UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549

                                    FORM 10-Q

[ X ]   QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
        EXCHANGE ACT OF 1934.

        For the quarterly period ended September 30, 2003
                                       ------------------

                                       OR

[   ]   TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

        For the transition period from __________________ to ___________________

                         Commission file number 2-89283
                         ------------------------------


                           IOWA FIRST BANCSHARES CORP.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


      STATE  OF  IOWA                                             42-1211285
--------------------------------------------------------------------------------
(State  or  other  jurisdiction                               (IRS Employer of
 incorporation or organization)                              Identification No.)

                             300 East Second Street
                             Muscatine, Iowa 52761
                    ----------------------------------------
                    (Address of principal executive offices)

                                  563-263-4221
                        -------------------------------
                        (Registrant's telephone number)

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

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

At September 30, 2003 there were  1,415,845  shares of the  registrant's  common
stock outstanding.

                                       1
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

                               INDEX TO FORM 10-Q

                                                                        PAGE NO.

PART 1   Financial Information

         Item 1.   Financial Statements

                   Consolidated Condensed Balance Sheets,
                   September 30, 2003 and December 31, 2002                    3

                   Consolidated Condensed Statements of
                   Income, Three and Nine Months Ended
                   September 30, 2003 and 2002                                 4

                   Consolidated Condensed Statements of
                   Cash Flows, Nine Months Ended
                   September 30, 2003 and 2002                                 5

                   Notes to Consolidated Condensed
                   Financial Statements                                        6

         Item 2.   Management's Discussion and Analysis
                   Of Financial Condition and Results of
                   Operations                                               7-18

         Item 4.   Controls and Procedures                                    18

PART II  Other Information

         Item 6.   Exhibits and Reports on Form 8-K                           19


Signatures                                                                    20

                                       2
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In Thousands)
<TABLE>
                                                           (Unaudited)
                                                          September 30,  December 31,
                                                             2003           2002
                                                          ---------------------------
<S>                                                       <C>            <C>
               ASSETS

Cash and due from banks ................................   $  16,485      $  17,283

Interest-bearing deposits at financial institutions ....       6,471          1,791

Federal funds sold .....................................      41,840         30,600

Investment securities available for sale ...............      37,090         38,095

Loans, net of allowance for loan losses September 30,
  2003, $3,382; December 31, 2002, $3,304 ..............     262,607        273,922

Bank premises and equipment, net .......................       6,664          5,303

Accrued interest receivable ............................       2,427          2,672

Life insurance contracts ...............................       4,204          3,953

Restricted investment securities .......................       3,253          3,957

Other assets ...........................................         825          1,129
                                                           ------------------------
   TOTAL ASSETS ........................................   $ 381,866      $ 378,705
                                                           ========================

LIABILITIES AND STOCKHOLDERS' EQUITY
    LIABILITIES

Noninterest bearing deposits ...........................   $  46,036      $  45,293
Interest bearing deposits ..............................     236,528        225,129
                                                           ------------------------
   TOTAL DEPOSITS ......................................     282,564        270,422
Note payable ...........................................       2,700          3,300
Securities sold under agreements to repurchase .........       5,717          6,591
Federal Home Loan Bank advances ........................      56,293         64,609
Treasury tax and loan open note ........................         382            785
Company obligated mandatorily redeemable preferred
  securities of subsidiary trust .......................       4,000          4,000
Dividends payable ......................................         333            335
Other liabilities ......................................       1,805          1,633
                                                           ------------------------
   TOTAL LIABILITIES ...................................     353,794        351,675
                                                           ------------------------

Redeemable common stock held by employee stock
  ownership plan with 401(k) provisions (KSOP) .........       2,811          2,717
                                                           ------------------------

STOCKHOLDERS' EQUITY
Common stock ...........................................         200            200
Additional paid-in capital .............................       4,254          4,254
Retained earnings ......................................      35,695         34,195
Accumulated other comprehensive income .................         878          1,101
Less net cost of common shares acquired for the treasury     (12,955)       (12,720)
Less maximum cash obligation related to KSOP shares ....      (2,811)        (2,717)
                                                           ------------------------
   TOTAL STOCKHOLDERS' EQUITY ..........................      25,261         24,313
                                                           ------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............   $ 381,866      $ 378,705
                                                           ========================
</TABLE>
See notes to Consolidated Condensed Financial Statements.

                                       3
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                      (In Thousands, Except Per Share Data)
                                   (Unaudited)
<TABLE>
                                                Three Months Ended  Nine Months Ended
                                                  September  30,      September  30,
                                                ------------------  ------------------
                                                  2003      2002      2003      2002
                                                ------------------  ------------------
<S>                                             <C>        <C>       <C>       <C>
INTEREST AND DIVIDEND INCOME:
   Loans, including fees:
     Taxable .................................   $ 4,267   $ 4,925   $13,184   $14,752
     Nontaxable ..............................        33        40        92        83
   Investment securities available for sale:

     Taxable .................................       236       286       739       901
     Nontaxable ..............................       180       200       556       618
   Federal funds sold ........................        91       113       349       390
   Restricted investment securities ..........        28        31        89        88
   Other .....................................        34        12        85        56
                                                 -------------------------------------
      Total interest income ..................     4,869     5,607    15,094    16,888
                                                 -------------------------------------

INTEREST EXPENSE:
   Deposits ..................................     1,128     1,471     3,614     4,510
   Note payable ..............................        27        62       127       245
   Other borrowed funds ......................       797     1,018     2,610     3,138
   Company obligated mandatorily redeemable
      preferred securities ...................       107       106       313       313
                                                 -------------------------------------
     Total interest expense ..................     2,059     2,657     6,664     8,206
                                                 -------------------------------------

   Net interest income .......................     2,810     2,950     8,430     8,682
Provision for loan losses ....................        65        95       525       330
                                                 -------------------------------------

   Net interest income after provision for
     loan losses .............................     2,745     2,855     7,905     8,352
                                                 -------------------------------------

Other income:
   Trust department ..........................        98        92       288       299
   Service fees ..............................       467       406     1,230     1,112
   Investment securities gains, net ..........         0         4        22        84
   Gains on loans sold .......................       180        42       325        85
   Other .....................................        93       140       385       379
                                                 -------------------------------------
     Total other income ......................       838       684     2,250     1,959
                                                 -------------------------------------

Operating expenses:
   Salaries and employee benefits ............     1,260     1,230     3,744     3,648
   Occupancy expenses, net ...................       180       166       522       497
   Equipment expenses ........................       136       157       468       520
   Office supplies, printing, and postage ....        86        87       278       268
   Computer processing .......................       131       128       396       365
   Advertising and business promotion ........        45        40       124       121
   Other operating expenses ..................       364       297     1,050       971
                                                 -------------------------------------
    Total operating expenses .................     2,202     2,105     6,582     6,390
                                                 -------------------------------------

   Income before income taxes ................   $ 1,381   $ 1,434   $ 3,573   $ 3,921
Applicable income taxes ......................       441       449     1,072     1,212
                                                 -------------------------------------
Net income ...................................   $   940   $   985   $ 2,501   $ 2,709
                                                 =====================================

Net income per common share, basic and diluted   $  0.66   $  0.69   $  1.76   $  1.88
                                                 =====================================

Dividends declared per common share ..........   $  0.24   $  0.23   $  0.71   $  0.68
                                                 =====================================

Comprehensive income .........................   $   641   $ 1,257   $ 2,278   $ 3,122
                                                 ======================================
</TABLE>
See notes to Consolidated Condensed Financial Statements.

