071       795,411
  Rents ...................................       140,147       150,894       245,882
  Securities gains, net ...................     1,207,735       881,938     1,092,808
                                              ---------------------------------------
                                               13,292,751    12,865,498    12,209,920
                                              ---------------------------------------

Operating expenses:
  Occupancy expense .......................       163,018       165,447       178,802
  Other ...................................     1,200,048     1,154,913       923,780
                                              ---------------------------------------
                                                1,363,066     1,320,360     1,102,582
                                              ---------------------------------------

        Income before income taxes ........    11,929,685    11,545,138    11,107,338

Income tax expense ........................       305,000       205,000       560,000
                                              ---------------------------------------

        Net income ........................   $11,624,685   $11,340,138   $10,547,338
                                              =======================================
</TABLE>

                                       52
<PAGE>


                       STATEMENTS OF CASH FLOWS
             Years Ended December 31, 2003, 2002 and 2001
<TABLE>
                                                             2003            2002           2001
                                                        --------------------------------------------
<S>                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income ........................................   $ 11,624,685    $ 11,340,138    $ 10,547,338
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation ....................................         77,132          80,620          66,781
    Provision for loan losses .......................        (16,000)             --              --
    Amortization and accretion, net .................         (8,014)        (16,060)        (13,493)
    Provision for deferred taxes ....................        (36,385)        (56,023)             --
    Securities gains, net ...........................     (1,207,735)       (881,938)     (1,092,808)
    Undistributed net income of bank subsidiaries ...     (2,572,180)     (4,130,107)     (1,994,748)
    (Increase) decrease in accrued income receivable          61,798       1,446,277         (18,340)
    (Increase) decrease in other assets .............        148,587        (130,281)        308,207
    Increase (decrease) in accrued expense payable
      and other liabilities .........................        336,997         246,165         103,631
                                                        --------------------------------------------
        Net cash provided by operating activities ...      8,408,885       7,898,791       7,906,568
                                                        --------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of securities available-for-sale .........     (7,292,720)     (7,334,938)    (10,244,488)
  Proceeds from sale of securities available-for-sale      4,067,605       8,611,304       4,025,880
  Proceeds from maturities and calls of securities
    available-for-sale ..............................      2,170,435       2,196,163       2,024,595
  (Increase) decrease in interest bearing deposits
    in banks ........................................       (192,339)        769,809      (1,017,101)
  (Increase) decrease in loans ......................        722,968        (448,741)      2,400,844
  Purchase of bank premises and equipment ...........        (34,976)        (95,226)        (79,194)
  Investment in bank subsidiaries ...................     (1,000,000)     (5,000,000)
                                                        --------------------------------------------
        Net cash (used in) investing activities .....     (1,559,027)     (1,301,629)     (2,889,464)
                                                        --------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid ....................................     (7,077,117)     (6,755,449)     (5,123,026)
  Proceeds from issuance of treasury stock ..........        221,870         158,151         110,834
                                                        --------------------------------------------
        Net cash (used in) financing activities .....     (6,855,247)     (6,597,298)     (5,012,192)
                                                        --------------------------------------------

        Net increase (decrease) in cash and
        cash equivalents ............................         (5,389)           (136)          4,912

CASH AND CASH EQUIVALENTS
  Beginning .........................................          6,602           6,738           1,826
                                                        --------------------------------------------
  Ending ............................................   $      1,213    $      6,602    $      6,738
                                                        ============================================
</TABLE>

                                       53
<PAGE>

Note 13.  Selected Quarterly Financial Data (Unaudited)
<TABLE>

                                                       March 31     June 30    September 30   December 31
                                                      ---------------------------------------------------
                                                                             2003
                                                      ---------------------------------------------------
<S>                                                   <C>          <C>          <C>           <C>
Total interest income .............................   $8,714,233   $8,876,124   $8,818,046    $8,905,337
Total interest expense ............................    2,690,209    2,723,323    2,467,155     2,458,095
Net interest income ...............................    6,024,024    6,152,801    6,350,891     6,447,242
Provision for loan losses .........................      119,745      305,995       87,000       132,707
Net income ........................................    2,870,325    2,649,229    3,240,642     2,864,489
Earnings per common share .........................         0.92         0.85         1.03          0.91

                                                                             2002
                                                       ------------------------------------------------

Total interest income .............................   $9,095,844   $9,170,613   $9,051,618    $8,952,598
Total interest expense ............................    3,062,094    3,031,178    2,809,797     2,759,901
Net interest income ...............................    6,033,750    6,139,435    6,241,821     6,192,697
Provision for loan losses .........................      104,219      111,265       80,640       392,307
Net income ........................................    2,940,930    2,740,935    2,952,283     2,705,990
Earnings per common share .........................         0.94         0.88         0.94          0.87
</TABLE>

                                       54
<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

There have been no changes in or  disagreements  with the Company's  independent
accountants during the two most recently ended fiscal years of the Company.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The principal  executive officer and principal  financial officer of the Company
have  evaluated  the  effectiveness  of the  Company's  disclosure  controls and
procedures (as such terms are defined in Rules 13a-15(e) and 15d-14(c) under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this annual report (the  "Evaluation  Date").  Based on
such  evaluation,  such officers have concluded that, as of the Evaluation Date,
the Company's  disclosure  controls and  procedures are effective in bringing to
their attention on a timely basis material  information  relating to the Company
(including  its  consolidated  subsidiaries)  required  to be  included  in  the
Company's periodic filings under the Exchange Act.

Changes in Internal Controls

There was no change in the Company's  internal control over finacnial  reporting
identified in connection  with the evaluation  required by Rule 13a-15(d) of the
Exchange Act that  occurred  during the Company's  last fiscal  quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

Refer to the information under the caption "Information  Concerning Nominees for
Election  as  Directors"  and  "Information   Concerning  Directors  Other  Than
Nominees"  contained in the Company's  definitive  proxy  statement  prepared in
connection with its Annual Meeting of Shareholders to be held April 28, 2004, as
filed with the SEC on or about  March 12, 2004 (the  "Proxy  Statement"),  which
information is incorporated herein by this reference.

Executive Officers

The following table sets forth summary  information about the executive officers
of the Company and certain  executive  officers of the Banks.  Unless  otherwise
indicated,  each  executive  officer has served in his current  position for the
past five years.

                                Position with the Company or Bank and Principal
                                Occupation and  Employment During the Past Five
Name                    Age     Years
--------------------------------------------------------------------------------

Kevin G. Deardorff      49      Vice President & Technology Director of the
                                Company.
Leo E. Herrick          62      President of United Bank commencing June, 2002.
                                Previously employeed as Chairman of the Board
                                and President of F&M Bank-Iowa, Marshalltown,
                                Iowa.
Daniel L. Krieger       67      Chairman of the Company since 2003 and President
                                of Company since 1997.  Previously served as
                                President of First National. Also serves as a
                                Director of the Company, Chairman of the Board
                                and Trust Officer of First National and Chairman
                                of the Board of Boone Bank and United Bank.
Stephen C. McGill       49      President of State Bank. Previously served as
                                Senior Vice President of State Bank.
John P. Nelson          37      Vice President, Secretary and Treasurer of
                                Company.
Thomas H. Pohlman       53      President of First National since 1999.
                                Previously employed as Senior Vice President
                                of First National.
Jeffrey K. Putzier      42      President of Boone Bank since 1999. Previously
                                employed as Vice President of State Bank.
Harold E. Thompson      58      President of Randall Story Bank. Previously
                                served as Executive Vice President of Randall
                                Story Bank.
Terrill L. Wycoff       60      Executive Vice President of First National since
                                2000. Previously employed as Senior Vice
                                President of First National.

                                       55
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Refer to the information under the captions "Section 16(a) Beneficial  Ownership
Reporting Compliance" in the Proxy Statement,  which information is incorporated
herein by this reference.

Audit Committee Financial Expert

The board of directors of the Company has  determined  that Warren R. Madden,  a
member of the  Audit  Committee,  qualifies  as an  "audit  committee  financial
expert"  under  applicable  SEC  rules.  The  board  of  directors  has  further
determined  that  Mr.  Madden  qualifies  as  an  "independent"  director  under
applicable  SEC rules and the  corporate  governance  rules of the NASDAQ  stock
market.  The board's  affirmative  determination was based,  among other things,
upon Mr.  Madden's  experience as Vice President of Finance and Business of Iowa
State  University,  a position in which he functions as the principal  financial
officer of the university.

Code of Ethics

The Company has adopted a Finance Code of Ethics that  applies to its  principal
executive officer and principal financial officer. A copy of the Finance Code of
Ethics is posted on the Company's website at www.amesnational.com.  In the event
that the Company makes any  amendments to, or grants any waivers of, a provision
of the Finance Code of Ethics that  requires  disclosure  under  applicable  SEC
rules, the Company intends to disclose such amendments or waiver and the reasons
therefore on its website.

