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 June 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]


At August 5, 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,
                   June 30, 2005 and December 31, 2004                         3

                   Consolidated Condensed Statements of
                   Income, Three and Six Months Ended
                   June 30, 2005 and 2004                                      4

                   Consolidated Condensed Statements of
                   Cash Flows, Six Months Ended
                   June 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                                               8-17

         Item 3.   Quantitative and Qualitative Disclosures About
                   Market Risk                                                17

         Item 4.   Controls and Procedures                                    18

PART II  Other Information

         Item 1.   Legal Proceedings                                          19

         Item 2.   Unregistered Sales of Equity Securities and Use
                           Of Proceeds                                        19

         Item 3.   Defaults Upon Senior Securities                            19

         Item 4.   Submission of Matters to a Vote of Security Holders        19

         Item 5.   Other Information                                          19

         Item 6.   Exhibits                                                   19


Signatures                                                                    20

                                       2
<PAGE>


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

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

Cash and due from banks ................................   $  16,744    $  14,730
Interest-bearing deposits at financial institutions ....       6,731        8,395
Federal funds sold .....................................      13,616       12,300
Investment securities available for sale ...............      33,974       30,325
Loans, net of allowance for loan losses June 30, 2005,
  $3,456; December 31, 2004 $3,385 .....................     287,829      280,899
Bank premises and equipment, net .......................       7,304        7,411
Accrued interest receivable ............................       2,056        2,046
Life insurance contracts ...............................       4,529        4,438
Restricted investment securities .......................       2,690        2,659
Other assets ...........................................         956          980
                                                           ----------------------
        TOTAL ASSETS ...................................   $ 376,429    $ 364,183
                                                           ======================

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Noninterest bearing deposits ...........................   $  54,082    $  50,070
Interest bearing deposits ..............................     236,251      227,665
                                                           ----------------------
        TOTAL DEPOSITS .................................     290,333      277,735
Note payable ...........................................       2,100        2,100
Securities sold under agreements to
   repurchase ..........................................       7,066        5,885
Federal Home Loan Bank advances ........................      40,279       42,916
Treasury tax and loan open note ........................          57           74
Junior subordinated debentures .........................       4,125        4,125
Dividends payable ......................................         346          345
Other liabilities ......................................       2,053        1,769
                                                           ----------------------
        TOTAL LIABILITIES ..............................     346,359      334,949
                                                           ----------------------

Redeemable common stock held by employee stock
  ownership plan with 401(k) provisions (KSOP) .........       3,390        3,517
                                                           ----------------------

STOCKHOLDERS' EQUITY

Common stock ...........................................         200          200
Additional paid-in capital .............................       4,255        4,255
Retained earnings ......................................      39,413       38,416
Accumulated other comprehensive income .................         169          330
Less cost of common shares acquired for the treasury ...     (13,967)     (13,967)
Less maximum cash obligation related to KSOP shares ....      (3,390)      (3,517)
                                                           ----------------------
        TOTAL STOCKHOLDERS' EQUITY .....................      26,680       25,717
                                                           ----------------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....   $ 376,429    $ 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  Six Months Ended
                                                             June 30,         June 30,
                                                       ------------------  ----------------
                                                          2005     2004     2005    2004
                                                       ------------------------------------
<S>                                                    <C>        <C>      <C>      <C>
INTEREST AND DIVIDEND INCOME:
  Loans, including fees:
    Taxable ..........................................   $4,319   $4,060   $8,489   $8,133
    Nontaxable .......................................       66       52      131       95
  Investment securities available for sale:
    Taxable ..........................................      170      175      324      376
    Nontaxable .......................................      141      166      289      337
  Federal funds sold .................................      149       75      297      157
  Restricted investment securities ...................       28       16       52       27
  Interest bearing deposits and other ................       58       56      118       98
                                                         ---------------------------------
        Total interest and dividend income ...........    4,931    4,600    9,700    9,223
                                                         ---------------------------------