                                       4
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

              For The Nine Months Ended September 30, 2003 and 2002
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
                                                                                    2003        2002
                                                                                   --------------------
<S>                                                                                <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .....................................................................   $  2,501    $  2,709
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Proceeds from loans sold ....................................................     22,980       6,816
   Loans underwritten ..........................................................    (22,714)     (6,731)
   Gains on  loans sold ........................................................       (325)        (85)
   Provision for loan losses ...................................................        525         330
   Investment securities gains, net ............................................        (22)        (84)
   Depreciation ................................................................        384         424
   Amortization of premiums and accretion of discounts
     on investment securities available for sale, net ..........................        130          30
   Net (increase) decrease in accrued interest receivable ......................        245         (39)
   Net (increase) decrease in other assets .....................................        304        (173)
   Net increase  in other liabilities ..........................................        305          29
                                                                                   --------------------
Net cash provided by operating activities ......................................   $  4,313    $  3,226
                                                                                   --------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net (increase) in interest-bearing deposits at financial instititions .......   $ (4,680)   $   (180)
   Net (increase) decrease in federal funds sold ...............................    (11,240)      1,227
   Proceeds from sales, maturities, calls and paydowns of available
   for sale securities .........................................................      6,999      14,786
   Purchases of available for sale securities ..................................     (6,458)     (8,706)
   Net (increase) decrease in loans ............................................     10,849      (8,015)
   Purchases of bank premises and equipment ....................................     (1,745)       (559)
   Purchases of life insurance contracts .......................................       (100)       (405)
   Increase in cash value of life insurance contracts ..........................       (151)       (138)
   (Purchases) sales of restricted investment securities .......................        704         (89)
                                                                                   --------------------
   Net cash (used in) investing activities .....................................   $ (5,822)   $ (2,079)
                                                                                   --------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in noninterest bearing deposits ................................   $    743    $  2,170
   Net increase in interest bearing deposits ...................................     11,399       6,333
   Net increase (decrease) in securities sold under
     agreements to repurchase ..................................................       (874)        792
   Repayment of note payable ...................................................     (3,922)     (2,119)
   Proceeds from note payable ..................................................      3,322          --
   Net increase (decrease) in treasury tax and loan open note ..................       (403)        219
   Advances from Federal Home Loan Bank ........................................      9,550       7,100
   Payments of advances from Federal Home Loan Bank ............................    (17,866)    (10,684)
   Cash dividends paid .........................................................     (1,003)       (989)
   Purchases of common stock for the treasury ..................................       (235)       (520)
   Proceeds from issuance of common stock ......................................         --         105
                                                                                   --------------------
   Net cash provided by financing activities ...................................   $    711    $  2,407
                                                                                   --------------------

   Net increase (decrease) in cash and due from banks ..........................       (798)      3,554

Cash and due from banks:
   Beginning ...................................................................   $ 17,283    $ 14,661
                                                                                   --------------------
   Ending ......................................................................   $ 16,485    $ 18,215
                                                                                   ====================

Supplemental Disclosures of Cash Flow Information, cash payments for:
      Interest .................................................................   $  6,668    $  8,250
      Income taxes .............................................................        983       1,228
Supplemental Schedule of Noncash Investing and Financing Activities:
  Change in accumulated other comprehensive income, unrealized
  gains (losses) on investment securities available for sale, net ..............       (223)        413
</TABLE>
See notes to Consolidated Condensed Financial Statements.

                                       5
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1.  Nature of Business and Significant Accounting Policies

Nature of business:

Iowa  First   Bancshares  Corp.  (the  "Company")  is  a  bank  holding  company
headquartered in Muscatine,  Iowa. The Company owns the outstanding stock of two
national banks, First National Bank of Muscatine  (Muscatine) and First National
Bank in Fairfield  (Fairfield).  First National Bank of Muscatine has a total of
five  locations in  Muscatine,  Iowa.  First  National Bank in Fairfield has two
locations in  Fairfield,  Iowa.  Each bank is engaged in the general  commercial
banking   business  and  provides  full  service   banking  to  individuals  and
businesses, including checking, savings, money market and time deposit accounts,
commercial loans,  consumer loans,  real estate loans, safe deposit  facilities,
transmitting of funds,  trust services,  and such other banking  services as are
usual and customary for commercial  banks.  Some of these other services include
sweep  accounts,  lock-box  deposits,  debit  cards,  credit-related  insurance,
internet  banking,  automated teller machines,  telephone banking and investment
services  through  a  third-party   arrangement.   The  Company  also  owns  the
outstanding  stock of Iowa First Capital Trust I, which was capitalized in March
2001  for the  purpose  of  issuing  Company  Obligated  Mandatorily  Redeemable
Preferred Securities.

Basis of Presentation:

The  consolidated  financial  statements of the Company and its subsidiaries are
unaudited  and should be read in  conjunction  with the  consolidated  financial
statements  contained in the 2002 Annual Report on Form 10-K.  The  consolidated
financial statements have been prepared in accordance with accounting principles
generally  accepted in the United  States of America and conform to  predominant
practices  within the  banking  industry.  Management  of the Company has made a
number of  estimates  and  assumptions  relating to the  reporting of assets and
liabilities  and the disclosure of contingent  assets and liabilities to prepare
the  consolidated  financial  statements.  In the  opinion  of  management,  all
adjustments  and  normal  recurring  accruals  considered  necessary  for a fair
presentation  of the results of  operations  for the interim  periods  presented
herein have been included. Operating results for the three and nine months ended
September  30, 2003 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 2003.

Reclassifications:

Certain amounts in the prior year financial  statements have been  reclassified,
with no effect on net income or stockholders' equity, to conform to current year
presentations.

Note 2.  Capital Stock and Earnings Per Share

Common shares and preferred stock  authorized total 6,000,000 shares and 500,000
shares,  respectively.  Basic  earnings  per share is arrived at by dividing net
income by the weighted average number of shares of common stock  outstanding for
the respective period.  Diluted earnings per share is arrived at by dividing net
income  by the  weighted  average  number  of  common  stock  and  common  stock
equivalents  outstanding for the respective period. The average number of shares
of common stock  outstanding  for the three and nine months ended  September 30,
2003 were 1,417,345 and 1,421,258, respectively. The average number of shares of
common stock  outstanding for the three and nine months ended September 30, 2002
were  1,436,055  and  1,444,443   respectively.   There  were  no  common  stock
equivalents in 2003 or 2002.