ITEM 11.  EXECUTIVE COMPENSATION

Refer to the information under the captions "Information Concerning the Board of
Directors-  Director  Compensation"  and "Executive  Compensation"  in the Proxy
Statement, which information is incorporated herein by this reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Refer to the information under the caption "Security Ownership of Management and
Certain  Beneficial  Owners"  in  the  Proxy  Statement,  which  information  is
incorporated herein by this reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Refer to the  information  under the caption  "Loans to Directors  and Executive
Officers  and  Related  Party  Transactions"  in  the  Proxy  Statement,   which
information is incorporated herein by this reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Refer to the information under the caption "Relationship with Independent Public
Accountants" in the Proxy Statement, which information is incorporated herein by
this reference.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      List of Financial Statements and Schedules.

         1.  Financial Statements

               Report of McGladrey & Pullen, LLP,  Independent Auditor
               Consolidated Balance Sheets, December 31, 2003 and 2002
               Consolidated  Statements of Income for the Years ended
                 December 31, 2003, 2002 and 2001
               Consolidated Statements of Stockholders' Equity for
                 the Years ended December 31, 2003, 2002 and 2001
               Consolidated Statements of Cash Flows for the Years ended
                 December 31, 2003, 2002 and 2001
               Notes to Consolidated Financial Statements

         2.  Financial Statement 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.

                                       56
<PAGE>

(b)       Reports on Form 8-K.

          On October 17, 2003,  the Company  filed a Current  Report on Form 8-K
          pursuant to Item 5,  announcing  net  earnings  for the three and nine
          months ended September 30, 2003.

(c)      Exhibits.

             3.1  -  Restated   Articles   of   Incorporation   of  the  Company
                     (incorporated by reference to Form 10 filed on April 30,
                     2001).
             3.2  -  Bylaws of the Company.
             10   -  Management Incentive Compensation Plan (incorporated by
                     reference to Form 10K filed on March 25, 2002).
             21   -  Subsidiaries of the Registrant.
             23   -  Consent of Accountants-McGladrey & Pullen, LLP
             31.1 -  Certification of Principal Executive Officer Pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002
             31.2 -  Certification of Principal Financail Officer Pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002
             32.1 -  Certification of Principal Executive Officer Pursuant
                     to 18 U.S.C. Section 1350
             32.2 -  Certification of Principal Executive Officer Pursuant
                     to 18 U.S.C. Section 1350

                                       57
<PAGE>
                                   SIGNATURES

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

                                    AMES NATIONAL CORPORATION

March 12, 2004                      By:  /s/ Daniel L. Kreiger
                                    --------------------------------------------
                                    Daniel L. Krieger, Chairman and President
                                    (Principle Executive Officer)


March 12, 2004                      By:  /s/ John P. Nelson
                                    --------------------------------------------
                                    John P. Nelson, Vice President
                                    (Principal Financial and Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on March 12, 2004.


                                     /s/ Betty A. Baudler
                                     -------------------------------------------
                                     Betty A. Baudler, Director

                                     /s/ James R. Christy
                                     -------------------------------------------
                                     James R. Christy, Director

                                     /s/ Robert L. Cramer
                                     -------------------------------------------
                                     Robert L. Cramer, Director

                                     /s/ Douglas C. Gustafson
                                     -------------------------------------------
                                     Douglas C. Gustafson, Director

                                     /s/ Charles D. Jons
                                     -------------------------------------------
                                     Charles D. Jons, Director

                                     /s/ James R. Larson
                                     -------------------------------------------
                                     James R. Larson II, Director

                                     /s/ Warren R. Madden
                                     -------------------------------------------
                                     Warren R. Madden, Director

                                     /s/ Marvin J. Walter
                                     -------------------------------------------
                                     Marvin J. Walter, Director


                                       58

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>4
<FILENAME>amesbylaws.txt
<TEXT>
                                                                     Exhibit 3.2


                                                               February 11, 2004

                                     BYLAWS
                                       OF

                            AMES NATIONAL CORPORATION
                              (an Iowa Corporation)
                   (hereinafter referred to as "Corporation")

                                    ARTICLE 1
                                PRINCIPAL OFFICE

The location of the  principal  office of the  Corporation  in the State of Iowa
will be  identified  in the  Corporation's  annual  report  filed  with the Iowa
Secretary of State.

                                    ARTICLE 2
                           REGISTERED OFFICE AND AGENT

The initial  registered agent and office of the Corporation are set forth in the
Articles of Incorporation.  The registered agent or registered  office, or both,
may be changed by resolution of the Board of Directors.

                                    ARTICLE 3
                            MEETINGS OF SHAREHOLDERS

Section 3.1 Annual Meeting.

(a)  The annual  meeting of the  shareholders  for the election of directors and
     for the  transaction of such other business as may properly come before the
     meeting,  shall be held on the last Wednesday in April of each year at such
     place as the board of  directors  shall  each year  fix,  or at such  other
     place,  time and date as the board of directors shall fix, which date shall
     be  within  the  earlier  of the  first  six  months  after  the end of the
     Corporation's  fiscal year or fifteen (15) months  after the  shareholders'
     last annual meeting.

(b)  At the annual  meeting of the  shareholders,  only such  business  shall be
     conducted as shall have been  properly  brought  before the meeting.  To be
     properly brought before an annual meeting,  business must be: (A) specified
     in the notice of meeting  (or any  supplement  thereto)  given by or at the
     direction of the board of directors,  (B) otherwise properly brought before
     the  meeting  by or at the  direction  of the  board of  directors,  or (C)
     otherwise  properly  brought  before  the  meeting  by a  shareholder.  For
     business to be properly  brought before an annual meeting by a shareholder,
     the  shareholder  must have given timely  notice  thereof in writing to the
     secretary of the Corporation.  To be timely, a shareholder's notice must be
     delivered to or be mailed and received at the principal  executive  offices
     of the  Corporation not less than one hundred twenty (120) calendar days in
     advance of the date specified in the Corporation's proxy statement released
     to  shareholders  in connection  with the previous year's annual meeting of
     shareholders;  provided,  however, that in the event that no annual meeting
     was held in the  previous  year or the date of the annual  meeting has been
     changed by more than  thirty  (30) days from the date  contemplated  at the
     time of the previous year's proxy  statement,  notice by the shareholder to
     be timely must be so  received  not later than the close of business on the
     later of one hundred  twenty (120)  calendar days in advance of such annual
     meeting  or ten (10)  calendar  days  following  the  date on which  public
     announcement  of the date of the  meeting is first  made.  A  shareholder's
     notice to the secretary  shall set forth as to each matter the  shareholder
     proposes to bring before the annual meeting: (i) a brief description of the
     business  desired to be brought  before the annual  meeting and the reasons
     for  conducting  such  business  at the annual  meeting,  (ii) the name and
     address,  as they appear on the  Corporation's  books,  of the  shareholder
     proposing  such  business,  (iii)  the  class  and  number of shares of the
     Corporation  which  are  beneficially  owned by the  shareholder,  (iv) any
     material  interest of the  shareholder in such business,  and (v) any other
     information that is required to be provided by the shareholder  pursuant to
     Regulation 14A under the  Securities  Exchange Act of 1934, as amended (the
     "1934  Act"),  in his capacity as a proponent  of a  shareholder  proposal.
     Notwithstanding the foregoing, in order to include information with respect
     to a  shareholder  proposal in the proxy  statement and form of proxy for a
     shareholder's meeting, a shareholder must provide notice as required by the
     regulations  promulgated  under the 1934 Act.  Notwithstanding  anything in
     these Bylaws to the contrary,  no business shall be conducted at any annual
     meeting  except  in  accordance  with  the  procedures  set  forth  in this
     paragraph  (b).  The  chairman of the annual  meeting  shall,  if the facts
     warrant,  determine  and  declare  at the  meeting  that  business  was not
     properly  brought  before the meeting in accordance  with the provisions of
     this paragraph (b), and, if he should so determine,  he shall so declare at
     the meeting that any such business not properly  brought before the meeting
     shall not be transacted.

