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, 2005
                                      ------------------

                                       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]

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

At November 10, 2005, there were  1,382,669  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, 2005 and December 31, 2004                    3

                   Consolidated Condensed Statements of
                   Income, Three and Nine Months Ended
                   September 30, 2005 and 2004                                 4

                   Consolidated Condensed Statements of
                   Cash Flows, Nine Months Ended
                   September 30, 2005 and 2004                                 5

                   Notes to Consolidated Condensed
                   Financial Statements                                      6-7


         Item 2.   Management's Discussion and Analysis
                   Of Financial Condition and Results of
                   Operations                                               8-16

         Item 3.   Quantitative and Qualitative Disclosures About
                   Market Risk                                                16

         Item 4.   Controls and Procedures                                    16

PART II  Other Information

         Item 1.   Legal Proceedings                                          17

         Item 2.   Unregistered Sales of Equity Securities and Use
                   Of Proceeds                                                17

         Item 3.   Defaults Upon Senior Securities                            17

         Item 4.   Submission of Matters to a Vote of Security Holders        17

         Item 5.   Other Information                                          17

         Item 6.   Exhibits                                                   17

Signatures                                                                    18

                                       2
<PAGE>


                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In Thousands)
                                   (Unaudited)
<TABLE>

                                                     September 30,  December 31,
                                                          2005         2004
                                                     ---------------------------
<S>                                                  <C>            <C>
ASSETS

Cash and due from banks ............................   $  18,928    $  14,730
Interest-bearing deposits at financial institutions        5,911        8,395
Federal funds sold .................................       3,075       12,300
Investment securities available for sale ...........      33,763       30,325
Loans, net of allowance for loan losses
  September 30, 2005, $3,465; December 31,
  2004, $3,385 .....................................     292,147      280,899
Bank premises and equipment, net ...................       7,198        7,411
Accrued interest receivable ........................       2,472        2,046
Life insurance contracts ...........................       4,572        4,438
Restricted investment securities ...................       2,783        2,659

Other assets .......................................       1,261          980
                                                       ----------------------
        TOTAL ASSETS ...............................   $ 372,110    $ 364,183
                                                       ======================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES


Noninterest bearing deposits .......................   $  53,321    $  50,070
Interest bearing deposits ..........................     230,514      227,665
                                                       ----------------------
        TOTAL DEPOSITS .............................     283,835      277,735
Note payable .......................................       1,700        2,100
Securities sold under agreements to
  repurchase .......................................       7,689        5,885
Federal Home Loan Bank advances ....................      41,686       42,916
Treasury tax and loan open note ....................          48           74
Junior subordinated debentures .....................       4,125        4,125
Dividends payable ..................................         346          345
Other liabilities ..................................       2,178        1,769
                                                       ----------------------
        TOTAL LIABILITIES ..........................     341,607      334,949
                                                       ----------------------

Redeemable common stock held by employee stock
  ownership plan with 401(k) provisions (KSOP) .....       3,566        3,517
                                                       ----------------------

STOCKHOLDERS' EQUITY

Common stock .......................................         200          200
Additional paid-in capital .........................       4,255        4,255
Retained earnings ..................................      39,909       38,416
Accumulated other comprehensive income .............         106          330
Less cost of common shares acquired for the treasury     (13,967)     (13,967)
Less maximum cash obligation related to KSOP shares       (3,566)      (3,517)
                                                       ----------------------
        TOTAL STOCKHOLDERS' EQUITY .................      26,937       25,717
                                                       ----------------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .   $ 372,110    $ 364,183
                                                       ======================
</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,
                                                    2005     2004      2005      2004
                                                 -------------------------------------
<S>                                               <C>       <C>       <C>       <C>
INTEREST AND DIVIDEND INCOME:
  Loans, including fees:
    Taxable ...................................   $ 4,506   $ 4,127   $12,995   $12,260
    Nontaxable ................................        67        59       198       154
  Investment securities available for sale:
    Taxable ...................................       175       141       499       517
    Nontaxable ................................       134       163       423       500
  Federal funds sold ..........................        58        63       355       220
  Restricted investment securities ............         6        18        58        45
  Interest bearing deposits and other .........        57        60       175       158
                                                  -------------------------------------
        Total interest and dividend income ....     5,003     4,631    14,703    13,854
                                                  -------------------------------------

INTEREST EXPENSE:
  Deposits ....................................     1,266       963     3,608     2,898
  Note payable ................................        28        24        77        69
  Other borrowed funds ........................       539       580     1,647     1,876
  Junior subordinated debentures ..............       106       106       319       319
                                                  -------------------------------------
        Total interest expense ................     1,939     1,673     5,651     5,162
                                                  -------------------------------------

        Net interest income ...................     3,064     2,958     9,052     8,692
Provision for loan losses .....................        90       120       390       380
                                                  -------------------------------------

        Net interest income after provision for
        loan losses ...........................     2,974     2,838     8,662     8,312
                                                  -------------------------------------

Other income:
  Trust department ............................        99        95       296       282
  Service fees ................................       540       535     1,500     1,449
  Investment securities gains, net ............        --        12        --        45
  Gains on loans sold .........................        44        23       153       137
  Life insurance contracts ....................        46        43       143       132
  Other .......................................        66        87       219       286
                                                  -------------------------------------
        Total other income ....................       795       795     2,311     2,331
                                                  -------------------------------------

Operating expenses:
  Salaries and employee benefits ..............     1,413     1,325     4,122     3,875
  Occupancy expenses, net .....................       202       195       598       569
  Equipment expenses ..........................       185       155       518       475
  Office supplies, printing, and postage ......        82        79       256       237
  Computer costs ..............................       138       126       400       386
  Advertising and business promotion ..........        51        41       145       121
  Going private transaction expenses ..........        98        --        98        --
  Other operating expenses ....................       364       318     1,148       952
                                                  -------------------------------------
        Total operating expenses ..............     2,533     2,239     7,285     6,615
                                                  -------------------------------------


        Income before income taxes ............   $ 1,236   $ 1,394   $ 3,688   $ 4,028
Income taxes ..................................       394       424     1,157     1,247
                                                  -------------------------------------