Note 3.   Commitments and Contingencies

The Banks are parties to financial instruments with  off-balance-sheet risk made
in the normal course of business to meet the financing needs of their customers.
These  financial  instruments  include  commitments to extend credit and standby
letters of credit.  These instruments  involve, to varying degrees,  elements of
credit and interest rate risk in excess of the amount  recognized in the balance
sheets.

                                       6
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

The Banks' 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   amounts  of  those
instruments.  The Banks use the same credit  policies in making  commitments and
conditional obligations as they do for on-balance-sheet instruments.

                                                    September 30,   December 31,
                                                         2003           2002
                                                    ----------------------------
Financial instruments whose contract amounts
  represent credit risk:
  Commitments to extend credit ..................    $47,561,000    $44,521,000
  Standby letters of credit .....................      2,336,000      2,539,000

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.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon  and some of the  commitments  will be sold to other
financial  intermediaries  if drawn upon,  the total  commitment  amounts do not
necessarily  represent  future  cash  requirements.   The  Banks  evaluate  each
customer's creditworthiness on a case-by-case basis.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements  and,
generally,  have terms of one year, or less. The credit risk involved in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers.  The Banks hold collateral,  which may include accounts
receivable,  inventory,  property,  equipment, and income-producing  properties,
supporting those commitments if deemed 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 commitment is funded, the
Banks would be entitled to seek  recovery  from the  customer.  At September 30,
2003 and December 31, 2002 no amounts have been recorded as liabilities  for the
Banks' potential obligations under these guarantees.

The Company has also executed  contracts  for the sale of mortgage  loans in the
secondary market in the amount of $449,000 and $390,000 as of September 30, 2003
and December 31, 2002, respectively.  These amounts are included in loans at the
respective balance sheet dates.

Results of Operations:

Quarter ended September 30, 2003 compared with quarter ended September 30, 2002:

The Company  recorded net income of $940,000 for the quarter ended September 30,
2003,  compared with net income of $985,000 for the quarter ended  September 30,
2002,  a decrease  of  $45,000 or 4.6%.  This  decrease  in net income  resulted
primarily from lower net interest income and higher  noninterest  expense during
the  third  quarter  of  2003  compared  to the  third  quarter  of  2002.  This
unfavorable  comparison of net interest income and  noninterest  expense for the
third quarter of 2003 with the same period in 2002 was partially offset by lower
provision for loan losses and higher noninterest income.

                                       7
<PAGE>

Basic and  diluted  earnings  per share  were  $.66 for the three  months  ended
September  30,  2003,  $.03 or 4.3%  less  than the  same  period  in 2002.  The
Company's  annualized return on average assets for the third quarter of 2003 was
..98% compared to 1.05% during the third quarter of the prior year. The Company's
annualized  return on average  equity for the three months ended  September  30,
2003 and September 30, 2002 was 15.0% and 15.7%, respectively.

The  distribution of average assets,  liabilities and  stockholders'  equity and
interest rates, as well as interest  differential was as follows (dollar amounts
in  thousands  and income and rates on a fully  taxable  equivalent  basis using
statutory rates in effect for the year presented):
<TABLE>

                             Three Months Ended       Three Months Ended
                             September 30, 2003       September 30, 2002
                          ------------------------  ------------------------
                                            Average                    Average
                          Balance  Interest   Rate   Balance  Interest   Rate
                          --------------------------------------------------
<S>                       <C>       <C>     <C>      <C>      <C>      <C>
Assets
  Taxable loans, net .... $263,024  $ 4,267   6.49%  $275,265  $ 4,925   7.16%
  Taxable investment
    securities available
    for sale ............   21,582      236   4.37%    21,739      286   5.26%
  Nontaxable investment
    securities and loans    18,556      323   6.96%    20,027      364   7.27%
  Federal funds sold ....   40,833       91   0.89%    27,505      113   1.64%
  Restricted investment
    securities ..........    3,313       28   3.38%     3,931       31   3.15%
  Interest-bearing
    deposits at financial
    institutions ........    6,318       34   2.15%     1,530       12   3.14%
                          -----------------          -----------------
        Total interest-
        earning assets ..  353,626    4,979   5.63%   349,997    5,731   6.55%
                                     ------                    -------
  Cash and due from banks   14,322                     13,076
  Bank premises and
    equipment, net ......    6,641                      5,158
  Life insurance
    contracts ...........    4,151                      3,884
  Other assets ..........    3,353                      4,075
                          --------                   --------
        Total ........... $382,093                   $376,190
                          ========                   ========
Liabilities
  Deposits:
    Interest-bearing
      demand ............ $121,652  $   199   0.65%  $110,053  $  355    1.29%
    Time ................  113,914      929   3.23%   115,830   1,116    3.82%
  Note payable ..........    3,293       27   3.25%     3,300      62    7.35%
  Other borrowings ......   63,998      797   4.94%    72,884   1,018    5.54%
  Company obligated
    mandatorily redeemable
    preferred securities     4,000      107  10.43%     4,000     106   10.37%
                          -----------------          ----------------
        Total interest-
        bearing
        liabilities ....   306,857    2,059   2.66%   306,067   2,657    3.44%
  Noninterest-bearing
    deposits ...........    45,289                     41,127
  Other liabilities ....     2,007                      1,728
                          --------                   --------
        Total
        liabilities ....   354,153                    348,922
  Redeemable common
    stock held by
    KSOP ...............     2,868                      2,242
Stockholders' equity ...    25,072                     25,026
                          --------                   --------
        Total ..........  $382,093                   $376,190
                          ========                   ========
Net interest earnings ..            $ 2,920                     $3,074
                                    =======                     ======
Net interest margin (net
  interest earnings
  divided by total
  interest-earning
  assets) ..............                      3.30%                      3.51%
                                              =====                      =====
</TABLE>
                                       8
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

The net interest margin  continues to be pressured as evidenced by a decrease to
3.30%  during  the third  quarter  of 2003  compared  to 3.51%  during the third
quarter of 2002.  The return on average  interest-earning  assets  decreased  92
basis points (from 6.55% in 2002 to 5.63% in 2003) and interest  paid on average
interest-bearing  liabilities  decreased  78 basis points (from 3.44% in 2002 to
2.66% in 2003).