INTEREST EXPENSE:
  Deposits ...........................................    1,214      957    2,342    1,935
  Note payable .......................................       26       22       49       45
  Other borrowed funds ...............................      562      627    1,108    1,296
  Junior subordinated debentures .....................      107      107      213      213
                                                         ---------------------------------
        Total interest expense .......................    1,909    1,713    3,712    3,489
                                                         ---------------------------------

        Net interest income ..........................    3,022    2,887    5,988    5,734
Provision for loan losses ............................       60       90      300      260
                                                         ---------------------------------
        Net interest income after provision for
        loan losses ..................................    2,962    2,797    5,688    5,474
                                                         ---------------------------------

Other income:
  Trust department ...................................       98       95      197      187
  Service fees .......................................      486      485      960      914
  Investment securities gains, net ...................       --       --       --       33
  Gains on loans sold ................................       57       94      109      114
  Life insurance contracts ...........................       48       43       97       89
  Other ..............................................       69      127      153      199
                                                         ---------------------------------
        Total other income ...........................      758      844    1,516    1,536
                                                         ---------------------------------

Operating expenses:
  Salaries and employee benefits .....................    1,349    1,275    2,709    2,550
  Occupancy expenses, net ............................      193      183      396      374
  Equipment expenses .................................      166      165      333      320
  Office supplies, printing, and postage .............       81       73      174      158
  Computer costs .....................................      126      131      262      260
  Advertising and business promotion .................       57       45       94       80
  Other operating expenses ...........................      410      333      784      634
                                                         ---------------------------------
        Total operating expenses .....................    2,382    2,205    4,752    4,376
                                                         ---------------------------------

        Income before income taxes ...................   $1,338   $1,436   $2,452   $2,634
Income taxes .........................................      415      448      763      823
                                                         ---------------------------------

Net income ...........................................   $  923   $  988   $1,689   $1,811
                                                         =================================

        Net income per common share, basic and diluted   $ 0.67   $ 0.71   $ 1.22   $ 1.29
                                                         =================================

Dividends declared per common share ..................   $ 0.25   $ 0.24   $  .50   $  .49
                                                         =================================


Comprehensive income .................................   $  961   $  472   $1,528   $1,299
                                                         =================================
</TABLE>

See notes to Consolidated Condensed Financial Statements.

                                       4
<PAGE>

                  Iowa First Bancshares Corp. and Subsidiaries
                 Consolidated Condensed Statements of Cash Flows
                 For The Six Months Ended June 30, 2005 and 2004
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
                                                                           2005       2004
                                                                        --------------------
<S>                                                                     <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..........................................................   $  1,689    $  1,811
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Proceeds from loans sold ..........................................      6,265       6,219
  Loans underwritten ................................................     (5,722)     (6,254)
  Gains on loans sold ...............................................       (109)       (114)
  Provision for loan losses .........................................        300         260
  Investment securities gains, net ..................................         --         (33)
  Depreciation ......................................................        319         284
  Amortization of premiums and accretion of discounts
    on investment securities available for sale, net ................        142         114
  Net (increase) decrease in accrued interest receivable ............        (10)         80
  Net decrease in other assets ......................................         24         102
  Net increase in other liabilities .................................        380         147
                                                                        --------------------
        Net cash provided by operating activities ...................   $  3,278    $  2,616
                                                                        --------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-bearing deposits at financial .   $  1,664      (1,328)
    institutions
  Net (increase) decrease in federal funds sold .....................     (1,316)      6,969
  Proceeds from sales of available for sale securities ..............         --       1,151
  Proceeds from maturities, calls and paydowns of available for sale       4,276      12,037
    securities
  Purchases of available for sale securities ........................     (8,324)    (10,954)
  Net increase in loans .............................................     (7,664)    (13,752)
  Purchases of bank premises and equipment ..........................       (212)       (309)
  Increase in cash value of life insurance contracts ................        (91)        (84)
  Net (purchases) sales of restricted investment securities .........        (31)        228
                                                                        --------------------
        Net cash (used in) investing activities .....................   $(11,698)   $ (6,042)
                                                                        --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in noninterest-bearing deposits ...........   $  4,012    $ (1,495)
  Net increase in interest-bearing deposits .........................      8,586       8,930
  Net increase in securities sold under agreements to repurchase ....      1,181       2,222
  Net increase in line of credit ....................................         --         100
  Net decrease in treasury tax and loan open note ...................        (17)       (463)
  Payments of advances from Federal Home Loan Bank ..................     (2,637)     (5,322)
  Cash dividends paid ...............................................       (691)       (684)
  Purchases of common stock for the treasury ........................         --        (901)
                                                                        --------------------
        Net cash provided by financing activities ...................   $ 10,434    $  2,387
                                                                        --------------------