                                       1
<PAGE>

(c)  Only persons who are nominated in accordance  with the procedures set forth
     in this  paragraph  (c)  shall  be  eligible  for  election  as  directors.
     Nominations  of  persons  for  election  to the board of  directors  of the
     Corporation may be made at a meeting of shareholders by or at the direction
     of the board of directors or by any shareholder of the Corporation entitled
     to vote in the election of  directors at the meeting who complies  with the
     notice procedures set forth in this paragraph (c). Such nominations,  other
     than those made by or at the direction of the board of directors,  shall be
     made  pursuant  to  timely  notice  in  writing  to  the  secretary  of the
     Corporation  in  accordance  with the  provisions  of paragraph (b) of this
     Section  3.1.  Such  shareholder's  notice  shall  set forth (i) as to each
     person,  if any, whom the shareholder  proposes to nominate for election or
     re-election  as a  director:  (A)  the  name,  age,  business  address  and
     residence  address  of  such  person,  (B)  the  principal   occupation  or
     employment  of such  person,  (C) the  class  and  number  of shares of the
     Corporation which are beneficially  owned by such person, (D) a description
     of all  arrangements  or  understandings  between the  shareholder and each
     nominee  and any other  person or persons  (naming  such person or persons)
     pursuant to which the  nominations are to be made by the  shareholder,  and
     (E)any  other  information  relating  to such person that is required to be
     disclosed in  solicitations  of proxies for elections of  directors,  or is
     otherwise required,  in each case pursuant to Regulation 14A under the 1934
     Act (including  without  limitation such person's  written consent to being
     named in the proxy  statement,  if any,  as a nominee  and to  serving as a
     director if elected);  and (ii) as to such shareholder  giving notice,  the
     information  required to be  provided  pursuant  to  paragraph  (b) of this
     Section 3.1. At the request of the board of directors, any person nominated
     by a shareholder  for election as a director shall furnish to the secretary
     of  the  Corporation  that  information  required  to be set  forth  in the
     shareholder's notice of nomination which pertains to the nominee. No person
     shall be eligible  for  election as a director  of the  Corporation  unless
     nominated by or at the  direction of the board of directors or nominated in
     accordance  with the  procedures  set  forth  in this  paragraph  (c).  The
     chairman of the meeting shall, if the facts warrant,  determine and declare
     at the  meeting  that a  nomination  was not  made in  accordance  with the
     procedures  prescribed by these Bylaws,  and if he should so determine,  he
     shall so declare at the  meeting,  and the  defective  nomination  shall be
     disregarded. The name of any person nominated by a shareholder for election
     as a director in compliance  with this Section 3.1(c) shall be submitted to
     the  Corporation's  nominating  committee for evaluation in accordance with
     the nominating  committee charter,  provided that the nominating  committee
     shall be entitled to exercise its discretion in determining whether, on the
     basis of such evaluation, to recommend the person to the board of directors
     as a nominee for election as a director.

Section 3.2 Special  Meetings.  Special  meetings of the  shareholders,  for any
purpose or purposes,  unless otherwise  prescribed by law (which for purposes of
these  bylaws  shall  mean as  required  from time to time by the Iowa  Business
Corporation Act or the articles of  incorporation  of the  Corporation),  may be
called by the Chairman of the Board,  President or the board of  directors,  and
shall be called by the board of directors upon the written demand, signed, dated
and  delivered to the  Secretary,  of the holders of at least ten percent of all
the votes  entitled  to be cast on any issue  proposed to be  considered  at the
meeting.  Such written demand shall state the purpose or purposes for which such
meeting is to be called.  The time,  date and place of any special meeting shall
be determined by the board of directors, by the Chairman of the Board, or by the
President.

Section 3.3 Notices and Reports to Shareholders.

(a)  Notice of the place,  date and time of all meetings of shareholders and, in
     the case of a  special  meeting,  the  purpose  or  purposes  for which the
     meeting is called,  shall be communicated  not fewer than ten (10) days nor
     more  than  sixty  (60)  days  before  the  date  of the  meeting  to  each
     shareholder  entitled to vote at such  meeting.  The board of directors may
     establish a record date for the  determination of shareholders  entitled to
     notice,  as provided in section 3.5 of these  bylaws.  Notice of  adjourned
     meetings  need only be given if  required  by law or  section  3.7 of these
     bylaws.

(b)  In the event (i) of the  issuance,  or the  authorization  for  issuance of
     shares for promissory  notes or promises to render  services in the future,
     or (ii) of any  indemnification of or advancement of expenses to a director
     required by law to be  reported  to  shareholders,  the  Corporation  shall
     report the same to the  shareholders  with or before the notice of the next
     shareholders'  meeting,  including,  in the case of issuance of shares, the
     number of shares and the consideration received.

                                       2
<PAGE>

(c)  In the event corporate action is taken without a meeting in accordance with
     section 3.12 of these bylaws by less than unanimous written consent, prompt
     notice  of the  taking  of such  corporate  action  shall be given to those
     shareholders who have not consented in writing.

(d)  If notice of  proposed  corporate  action is required by law to be given to
     shareholders  not entitled to vote and the action is to be taken by consent
     of the voting  shareholders,  the Corporation  shall give all  shareholders
     written  notice of the  proposed  action at least ten (10) days  before the
     action is taken.  The notice  must  contain or be  accompanied  by the same
     material  that  would have been  required  to be sent to  shareholders  not
     entitled to vote in a notice of meeting at which the proposed  action would
     have been submitted to the shareholders for action.

Section 3.4 Waiver of Notice.

(a)  Any  shareholder may waive any notice required by law or these bylaws if in
     writing  and signed by any  shareholder  entitled to such  notice,  whether
     before or after  the date and time  stated  in such  notice.  Such a waiver
     shall be equivalent to notice to such  shareholder  in due time as required
     by law  or  these  bylaws.  Any  such  waiver  shall  be  delivered  to the
     Corporation  for  inclusion  in the  minutes or filing  with the  corporate
     records.

(b)  A shareholder's  attendance at a meeting, in person or by proxy, waives (i)
     objection to lack of notice or defective notice of such meeting, unless the
     shareholder   at  the  beginning  of  the  meeting  or  promptly  upon  the
     shareholder's  arrival  objects  to  holding  the  meeting  or  transacting
     business  at  the  meeting,  and  (ii)  objection  to  consideration  of  a
     particular matter at the meeting that is not within the purpose or purposes
     described  in  the  meeting  notice,  unless  the  shareholder  objects  to
     considering the matter when it is presented.

Section 3.5 Record Date.  The board of directors may fix, in advance,  a date as
the record date for any determination of shareholders for any purpose, such date
in every case to be not more than  seventy  (70) days prior to the date on which
the particular action or meeting requiring such determination of shareholders is
to be taken or held.  If no  record  date is so fixed for the  determination  of
shareholders,  the close of  business  on the day  before  the date on which the
first notice of a  shareholders'  meeting is communicated to shareholders or the
date  on  which  the  board  of  directors  authorizes  a  share  dividend  or a
distribution (other than one involving a repurchase or reacquisition of shares),
as the  case  may be,  shall  be the  record  date  for  such  determination  of
shareholders.  When a  determination  of  shareholders  entitled  to vote at any
meeting  of  shareholders  has  been  made as  provided  in this  section,  such
determination  shall  apply to any  adjournment  thereof,  unless  the  board of
directors  selects a new record  date or unless a new record date is required by
law.

Section 3.6  Shareholders'  List. After fixing a record date for a meeting,  the
Secretary  shall prepare an alphabetical  list of the names of all  shareholders
who are entitled to notice of a shareholders' meeting. The list must be arranged
by voting group and within each voting  group by class or series of shares,  and
show  the  address  of and  number  of  shares  held  by each  shareholder.  The
shareholders' list must be available for inspection by any shareholder beginning
two (2)  business  days after  notice of the meeting is given for which the list
was prepared and continuing through the meeting, at the Corporation's  principal
office or at a place  identified  in the  meeting  notice in the city  where the
meeting will be held. A shareholder,  or a shareholder's  agent or attorney,  is
entitled on written demand to inspect and,  subject to the  requirements of law,
to copy the list,  during regular  business  hours and at the person's  expense,
during the period it is available for inspection. The Corporation shall make the
shareholders'  list  available  at  the  meeting,  and  any  shareholder,  or  a
shareholder's  agent or  attorney,  is  entitled to inspect the list at any time
during the meeting or any adjournment.

Section 3.7 Quorum.

(a)  At any meeting of the shareholders,  a majority of the votes entitled to be
     cast on the matter by a voting  group  constitutes  a quorum of that voting
     group for action on that matter,  unless the  representation of a different
     number is  required by law,  and in that case,  the  representation  of the
     number so required  shall  constitute  a quorum.  If a quorum shall fail to
     attend any  meeting,  the  chairperson  of the meeting or a majority of the
     votes present may adjourn the meeting to another place, date or time.