The prime  lending  rate  began the year 2002 at 4.75% and ended  2002  lower at
4.25%; it subsequently dropped to 4.00% as of late June 2003, where it has since
remained.  This is the lowest prime lending rate in several decades. During this
period of historically low interest rates,  increased emphasis has been given to
incorporating  interest  rate floors on  selected  commercial  and  agricultural
loans.  During the first three  quarters of 2003 most, if not all, of such loans
subject to  interest  rate  floors were  actually  paying the floor  rate.  This
resulted in the rates  received  on taxable  loans  during the third  quarter of
2003,  compared to the third  quarter of 2002,  falling  somewhat  less than the
rates paid on  interest-bearing  liabilities  (67 basis  points  versus 78 basis
points).  Eventually,  when market  interest  rates  again  rise,  rates paid on
interest-bearing  liabilities may, for a time, increase more than rates received
on taxable loans. This outcome is possible due to the loans which are subject to
floor rate pricing lagging market interest rate increases until such time as the
floor rate has been  exceeded.  The  extent of this  impact  will  depend on the
amount and timing of eventual market interest rate hikes.

Rates  received  on  taxable  investment  securities  available  for  sale  have
decreased  during the third quarter of 2003 versus the same quarter of 2002 at a
faster pace than the rates paid on interest-bearing liabilities (decreases of 89
basis  points  and 78  basis  points,  respectively).  This  is  largely  due to
maturities  and  early  calls of  taxable  investment  securities  coupled  with
reinvestment at appreciably lower interest rates. This portfolio,  however, with
an average  maturity of less than four years, had an interest rate return during
the quarter similar to that of ten year treasury securities.

Rates  received  during the quarter  ended  September  30, 2003  compared to the
quarter ended September 30, 2002 on nontaxable  investment  securities available
for sale and loans  decreased  at a much  slower  pace  than the  rates  paid on
interest-bearing  liabilities (decreases of 31 basis points and 78 basis points,
respectively).  This was due largely to a longer average duration for nontaxable
investment securities available for sale and loans than the average duration for
interest-bearing  liabilities.  Most  of the  nontaxable  investment  securities
available for sale were  purchased  when market  interest rates were higher than
rates  currently  available.  In the current  interest  rate  environment,  when
taxable and nontaxable  investment  securities  mature or are sold,  called,  or
otherwise paid down, the reinvestment rate available is nearly always lower than
the yield of the liquidating security.

The rate  received on  overnight  federal  funds sold  decreased 75 basis points
during the third quarter of 2003 compared to the same period in 2002.  Given the
Company's  relatively  large balance held in federal funds sold,  this served to
reduce the net interest income. The Company anticipates  utilizing a substantial
portion of this short-term liquidity to reduce its reliance on wholesale funding
sources,  purchase investment  securities and other safe,  relatively short-term
assets as well as, if the appropriate opportunities exist, to fund loan growth.

The  rate  earned  on  interest-bearing   deposits  at  financial   institutions
(primarily FDIC insured  certificates of deposit maturing in one to three years)
decreased  99 basis  points  during the third  quarter of 2003  versus the third
quarter of 2002, while the average balance  increased over  $4,700,000.  Despite
the decrease in rate  received,  this asset  category was  increased  because it
yielded 126 basis points over federal  funds sold with  little,  if any,  credit
risk.

The rate paid on the note payable  outstanding  declined a significant 410 basis
points  during the third  quarter of 2003  compared to the same quarter of 2002.
This was the result of  refinancing  this debt with a  different  lender at more
favorable terms.

The  usage of  wholesale  funding  sources  (primarily  Federal  Home  Loan Bank
advances), while mitigating intermediate and long-term interest rate risk, tends
to increase overall interest  expense.  The Company's average rate paid for such
Federal  Home Loan Bank  advances and other funds was reduced by 59 basis points
when comparing the third quarters of 2003 and 2002.

                                       9
<PAGE>

Intense  competition  for all  types of loans  and  deposits  tends to limit the
Company's  ability  to  control  pricing  and  other  terms  when  dealing  with
customers.

Provisions for loan losses were $65,000 for the three months ended September 30,
2003. This was $30,000 less than the third quarter of 2002. Net loan charge-offs
for the  quarter  ended  September  30,  2003  totaled  $37,000  compared to net
charge-offs of $61,000 for the same quarter in 2002.

Loan quality has been negatively impacted by a variety of factors including, but
not necessarily  limited to, a generally  sluggish  economy.  Specifically,  the
quality of the agricultural loan portfolio at the Company's Fairfield subsidiary
bank has declined,  resulting in a larger than normal  provision for loan losses
in the first quarter of 2003.

Various  strategies are being  implemented by management in an effort to improve
the  loan  quality  of the  portfolio  in  question.  These  strategies  include
attempting to obtain  government  guarantees for portions of certain  identified
loans, increasing monitoring efforts over the loan portfolio in general and past
due  loans in  particular,  as well as a  renewed  focus on  taking  appropriate
corrective  actions with  borrowers  who are not  fulfilling  their  contractual
obligations.  While  cautiously  optimistic  as to the  likelihood  of  positive
results emanating from the strategies being employed,  management  realizes that
significantly improving loan quality is not normally a quick process.

The allowance  for possible  loan losses is  maintained at the level  considered
adequate  by  management  of the Banks to  provide  for  probable  losses in the
existing loan  portfolio.  The  allowance is increased by provisions  charged to
operating expense and reduced by net charge-offs. In determining the adequacy of
the  allowance  balance  the  Banks  make  continuous  evaluations  of the  loan
portfolio and related  off-balance sheet commitments,  consider current economic
conditions,  the  composition  of  the  loan  portfolio,  historical  loan  loss
experience, review of specific problem loans, the estimated net realizable value
or the fair value of the underlying collateral, and other factors.

Nonaccrual  loans  totaled  $2,426,000  at September  30,  2003,  an increase of
$560,000 or 30.0% from  September  30,  2002.  Other real estate  owned  totaled
$174,000,  a decrease of  $352,000  or 66.9% from a year ago.  Loans past due 90
days or more and still  accruing  totaled  $577,000,  which was $337,000 or 140%
more than a year  earlier.  The allowance for possible loan losses of $3,382,000
represented 1.3% of gross loans and 106% of total nonaccrual  loans,  other real
estate owned, and loans past due 90 days or more and still accruing.

Other income results from the charges and fees collected by the Company from its
customers  for  various  services  performed,  gross trust  department  revenue,
miscellaneous  other  income and gains (or losses)  from the sale of  investment
securities in the available for sale category and loans.  Total other income for
the third quarter of 2003, without gains on investment securities, was $838,000;
$158,000  or 23.2%  more  than the  third  quarter  of 2002.  Gains on loan sold
accounted for $138,000 of this total increase of $158,000

Operating  expenses include all the costs incurred to operate the Company except
for interest expense,  the loan loss provision and income taxes. For the quarter
ended  September  30, 2003,  salaries and employee  benefits  expense  increased
$30,000  or 2.4% due  principally  to normal  cost of living  and merit  raises,
training  time for new  employees  and rising  health  care cost.  Occupany  and
equipment  expenses decreased $7,000 or 2.2%. Other operating expenses increased
$67,000  or 22.5% due  largely  to fees paid for  product  and other  consulting
services, write-down of the carrying value of other real estate owned, increased
insurance costs as well as increased credit checking and other loan underwriting
related costs.  Total operating  expenses  increased  $97,000 or 4.6% during the
third quarter of 2003 versus the same quarter last year.