        Net increase (decrease) in cash and due from banks ..........   $  2,014    $ (1,039)
Beginning cash and due from banks ...................................     14,730      12,988
                                                                        --------------------
Ending cash and due from banks ......................................   $ 16,744    $ 11,949
                                                                        ====================

Supplemental Disclosures of Cash Flow Information, cash payments for:
  Interest ..........................................................   $  3,638    $  3,535
  Income taxes ......................................................        657         689
Supplemental Schedule of Noncash Investing and Financing Activities:
  Change in accumulated other comprehensive income, unrealized
    (losses) on investment securities available for sale, net .......       (161)       (512)
  Decrease in maximum cash obligations related to KSOP shares .......        127          89
  Transfers of loans to other real estate owned .....................         --          25
</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 six months ended June 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 six months ended June 30, 2005 was
1,382,669.  The average  number of shares of common  stock  outstanding  for the
three  and six  months  ended  June  30,  2004  were  1,398,886  and  1,406,240,
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.

                                       6
<PAGE>

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.

                                                        June 30,    December 31,
                                                          2005          2004
                                                      --------------------------
Financial instruments whose contract amounts
  represent credit risk:
  Commitments to extend credit .....................  $44,052,000   $40,467,000
  Standby letters of credit ........................    2,147,000     1,121,000

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  $9,623,000 and $18,143,000 at June 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 June 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 June 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.  Subsequent Event

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,  currently
expected to be held in the fourth-quarter of 2005.

Based  upon  shareholders  of record  as of June 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  $175,000.  The Company anticipates
funding this  transaction  with  external debt and is in the process of securing
financing at the present time.

                                       7
<PAGE>

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Results of Operations:

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

The Company recorded net income of $923,000 for the quarter ended June 30, 2005,
compared  with net income of $988,000  for the quarter  ended June 30,  2004,  a
decrease of $65,000 or 6.6%. This decrease in net income resulted from increased
operating  expenses and lower other  income which more than offset  improved net
interest income and a lower provision for loan losses.