                                       3
<PAGE>

(b)  When a meeting is adjourned to another place, date or time, notice need not
     be given of the adjourned  meeting if the place,  date and time thereof are
     announced  at the  meeting  at which the  adjournment  is taken;  provided,
     however, that if the date of any adjourned meeting is more than one hundred
     twenty  (120)  days  after the date for which the  meeting  was  originally
     noticed, or if a new record date is fixed for the adjourned meeting, notice
     of the  place,  date and time of the  adjourned  meeting  shall be given in
     conformity with these bylaws. At any adjourned meeting, any business may be
     transacted which might have been transacted at the original meeting.

(c)  Once a share is  represented  for any  purpose at a  meeting,  it is deemed
     present for quorum  purposes  for the  remainder of the meeting and for any
     adjournment  thereof  unless a new  record  date is or must be set for that
     adjourned meeting.

Section 3.8 Organization.

(a)  The  Chairman  of  the  Board,  or in the  absence  of  the  Chairman,  the
     President,  or in the  President's  absence,  such  person  as the board of
     directors may have  designated,  or, in the absence of such a person,  such
     person as shall be  designated  by the  holders of a majority  of the votes
     present at the meeting,  shall call meetings of the  shareholders  to order
     and shall act as chairperson of such meetings.

(b)  The Secretary of the Corporation  shall act as secretary at all meetings of
     the shareholders, but in the absence of the Secretary at any meeting of the
     shareholders, the chairperson may appoint any person to act as secretary of
     the meeting.

Section 3.9 Voting of Shares.

(a)  Every shareholder  entitled to vote may vote in person or by proxy.  Except
     as provided in  subsection  (c) or unless  otherwise  provided by law, each
     outstanding  share,  regardless of class,  shall be entitled to one vote on
     each  matter  submitted  to a vote at a  meeting  of  shareholders.  Unless
     otherwise provided by law, directors shall be elected by a plurality of the
     votes cast by the shares  entitled to vote in the  election at a meeting at
     which a quorum is present.  Shareholders  do not have the right to cumulate
     their votes for directors unless the articles of incorporation so provide.

(b)  The  shareholders  having the right to vote shares at any meeting  shall be
     only those of record on the stock books of the  Corporation,  on the record
     date fixed by law or  pursuant  to the  provisions  of section 3.5 of these
     bylaws.

(c)  Absent special circumstances,  the shares of the Corporation held, directly
     or  indirectly,  by  another  corporation,  are not  entitled  to vote if a
     majority of the shares  entitled to vote for the  election of  directors of
     such other  corporation is held by the Corporation.  The foregoing does not
     limit  the  power  of the  Corporation  to  vote  any  shares  held  by the
     Corporation in a fiduciary capacity.

(d)  Voting by  shareholders on any question or in any election may be viva voce
     unless the chairperson of the meeting shall order or any shareholder  shall
     demand that voting be by ballot. On a vote by ballot,  each ballot shall be
     signed by the shareholder voting, or in the shareholder's name by proxy, if
     there be such  proxy,  and shall  state the number of shares  voted by such
     shareholder.

(e)  If a  quorum  exists,  action  on a  matter,  other  than the  election  of
     directors,  by a voting  group is  approved  if the votes  cast  within the
     voting group favoring the action exceed the votes cast opposing the action,
     unless a greater number is required by law.

Section 3.10 Voting by Proxy or Representative.

(a)  At all meetings of the  shareholders,  a  shareholder  entitled to vote may
     vote in person or by proxy appointed in writing, which appointment shall be
     effective when received by the secretary of the meeting or other officer or
     agent  authorized to tabulate votes. An appointment of a proxy is valid for
     eleven  months from the date of its  execution,  unless a longer  period is
     expressly provided in the appointment form.

(b)  Shares held by an administrator, executor, guardian, conservator, receiver,
     trustee, pledgee, or another corporation may be voted as provided by law.

                                       4
<PAGE>

Section  3.11  Inspectors.  The board of  directors in advance of any meeting of
shareholders  may (but shall not be obligated  to) appoint  inspectors to act at
such meeting or any adjournment thereof. If inspectors are not so appointed, the
officer or person  acting as  chairperson  of any such  meeting  may, and on the
request  of  any  shareholder  or  the  shareholder's  proxy,  shall  make  such
appointment.  In case any person  appointed as inspector shall fail to appear or
act, the vacancy may be filled by appointment  made by the board of directors in
advance of the  meeting,  or at the meeting by the  officer or person  acting as
chairperson.  The  inspectors  shall register  proxies,  determine the number of
shares  outstanding,  the voting power of each,  the shares  represented  at the
meeting,  the existence of a quorum,  the  authenticity,  validity and effect of
proxies,  receive votes,  ballots,  assents or consents,  hear and determine all
challenges and questions in any way arising in connection  with the vote,  count
and tabulate all votes, assents and consents, determine and announce the result,
and do such acts as may  appear  proper to  conduct  the  election  or vote with
fairness to all  shareholders.  The maximum number of such inspectors  appointed
shall be three, and no inspector  whether appointed by the board of directors or
by the officer or person acting as chairperson need be a shareholder.

Section  3.12 Action  Without  Meeting.  Except as  otherwise  set forth in this
section 3.12,  any action  required or permitted by law to be taken at a meeting
of the  shareholders  may be  taken  without  a  meeting  or vote if one or more
consents in writing  setting forth the action taken shall be signed and dated by
the holders of  outstanding  shares having not less than ninety percent (90%) of
the votes entitled to be cast at a meeting at which all shares  entitled to vote
on the action were present and voted,  and are delivered to the  Corporation for
inclusion  in the  minutes or filing  with the  Corporation's  records.  Written
consents from a sufficient  number of shareholders must be obtained within sixty
(60) days from the date of the earliest  dated  consent for such  consents to be
effective to take corporate action.  Provided,  however, a director shall not be
removed by written  consents  unless  written  consents  are  obtained  from the
holders of all the outstanding shares of the Corporation. If not otherwise fixed
by law or in  accordance  with these  bylaws,  the record  date for  determining
shareholders  entitled  to take  action  without a meeting is the date the first
shareholder signs such a written consent.

Section 3.13 Conduct of Business. The chairperson of any meeting of shareholders
shall  determine the order of business and  procedure at the meeting,  including
such  regulation  of the manner of voting and the conduct of business as seem to
him or her to be in order.

                                    ARTICLE 4
                               BOARD OF DIRECTORS

Section 4.1  Qualifications and General Powers. No director is required to be an
officer or employee or a  shareholder  of the  Corporation  or a resident of the
State of Iowa.  The  business  and affairs of the  Corporation  shall be managed
under the  direction  of the board of  directors.  The  board of  directors  may
authorize any officer or officers,  agent or agents,  to enter into any contract
or to  execute  and  deliver  any  instrument  in the name and on  behalf of the
Corporation,  and  such  authority  may  be  general  or  confined  to  specific
instances.

Section  4.2  Number  of  Directors;  Tenure.  The  number of  directors  of the
Corporation  shall be no fewer than 5 nor more than 25, the exact number  within
such  range to be  determined  from time to time by  resolution  of the board of
directors. The board of directors shall not be authorized to change the range or
to  change  to  a  fixed  number  of  directors  without  the  approval  of  the
shareholders.  Each director shall hold office until his or her successor  shall
have been  elected  and  qualifies,  or until his or her death,  resignation  or
removal.

Section  4.3 Quorum and  Manner of  Acting.  A quorum of the board of  directors
consists of a majority of the number of directors  prescribed in accordance with
section 4.2. If at any meeting of the board there be less than a quorum present,
a majority of the  directors  present may adjourn the meeting  from time to time
until a quorum  shall be present.  Notice of any  adjourned  meeting need not be
given.  At all meetings of  directors,  a quorum being  present,  the act of the
majority of the  directors  present at the meeting shall be the act of the board
of directors.

Section 4.4 Resignation.  Any director of the Corporation may resign at any time
by  delivering  written  notice  to the  Chairman  of the  Board,  the  board of
directors,  or the  Corporation.  A resignation  is effective when the notice is
delivered unless the notice specifies a later effective date.

                                       5
<PAGE>

Section 4.5  Removal.  A director  shall be subject to removal,  with or without
cause,  at a meeting of the  shareholders  called for that purpose in the manner
prescribed by law.

Section 4.6 Vacancies.  Any vacancy  occurring in the board of directors through
death,  resignation,  removal or any other  cause,  including an increase in the
number  of  directors,  may be  filled  by the  shareholders  or by the board of
directors.  If the directors  remaining in office constitute fewer than a quorum
of the board, they may fill the vacancy by the affirmative vote of a majority of
the remaining directors.

Section 4.7  Compensation of Directors.  The directors may be reimbursed for any
expenses paid by them on account of attendance at any regular or special meeting
of the board of directors  and the board may fix the  compensation  of directors
from time to time by resolution of the board.