        Net income ............................   $   842   $   970   $ 2,531   $ 2,781
                                                  =====================================

Net income per common share, basic and diluted    $  0.61   $  0.70   $  1.83   $  1.99
                                                  =====================================

Dividends declared per common share ...........   $  0.25   $  0.24   $   .75   $   .73
                                                  =====================================

Comprehensive income ..........................   $   779   $ 1,188   $ 2,307   $ 2,487
                                                  =====================================
</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, 2005 and 2004
                                 (In Thousands)
                                   (Unaudited)
<TABLE>

                                                                         2005        2004
                                                                       --------------------
<S>                                                                    <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .........................................................   $  2,531    $  2,781
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Proceeds from loans sold .........................................      8,907       7,649
  Loans underwritten ...............................................     (8,320)     (7,512)
  Gains on loans sold ..............................................       (153)       (137)
  Provision for loan losses ........................................        390         380
  Investment securities gains, net .................................         --         (45)
  Depreciation .....................................................        482         427
  Amortization of premiums and accretion of discounts
    on investment securities available for sale, net ...............        209         153
  Net increase in accrued interest receivable ......................       (426)        (79)
  Net (increase) decrease in other assets ..........................        (25)         44
  Net increase in other liabilities ................................        543         297
                                                                       --------------------
        Net cash provided by operating activities ..................   $  4,138    $  3,958
                                                                       --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-bearing deposits
    at financial institutions ......................................   $  2,484      (1,465)
  Net decrease in federal funds sold ...............................      9,225       8,507
  Proceeds from sales of available for sale securities .............         --       2,548
  Proceeds from maturities, calls and paydowns of available for sale      5,047      14,276
    securities
  Purchases of available for sale securities .......................     (9,052)    (11,448)
  Net increase in loans ............................................    (12,328)     (8,871)
  Purchases of bank premises and equipment .........................       (269)       (614)
  Increase in cash value of life insurance contracts ...............       (134)       (124)
  Net (purchases) sales of restricted investment securities ........       (124)        340
                                                                       --------------------
        Net cash provided by (used in) investing activities ........   $ (5,151)   $  3,149
                                                                       --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in noninterest-bearing deposits .....................   $  3,251    $  2,476
  Net increase in interest-bearing deposits ........................      2,849       3,171
  Net increase in securities sold under agreements to repurchase ...      1,804       1,953
  Proceeds from note payable .......................................      1,700          --
  Repayment of note payable ........................................     (2,100)       (600)
  Net decrease in treasury tax and loan open note ..................        (26)       (474)
  Advances from Federal Home Loan Bank .............................      4,000          --
  Payments of advances from Federal Home Loan Bank .................     (5,230)     (9,113)
  Cash dividends paid ..............................................     (1,037)     (1,021)
  Purchases of common stock for the treasury .......................         --      (1,111)
                                                                       --------------------
        Net cash provided by (used in) financing activities ........   $  5,211    $ (4,719)
                                                                       --------------------
Net increase in cash and due from banks ............................      4,198       2,388
Beginning cash and due from banks ..................................   $ 14,730    $ 12,988
                                                                       --------------------
Ending cash and due from banks .....................................   $ 18,928    $ 15,376
                                                                       ====================

Supplemental Disclosures of Cash Flow Information,
  cash payments for:
  Interest .........................................................   $  5,472    $  5,116
  Income taxes .....................................................      1,119       1,156
Supplemental Schedule of Noncash Investing and Financing Activities:
  Change in accumulated other comprehensive income, unrealized
  (losses) on investment securities available for sale, net ........       (224)       (294)
  (Increase) in maximum cash obligations related to KSOP shares ....        (49)       (200)
  Transfers of loans to other real estate owned ....................        256          90

</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  and First  National Bank in
Fairfield.  First  National  Bank of Muscatine  has six  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  include the accounts of the Company and
all wholly-owned subsidiaries, except Iowa First Capital Trust I, which does not
meet the criteria for consolidation.  The consolidated  financial statements are
unaudited  and should be read in  conjunction  with the  consolidated  financial
statements  contained in the 2004 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, 2005 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 2005.

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 shares 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,
2005 was 1,382,669. The average number of shares of common stock outstanding for
the three and nine months ended September 30, 2004 were 1,384,640 and 1,399,040,
respectively. There were no common stock equivalents in 2005 or 2004.

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.

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.


Financial instruments whose contract amounts
  represent credit risk:

                                                  September 30,     December 31,
                                                      2005              2004
                                                  ------------------------------

Commitments to extend credit .............        $50,572,000       $40,467,000
Standby letters of credit ................          2,400,000         1,121,000

                                       6
<PAGE>

The commitments to extend credit above are net of  participations  sold to other
banks.  Total  participations  sold to other banks related to the commitments to
extend  credit  were  $14,144,000  and  $18,143,000  at  September  30, 2005 and
December 31, 2004, respectively.

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,
2005 and December 31, 2004 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 none and $434,000 as of September 30, 2005 and
December 31, 2004, respectively.  These amounts are classified as loans held for
sale and are included in loans at the respective balance sheet dates.

Note 4.   Potential Change in Corporate Structure

     On July 22, 2005,  the  Company's  board of  directors  announced a plan to
suspend  its  obligation  to file  reports  with  the  Securities  and  Exchange
Commission,  by means of a 1-for-1,000  reverse  split of the  Company's  common
stock,  followed  immediately by a 1,000-for-1 forward split. The effect of this
transaction would be to reduce the number of shareholders of record to less than
300, thereby  suspending the Company's  obligation to file reports with the SEC.
Shareholders  with less than  1,000  shares of common  stock,  held of record in
their name,  immediately  before the split will receive a cash payment  equal to
$38.00 per pre-split share.  Shareholders with 1,000 or more shares of record in
their name immediately before the split will continue to hold the same number of
shares after completion of the split transaction. The proposed split transaction
is subject to approval by the holders of a two-thirds majority of the issued and
outstanding shares of the Company's common stock.  Shareholders will be asked to
approve the split transaction at a special meeting of shareholders scheduled for
November 22, 2005.  Based upon  shareholders of record as of September 30, 2005,
we  expect  the cash  payment  for  repurchase  of  shares  from  non-continuing
shareholders to be approximately  $2,478,000 and the professional fees and other
expenses related to the split transaction to total approximately  $185,000.  The
Company  anticipates  funding this  transaction  with  external  debt. A line of
credit has been established,  effective  September 29, 2005, which, after a draw
period of several months,  will be converted to a five-year loan with a ten-year
amortization  period,  bearing  interest  at the prime rate less  1.25%,  with a
ceiling of 6.5%.  Principal  payments will be made on a  semi-annual  basis with
interest paid quarterly.  This loan is secured by 100% of the outstanding  stock
of the Banks.