Basic and diluted  earnings  per share were $.67 for the three months ended June
30,  2005,  $.04 or 5.6%  less  than the same  period  in  2004.  The  Company's
annualized  return on average  assets  for the  second  quarter of 2005 was .97%
compared to 1.04%  during the second  quarter of the prior year.  The  Company's
annualized return on average equity for the three months ended June 30, 2005 and
June 30, 2004 was 14.0% 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 fully  taxable  equivalent  basis  using
statutory tax rates in effect for the year presented):
<TABLE>
                                                                                 Three Months Ended          Three Months Ended
                                                                                    June 30, 2005               June 30, 2004
                                                                            ---------------------------   --------------------------
                                                                                                Average                      Average
                                                                             Balance  Interest    Rate    Balance  Interest    Rate
                                                                            --------------------------------------------------------
<S>                                                                         <C>       <C>       <C>       <C>      <C>       <C>
Assets
Taxable loans, net ......................................................   $277,697  $  4,319    6.22%   $268,798  $4,060   6.04%
Taxable investment securities available for sale ........................     22,505       170    3.02      19,648     175   3.56
Nontaxable investment securities and loans ..............................     18,230       314    6.89      19,186     330   6.89
Federal funds sold ......................................................     21,055       149    2.83      33,716      75    .89
Restricted investment securities ........................................      2,687        28    4.17       2,897      16   2.21
Interest-bearing deposits at financial
  institutions ..........................................................      7,520        58    3.09       8,499      56   2.64
                                                                            ----------------------------------------------------
        Total interest-earning assets ...................................    349,694     5,038    5.76%    352,744   4,712   5.34%
                                                                                       -------                      ------
Cash and due from banks .................................................     15,967                        15,205
Bank premises and equipment, net ........................................      7,292                         6,748
Life insurance contracts ................................................      4,507                         4,322
Other assets ............................................................      2,879                         2,744
                                                                            --------                      --------
        Total ...........................................................   $380,339                      $381,763
                                                                            ========                      ========
Liabilities
Deposits:
  Interest-bearing demand ...............................................   $127,519  $    399    1.26%   $134,395  $  192   0.57%
  Time ..................................................................    109,648       815    2.98     109,023     765   2.82
Note payable ............................................................      2,100        26    4.90       2,716      22   3.18
Other borrowings ........................................................     52,397       562    4.30      54,259     627   4.64
Junior subordinated debentures ..........................................      4,125       107   10.20       4,125     107  10.20
                                                                            ------------------            ----------------
        Total interest-bearing liabilities ..............................    295,789     1,909    2.59%    304,518   1,713   2.26%
                                                                                      --------                      ------
Noninterest-bearing deposits ............................................     52,604                        46,997
Other liabilities .......................................................      2,092                         1,922
                                                                            --------                      --------
        Total liabilities ...............................................    350,485                       353,437
Redeemable common stock held by KSOP ....................................      3,499                         3,072
Stockholders' Equity ....................................................     26,355                        25,254
                                                                            --------                      --------
        Total ...........................................................   $380,339                      $381,763
                                                                            ========                      ========
Net interest earnings ...................................................             $  3,129                      $2,999
                                                                                      ========                      ======

Net interest margin (net interest earnings divided by total
  interest-earning assets) ..............................................                         3.59%                      3.41%
                                                                                                 ======                     ======
</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 June 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 3.59% during the second  quarter of 2005
compared  to 3.41%  during  the second  quarter  of 2004.  The return on average
interest-earning  assets  increased 42 basis points (from 5.34% in 2004 to 5.76%
in 2005) while interest paid on average  interest-bearing  liabilities increased
33 basis points (from 2.26% in 2004 to 2.59% 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.
The prime lending rate,  which was 4.00% at the beginning of 2004,  increased to
6.25% by June 30, 2005.  Over the past few years, a period of  historically  low
interest rates,  the Company  emphasized the 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 eighteen basis points while rates
paid on  interest-bearing  liabilities have increased  thirty-three basis points
when comparing the second  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 these
impacts 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 second quarter of 2005, compared to the second quarter of 2004, by 54
basis  points.  Over  the  same  time  period,  rates  paid on  interest-bearing
liabilities  increased 33 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.

                                       9
<PAGE>

Rates received  during the quarter ended June 30, 2005,  versus the same quarter
of  2004,  on  nontaxable  investment  securities  available  for  sale  and  on
nontaxable  loans  remained  unchanged  while  rates  paid  on  interest-bearing
liabilities  increased  33  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 194
basis points during the second 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 June 30, 2005,  average federal funds
sold to total average  assets had been reduced to 5.5% from 8.8% 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  45 basis points
during the second  quarter of 2005  versus the same  quarter of 2004,  while the
average balance decreased $979,000.  This asset category yielded 26 basis points
over federal funds sold with little,  if any, credit risk. The average  duration
of interest-bearing  deposits at financial  institutions was less than two years
during the quarter ended June 30, 2005.