Income  tax  expense  for the  quarter  ended  September  30,  2003 of  $441,000
represented  31.9% of income before taxes. The comparable  quarter last year was
31.3% of income before tax.

The efficiency ratio,  defined as noninterest  expense,  excluding the provision
for loan losses,  as a percent of net interest income plus  noninterest  income,
was 60.4% and 57.4% for the three  months  ended  September  30,  2003 and 2002,
respectively.  The primary  reasons for this change in the efficiency  ratio are
discussed previously in this report.

                                       10
<PAGE>

Results of Operations:

Nine months ended  September 30, 2003 compared with nine months ended  September
30, 2002:

The  Company  recorded  net  income  of  $2,501,000  for the nine  months  ended
September 30, 2003,  compared with net income of $2,709,000  for the same period
in 2002,  a  decrease  of  $208,000  or 7.7%.  This  decrease  in net income was
attributable  to lower net interest  income for the first three quarters of 2003
compared to the same period in 2002. Net interest  income  declined  $252,000 or
2.9% over this time frame.  Additionally,  provisions for loan losses during the
first nine months of 2003 were  $525,000,  which was  $195,000 or 59.1%  greater
than experienced in 2002.  Increases in other operating  expenses of $192,000 or
3.0% were more than offset by  increases in other  income  totaling  $291,000 or
14.9%.

Basic and  diluted  earnings  per share  were  $1.76 for the nine  months  ended
September  30,  2003,  $.12 or 6.4%  less  than the  same  period  in 2002.  The
Company's  annualized  return on average  assets for the first three quarters of
2003 was .86% compared to .96% during the same  quarters of the prior year.  The
Company's  annualized  return  on  average  equity  for the  nine  months  ended
September 30, 2003 and September 30, 2002 was 13.4% and 15.2%, respectively.


                                       11
<PAGE>

The  distribution of average assets,  liabilities and  stockholders'  equity and
interest rates, as well as interest  differential was as follows (dollar amounts
in  thousands  and income and rates on a fully  taxable  equivalent  basis using
statutory rates in effect for the year presented):
<TABLE>
                             Nine Months Ended        Nine Months Ended
                             September 30, 2003       September 30, 2002
                          ------------------------  ------------------------
                                            Average                    Average
                          Balance  Interest   Rate   Balance  Interest   Rate
                          --------------------------------------------------
<S>                       <C>       <C>     <C>      <C>      <C>      <C>
Assets
  Taxable loans, net .... $267,332  $13,184   6.58%  $274,173  $14,752   7.17%
  Taxable investment
    securities available
    for sale ............   21,605      739   4.56%    21,765      901   5.52%
  Nontaxable investment
    securities and loans    18,685      982   7.01%    19,597    1,062   7.23%
  Federal funds sold ....   45,059      349   1.03%    32,107      390   1.62%
  Restricted investment
    securities ..........    3,740       89   3.17%     3,897       88   3.01%
  Interest-bearing
    deposits at financial
    institutions ........    5,106       85   2.22%     1,922       56   3.88%
                          -----------------          -----------------
        Total interest-
        earning assets ..  361,527   15,428   5.69%   353,461   17,249   6.51%
                                     ------                    -------
  Cash and due from banks   14,127                     12,759
  Bank premises and
    equipment, net ......    6,302                      5,033
  Life insurance
    contracts ...........    4,054                      3,598
  Other assets ..........    3,580                      3,916
                          --------                   --------
        Total ........... $398,590                   $378,767
                          ========                   ========
Liabilities
  Deposits:
    Interest-bearing
      demand . .......... $124,788  $   741   0.79%  $113,491  $1,160    1.37%
    Time ................  115,075    2,873   3.34%   114,546   3,350    3.91%
  Note payable ..........    3,298      127   5.08%     4,435     245    7.37%
  Other borrowings ......   68,525    2,610   5.09%    74,241   3,138    5.65%
  Company obligated
    mandatorily redeemable
    preferred securities     4,000      313  10.32%     4,000     313   10.32%
                          -----------------          ----------------
        Total interest-
        bearing
        liabilities ....   315,686    6,664   2.82%   310,713   8,206    3.52%
  Noninterest-bearing
    deposits ...........    44,250                     40,350
  Other liabilities ....     1,984                      1,634
                          --------                   --------
        Total
        liabilities ....   361,920                    352,697
  Redeemable common
    stock held by
    KSOP ...............     2,767                      2,242
Stockholders' equity ...    24,903                     23,828
                          --------                   --------
        Total ..........  $389,590                   $378,767
                          ========                   ========
Net interest earnings ..            $ 8,764                     $9,043
                                    =======                     ======
Net interest margin
  (net interest
  earnings divided by
  total nterest-earning
  assets) ..............                      3.23%                      3.41%
                                              =====                      =====
</TABLE>

                                       12
<PAGE>

The net interest  margin  declined to 3.23% from 3.41% when  comparing  the nine
month periods ended September 30, 2003 and September 30, 2002, respectively. The
return on average  interest-earning assets decreased 82 basis points (from 6.51%
in 2002 to  5.69%  in  2003)  and  interest  paid  on  average  interest-bearing
liabilities decreased 70 basis points (from 3.52% in 2002 to 2.82% in 2003).

The rates  received  on taxable  loans  during  the first  nine  months of 2003,
compared to the first nine months of 2002, declined somewhat less than the rates
paid on  interest-bearing  liabilities (59 basis points versus 70 basis points).
Eventually,   when   market   interest   rates   again   rise,   rates  paid  on
interest-bearing  liabilities may, for a time, increase more than rates received
on taxable loans. This outcome is possible due to the loans which are subject to
floor rate pricing lagging market interest rate increases until such time as the
floor rate has been  exceeded.  The  extent of this  impact  will  depend on the
amount and timing of eventual market interest rate hikes.

Rates  received on taxable  investment  securities  available for sale decreased
during the first three  quarters  of 2003 versus the same  quarters of 2002 at a
faster pace than the rates paid on interest-bearing liabilities (decreases of 96
basis  points  and 70  basis  points,  respectively).  This  is  largely  due to
maturities  and  early  calls of  taxable  investment  securities  coupled  with
reinvestment at appreciably lower interest rates. This portfolio,  however, with
an average  maturity of less than four years, had an interest rate return during
the  first  three  quarters  of  2003  higher  than  that of ten  year  treasury
securities.