                                       7
<PAGE>

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

Results of Operations:

Quarter ended September 30, 2005 compared with quarter ended September 30, 2004:

The Company  recorded net income of $842,000 for the quarter ended September 30,
2005,  compared with net income of $970,000 for the quarter ended  September 30,
2004, a decrease of $128,000 or 13.2%. This decrease in net income resulted from
increased operating expenses which more than offset improved net interest income
and a lower provision for loan losses.

Basic and  diluted  earnings  per share  were  $.61 for the three  months  ended
September  30,  2005,  $.09 or 12.9%  less  than the same  period  in 2004.  The
Company's  annualized return on average assets for the third quarter of 2005 was
..90% 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,
2005 and September 30, 2004 was 12.5% and 15.1%, 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 fully  taxable  equivalent  basis  using
statutory tax rates in effect for the year presented):
<TABLE>
                                                          Three Months Ended                Three Months Ended
                                                          September 30, 2005                September 30, 2004
                                                   ---------------------------------    -------------------------------
                                                                             Average                            Average
                                                   Balance     Interest        Rate     Balance   Interest        Rate
                                                   --------------------------------------------------------------------
<S>                                                <C>         <C>           <C>        <C>       <C>          <C>
Assets
Taxable loans, net .............................   $282,984    $  4,506        6.37%    $271,686   $  4,127       6.08%
Taxable investment securities available for sale     22,865         175        3.06       18,111        141       3.11
Nontaxable investment securities and loans .....     17,404         305        7.01       19,425        336       6.93
Federal funds sold .............................      6,914          58        3.36       18,451         63       1.37
Restricted investment securities ...............      2,692           6        0.89        2,751         18       2.62
Interest-bearing deposits at financial
  institutions .................................      6,520          57        3.50        8,614         60       2.79
                                                   --------------------                 -------------------
        Total interest-earning assets ..........    339,379       5,107        6.02%     339,038      4,745       5.60%
                                                               --------                            --------
Cash and due from banks ........................     17,051                               14,757
Bank premises and equipment, net ...............      7,258                                6,811
Life insurance contracts .......................      4,555                                4,360
Other assets ...................................      3,139                                2,827
                                                   --------                             --------
        Total ..................................   $371,382                             $367,793
                                                   ========                             ========
Liabilities
Deposits:
 Interest-bearing demand .......................   $119,047    $    398        1.33%    $121,063   $    206       0.68%
 Time ..........................................    110,591         868        3.11      107,736        757       2.79
Note payable ...................................      2,100          28        5.22        2,724         24       3.41
Other borrowings ...............................     50,003         539        4.27       51,799        580       4.44
Junior subordinated debentures .................      4,125         106       10.32        4,125        106      10.32
                                                   --------------------                 -------------------
        Total interest-bearing liabilities .....    285,866       1,939        2.69%     287,447      1,673       2.31%
                                                               --------                            --------
Noninterest-bearing deposits ...................     53,022                               49,417
Other liabilities ..............................      2,129                                2,389
                                                   --------                             --------
        Total liabilities ......................    341,017                              339,253
Redeemable common stock held by KSOP ...........      3,544                                3,057
Stockholders' Equity ...........................     26,821                               25,483
                                                   --------                             --------
        Total ..................................   $371,382                             $367,793
                                                   ========                             ========
Net interest earnings ..........................               $  3,168                            $  3,072
                                                               ========                            ========

Net interest margin (net interest earnings
  divided by total interest-earning assets) ....                               3.70%                              3.59%
                                                                              ======                             ======
</TABLE>

Nonaccruing  loans are included in the average  balance of loans.  Loan fees are
not material.

                                       8
<PAGE>


                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

Critical Accounting Policy:

The Company's  financial  statements are prepared in accordance  with accounting
principles  generally  accepted in the United  States of America.  The financial
information  contained  within these  statements  is, to a  significant  extent,
financial  information  that is based on  approximate  measures of the financial
effects of  transactions  and events that have  already  occurred.  Based on its
consideration  of  accounting   policies  that  involve  the  most  complex  and
subjective  decisions  and  assessments,  management  has  identified  its  most
critical  accounting policy to be that related to the allowance for loan losses.
The Company's allowance for loan loss methodology incorporates a variety of risk
considerations,  both  quantitative and qualitative in establishing an allowance
for loan loss that  management  believes is appropriate at each reporting  date.
Quantitative   factors  include  the  Company's   historical  loss   experience,
delinquency and charge-off trends,  collateral values,  changes in nonperforming
loans,  and  other  factors.   Quantitative   factors  also  incorporate   known
information about individual loans, including borrowers' sensitivity to interest
rate movements.  Qualitative factors include the general economic environment in
the Company's markets,  including economic conditions throughout the Midwest and
in  particular,  the  state  of  certain  industries.  Size  and  complexity  of
individual  credits in relation to loan  structure,  existing  loan policies and
pace of portfolio  growth are other  qualitative  factors that are considered in
the  methodology.  As the Company adds new products and increases the complexity
of its loan portfolio, it will enhance its methodology  accordingly.  Management
may report a materially  different  amount for the  provision for loan losses in
the  statement  of  operations  to change the  allowance  for loan losses if its
assessment of the above factors were  different.  This  discussion  and analysis
should be read in conjunction  with the Company's  financial  statements and the
accompanying  notes as well as the Management's  Discussion and Analysis section
presented  elsewhere  herein.  Although  management  believes  the levels of the
allowance as of both  September  30, 2005 and December 31, 2004 were adequate to
absorb  probable  losses  in the loan  portfolio,  a decline  in local  economic
conditions,  or other factors,  could result in increasing losses that cannot be
reasonably predicted at this time.