Section 4.8 Place of Meetings, etc. The board of directors may hold its meetings
at such place or places  within or without  the State of Iowa,  as the board may
from time to time determine.

Section  4.9  Annual  Meeting.  The board of  directors  shall  meet the  second
Wednesday  of May of each year at such a place and time as the Board  shall fix,
for the purpose of organization, the election of officers and the transaction of
other  business.  Notice of such meeting need not be given.  Such meeting may be
held at any  other  time or place as shall  be  specified  in a notice  given as
hereinafter  provided  for special  meetings of the board of  directors  or in a
consent  and  waiver of notice  thereof  signed by all the  directors,  at which
meeting the same matters shall be acted upon as is above provided.

Section 4.10 Regular Meetings.  Regular meetings of the board of directors shall
be held at such  place  and at such  times as the  board of  directors  shall by
resolution  fix and determine from time to time. No notice shall be required for
any such regular meeting of the board.

Section 4.11 Special Meetings; Notice.

(a)  Special meetings of the board of directors shall be held whenever called by
     direction of the Chairman of the Board,  the President,  or one-third (1/3)
     of the directors at the time being in office.

(b)  Notice of each such meeting shall be communicated to each director at least
     two (2) days  before  the date on which  the  meeting  is to be held.  Each
     notice  shall state the date,  time and place of the meeting and maybe made
     by telephone,  letter, or in person.  Unless otherwise stated in the notice
     thereof,  any and all business may be transacted at a special  meeting.  At
     any meeting at which every  director  shall be  present,  even  without any
     notice, any business may be transacted.

Section 4.12 Waiver of Notice.  A director may waive any notice  required by law
or these bylaws if in writing and signed by a director  entitled to such notice,
whether  before or after the date and time stated in such notice.  Such a waiver
shall  be  equivalent  to  notice  in due  time as  required  by  these  bylaws.
Attendance of a director at or  participation  in a meeting  shall  constitute a
waiver of notice of such  meeting,  unless the director at the  beginning of the
meeting or promptly upon arrival  objects to holding the meeting or  transacting
business  at the meeting  and does not  thereafter  vote for or assent to action
taken at the meeting.

Section 4.13 Director's  Assent  Presumed.  A director of the Corporation who is
present at a meeting of its board of directors at which action on any  corporate
matter is taken shall be presumed to have  assented to the action  taken  unless
the director's  dissent shall be entered in the minutes of the meeting or unless
the director shall file a written  dissent to such action with the person acting
as the secretary of the meeting before the adjournment  thereof or shall forward
such dissent by registered or certified mail to the Secretary of the Corporation
immediately  after the  adjournment of the meeting.  Such right to dissent shall
not apply to a director who voted in favor of such action.

Section 4.14 Order of Business.

(a)  At meetings of the board of directors, business shall be transacted in such
     order  as,  from time to time,  the board of  directors  may  determine  by
     resolution.

(b)  At all meetings of the board,  the Chairman of the Board,  or in his or her
     absence, the President,  or in the President's absence the most senior Vice
     President  present,  or otherwise  the person  designated  by the vote of a
     majority of the directors present shall preside.

                                       6
<PAGE>

Section 4.15 Action Without Meeting.  Any action required or permitted by law to
be taken at any meeting of the board of directors may be taken without a meeting
if the action is taken by all  members of the board and if one or more  consents
in writing  describing the action so taken shall be signed by each director then
in office  and  included  in the  minutes or filed  with the  corporate  records
reflecting  the action taken.  Action taken under this section is effective when
the last director  signs the consent,  unless the consent  specifies a different
effective date.

Section 4.16 Committees.

(a)  The board of directors,  by resolution adopted by the affirmative vote of a
     majority of the number of directors  then in office,  may  establish one or
     more  committees,  each  committee to consist of two (2) or more  directors
     appointed by the board of directors.  Any such committee shall serve at the
     will of the board of directors.  Each such committee  shall have the powers
     and  duties  delegated  to it by the  board  of  directors.  The  board  of
     directors may elect one or more of its members as alternate  members of any
     such  committee  who may take the place of any absent  member or members at
     any  meeting  of such  committee,  upon  request  by the  President  or the
     chairperson of such committee.  Each such committee shall fix its own rules
     governing  the  conduct of its  activities  as the board of  directors  may
     request.

(b)  A committee  of the board shall not:  (i)  authorize  distributions  by the
     Corporation;  (ii) approve or propose to  shareholders  of the  Corporation
     action  that the law  requires  be  approved  by  shareholders;  (iii) fill
     vacancies  on the board of directors  of the  Corporation  or on any of its
     committees;  (iv) amend the articles of  incorporation  of the Corporation;
     (v) adopt,  amend or repeal bylaws of the Corporation;  (vi) approve a plan
     of merger not requiring  shareholder  approval;  (vii) authorize or approve
     reacquisition of shares by the  Corporation,  except according to a formula
     or method  prescribed  by the board of  directors;  or (viii)  authorize or
     approve the issuance or sale or contract  for sale of shares,  or determine
     the designation and relative rights, preferences and limitations of a class
     or series of shares,  except that the board of  directors  may  authorize a
     committee or a senior executive  officer of the Corporation to do so within
     limits specifically prescribed by the board of directors.

                                    ARTICLE 5
                                    OFFICERS

Section 5.1 Executive Officers.  The executive officers of the Corporation shall
be a President, one or more Vice Presidents (the number thereof to be determined
by the board of directors),  a Secretary, a Treasurer and such other officers as
may from time to time be  appointed  by the board of  directors.  One person may
hold the offices and perform the duties of any two or more of said  offices.  In
its discretion,  the board of directors may delegate the powers or duties of any
officer to any other officer or agents,  notwithstanding  any provision of these
bylaws,  and the board of directors may leave unfilled for any such period as it
may fix, any office except those of  President,  Treasurer  and  Secretary.  The
officers  of the  Corporation  shall  be  appointed  annually  by the  board  of
directors at the annual  meeting  thereof.  Each such officer  shall hold office
until the next succeeding annual meeting of the board of directors and until his
or her  successor  shall have been duly chosen and shall qualify or until his or
her death or until he or she shall resign or shall have been removed.

Section  5.2  Resignation  and  Removal.  An  officer  may resign at any time by
delivering  notice to the Secretary.  A resignation is effective when the notice
is delivered unless the notice specifies a later effective date. Any officer may
be removed by the board of directors at any time with or without cause, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.

Section  5.3 Power and Duties of the  President.  Subject to the  control of the
board of directors,  the President  shall have general  charge of and direct the
operations of the Corporation  and shall be the chief  executive  officer of the
Corporation.  The President shall keep the board of directors fully informed and
shall freely consult with them concerning the business of the Corporation in his
or her charge.  He or she shall have authority to sign,  execute and acknowledge
all contracts,  checks, deeds, mortgages,  bonds, leases or other obligations on
behalf of the Corporation as may be deemed necessary or proper to be executed in
the course of the Corporation's  regular business,  or which shall be authorized
by the board of directors,  and with the Secretary may sign all certificates for
the shares of the capital  stock of the  Corporation.  The President may sign in
the name of the Corporation reports and all other documents or instruments which
are  necessary  or  proper to be  executed  in the  course of the  Corporation's
business.  He or she  shall  perform  all  duties  as from  time to time  may be
assigned by the board of directors.  The President  shall, in the absence of the
Chairman of the Board,  preside at all meetings of the shareholders or the board
of directors.

                                       7
<PAGE>

Section 5.4 Power and Duties of the  Chairman of the Board.  The Chairman of the
Board shall, when present, preside at all meetings of the shareholders and shall
preside at all meetings of the board of  directors.  He or she shall perform all
duties  incident to the office of Chairman of the Board as herein  defined,  and
all such  other  duties  as from  time to time may be  assigned  by the board of
directors.

Section  5.5 Powers and Duties of the Vice  President(s).  In the absence of the
President  or in the event of the  death,  inability  or  refusal  to act of the
President,  the Vice  President  (or in the  event  there be more  than one Vice
President,  the Vice  Presidents  in the order  designated  at the time of their
appointment, or in the absence of any designation,  the senior Vice President in
length of  service)  shall  perform  the  duties of the  President,  and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the  President.  Any Vice  President  may sign,  with the Secretary or Assistant
Secretary,  certificates for shares of the  Corporation;  and shall perform such
other  duties and have such  authority  as from time to time may be  assigned to
such Vice President by the President or by the board of directors.