Rates received  during the three  quarters ended  September 30, 2003 compared to
the three quarters ended September 30, 2002 on nontaxable  investment securities
available for sale and loans decreased at a much slower pace than the rates paid
on  interest-bearing  liabilities  (decreases  of 22 basis  points  and 70 basis
points,  respectively).  This was due largely to a longer  average  duration for
nontaxable  investment  securities available for sale and loans than the average
duration for  interest-bearing  liabilities.  Most of the nontaxable  investment
securities  available for sale were  purchased  when market  interest rates were
higher than rates currently available. In the current interest rate environment,
when taxable and nontaxable investment securities mature or are sold, called, or
otherwise paid down, the reinvestment rate available is nearly always lower than
the yield of the liquidating security.

The rate  received on  overnight  federal  funds sold  decreased 59 basis points
during the three quarters  ended  September 30, 2003 compared to the same period
in 2002.  Given the  Company's  relatively  large  balance held in federal funds
sold,  this served to reduce the net interest  income.  The Company  anticipates
utilizing  a  substantial  portion of this  short-term  liquidity  to reduce its
reliance on wholesale funding sources,  purchase investment securities and other
safe, relatively short-term assets as well as, if the appropriate  opportunities
exist, to fund loan growth.

The  rate  earned  on  interest-bearing   deposits  at  financial   institutions
(primarily FDIC insured  certificates of deposit maturing in one to three years)
decreased  166 basis points  during the first three  quarters of 2003 versus the
same period in 2002. Despite the decrease in rate received,  this asset category
was  increased  because it yielded 119 basis points over federal funds sold with
little, if any, credit risk.

The rate paid on the note payable  outstanding  declined a significant 229 basis
points during the three quarters ended September,  30, 2003 compared to the same
period in 2002.  This was the result of  refinancing  this debt with a different
lender at more favorable terms.

The  usage of  wholesale  funding  sources  (primarily  Federal  Home  Loan Bank
advances), while mitigating intermediate and long-term interest rate risk, tends
to increase overall interest  expense.  The Company's average rate paid for such
funds was reduced by 56 basis points when  comparing the first three quarters of
2003 with 2002.

Intense  competition  for all  types of loans  and  deposits  tends to limit the
Company's  ability  to  control  pricing  and  other  terms  when  dealing  with
customers.

Provisions for loan losses were $525,000 for the nine months ended September 30,
2003. This was $195,000 more than the provision for loan losses during the first
nine  months of 2002.  Net loan  charge-offs  for the nine  month  period  ended
September 30, 2003 totaled $446,000  compared to net charge-offs of $164,000 for
the same time frame in 2002.

                                       13
<PAGE>

As previously discussed,  various strategies are being implemented by management
in an effort to improve loan quality.  These  strategies  include  attempting to
obtain  government   guarantees  for  portions  of  certain   identified  loans,
increasing  monitoring  efforts over the loan  portfolio in general and past due
loans in particular, as well as a renewed focus on taking appropriate corrective
actions with borrowers who are not  fulfilling  their  contractual  obligations.
While cautiously  optimistic as to the likelihood of positive results  emanating
from the  strategies  being  employed,  management  realizes that  significantly
improving loan quality is not normally a quick process.

Other income results from the charges and fees collected by the Company from its
customers  for  various  services  performed,  gross trust  department  revenue,
miscellaneous  other  income and gains (or losses)  from the sale of  investment
securities in the available for sale category and loans.  Total other income for
the first nine  months of 2003,  without  gains on  investment  securities,  was
$2,228,000; $353,000 or 18.8% more than the same period in 2002. The majority of
this increase,  or $240,000,  was due to increases in gains on loans sold.  This
increase  resulted from larger numbers of home  refinancings and home purchases,
due to historically low interest rates, and the subsequent sale of most of these
loans into the secondary market.

Operating  expenses include all the costs incurred to operate the Company except
for interest  expense,  the loan loss provision and income taxes.  For the three
quarters ended September 30, 2003 compared to the three quarters ended September
30, 2002,  salaries and employee  benefits expense increased $96,000 or 2.6% due
principally  to normal cost of living and merit  raises,  training  time for new
employees  and  rising  health  care  cost.  Occupancy  and  equipment  expenses
decreased  $27,000 or 2.7%.  Office  supplies  and  related  expenses  increased
$10,000 or 3.7% and computer processing  increased $31,000 or 8.5% as additional
costs associated with enhanced  communications,  backup,  marketing applications
and disaster  recovery  contracts  were  recognized.  Finally,  other  operating
expenses  increased  $79,000 or 8.1% due  largely to fees paid for  product  and
other consulting services, write-down of the carrying value of other real estate
owned,  increased insurance costs as well as increased credit checking and other
loan underwriting  related costs. Total operating expenses increased $192,000 or
3.0%  during the first  three  quarters  of 2003 versus the same time frame last
year.

Income tax expense for the nine months ended  September  30, 2003 of  $1,072,000
was  $140,000 or 11.6% less than the prior year.  This  decrease  was  primarily
attributable  to  decreased  net  income  generated  in 2003  than  2002,  and a
reduction in the effective tax rate for 2003 of 30.0% versus 30.9% in 2002.

The efficiency ratio,  defined as noninterest  expense,  excluding the provision
for loan losses,  as a percent of net interest income plus  noninterest  income,
was 61.6%  and 60.1% for the nine  months  ended  September  30,  2003 and 2002,
respectively.  The primary  reasons for this change in the efficiency  ratio are
discussed above.

Discussion and Analysis of Financial Condition

The Company's assets at September 30, 2003 totaled $381,866,000,  an increase of
$3,161,000 or 0.8% from December 31, 2002. As of September 30, 2003, the Company
had  $41,840,000  of federal funds sold compared to  $30,600,000 at December 31,
2002.   Additionally,   interest-bearing   deposits  at  financial  institutions
(primarily fully FDIC insured  certificates of deposit with original  maturities
of three years or less and  interest-bearing  demand accounts at various banking
institutions)  totaled  $6,471,000  versus $1,791,000 at December 31, 2002. This
increase  was  primarily   the  result  of  higher  yields   available  on  such
certificates of deposit than could be obtained in the federal funds and treasury
securities markets.  Federal funds sold and other liquid assets have been higher
the past several quarters than the Company would  historically  consider normal.
These  liquid  assets may be used to fund future loan  growth,  deposit or other
liability outflows,  purchases of investment  securities available for sale when
interest   rates  again  rise,  or  various  other  purposes  as  identified  by
management.

Total  available  for sale  securities  decreased  $1,005,000 or 2.6% during the
first nine months of 2003 to total  $37,090,000 at September 30, 2003. The Banks
emphasize  purchase of securities with maturities of five years and less as such
purchases  typically offer reasonable yields with limited credit risk as well as
limited  interest  rate risk.  Additionally,  selected  securities  with  longer
maturities  are  owned in order  to  enhance  overall  portfolio  yield  without
significantly  increasing  risk.  In the low  interest  rate  environment  which
continued  during  the first  nine  months  of 2003,  the  banks  limited  their
purchases of securities to somewhat less than the total of securities  that were
sold, matured,  called, or paid down.  Furthermore,  most of the securities that
were  purchased  had  relatively  short  maturities  or likely early call dates.
Securities  sold thus far in 2003  totaled  $516,000  and  resulted in net gains
recognized of $22,000.