The net interest  margin  increased  to 3.70%  during the third  quarter of 2005
compared  to 3.59%  during  the third  quarter  of 2004.  The  return on average
interest-earning  assets  increased 42 basis points (from 5.60% in 2004 to 6.02%
in 2005) while interest paid on average  interest-bearing  liabilities increased
38 basis points (from 2.31% in 2004 to 2.69% in 2005).

The Federal  Reserve  increased  interest rates five times during the last seven
months of 2004 and two more times  during each of the first two quarters of 2005
as well as three times in the third quarter of 2005. Correspondingly,  the prime
lending rate,  which was 4.00% at the  beginning of 2004,  increased to 6.75% by
September 30, 2005. Over the past few years, the Company emphasized  utilization
of interest rate floors on selected  commercial and agricultural  loans.  During
2004 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  all of  2004  falling  slightly  less  than  the  rates  paid  on
interest-bearing   liabilities   (38   basis   points   and  42  basis   points,
respectively).  As market  interest rates have risen,  rates received on taxable
loans have  increased  29 basis  points  while  rates  paid on  interest-bearing
liabilities  have increased 38 basis points when comparing the third quarters of
2005 and 2004.  This result  occurred due, in large measure,  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 and the loan  repricing  date met.
Additionally,  the mix of loans  comprising  the  taxable  loan  portfolio,  and
pricing of new loan volume  compared to existing loan rates,  impact the overall
yield  earned.  The extent of impact  these  items will have in the future  will
depend upon, among other things, the amount and timing of future market interest
rate hikes and competitive pressures.

Rates  received on taxable  investment  securities  available for sale decreased
during the third  quarter of 2005,  compared to the third  quarter of 2004, by 5
basis  points.  Over  the  same  time  period,  rates  paid on  interest-bearing
liabilities  increased 38 basis points.  This was 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 only  approximately  two years,  may be able to  reprice  higher if
market  interest  rates  remain at their  current  level or  experience  further
increases.

Rates  received  during the quarter ended  September  30, 2005,  versus the same
quarter of 2004, on nontaxable  investment  securities available for sale and on
nontaxable  loans increased 8 basis points while rates paid on  interest-bearing
liabilities  increased  38  basis  points.  Most  of the  nontaxable  investment
securities  available for sale were  purchased  when market  interest rates were
higher than rates  currently  available,  despite recent interest rate hikes. In
the current interest rate  environment,  when nontaxable  investment  securities
mature or are sold,  called,  or  otherwise  paid down,  the  reinvestment  rate
available is frequently lower than the yield of the liquidating security.

                                       9
<PAGE>

The rate received on overnight  federal funds sold to other banks  increased 199
basis points during the third  quarter of 2005,  compared to the same quarter of
2004.  This increase was primarily  attributable to the monetary policy shift of
the  Federal  Reserve  which  has  caused  overnight   federal  funds  rates  to
significantly  rise. For the quarter ended  September 30, 2005,  average federal
funds sold to total average assets had been reduced to 1.9% from 5.0% during the
same quarter in 2004.  These  federal funds sold can be used to fund future loan
demand, deposit or other liability outflows, investment securities purchases, or
various other purposes as identified by management.

The  rate  earned  on  interest-bearing   deposits  at  financial   institutions
(primarily  FDIC  insured  certificates  of deposit)  increased  71 basis points
during the third  quarter of 2005  versus  the same  quarter of 2004,  while the
average  balance  decreased  $2,094,000.  This asset  category  yielded 14 basis
points over federal  funds sold with little,  if any,  credit risk.  The average
maturity  of   interest-bearing   deposits   at   financial   institutions   was
approximately one year during the quarter ended September 30, 2005.

During  this  period  of  rising  market  interest  rates,  the  rates  paid  on
interest-bearing  demand deposits rose 65 basis points.  In contrast,  the rates
paid on time deposits  increased  only 32 basis points when  comparing the third
quarters of 2005 and 2004 as time  deposits  tend to reprice  higher at a slower
pace than interest-bearing demand deposits due to their longer maturities.

The rate paid on the note payable outstanding  increased 181 basis points during
the third quarter of 2005  compared to the same quarter last year.  This was the
result of numerous  increases  over the past twelve  months in the prime lending
rate to which the note payable rate is tied.

The  use  of  wholesale  funding  sources  (primarily  Federal  Home  Loan  Bank
advances),  while  mitigating  intermediate  and  long-term  interest rate risk,
tended to  represent a  relatively  higher cost of funds than  deposits  for the
Company.  The  Company's  average  rate  paid for such  Federal  Home  Loan Bank
advances and other funds, however, was reduced by 17 basis points when comparing
the third quarters of 2005 and 2004.  Management  reduced  reliance on wholesale
funding sources as evidenced by the average  balance in this category  declining
nearly  $1.8  million  during the third  quarter of 2005  compared  to the third
quarter of 2004.

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.  Despite  these  limitations,  the Company  was able to increase  the
overall net interest margin to 3.70% during the three months ended September 30,
2005, compared to 3.59% for the same period last year.

Provisions  for loan losses were $90,000 and $120,000 for the three months ended
September 30, 2005 and September 30, 2004,  respectively.  Net loan  charge-offs
for the  quarter  ended  September  30,  2005  totaled  $80,000  compared to net
charge-offs of $24,000 for the same quarter in 2004.

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,  gains  (or  losses)  from the sale of  investment
securities in the available for sale category and loans,  as well as income from
corporate owned life insurance. Total other income for the third quarter of 2005
was $795,000, identical to the third quarter of 2004. Service fees, particularly
on deposit  accounts,  were the largest  single  component  of the other  income
category,  totaling  $540,000  or $5,000 more than the same  quarter  last year.
Trust  department  income rose $4,000 or 4.2% and gains on loans sold  increased
$21,000 or 91.3%.  Income on corporate owned life insurance  increased $3,000 or
7.0%.  Finally,  miscellaneous  other  income  decreased  $21,000  or 24.1%  due
primarily to a  non-recurring  revenue item  recognized  in 2004.  No securities
gains were  recognized  during the third quarter of 2005 compared to $12,000 for
the same quarter of 2004.