During  this  period  of  rising  market  interest  rates,  the  rates  paid  on
interest-bearing  demand deposits rose 69 basis points.  In contrast,  the rates
paid on time deposits  increased  only sixteen  basis points when  comparing the
second  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 172 basis points during
the second quarter of 2005 compared to the same quarter last year.  This was the
result of nine  increases  during  the last  seven  months of 2004 and first six
months of 2005 in the prime lending rate to which the note payable rate is tied.
This rate rose from 4.00% to 6.25% over this time frame.

The  usage 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 34 basis points when comparing
the second quarters of 2005 and 2004.  Management  reduced reliance on wholesale
funding sources as evidenced by the average  balance in this category  declining
nearly $1.9  million  during the second  quarter of 2005  compared to the second
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 3.59%  during the three  months  ended June 30,
2005, compared to 3.41% for the same period last year.

Provisions  for loan losses were  $60,000 and $90,000 for the three months ended
June 30, 2005 and June 30,  2004,  respectively.  Net loan  charge-offs  for the
quarter  ended June 30,  2005  totaled  $4,000  compared to net  charge-offs  of
$26,000 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 second  quarter of
2005 was  $758,000,  which was $86,000 or 10.2% less than the second  quarter of
2004.  Service fees,  particularly on deposit accounts,  were the largest single
component of the other income  category,  totaling  $486,000 or $1,000 more than
the same quarter last year.  Trust  department  income rose $3,000 or 3.2% while
gains on loans sold decreased  $37,000 or 39.4%.  Income on corporate owned life
insurance  increased  $5,000  or  11.6%.  Finally,  miscellaneous  other  income
decreased $58,000 or 45.7% due in large measure to a non-recurring  revenue item
recognized  during  the  second  quarter  of  2004.  No  securities  gains  were
recognized during the second quarters of 2005 or 2004.

                                       10
<PAGE>

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 June 30,  2005,  salaries  and  employee  benefits,  the  largest
component of operating expenses, increased $74,000 or 5.8% 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
$11,000 or 3.2% as  depreciation  and property taxes rose.  All other  operating
expenses  increased  $92,000  or 15.8% due in large  measure  to the new  branch
discussed  above  coupled with normal cost  increases in various  other  expense
categories.  Total  operating  expenses  increased  $177,000  or 8.0% during the
second  quarter of 2005 versus the same  quarter last year.  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 quarter  ended June 30, 2005 of $415,000  represented
31.0% of income before taxes. For the comparable  quarter last year,  income tax
expense was 31.2% 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  63.0%  and  59.1%  for the  three  months  ended  June 30,  2005 and  2004,
respectively.  The primary reasons for this change in the efficiency  ratio were
the  overhead  expenses  associated  with the new branch,  increased  regulatory
compliance  costs,  the cost of  technology,  and the  other  reasons  discussed
previously in this report.

Results of Operations:

Six months ended June 30, 2005 compared with six months ended June 30, 2004

The Company  recorded net income of $1,689,000 for the six months ended June 30,
2005,  compared  with net income of  $1,811,000  for the first  half of 2004,  a
decrease of $122,000 or 6.7%.  This  decrease in net income  resulted  primarily
from  higher  operating  expenses  and  provisions  for loan  losses  more  than
offsetting an increase in net interest income.

Basic and diluted  earnings  per share were $1.22 for the six months  ended June
30,  2005,  $.07 or 5.4%  less  than the same  period  in  2004.  The  Company's
annualized return on average assets for the first half of 2005 was .90% compared
to .96%  during the same  period of the prior  year.  The  Company's  annualized
return on average  equity for the six  months  ended June 30,  2005 and June 30,
2004 was 13.0% and 14.4%, 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 fully  taxable  equivalent  basis  using
statutory tax rates in effect for the year presented):
<TABLE>