Section 5.6 Powers and Duties of the  Secretary.  The  Secretary  shall (a) keep
minutes of all meetings of the shareholders  and of the board of directors;  (b)
authenticate  records of the  Corporation  and attend to giving and  serving all
notices of the  Corporation  as provided by these  bylaws or as required by law;
(c) be custodian of the corporate seal, if any, the stock  certificate books and
such other books,  records and papers as the board of directors may direct;  (d)
keep a stock record showing the names of all persons who are shareholders of the
Corporation,  their post office addresses as furnished by each such shareholder,
and the number of shares of each class of stock held by them  respectively,  and
at least ten (10) days before  each  shareholders'  meeting,  prepare a complete
list of shareholders  entitled to vote at such meeting  arranged in alphabetical
order;  (e) sign with the President or a Vice President  certificates for shares
of the Corporation,  the issuance of which shall have been duly authorized;  and
(f) in general,  perform all duties incident to the office of Secretary and such
other  duties  as from  time to time may be  assigned  to the  Secretary  by the
President or the board of directors.

Section 5.7 Powers and Duties of the  Treasurer.  The  Treasurer  shall (a) have
custody of and be responsible for all moneys and securities of the  Corporation,
shall keep full and  accurate  records and  accounts in books  belonging  to the
Corporation,   showing  the  transactions  of  the  Corporation,  its  accounts,
liabilities and financial condition and shall see that all expenditures are duly
authorized and are evidenced by proper receipts and vouchers; (b) deposit in the
name of the  Corporation in such  depository or  depositories as are approved by
the board of directors,  all moneys that may come into the Treasurer's hands for
the Corporation's  account; (c) prepare annual financial statements that include
a balance  sheet as of the end of the fiscal  year and an income  statement  for
that year;  and (d) in general,  perform such duties as may from time to time be
assigned to the Treasurer by the President or by the board of directors.

Section 5.8 Assistants.  There shall be such number of Assistant Secretaries and
Assistant  Treasurers as the board of directors may from time to time  authorize
and appoint.  The Assistant  Secretaries and Assistant  Treasurers,  in general,
shall perform such duties as shall be assigned to them by the Secretary,  or the
Treasurer,  respectively,  or by the  President or the board of  directors.  The
board  of  directors  shall  have the  power to  appoint  any  person  to act as
assistant to any other  officer,  or to perform the duties of any other officer,
whenever for any reason it is impracticable  for such officer to act personally,
and such  assistant  or acting  officer  so  appointed  shall  have the power to
perform  all the duties of the office to which he or she is so  appointed  to be
assistant, or as to which he or she is so appointed to act, except as such power
may be otherwise defined or restricted by the board of directors.

                                    ARTICLE 6
                       SHARES, THEIR ISSUANCE AND TRANSFER

Section 6.1  Consideration  for Shares.  The board of  directors  may  authorize
shares to be issued for  consideration  consisting of any tangible or intangible
property  or benefit  to the  Corporation,  including  cash,  promissory  notes,
services performed,  contracts for services to be performed, or other securities
of the Corporation. Before the Corporation issues shares, the board of directors
must determine that the  consideration  received or to be received for shares to
be issued is adequate.

Section 6.2 Certificates for Shares.  Every shareholder of the Corporation shall
be entitled to a certificate or certificates, to be in such form as the board of
directors  shall  prescribe,  certifying  the  number and class of shares of the
Corporation owned by such shareholder.

                                       8
<PAGE>

Section 6.3  Execution of  Certificates.  The  certificates  for shares of stock
shall be numbered in the order in which they shall be issued and shall be signed
by the President or a Vice President and the Secretary or an Assistant Secretary
of the  Corporation.  The  signatures of the President or Vice President and the
Secretary or Assistant  Secretary or other persons  signing for the  Corporation
upon a certificate  may be facsimiles if the certificate is  countersigned  by a
transfer agent, or registered by a registrar,  other than the Corporation itself
or an  employee  of the  Corporation.  In case any  officer or other  authorized
person who has signed or whose  facsimile  signature  has been  placed upon such
certificate for the Corporation shall have ceased to be such officer or employee
or agent before such certificate is issued,  it may be issued by the Corporation
with the same  effect as if he or she were such  officer or employee or agent at
the date of its issue.

Section 6.4 Share  Record.  A record shall be kept by the  Secretary,  or by any
other officer,  employee or agent  designated by the board of directors,  of the
names and addresses of all  shareholders and the number and class of shares held
by each represented by such certificates and the respective dates thereof and in
case of cancellation, the respective dates of cancellation.

Section 6.5 Cancellation.  Every certificate  surrendered to the Corporation for
exchange or transfer shall be cancelled,  and no new certificate or certificates
shall be issued in exchange for any  existing  certificate  until such  existing
certificate  shall have been so cancelled,  except in cases  provided in section
6.8 of these bylaws.

Section 6.6 Transfers of Stock.  Transfers of shares of the capital stock of the
Corporation  shall be made only on the books of the  Corporation  by the  record
holder  thereof,  or by his or her  attorney  thereunto  authorized  by power of
attorney duly executed and filed with the Secretary of the  Corporation,  and on
surrender of the certificate or certificates  for such shares properly  endorsed
and the payment of all taxes  thereon.  The person in whose name shares of stock
stand on the books of the Corporation  shall be deemed the owner thereof for all
purposes  as regards the  Corporation;  provided,  however,  that  whenever  any
transfer of shares shall be made for collateral  security,  and not  absolutely,
such fact, if known to the Secretary of the  Corporation,  shall be so expressed
in the entry of transfer.

Section 6.7  Regulations.  The board of directors  may make such other rules and
regulations as it may deem expedient,  not inconsistent with law, concerning the
issue,  transfer and registration of certificates for shares of the stock of the
Corporation.

Section 6.8 Lost,  Destroyed,  or  Mutilated  Certificates.  In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place  pursuant to such  regulations as the board of directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.

                                    ARTICLE 7
                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 7.1  Contracts.  The board of  directors  may  authorize  any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the  Corporation,  and such authority
may be general or confined to specific instances.

Section 7.2 Loans. No loans shall be contracted on behalf of the Corporation and
no evidences of indebtedness  shall be issued in its name unless authorized by a
resolution of the board of directors.  Such authority may be general or confined
to specific instances.

Section 7.3 Checks,  Drafts,  etc.  All checks,  drafts or other  orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the  Corporation,  shall be signed by the  President  or such  other  officer or
officers,  agent or agents of the  Corporation  and in such manner as shall from
time to time be  determined  by the  President or by  resolution of the board of
directors.

                                    ARTICLE 8
                            MISCELLANEOUS PROVISIONS

Section 8.1  Facsimile  Signatures.  In addition  to the  provisions  for use of
facsimile  signatures  elsewhere   specifically   authorized  in  these  bylaws,
facsimile  signatures of any officer or officers of the  Corporation may be used
whenever and as authorized by the board of directors or a committee thereof.

                                       9
<PAGE>

Section 8.2 Corporate Seal. The Corporation may adopt an official seal.

Section 8.3 Fiscal Year.  The fiscal year of the  Corporation  shall be from the
first day of January through the last day of December.

Section 8.4 Corporate Records. The books and records of the Corporation shall be
kept (except that the shareholder list must also be kept at the places described
in section 3.6 of these bylaws) at the principal office of the Corporation.

Section  8.5  Voting of Stocks  Owned by the  Corporation.  In the  absence of a
resolution of the board of directors to the contrary, the President and any Vice
President  acting  within the scope of his or her authority as provided in these
bylaws,  are authorized and empowered on behalf of the Corporation to attend and
vote,  or to  grant  discretionary  proxies  to  be  used,  at  any  meeting  of
shareholders of any corporation in which this  Corporation  holds or owns shares
of stock, and in that connection,  on behalf of this  Corporation,  to execute a
waiver of notice of any such  meeting or a written  consent to action  without a
meeting. The board of directors shall have authority to designate any officer or
person  as a proxy or  attorney-in-fact  to vote  shares  of stock in any  other
corporation in which this Corporation may own or hold shares of stock.

Section 8.6 Shareholders' Right to Information.

(a)  A shareholder of the  Corporation  is entitled to inspect and copy,  during
     regular business hours at the Corporation's  principal  office,  any of the
     following records of the Corporation:

     (i)    Articles or restated  articles of  incorporation  and all amendments
            currently in effect;

     (ii)   Bylaws or restated bylaws and all amendments currently in effect;

     (iii)  Resolutions  adopted by the board of directors  creating one or more
            classes  or series of  shares  and  fixing  their  relative  rights,
            preferences  and  limitations,  if shares  issued  pursuant to those
            resolutions are outstanding;

     (iv)   Minutes  of all  shareholders'  meetings  and  records of all action
            taken by  shareholders  without a  meeting,  for the past  three (3)
            years;

     (v)    All written communications to shareholders generally within the past
            three years,  including the financial  statements  furnished for the
            past three (3) years;

     (vi)   A list of the  names and  business  addresses  of the  Corporation's
            current directors and officers; and

     (vii)  The  Corporation's  most recent annual report  delivered to the Iowa
            Secretary of State.  Provided the  shareholder  shall have given the
            Corporation written notice of the shareholder's demand at least five
            business  days  before the date on which the  shareholder  wishes to
            inspect and copy.