Operating  expenses  include  all of the costs  incurred  to operate the Company
except for interest  expense,  the loan loss provision and income taxes. For the
quarter ended September 30, 2005,  salaries and employee  benefits,  the largest
component of operating expenses, increased $88,000 or 6.6% due to normal raises,
incentives  and the rising cost of health care.  Additionally,  a new branch was
opened in December 2004, with its related operating expenses, including salaries
and benefits being reflected in 2005. Occupancy and equipment expenses increased
$37,000 or 10.6% as  depreciation  and property taxes rose. All other  operating
expenses  increased  $169,000  or 30.0% due in large  measure  to the new branch
discussed above,  expenses  totaling $98,000 related to the suspension of report
filing  obligations  with the SEC, and normal cost  increases  in various  other
expense  categories.  Excluding the suspension of report filing obligations with
the SEC expenses, this category of other operating expenses increased $71,000 or
12.6%.  Total operating  expenses  increased  $294,000 or 13.1% during the third
quarter of 2005 versus the same quarter last year.  Excluding the  suspension of
report  filing  obligations  with the SEC  expenses,  total  operating  expenses
increased $196,000 or 8.8%. Increased costs of regulatory compliance in general,
and the Sarbanes Oxley Act of 2002 in particular, as well as technology spending
continue  to  challenge  the  Company in its effort to  control  expenses  while
maintaining strong productivity,  efficiency, capacity and high quality customer
service.

                                       10
<PAGE>

Income  tax  expense  for the  quarter  ended  September  30,  2005 of  $394,000
represented 31.9% of income before taxes. For the comparable  quarter last year,
income tax expense was 30.4% of income before tax.

The efficiency ratio,  defined as noninterest  expense,  excluding the provision
for loan losses, as a percentage of net interest income plus noninterest income,
was 65.6% and 59.7% for the three  months  ended  September  30,  2005 and 2004,
respectively.  The primary reasons for this change in the efficiency  ratio were
the overhead  expenses  associated  with the new branch,  costs of suspension of
report filing obligations with the SEC, increased  regulatory  compliance costs,
the cost of  technology,  and the other  reasons  discussed  previously  in this
report.

Results of Operations:

Nine months ended  September 30, 2005 compared with nine months ended  September
30, 2004

The  Company  recorded  net  income  of  $2,531,000  for the nine  months  ended
September 30, 2005,  compared  with net income of $2,781,000  for the first nine
months of 2004,  a decrease  of $250,000  or 9.0%.  This  decrease in net income
resulted  primarily  from higher  operating  expenses  more than  offsetting  an
increase in net interest income.

Basic and  diluted  earnings  per share  were  $1.83 for the nine  months  ended
September  30,  2005,  $.16 or 8.0%  less  than the  same  period  in 2004.  The
Company's  annualized  return on average  assets for the first three quarters of
2005 was .90%  compared to .99%  during the same  period of the prior year.  The
Company's  annualized  return  on  average  equity  for the  nine  months  ended
September 30, 2005 and September 30, 2004 was 12.8% and 14.6%, 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 fully  taxable  equivalent  basis  using
statutory tax rates in effect for the year presented):
<TABLE>
                                                           Nine Months Ended               Nine Months Ended
                                                           September 30, 2005              September 30, 2004
                                                   ---------------------------------   --------------------------------
                                                                             Average                            Average
                                                   Balance     Interest        Rate    Balance    Interest       Rate
                                                   --------------------------------------------------------------------
<S>                                                <C>         <C>           <C>       <C>        <C>           <C>
Assets
Taxable loans, net .............................   $278,091    $ 12,995        6.23%   $267,378   $ 12,260       6.11%
Taxable investment securities available for sale     22,112         499        3.01%     19,262        517       3.58%
Nontaxable investment securities and loans .....     18,136         941        6.92%     19,154        991       6.90%
Federal funds sold .............................     17,615         355        2.69%     29,787        220       0.98%
Restricted investment securities ...............      2,685          58        2.88%      2,883         45       2.08%
Interest-bearing deposits at financial
  institutions .................................      7,442         175        3.14%      8,218        158       2.56%
                                                   --------------------                -------------------
        Total interest-earning assets ..........    346,081      15,023        5.79%    346,682     14,191       5.46%
                                                               --------                           --------
Cash and due from banks ........................     16,232                              14,739
Bank premises and equipment, net ...............      7,294                               6,766
Life insurance contracts .......................      4,509                               4,321
Other assets ...................................      2,878                               2,921
                                                   --------                            --------
        Total ..................................   $376,994                            $375,429
                                                   ========                            ========
Liabilities
Deposits:
  Interest-bearing demand ......................   $125,189    $  1,148        1.23%   $127,155   $    575       0.60%
  Time .........................................    109,796       2,460        3.00%    108,928      2,323       2.85%
Note payable ...................................      2,100          77        4.84%      2,728         69       3.31%
Other borrowings ...............................     51,378       1,647        4.28%     54,372      1,876       4.61%
Junior subordinated debentures .................      4,125         319       10.32%      4,125        319      10.32%
                                                   --------------------                -------------------
        Total interest-bearing liabilities .....    292,588       5,651        2.58%    297,308      5,162       2.32%
                                                               --------                           --------
Noninterest-bearing deposits ...................     52,235                              47,440
Other liabilities ..............................      2,188                               2,128
                                                   --------                            --------
        Total liabilities ......................    347,011                             346,876
Redeemable common stock held by KSOP ...........      3,587                               3,074
Stockholders' Equity ...........................     26,396                              25,479
                                                   --------                            --------
        Total ..................................   $376,994                            $375,429
                                                   ========                            ========
Net interest earnings ..........................               $  9,372                           $  9,029
                                                               ========                           ========
Net interest margin (net interest earnings
divided by total interest-earning assets) ......                               3.62%                             3.48%
                                                                              ======                            ======
</TABLE>
Nonaccruing  loans  are  included  in the  average  balance.  Loan  fees are not
material.