                                                           Six Months Ended                    Six Months Ended
                                                            June 30, 2005                        June 30, 2004
                                                   ----------------------------------    --------------------------------
                                                                              Average                             Average
                                                   Balance     Interest        Rate      Balance    Interest       Rate
                                                   ----------------------------------------------------------------------
<S>                                                <C>         <C>            <C>        <C>        <C>           <C>
Assets
Taxable loans, net .............................   $275,604    $  8,489        6.16%     $265,200   $  8,133       6.13%
Taxable investment securities available for sale     21,479         324        3.02%       19,844        376       3.79%
Nontaxable investment securities and loans .....     18,508         636        6.87%       19,017        655       6.89%
Federal funds sold .............................     23,054         297        2.58%       35,517        157       0.89%
Restricted investment securities ...............      2,682          52        3.88%        2,949         27       1.83%
Interest-bearing deposits at financial
  institutions .................................      7,910         118        2.98%        8,019         98       2.44%
                                                   --------------------                  -------------------
        Total interest-earning assets ..........    349,237       9,916        5.68%      350,546      9,446       5.39%
                                                               --------                             --------
Cash and due from banks ........................     15,816                                14,730
Bank premises and equipment, net ...............      7,314                                 6,747
Life insurance contracts .......................      4,486                                 4,301
Other assets ...................................      2,994                                 2,705
                                                   --------                              --------
        Total ..................................   $379,847                              $379,029
                                                   ========                              ========
Liabilities
Deposits:
  Interest-bearing demand ......................   $128,310    $    751        1.18%     $130,235   $    369       0.57%
  Time .........................................    109,393       1,591        2.93%      109,531      1,566       2.88%
Note payable ...................................      2,100          49        4.67%        2,738         45       3.26%
Other borrowings ...............................     52,077       1,108        4.29%       55,673      1,296       4.70%
Junior subordinated debentures .................      4,125         213       10.26%        4,125        213      10.26%
                                                   --------------------                  -------------------
        Total interest-bearing liabilities .....    296,005       3,712        2.53%      302,302      3,489       2.33%
                                                               --------                             --------
Noninterest-bearing deposits ...................     51,835                                46,440
Other liabilities ..............................      2,271                                 1,809
                                                   --------                              --------
        Total liabilities ......................    350,111                               350,551
Redeemable common stock held by KSOP ...........      3,574                                 3,038
Stockholders' Equity ...........................     26,162                                25,440
                                                   --------                              --------
        Total ..................................   $379,847                              $379,029
                                                   ========                              ========

Net interest earnings ..........................               $  6,204                             $  5,957
                                                               ========                             ========

Net interest margin (net interest earnings
divided by total interest-earning assets) ......                               3.55%                               3.40%
                                                                              ======                              ======
</TABLE>

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

                                       12
<PAGE>

The net  interest  margin  increased  to 3.55%  during  the  first  half of 2005
compared  to  3.40%  during  the  first  half of 2004.  The  return  on  average
interest-earning  assets  increased 29 basis points (from 5.39% in 2004 to 5.68%
in 2005) and interest paid on average interest-bearing  liabilities increased 20
basis points (from 2.33% in 2004 to 2.53% in 2005).

Rates  received  during the first two  quarters  of 2005,  compared  to the same
period  in  2004,   on  taxable  loans   increased   less  than  rates  paid  on
interest-bearing   liabilities   (increases   of  three  and  20  basis  points,
respectively).

Rates  received on taxable  investment  securities  available for sale decreased
during the first six months of 2005,  compared to the same period in 2004, by 77
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 half of 2005,  versus the first half of 2004, on
nontaxable  investment  securities  available for sale and on  nontaxable  loans
decreased  two basis  points  while rates paid on  interest-bearing  liabilities
increased  20  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 169
basis points during the first six 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. As of June 30, 2005,  total federal funds sold  represented  3.6% of total
assets,  down from 6.5% of total assets a year ago. 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  54 basis points
during the first six months of 2005  versus the first six months of 2004,  while
the average balance remained relatively constant. This asset category yielded 40
basis  points over  federal  funds sold with little,  if any,  credit risk.  The
average duration of interest-bearing deposits at financial institutions was less
than two years during the six months ended June 30, 2005.