                                       14
<PAGE>

Net loans totaled  $262,607,000 at September 30, 2003, a decrease of $11,315,000
or 4.1% from  December 31, 2002.  Competition  for  high-quality  loans  remains
intense in all loan  categories.  Refinancing of home loans continued at a rapid
pace,  fueled by historically  low interest  rates,  during the third quarter of
2003.  The  Company  sells  many  of  these  loans  in  the  secondary   market.
Consequently,  the loans which are sold,  as well as the loans  remaining in the
Company's  portfolio but  refinanced at lower rates,  combine to put pressure on
loan yields and the volume of home loans on the balance sheet.

Total  deposits  at  September  30,  2003,  were  $282,564,000,  an  increase of
$12,142,000  or 4.5% from the  balance at December  31,  2002.  Certificates  of
deposit  represented  on average for the nine months ended  September  30, 2003,
approximately 41% of total deposits. Interest-bearing demand deposits, comprised
of savings,  money market and NOW accounts,  represented  another 44% of average
deposits.  The  final  15%  of  average  deposits  were  in  noninterest-bearing
accounts.  Securities sold under agreements to repurchase  decreased $874,000 to
$5,717,000,  and advances  borrowed  from the Federal Home Loan Bank declined by
$8,316,000 from year-end 2002, totaling $56,293,000 at quarter end.

The note payable  balance of $2,700,000 at September 30, 2003, was $600,000 less
than the December 31, 2002 balance.  This note was refinanced  during the second
quarter of 2003. The new variable rate  revolving  five-year term note is priced
at  Prime  less one  percent,  with a floor of 3.25%  and a  ceiling  of  5.25%,
considerably lower than the prior fixed rate of over 7.35%.

Interest Rate Sensitivity

The Company  manages its balance  sheet to minimize the impact of interest  rate
movements on its earnings.  The term "rate sensitive" refers to those assets and
liabilities  which are  "sensitive" to  fluctuations  in rates and yields.  When
interest  rates move,  earnings may be affected in many ways.  Interest rates on
assets and liabilities  may change at different  times or by different  amounts.
Maintaining a proper  balance  between rate  sensitive  earning  assets and rate
sensitive   liabilities  is  the  principal  function  of  asset  and  liability
management of a banking organization.

A positive  repricing gap for a given period exists when total  interest-earning
assets exceed total interest-bearing  liabilities and a negative gap exists when
total  interest-bearing  liabilities are in excess of  interest-earning  assets.
Generally a positive  repricing gap will result in increased net interest income
in a rising rate environment and decreased net interest income in a falling rate
environment.  A negative  repricing gap tends to produce  increased net interest
income in a falling rate  environment  and  decreased  net interest  income in a
rising rate  environment.  At September  30, 2003,  rate  sensitive  liabilities
exceeded rate  sensitive  assets within a one year maturity range and, thus, the
Company is theoretically  positioned to benefit from a decline in interest rates
within the next year.

The Company's  repricing gap position is useful for measuring  general  relative
risk  levels.  However,  even with  perfectly  matched  repricing  of assets and
liabilities,  interest rate risk cannot be avoided entirely.  Interest rate risk
remains in the form of prepayment risk of assets and liabilities, timing lags in
adjusting  certain assets and  liabilities  that have varying  sensitivities  to
market interest rates, and basis risk. Basis risk refers to the possibility that
the repricing  behavior of variable-rate  assets could differ from the repricing
characteristics  of  liabilities  which  reprice in the same time  period.  Even
though  these  assets are  match-funded,  the spread  between  asset  yields and
funding costs could change.

Because the  repricing  gap position  does not capture  these risks,  Management
utilizes simulation modeling to measure and manage the rate sensitivity exposure
of earnings.  The Company's simulation model provides a projection of the effect
on net interest  income of various  interest  rate  scenarios  and balance sheet
strategies.

Liquidity

For  banks,  liquidity  represents  ability  to meet both loan  commitments  and
deposit withdrawals.  Factors which influence the need for liquidity are varied,
but include general economic  conditions,  asset/liability mix, bank reputation,
future  FDIC  funding  needs,  changes  in  regulatory  environment,  and credit
standing.  Assets which provide liquidity consist principally of loans, cash and
due from banks, interest-bearing deposits at financial institutions,  investment
securities,  and short-term  investments  such as federal  funds.  Maturities of
securities  held for  investment  purposes and loan payments  provide a constant
flow of funds available for cash needs. Additionally, liquidity can be gained by
the sale of loans or securities  prior to maturity if such assets had previously
been designated as available for sale. Interest rates, relative to the rate paid
by the  security or loan sold,  along with the maturity of the security or loan,
are the major determinates of the price which can be realized upon sale.

                                       15
<PAGE>

The  stability  of the  Company's  funding,  and  thus  its  ability  to  manage
liquidity,  is greatly enhanced by its consumer deposit base.  Consumer deposits
tend to be small in size,  diversified  across a large base of individuals,  and
are  government  insured to the  extent  permitted  by law.  Total  deposits  at
September 30, 2003, were $282,564,000 or 74.0% of total liabilities and equity.

Federal funds sold overnight totaled  $41,840,000 or 11.0% of September 30, 2003
total  assets.  These  federal  funds  sold may be used to fund loans as well as
deposit withdrawals, or for other purposes as defined by management.

Securities  available  for  sale  with  a fair  value  totaling  $37,090,000  at
quarter-end included net unrealized gains of $1,400,000. These securities may be
sold in whole or in part to increase  liquid  assets,  reposition the investment
portfolio, or for other purposes as defined by management.

Capital

Stockholders'  equity  increased  $87,000 (0.3%) and $948,000  (3.9%) during the
three and nine months ended September 30, 2003,  respectively.  The year-to-date
increase included net income of $2,501,000, reduction of $223,000 in accumulated
other  comprehensive  income,  $1,001,000 of dividends declared to shareholders,
$235,000  of  treasury  share  purchases  and  $94,000  increase  in the maximum
obligation related to KSOP shares.

Federal regulatory agencies have adopted various capital standards for financial
institutions,  including risk-based capital standards. The primary objectives of
the  risk-based  capital  framework  are to  provide  a  consistent  system  for
comparing capital  positions of financial  institutions and to take into account
the  different   inherent  risks  among  financial   institutions'   assets  and
off-balance-sheet items.

Risk-based  capital  standards have been  supplemented  with  requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.