                                       11
<PAGE>

The net interest  margin  increased to 3.62% during the first three  quarters of
2005  compared to 3.48%  during the same  period of 2004.  The return on average
interest-earning  assets  increased 33 basis points (from 5.46% in 2004 to 5.79%
in 2005) and interest paid on average interest-bearing  liabilities increased 26
basis points (from 2.32% in 2004 to 2.58% in 2005).

Rates  received  during the first three  quarters of 2005,  compared to the same
period  in  2004,   on  taxable  loans   increased   less  than  rates  paid  on
interest-bearing   liabilities   (increases  of  twelve  and  26  basis  points,
respectively).

Rates  received on taxable  investment  securities  available for sale decreased
during the first nine months of 2005, compared to the same period in 2004, by 57
basis  points.  This was  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 only approximately
two years,  may be able to reprice  higher if market  interest  rates  remain at
their current level or experience further increases.

Rates received  during the first nine months of 2005,  versus the same period of
2004, on nontaxable  investment  securities available for sale and on nontaxable
loans   increased  two  basis  points  while  rates  paid  on   interest-bearing
liabilities  increased  26  basis  points.  Most  of the  nontaxable  investment
securities  available for sale were  purchased  when market  interest rates were
higher than rates  currently  available,  despite recent interest rate hikes. In
the current interest rate  environment,  when nontaxable  investment  securities
mature or are sold,  called,  or  otherwise  paid down,  the  reinvestment  rate
available is frequently lower than the yield of the liquidating security.

The rate received on overnight  federal funds sold to other banks  increased 171
basis points  during the first nine months of 2005,  compared to the same period
in 2004. This increase was primarily  attributable to the monetary policy of the
Federal Reserve which has caused overnight  federal funds rates to significantly
rise.  These federal funds sold can be used to fund future loan demand,  deposit
or other liability outflows,  investment securities purchases,  or various other
purposes as identified by management.

The  rate  earned  on  interest-bearing   deposits  at  financial   institutions
(primarily  FDIC  insured  certificates  of deposit)  increased  58 basis points
during the first nine months of 2005 versus the first nine months of 2004.  This
asset category  yielded 45 basis points over federal funds sold with little,  if
any, credit risk. The average maturity of interest-bearing deposits at financial
institutions  was less than one and one-half  years during the nine months ended
September 30, 2005.

During this period of rising interest rates, the rates paid on  interest-bearing
demand  deposits rose 63 basis points when comparing the first three quarters of
2005 and 2004.  Over the same  comparison  period,  rates paid on time  deposits
increased  only 15 basis  points as time  deposits  tend to reprice  higher at a
slower  pace  than   interest-bearing   demand  deposits  due  to  their  longer
maturities.

The rate paid on the note payable outstanding  increased 153 basis points during
the first nine months of 2005 compared to the same period in 2004.  This was the
result of numerous  increases during the last twelve months in the prime lending
rate to which the note payable rate is tied.

The  use  of  wholesale  funding  sources  (primarily  Federal  Home  Loan  Bank
advances),  while  mitigating  intermediate  and  long-term  interest rate risk,
tended to increase overall interest expense. The Company's average rate paid for
such  Federal  Home Loan Bank  advances  and other funds was reduced by 33 basis
points when comparing the first nine months of 2005 and 2004. Management reduced
reliance on wholesale  funding  sources as  evidenced by the average  balance in
this category declining nearly $3.0 million during the first nine months of 2005
compared with 2004.

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.  Despite  these  limitations,  the Company  was able to increase  the
overall net interest  margin to 3.62% during the nine months ended September 30,
2005, compared to 3.48% for the same period last year.

Provisions for loan losses were $390,000 for the nine months ended September 30,
2005,  compared to $380,000 for the nine months ended  September  30, 2004.  Net
loan charge-offs for the first nine months of 2005 totaled $310,000  compared to
net  charge-offs  of $190,000 for the same period in 2004.  Most of the net loan
charge-offs in 2005 were attributable to one borrower.

                                       12
<PAGE>

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 2005 was  $2,311,000,  which was  $20,000 or 0.9% less
than the first  nine  months of 2004.  Service  fees,  particularly  on  deposit
accounts,  were the largest single area of growth in the other income  category,
exhibiting an increase of $51,000 or 3.5%. Trust department  income grew $14,000
or 5.0%; gains on loans sold increased $16,000 or 11.7%; and income on corporate
owned life insurance rose $11,000 or 8.3%.  Finally,  miscellaneous other income
declined  $67,000 or 23.4% due in large measure to a non-recurring  revenue item
recognized in 2004. No securities  gains were  recognized  during the first nine
months of 2005 compared to $45,000 of such gains in 2004.

Operating  expenses  include  all of the costs  incurred  to operate the Company
except for interest  expense,  the loan loss provision and income taxes. For the
nine months ended  September  30, 2005,  salaries  and  employee  benefits,  the
largest  component  of  operating  expenses,  increased  $247,000 or 6.4% due to
normal raises, incentives and the rising cost of benefits.  Additionally,  a new
branch  was  opened  in  December  2004,  with its  related  operating  expenses
including  salaries  and  benefits  being  reflected in the first nine months of
2005.  Occupancy and equipment  expenses  increased  $72,000 or 6.9%.  All other
operating  expenses  increased $351,000 or 20.7% due in large measure to the new
branch  discussed  above,  expenses  totaling  $98,000  related to suspension of
report filing  obligations  with the SEC, normal cost increases in various other
expense categories, as well as the final settlement in the first quarter of 2004
of  a  non-recurring   liability  at  an  amount   approximately   $20,000  more
advantageous to the Company than  previously  anticipated and accrued for. Total
operating  expenses  increased $670,000 or 10.1% during the first nine months of
2005 versus the same period the prior year.  Excluding the  suspension of report
filing  obligations with the SEC expenses,  total operating  expenses  increased
$572,000 or 8.7%.  Increased costs of regulatory  compliance in general, and the
Sarbanes  Oxley  Act of 2002 in  particular,  as  well  as  technology  spending
continue  to  challenge  the  Company in its effort to  control  expenses  while
maintaining strong productivity,  efficiency, capacity and high quality customer
service.