During this period of rising interest rates, the rates paid on  interest-bearing
demand  deposits  rose 61 basis points when  comparing the first two quarters of
2005 and 2004.  Over the same  comparison  period,  rates paid on time  deposits
increased  only five 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 141 basis points during
the first six months of 2005  compared to the same period in 2004.  This was the
result of nine  increases  during  the last  seven  months of 2004 and first six
months of 2005 in the prime lending rate to which the note payable rate is tied.
This rate rose from 4.00% to 6.25% over this time frame.

The  usage 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 41 basis
points when comparing the first six months of 2005 and 2004.  Management reduced
reliance on wholesale  funding  sources as  evidenced by the average  balance in
this category  declining  over $3.5 million  during the first six 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 3.55% during the six months ended June 30, 2005,
compared to 3.40% for the same period last year.

                                       13
<PAGE>

Provisions for loan losses were $300,000 for the six months ended June 30, 2005,
compared  to  $260,000  for the  six  months  ended  June  30,  2004.  Net  loan
charge-offs  for the  first  half  of  2005  totaled  $230,000  compared  to net
charge-offs  of $166,000 for the same period in 2004.  The vast  majority of net
loan charge-offs in 2005 was attributable to one borrower.

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 six months of 2005 was $1,516,000, which was $20,000 or 1.3% less than
the first six 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 $46,000 or 5.0%.  Trust  department  income grew $10,000 or  5.3;
gains on loans sold declined  $5,000 or 4.4%; and income on corporate owned life
insurance  rose $8,000 or 9.0%.  Finally,  miscellaneous  other income  declined
$46,000 or 23.1% due in large measure to a non-recurring revenue item recognized
during the second quarter of 2004. No securities  gains were  recognized  during
the first six months of 2005 compared to $33,000 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
six months ended June 30, 2005,  salaries  and  employee  benefits,  the largest
component  of  operating  expenses,  increased  $159,000  or 6.2% 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 six months of 2005. Occupancy
and equipment  expenses  increased $35,000 or 5.0%. All other operating expenses
increased  $182,000  or 16.1% due in large  measure to the new branch  discussed
above and 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
$376,000  or 8.6% during the first half of 2005 versus the same period the prior
year.  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 six months of 2005 was 31.1% of income  before
tax. For the comparable  period last year income tax expense was 31.3% 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  63.3%  and  60.2%  for the  six  months  ended  June  30,  2005  and  2004,
respectively.  The primary reasons for this change in the efficiency  ratio were
the  overhead  expenses  associated  with the new branch,  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 June 30,  2005  totaled  $376,429,000,  an increase of
$12,246,000 or 3.4% from December 31, 2004. As of June 30, 2005, the Company had
$13,616,000  of federal funds sold compared to $12,300,000 at December 31, 2004.
This  increase  resulted  from  growth in  deposits  and  securities  sold under
agreements to repurchase  which grew more than 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 June 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  $6,731,000  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.

Total  available for sale  securities  increased  $3,649,000 or 12.0% during the
first  six  months  of 2005 to total  $33,974,000  at June 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 two 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 two
quarters  of 2005  and  2004  totaled  none and  $1,151,000,  respectively,  and
resulted in net gains recognized of none and $33,000, respectively.