A  comparison  of the  Company's  capital  as of  September  30,  2003  with the
requirements to be considered adequately capitalized is presented below.

                                                                  For Capital
                                                   Actual      Adequacy Purposes
                                                   -----------------------------

Total capital to risk-weighted assets ....          13.0%           8.00%
Tier 1 capital to risk-weighted assets ...          11.7%           4.00%
Tier 1 capital to average assets .........           8.1%           4.00%

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America,  which  require the  measurement  of financial  position and  operating
results  in terms of  historical  dollars  without  considering  changes  in the
relative  purchasing  power of money  over time due to  inflation.  Unlike  most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature.

As a result,  interest  rates  have a more  significant  impact  on a  financial
institution's  performance  than the  effects  of general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or in the same
magnitude  as the price of goods and  services.  In the  current  interest  rate
environment,  liquidity and the maturity  structure of the Company's  assets and
liabilities are critical to the maintenance of acceptable performance levels.

Trends, Events or Uncertainties

Officers  and  Directors of the Company and its  subsidiaries  have had, and may
have in the future,  banking  transactions in the ordinary course of business of
the Company's subsidiaries.  All such transactions are on substantially the same
terms, including interest rates on loans and collateral,  as those prevailing at
the time for comparable  transactions  with others,  involve no more than normal
risk of collectibility, and present no other unfavorable features.

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

The Company has in the past purchased, and is authorized under an existing stock
repurchase plan to buy in the future, shares of its outstanding common stock for
the treasury as they become  available.  Pursuant to the stock  repurchase  plan
approved by the Board of Directors,  8,600 shares were  purchased by the Company
during the first three quarters of 2003.

                                       16
<PAGE>

Current Accounting Developments

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  establishes 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. Depending on the type of financial
instrument,  it is  required  to be  accounted  for at either  fair value or the
present  value of future cash flows  determined  at each balance sheet date with
the change in that value reported as interest  expense in the income  statement.
Prior  to  the   application  of  Statement  No.  150,  either  those  financial
instruments  were not required to be recognized,  or if recognized were reported
in the  balance  sheet as equity and  changes in the value of those  instruments
were normally not recognized in net income.  For the Company,  the Statement was
effective  July 1,  2003 and  implementation  had no  significant  impact on the
consolidated financial statements.

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,  VIEs  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 the first period ending after
December 15, 2003.

The  Company  expects  to  adopt  FIN 46 in  connection  with  its  consolidated
financial  statements for the year ended December 31, 2003. In its current form,
FIN 46 may require the Company to  de-consolidate  its  investment in Iowa First
Capital Trust I in future financial statements.  The potential  de-consolidation
of subsidiary  trusts of bank holding  companies  formed in connection  with the
issuance of trust preferred securities, like Iowa First Capital Trust I, appears
to be an unintended  consequence of FIN 46. It is currently unknown if, or when,
the FASB will  address this issue.  In July 2003,  the Board of Governors of the
Federal  Reserve  System issued a supervisory  letter  instructing  bank holding
companies to continue to include the trust preferred  securities in their Tier I
capital for regulatory  capital  purposes until notice is given to the contrary.
The  Federal  Reserve  intends  to review  the  regulatory  implications  of any
accounting  treatment  changes and, if necessary or warranted,  provide  further
appropriate  guidance.  There can be no assurance that the Federal  Reserve will
continue to permit institutions to include trust preferred  securities in Tier I
capital for regulatory capital purposes.  As of September 30, 2003, assuming the
Company  was  not  permitted  to  include  the $4  million  in  trust  preferred
securities  issued by Iowa  First  Capital  Trust I in its Tier 1  capital,  the
Company would still exceed the regulatory required minimums for capital adequacy
purposes.

Management  continues  to  monitor  the  interpretations  of  FIN  46,  and  its
application to various transaction types and structures, as they evolve.


                                       17
<PAGE>

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical  information  contained in this report, the
matters described herein contain certain forward-looking statements with respect
to the Company's financial condition,  results of operations and business. These
forward-looking  statements are subject to certain risks and uncertainties,  not
all of which can be  predicted  or  anticipated.  Factors  that may cause actual
results to differ  materially  from those  contemplated  by the  forward-looking
statements herein include market conditions as well as conditions  affecting the
banking industry  generally and factors having a specific impact on the Company,
including but limited to fluctuations in interest rates and in the economy;  the
impact of laws and  regulations  applicable to the Company and changes  therein;
the impact of  accounting  pronouncements  applicable to the Company and changes
therein;  competitive  conditions in the markets in which the Company  operates,
including  competition from banking and non-banking companies with substantially
greater resources;  the Company's ability to control the composition of its loan
portfolio without adversely affecting interest income; the Company's  dependence
on third party  suppliers;  and the  Company's  ability to respond to changes in
technology.  Readers of this Form 10-Q should therefore not place undue reliance
on forward-looking statements.

Item 4.  Disclosure Controls and Procedures

As of the end of the period  covered by this  report,  the Company  conducted an
evaluation,  under the supervision and with the  participation  of the principal
executive  officer  (Chairman  of the Board,  President  and CEO) and  principal
financial  officer   (Executive  Vice  President,   Chief  Operating  Officer  &
Treasurer),  of the Company's  disclosure controls and procedures (as defined in
Rules  13a-15(e) and 15d-15(e)  under the  Securities  Exchange Act of 1934 (the
"Exchange Act")). Based on this evaluation,  the principal executive officer and
principal financial officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information  required to be disclosed by
the  Company  in  reports  that it files or submits  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
in Securities and Exchange  Commission  rules and forms.  There was no change in
the Company's  internal  control over financial  reporting  during the Company's
most recently  completed  fiscal  quarter that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

                                       18
<PAGE>

                            Part II OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K.

(a)      Exhibits

         Exhibit 31.1 - Certification pursuant to Rule 13a-15(e) and 15d-15(e)

         Exhibit 31.2 - Certification pursuant to Rule 13a-15(e) and 15d-15(e)

         Exhibit 32.1 - Certification pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002

         Exhibit 32.2 - Certification pursuant to Section 906 of the
                        Sarbanes-Oxley Act of 2002

 (b)     Reports on Form 8-K.

         A Form 8-K was filed on July 22, 2003 and  consisted of a press release
         discussing  financial  results  of the  Company  for  the  quarter  and
         year-to-date  ended June 30, 2003, as well as the shareholder  dividend
         payable in July 2003.

                                       19
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                             IOWA FIRST BANCSHARES CORP.

                                 (Registrant)




November 14, 2003          /s/ D. Scott Ingstad
-----------------          -------------------------------
Date                       D. Scott Ingstad, Chairman of
                           the Board, President and CEO

November 14, 2003          /s/ Kim K. Bartling
-----------------          -------------------------------
Date                       Kim K. Bartling, Executive Vice
                           President, Chief Operating
                           Officer & Treasurer


                                       20