Income tax expense for the first nine months of 2005 was 31.4% of income  before
tax. For the comparable  period last year income tax expense was 31.0% of income
before tax.

The efficiency ratio,  defined as noninterest  expense,  excluding the provision
for loan losses, as a percentage of net interest income plus noninterest income,
was 64.1%  and 60.0% for the nine  months  ended  September  30,  2005 and 2004,
respectively.  The primary reasons for this change in the efficiency  ratio were
the overhead expenses associated with the new branch, costs of the suspension of
report filing obligations with the SEC, increased  regulatory  compliance costs,
the cost of  technology,  and the other  reasons  discussed  previously  in this
report.

Discussion and Analysis of Financial Condition

The Company's assets at September 30, 2005 totaled $372,110,000,  an increase of
$7,927,000 or 2.2% from December 31, 2004. As of September 30, 2005, the Company
had  $3,075,000 of federal funds sold  compared to  $12,300,000  at December 31,
2004.  This  decrease in federal funds sold  resulted  primarily  from growth in
deposits and securities sold under  agreements to repurchase which was less than
the growth in loans and  investments  available  for sale (see below for further
discussion). These liquid assets, federal funds sold, may be used to fund future
loan  growth,  deposit or other  liability  outflows,  purchases  of  investment
securities  available for sale,  or for various other  purposes as identified by
management.

At September  30,  2005,  interest-bearing  deposits at  financial  institutions
(primarily  fully  FDIC  insured  certificates  of  deposit)  as  well  as  some
interest-bearing   demand  accounts  at  various  banking  institutions  totaled
$5,911,000  versus $8,395,000 at December 31, 2004. This decline was chiefly due
to the yield spreads available on new interest-bearing  deposits being less than
Company  established target spreads to alternative  investments.  Another reason
for this  decline in  interest-bearing  deposits at financial  institutions  was
growth in the loan portfolio which required funding sources.

Total  available for sale  securities  increased  $3,438,000 or 11.3% during the
first nine months of 2005 to total  $33,763,000 at September 30, 2005. 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 rising interest rate  environment  which
continued  during  the  first  three  quarters  of 2005,  the  subsidiary  banks
purchased more securities than the total of securities that were sold,  matured,
called,  or paid down.  However,  most of the securities that were purchased had
rather short  maturities or likely early call dates.  Securities sold during the
first three quarters of 2005 and 2004 totaled none and $2,548,000, respectively,
and resulted in net gains recognized of none and $45,000, respectively.

                                       13
<PAGE>

Net loans totaled $292,147,000 at September 30, 2005, an increase of $11,248,000
or 4.0% from  December 31, 2004.  Competition  for  high-quality  loans  remains
intense in all loan categories. The Company's proceeds from sales of real estate
loans in the  secondary  market for the first  three  quarters  of 2005  totaled
$8,907,000,  an increase of $1,258,000  or 16.5%  compared to the same period in
2004.

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,  management  makes  continuous  evaluations  of the loan
portfolio  and related  off-balance  sheet  commitments  and  considers  current
economic conditions, the composition of the loan portfolio, historical loan loss
experience,  the review of specific  problem loans, the estimated net realizable
value or the fair value of the underlying  collateral,  and other factors. There
can be no assurance  that loan losses will not exceed the  estimated  amounts or
that the company  will not be required to make  additional  provisions  for loan
losses in the future.  Asset quality is a constant  priority for the Company and
its subsidiary  banks.  Should the economic climate  deteriorate,  borrowers may
experience  difficulty,  and  the  level  of  non-performing,  charge-offs,  and
delinquencies could rise, thus requiring further increases in the provision.

Nonaccrual  loans  totaled  $2,110,000  at September  30,  2005,  an increase of
$442,000 or 26.5% from December 31, 2004. This increase was primarily related to
three loan  relationships  at our Fairfield  subsidiary bank which were moved to
nonaccrual status during 2005.  Management is closely  monitoring these, and all
other,  nonaccrual loan relationships.  There was a total of $294,000 other real
estate  owned at  September  30, 2005  compared to $77,000 at December 31, 2004.
Loans past due 90 days or more and still  accruing  totaled  $92,000,  which was
$115,000 or 55.6% less than at year-end  2004.  The  allowance for possible loan
losses of $3,465,000 at September 30, 2005,  represented 1.2% of gross loans and
139% of total nonaccrual  loans,  other real estate owned, and loans past due 90
days or more and still  accruing.  At  December  31,  2004,  the  allowance  for
possible loan losses of $3,385,000  represented  1.2% of gross loans and 173% of
total nonaccrual  loans,  other real estate owned, and loans past due 90 days or
more and still accruing.

Total  deposits  at  September  30,  2005,  were  $283,835,000,  an  increase of
$6,100,000  or 2.2% from the  balance at  December  31,  2004.  Certificates  of
deposit  represented  on average for the nine months ended  September  30, 2005,
approximately 38% of total deposits. Interest-bearing demand deposits, comprised
of savings,  money market and NOW accounts,  represented  another 44% of average
deposits.  The  final  18%  of  average  deposits  were  in  noninterest-bearing
accounts.  Securities sold under agreements to repurchase  increased  $1,804,000
(30.7%) to total  $7,689,000  as more  corporate  dollars were  directed to this
category.  Advances  borrowed  from the  Federal  Home  Loan  Bank  declined  by
$1,230,000  from  year  end  2004,  totaling  $41,686,000  at  quarter  end,  as
management  has put less emphasis on this funding  source for  intermediate  and
long-term needs. At September 30, 2005, however,  short-term  liquidity !dvances
totaling $4,000,000 were outstanding with the Federal Home Loan Bank.

The note payable balance of $1,700,000 at September 30, 2005, decreased $400,000
from the balance at December  31,  2004.  Effective  as of the end of  September
2005,  the note  payable  was  refinanced  with a different  lender.  A total of
$6,500,000 is available under this borrowing  facility,  $1,500,000 of which was
drawn to repay  existing  indebtedness,  $200,000  of  which  was  drawn to fund
operating  expenses,  with the remainder  available to fund the costs associated
with suspension of report filing obligations with the SEC discussed elsewhere in
this document and other  filings with the  Securities  and Exchange  Commission.
After a draw period of several months this line of credit will be converted to a
five-year  loan with a ten-year  amortization  period,  bearing  interest at the
prime rate less 1.25%, with a ceiling of 6.5%.  Principal  payments will be made
on a semi-annual  basis with interest  paid  quarterly.  This loan is secured by
100% of the outstanding stock of the Banks.