(b)  If a shareholder makes a demand in good faith and for a proper purpose, the
     shareholder  describes  with  reasonable  particularity  the  shareholder's
     purpose and the records the shareholder desires to inspect,  and the record
     requested is directly connected with the shareholder's stated purpose, then
     the  shareholder  shall be  entitled to inspect  and copy,  during  regular
     business hours at a reasonable  location specified by the Corporation,  any
     of the following records of the Corporation  provided the shareholder gives
     the Corporation  written notice of the  shareholder's  demand at least five
     business  days before the date on which the  shareholder  wishes to inspect
     and copy any of the following:

     (i)    Excerpts  from  minutes of any  meeting  of the board of  directors,
            records of any  actions  of a  committee  of the board of  directors
            while  acting  in place of the board of  directors  on behalf of the
            Corporation, minutes of any meeting of the shareholders, and records
            of  action  taken by the  shareholders  or the  board  of  directors
            without a meeting  to the extent not  subject  to  inspection  under
            paragraph (a) above;

     (ii)   Accounting records of the Corporation; and

     (iii)  The record of shareholders of the Corporation.

                                       10
<PAGE>

(c)  Upon written request from a shareholder,  the Corporation,  at its expense,
     shall furnish to that  shareholder the annual  financial  statements of the
     Corporation,  including a balance  sheet and income  statement  and, if the
     annual financial statements are reported upon by a public accountant,  that
     report must accompany them.

(d)  The Corporation may impose a reasonable charge, covering the costs of labor
     and material, for copies of any documents provided to the shareholder.  The
     charge shall not exceed the estimated cost of production or reproduction of
     the records.

                                    ARTICLE 9
                    INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 9.1. Indemnity.  The Corporation shall indemnify and advance expenses to
any person who was or is a party to or is  threatened  to be made a party to any
threatened,  pending or completed  claim,  action,  suit or proceeding,  whether
civil,  criminal,  administrative  or  investigative  (including  a  grand  jury
proceeding)  and  whether  formal or  informal,  by reason of the fact that such
person (a) is or was a director  or officer of the  Corporation,  or (b) while a
director,  officer,  or  employee of the  Corporation,  is or was serving at the
request of the Corporation as a director,  officer,  employee, agent, partner or
trustee (or in a similar capacity) of another  corporation,  partnership,  joint
venture,  trust,  other  enterprise,  or employee  benefit  plan, to the maximum
extent it is empowered to indemnify and advance expenses to a director by Part E
of Division VIII of the Iowa Business  Corporation Act as the same exists or may
hereafter  be amended  or changed  (but,  in the case of any such  amendment  or
change,  only  to  the  extent  that  such  amendment  or  change  empowers  the
Corporation  to provide  broader  indemnification  than said law  empowered  the
Corporation  to provide prior to such amendment or change),  against  reasonable
expenses (including attorneys' fees), judgments, fines, penalties,  including an
excise tax assessed with respect to an employee  benefit plan,  and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such claim, action, suit or proceeding or any appeal thereof; provided, however,
that  except  as  provided  in  section  9.2 of these  bylaws  with  respect  to
proceedings  seeking to enforce rights of  indemnification,  entitlement to such
indemnification  shall be conditional  upon the  Corporation  being afforded the
opportunity  to  participate  directly  on behalf of such  person in such claim,
action, suit or proceeding or any settlement  discussions  relating thereto, and
with  respect to any  settlement  or other  non-adjudicated  disposition  of any
threatened  or  pending  claim,  action,  suit  or  proceeding,  entitlement  to
indemnification  shall be further  conditional  upon the prior  approval  by the
Corporation  of the proposed  settlement  or  nonadjudicated  disposition.  Such
approval  shall be made (a) by the  board of  directors  by  majority  vote of a
quorum  consisting  of directors  not at the time parties to the claim,  action,
suit or  proceeding,  or (b) by special legal  counsel  selected by the board of
directors by majority vote, of a quorum  consisting of directors not at the time
parties to the claim,  action or proceeding,  or, if the requisite quorum of the
full board cannot be obtained therefor, by a majority vote of the full board, in
which selection of counsel  directors who are parties may participate.  Approval
or  disapproval  by  the  Corporation  of  any  proposed   settlement  or  other
nonadjudicated disposition shall not subject the Corporation to any liability to
or require  indemnification  or  reimbursement of any party whom the Corporation
would not otherwise  have been required to indemnify or reimburse.  The right to
indemnification  conferred in this Article shall include the right to payment or
reimbursement by the Corporation of reasonable  expenses  incurred in connection
with  any such  claim,  action,  suit or  proceeding  in  advance  of its  final
disposition;  provided,  however,  that the  payment  or  reimbursement  of such
expenses  in advance of the final  disposition  of such claim,  action,  suit or
proceeding  shall be made only upon (a) delivery to the Corporation of a written
undertaking,  by or on behalf of the person claiming  indemnification under this
Article to repay all amounts so advanced if it shall  ultimately  be  determined
that such  person is not  entitled  to be  indemnified  under  this  Article  or
otherwise,  or (b) delivery to the Corporation of a written  affirmation of such
person's good faith belief that such person has met the  applicable  standard of
conduct necessary to require indemnification by the Corporation pursuant to this
Article or otherwise,  or (c) a determination that the facts then known to those
making the determination would not preclude indemnification under this Article.

                                       11
<PAGE>

Section 9.2. Payment.  Any  indemnification  or advancement of expenses required
under this Article shall be made promptly  upon,  and in any event within thirty
(30) days after,  the written  request of the person  entitled  thereto.  If the
Corporation  denies a written  request for indemnity or advancement of expenses,
in whole or in part,  or if payment in full pursuant to such request is not made
within thirty (30) days of the date such request is received by the Corporation,
the person seeking indemnification or advancement of expenses as granted by this
Article may at any time within the applicable  statute of limitations bring suit
against the Corporation in any court of competent jurisdiction to establish such
person's right to indemnity or advancement of expenses.  Such person's costs and
expenses incurred in connection with successfully  establishing his or her right
to indemnification in any such action or proceeding shall also be indemnified by
the  Corporation.  It shall be a  defense  to any  action  brought  against  the
Corporation to compel indemnification (other than an action brought to enforce a
claim for the advancement of expenses pursuant to this Article where the written
affirmation of good faith or the undertaking to repay as required above has been
received  by the  Corporation)  that the  claimant  has not met the  standard of
conduct set forth in Section 490.851 of the Iowa Business  Corporation  Act, but
the burden of proving such defense shall be on the Corporation.  Neither (a) the
failure of the  Corporation  (including  its board of  directors,  special legal
counsel  or  the  shareholders)  to  have  made  a  determination  prior  to the
commencement  of such action that  indemnification  of the claimant is proper in
the circumstances  because he or she has met the applicable  standard of conduct
set forth in Section 490.851 of the Iowa Business  Corporation  Act, nor (b) the
fact that there has been an actual  determination by the Corporation  (including
its board of  directors,  special legal  counsel or the  shareholders)  that the
claimant  has not met  such  applicable  standard  of  conduct,  shall  create a
presumption that the claimant has not met the applicable standard of conduct. In
the  event  that the  applicable  standard  of  conduct  has been met as to some
claims, actions, suits or proceedings,  but not as to others, a person who has a
right of indemnification  pursuant to this Article shall be indemnified  against
all expenses  (including attorney fees) actually and reasonably incurred by such
person in connection with the claim,  action, suit or proceeding as to which the
applicable  standard has been met. Nothing contained in this section shall limit
the  obligation,  duty or ability of the Corporation to indemnify such person as
provided elsewhere in this Article.

Section 9.3. Contract. The provisions of this Article shall be deemed a contract
between  the  Corporation  and each  director  and  officer  who  serves in such
capacity at any time while this Article and the relevant  provisions of the Iowa
Business  Corporation  Act are in effect,  and any repeal or modification of any
such law or of this Article shall not adversely affect any rights or obligations
then existing with respect to any state of facts then or theretofore existing or
any claim,  action,  suit or proceeding  theretofore  or  thereafter  brought or
threatened based in whole or in part upon any such state of facts.