                                       14
<PAGE>

Net loans  totaled  $287,829,000  at June 30, 2005, an increase of $6,930,000 or
2.5% from December 31, 2004.  Competition for high-quality loans remains intense
in all loan categories.  The Company's first half of 2005 proceeds from sales of
real estate loans in the secondary  market  totaled  $6,265,000,  which was very
similar to the $6,219,000 for 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 $2,441,000 at June 30, 2005, an increase of $773,000 or
46.3% 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 the first half of 2005.  Management is closely  monitoring  these,
and all other, nonaccrual loan relationships. There was a total of $38,000 other
real estate  owned at June 30, 2005  compared to $77,000 at December  31,  2004.
Loans past due 90 days or more and still accruing  totaled  $178,000,  which was
$29,000 or 14.0% less than at year-end  2004.  The  allowance  for possible loan
losses of $3,456,000 at June 30, 2005,  represented 1.2% of gross loans and 130%
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 June 30, 2005, were  $290,333,000,  an increase of $12,598,000
or 4.5%  from  the  balance  at  December  31,  2004.  Certificates  of  deposit
represented on average for the six months ended June 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 $1,181,000 (20.1%) to total $7,066,000
as more corporate dollars were directed to this category. Advances borrowed from
the Federal Home Loan Bank declined by $2,637,000  from year end 2004,  totaling
$40,279,000  at quarter end, as management has put less emphasis on this funding
source.

The note payable  balance of $2,100,000 at June 30, 2005, was unchanged from the
balance at December 31, 2004. The next  scheduled  annual  principal  payment of
$600,000 is due at the end of the third quarter of 2005. This is a variable rate
revolving  five-year  term note  priced at Prime Rate less one  percent,  with a
floor of 3.25% and a ceiling of 5.25%.


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 June 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.

                                       15
<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 June
30, 2005, were $290,333,000 or 77.1% of total liabilities and equity.

Federal funds sold overnight totaled  $13,616,000 or 3.6% of June 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  $33,974,000  at
quarter-end  included net  unrealized  gains of  approximately  $270,000.  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 $963,000 (3.7%) during the six months ended June
30, 2005.  The  year-to-date  increase  included net income of  $1,689,000,  the
decrease of $161,000 in  accumulated  other  comprehensive  income,  $692,000 of
dividends  declared to  shareholders,  and the $127,000  decrease 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 June 30, 2005 with the requirements
to be considered adequately capitalized is presented below.

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

Total capital to risk-weighted assets ........     12.8%             8.00%
Tier 1 capital to risk-weighted assets .......     11.6%             4.00%
Tier 1 capital to average assets .............      8.8%             4.00%

                                       16
<PAGE>

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.  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 a
first  quarter 2005 net  charge-off  of $211,000,  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.  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.

                                       17
<PAGE>

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.

                                       18
<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

At the Annual  Meeting of the Company held at its offices on April 21, 2005, the
shareholders elected the following individuals to the Board of Directors for the
indicated terms:

                           Votes in Favor   Votes Withheld         Term
                           ----------------------------------------------

Craig R. Foss                 1,082,192             50            3 years
Donald R. Heckman               969,672        112,570            3 years
D. Scott Ingstad              1,082,192             50            3 years
Beverly J. White                970,032        112,210            3 years

After the Annual Meeting, Kim K. Bartling, Larry L. Emmert, David R. Housley and
Richard L. Shepley will  continue as directors  with their current term expiring
in 2006 and Roy J. Carver,  Jr.,  Stephen R.  Cracker,  Dr. Victor G. McAvoy and
John "Jay" S. McKee will continue as directors  with their current term expiring
in 2007.

At the Annual Meeting the shareholders also ratified the election of McGladrey &
Pullen, LLP as independent registered public accounting firm for the fiscal year
ending December 31, 2005 with 968,812 votes in favor and 113,430 votes against.

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,  currently
expected to be held in the fourth-quarter of 2005.

Based  upon  shareholders  of record  as of June 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  $175,000.  The Company anticipates
funding this  transaction  with  external debt and is in the process of securing
financing at the present time.

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

                                       19
<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)


August 5, 2005                          /s/ D. Scott Ingstad
--------------                          ----------------------------------------
Date                                    D. Scott Ingstad, Chairman of
                                        the Board, President and CEO



August 5, 2005                          /s/ Kim K. Bartling
--------------                          ----------------------------------------
Date                                    Kim K. Bartling, Executive Vice
                                        President, Chief Operating
                                        Officer & Treasurer

                                       20