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, 2005,  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.

                                       14
<PAGE>

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.

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, 2005, were $283,835,000 or 76.3% of total liabilities and equity.

Federal  funds sold  overnight  totaled  $3,075,000 or .8% of September 30, 2005
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  $33,763,000  at
quarter-end  included net  unrealized  gains of  approximately  $169,000.  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  $1,220,000  (4.7%) during the nine months ended
September 30, 2005. The year-to-date increase included net income of $2,531,000,
the decrease of $224,000 in accumulated other comprehensive  income,  $1,038,000
of dividends  declared to shareholders,  and the $49,000 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,  2005  with the
requirements to be considered  adequately  capitalized is presented  below.

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

Total capital to risk-weighted assets                 12.9%          8.00%
Tier 1 capital to risk-weighted assets                11.7%          4.00%
Tier 1 capital to average assets                       9.2%          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.

                                       15
<PAGE>

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.  In the opinion of management, 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.  One such loan relationship,  however,  which resulted in
year-to-date  through September 30, 2005 net charge-off of $279,000,  was with a
related party of a subsidiary bank director.

Special Note Concerning Forward-Looking Statements

This document  contains,  and future oral and written  statements of the Company
and its management may contain, forward-looking statements within the meaning of
the  Private  Securities  Litigation  Reform  Act of 1995  with  respect  to the
financial  condition,   results  of  operations,   plans,   objectives,   future
performance and business of the Company.  Forward-looking statements,  which may
be based upon beliefs,  expectations and assumptions of the Company's management
and on information currently available to management, are generally identifiable
by the use of words such as "believe," "expect," "anticipate," "plan," "intend,"
"estimate,"   "may,"  "will,"  "would,"   "could,"  "should"  or  other  similar
expressions.   Additionally,   all  statements  in  this   document,   including
forward-looking  statements,  speak  only as of the date they are made,  and the
Company  undertakes  no  obligation  to  update  any  statement  in light of new
information or future events.

A number of  factors,  many of which are  beyond the  ability of the  Company to
control or predict,  could cause actual results to differ  materially from those
in its  forward-looking  statements.  These factors include,  among others,  the
following: (i) the strength of the local and national economy; (ii) the economic
impact of any future  terrorist  threats or attacks;  (iii) changes in state and
federal laws,  regulations and  governmental  policies  concerning the Company's
general  business;  (iv) changes in interest rates and  prepayment  rates of the
Company's assets; (v) increased competition in the financial services sector and
the  inability  to attract new  customers;  (vi) changes in  technology  and the
ability to develop and maintain secure and reliable  electronic  systems;  (vii)
the loss of key executives or employees;  (viii)  changes in consumer  spending;
(ix) unexpected results of acquisitions;  (x) unexpected outcomes of existing or
new litigation  involving the Company;  (xi) changes in accounting  policies and
practices;   and  (xii)  the  successful   completion  of  the  "going  private"
transaction  that was  announced  on July 22,  2005  which will be voted on at a
special  shareholders  meeting  scheduled for November 22, 2005. These risks and
uncertainties should be considered in evaluating  forward-looking statements and
undue reliance should not be placed on such statements.  Additional  information
concerning the Company and its business, including additional factors that could
materially affect the Company's  financial results, is included in the Company's
filings with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in the quantitative and qualitative  market risks
since the prior year-end.  Such risks were described in the Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2004.

Item 4. 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  disclosure  controls or 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 disclosure
controls or internal control over financial reporting.

                                       16
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

                            Part II OTHER INFORMATION

Item 1. Legal Proceedings

There are no  material  pending  legal  proceedings  to which the Company or its
subsidiaries  is a party other than ordinary  routine  litigation  incidental to
their respective businesses.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

On July 22, 2005, the Company's  board of directors  announced a plan to suspend
its obligation to file reports with the Securities and Exchange  Commission,  by
means of a 1-for-1,000  reverse split of the  Company's  common stock,  followed
immediately by a 1,000-for-1 forward split. The effect of this transaction would
be to reduce  the  number of  shareholders  of record to less than 300,  thereby
suspending the Company's  obligation to file reports with the SEC.  Shareholders
with less than  1,000  shares of  common  stock,  held of record in their  name,
immediately  before the split will  receive a cash  payment  equal to $38.00 per
pre-split share.  Shareholders with 1,000 or more shares of record in their name
immediately  before the split will  continue  to hold the same  number of shares
after  completion of the split  transaction.  The proposed split  transaction is
subject to approval by the  holders of a  two-thirds  majority of the issued and
outstanding shares of the Company's common stock.  Shareholders will be asked to
approve the split transaction at a special meeting of shareholders scheduled for
November 22, 2005.  Based upon  shareholders of record as of September 30, 2005,
we  expect  the cash  payment  for  repurchase  of  shares  from  non-continuing
shareholders to be approximately  $2,478,000 and the professional fees and other
expenses related to the split transaction to total approximately  $185,000.  The
Company  anticipates  funding this  transaction  with  external  debt. A line of
credit has been established,  effective  September 29, 2005, which, after a draw
period of several months,  will be converted to a five-year loan with a ten-year
amortization  period,  bearing  interest  at the prime rate less  1.25%,  with a
ceiling of 6.5%.  Principal  payments will be made on a  semi-annual  basis with
interest paid quarterly.  This loan is secured by 100% of the outstanding  stock
of the Banks.


Item 6. Exhibits

        (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

                                       17
<PAGE>


                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES

                                   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, 2005                                /s/ D. Scott Ingstad
-----------------                                -------------------------------
Date                                             D. Scott Ingstad, Chairman of
                                                 the Board, President and CEO




November 14, 2005                                /s/ Kim K. Bartling
-----------------                                -------------------------------
Date                                             Kim K. Bartling, Executive Vice
                                                 President, Chief Operating
                                                 Officer & Treasurer


                                       18