Section 9.4. Witnesses.  The Corporation shall indemnify and advance expenses to
any person who was or is a witness in or is  threatened  to be made a witness in
any threatened,  pending or completed claim, action, suit or proceeding, whether
civil,  criminal,  administrative  or  investigative  (including  a  grand  jury
proceeding)  and  whether  formal or  informal,  by reason of the fact that such
person (a) is or was a director  or officer of the  Corporation,  or (b) while a
director or officer of the Corporation,  is or was serving at the request of the
Corporation as a director, officer, employee, agent, partner or trustee (or in a
similar capacity) of another  corporation,  partnership,  joint venture,  trust,
other enterprise,  or employee benefit plan, to the same extent that such person
would be entitled to  indemnification  and  advancement  of expenses  under this
Article if such person  were,  or were  threatened  to be made,  a party to such
claim,  action,  suit or  proceeding,  against  reasonable  expenses  (including
attorneys'  fees) actually and reasonably  incurred by such person in connection
with such claim, action, suit or proceeding or any appeal thereof.

Section  9.5.  Nonexclusive.  Except as limited  by section  490.851 of the Iowa
Business  Corporation  Act,  the  indemnification  and  advancement  of expenses
provided by or granted pursuant to this Article shall not be deemed exclusive of
any other rights to which a person  seeking  indemnification  or  advancement of
expenses may be entitled under any bylaw,  agreement,  vote of  shareholders  or
disinterested directors, or otherwise; provided, however, that in no event shall
any such provision or agreement provide  indemnification  to a person who was or
is a director or officer of the  Corporation (a) for a breach of a director's or
officer's duty of loyalty to the Corporation or its  shareholders,  (b) for acts
or  omissions  not in good  faith or which  involve  intentional  misconduct  or
knowing  violation  of the law,  (c) for a  transaction  from  which the  person
seeking  indemnification  derived  an  improper  personal  benefit  or  (d)  for
liability under section 490.833 of the Iowa Business Corporation Act.

                                       12
<PAGE>

Section 9.6.  Applicability.  This Article  shall be  applicable  to all claims,
actions, suits or proceedings commenced after the effective date hereof, whether
arising  from acts or omissions  occurring  before or after the  effective  date
hereof.  Each  person  who is now  serving  or who  shall  hereafter  serve as a
director  or  officer  of the  Corporation  shall  be  deemed  to be doing so in
reliance upon the rights of  indemnification  provided for in this Article,  and
such rights of  indemnification  shall continue as to a person who has ceased to
be a  director  or  officer,  and  shall  inure  to the  benefit  of the  heirs,
executors,  administrators  and  legal  or  personal  representatives  of such a
person. If this Article or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction,  then the Corporation shall nevertheless
indemnify  each director and officer of the  Corporation  to the maximum  extent
permitted  by any  applicable  portion of this  Article that shall not have been
invalidated.

Section 9.7. Initiation of Claims.  Notwithstanding  anything in this Article to
the contrary,  except with respect to proceedings initiated to enforce rights of
indemnification  to  which  such  person  is  entitled  under  this  Article  or
otherwise,  the Corporation shall indemnify any such person in connection with a
claim,  action,  suit or proceeding  (or part thereof)  initiated by such person
only if the  initiation  of such  claim,  action,  suit or  proceeding  (or part
thereof) was authorized by the board of directors.

Section 9.8. Insurance.  The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation  as a  director,  officer,  partner,  trustee,  employee or agent of
another corporation,  partnership,  joint venture,  trust, other enterprise,  or
employee  benefit plan against any  liability  asserted  against such person and
incurred by such person in such capacity, or arising out of such person's status
as such,  whether or not the Corporation  would have the power to indemnify such
person  against such liability  under the  provisions of this Article,  the Iowa
Business Corporation Act or otherwise.  The Corporation may create a trust fund,
grant a security interest and/or use other means (including, without limitation,
letters of credit, surety bonds and/or similar  arrangements),  as well as enter
into contracts  providing for indemnification to the maximum extent permitted by
law and  including  as part thereof any or all of the  foregoing,  to ensure the
payment of such sums as may become necessary to effect full indemnification. The
Corporation's  obligation to make  indemnification  and pay expenses pursuant to
this Article shall be in excess of any insurance purchased and maintained by the
Corporation and such insurance shall be primary. To the extent that indemnity or
expenses  of a person  entitled  to  indemnification  and  payment  of  expenses
pursuant  to this  Article  are  paid on  behalf  of or to such  person  by such
insurance  such  payments  shall  be  deemed  to  be  in   satisfaction  of  the
Corporation's obligation to such person to make indemnification and pay expenses
pursuant to this Article.

                                   ARTICLE 10
                                   AMENDMENTS

Section 10.1  Amendments  to Bylaws.  These bylaws may be amended or repealed by
the board of  directors  or by the  shareholders;  provided,  however,  that the
shareholders may from time to time specify  particular  provisions of the bylaws
which shall not be amended or repealed by the board of directors.

                                       13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>amesexhbt21.txt
<TEXT>
                                                                      EXHIBIT 21

                             SUBSIDIARIES OF COMPANY

Parent

Ames National Corporation

Subsidiaries (a)                                         Percentage of Ownership
--------------------------------------------------------------------------------

First National Bank, Ames, Iowa, a National Bank                  100%
Boone Bank and Trust Co., Boone, Iowa, an Iowa
  State Bank                                                      100%
State Bank & Trust Co., Nevada, Iowa, an Iowa
  State Bank                                                      100%
Randall-Story State Bank, Story City, Iowa,
  an Iowa State Bank                                              100%
United Bank & Trust NA, Marshalltown, Iowa,
  a National Bank                                                 100%

(a)  The operation of Ames National Corporation's five wholly owned subsidiaries
     are included in the financial statements set forth in this Form 10-K.



                                       1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>amesexhbt23.txt
<TEXT>
                                                                      EXHIBIT 23


To the Board of Directors
Ames National Corporation
Ames, Iowa

We consent to the  incorporation  by reference  in  Registration  Statement  No.
333-89772 of Ames National  Corporation on Form S-8 of our report, dated January
23,  2004  appearing  in  this  Annual  Report  on Form  10-K  of Ames  National
Corporation for the year ended December 31, 2003.


/s/ McGladrey & Pullen, LLP.


Des Moines, Iowa
March 12, 2004


                                       1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>7
<FILENAME>amesexhbt311.txt
<TEXT>
                                                                    Exhibit 31.1


      CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302
                       OF THE SARBANES-OXLEY ACT OF 2002


I, Daniel L. Krieger, certify that:

1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  Ames  National
     Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: March 12, 2004                   /s/ Daniel L. Krieger
                                       -----------------------------------------
                                       Daniel L. Krieger, Chairman and President
                                       (Principal Executive Officer)


                                       1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>8
<FILENAME>amesexhbt312.txt
<TEXT>
                                                                    Exhibit 31.2



      CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302
                       OF THE SARBANES-OXLEY ACT OF 2002



I, John P. Nelson, certify that:

1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  Ames  National
     Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     c)   disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.



Date: March 12, 2004                              /s/ John P. Nelson
                                                  ------------------------------
                                                  John P. Nelson, Vice President
                                                  (Principal Financial Officer)

                                       1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>9
<FILENAME>amesexhbt321.txt
<TEXT>

                                                                    EXHIBIT 32.1



                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                        PURSUANT TO 18 U.S.C SECTION 1350

In  connection  with the  filing of the  Annual  Report on Form 10K for the year
ended  December  31,  2003 (the  "Report")  by Ames  National  Corporation  (the
"Company"), the undersigned officer of the Company hereby certifies that:

1.   The Report fully complies with the  requirements  of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934, as amended; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects,  the financial condition and results of operations of the Company
     as of and for the period covered by the Report.

IN WITNESS  WHEREOF,  the undersigned has executed this  Certification as of the
12th day of March, 2004.


                                       /s/ Daniel L. Krieger
                                       -----------------------------------------
                                       Daniel L. Krieger, Chairman and President
                                       (Principal Executive Officer)



                                       1


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>10
<FILENAME>amesexhbt322.txt
<TEXT>

                                                                    EXHIBIT 32.2



                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
                        PURSUANT TO 18 U.S.C SECTION 1350



In  connection  with the  filing of the  Annual  Report on Form 10K for the year
ended  December  31,  2003 (the  "Report")  by Ames  National  Corporation  (the
"Company"), the undersigned officer of the Company hereby certifies that:

1.   The Report fully complies with the  requirements  of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934, as amended; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects,  the financial condition and results of operations of the Company
     as of and for the period covered by the Report.

IN WITNESS  WHEREOF,  the undersigned has executed this  Certification as of the
12th day of March, 2004.


                                                  /s/ John P. Nelson
                                                  ------------------------------
                                                  John P. Nelson, Vice President
                                                  (Principal Financial Officer)






                                       1

</TEXT>
</DOCUMENT>
</SUBMISSION>
