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, 1998

                              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)

                                  319-263-4221
                        -------------------------------
                        (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_____

At June 30, 1998 there were 1,524,330  shares of the  registrant's  common stock
outstanding.
<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, 1998 and December 31, 1997

                   Consolidated Condensed Statements of
                   Operations, Three and Six Months Ended
                   June 30, 1998 and 1997

                   Consolidated Condensed Statements of
                   Cash Flows, Six Months Ended
                   June 30, 1998 and 1997

                   Notes to Consolidated Condensed
                   Financial Statements


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


PART II   Other Information

         Item 6.   Exhibits and Reports on Form 8-K

Signatures
<PAGE>

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


                                                             June 30,  December 31,
                                                               1998       1997
                                                             ----------------------
<S>                                                          <C>       <C>
               ASSETS

Cash and due from banks ..................................   $ 17,684   $ 12,726

Investment securities available for sale (cost June 30, ..     61,545     65,496
  1998, $60,846; December 31, 1997, $64,758)

Federal funds sold and securities
   purchased under resale agreements .....................     12,700      9,795

Loans, net of allowance for possible loan
   losses June 30, 1998, $2,692;
   December 31, 1997, $2,604 .............................    233,628    208,683

Bank premises and equipment, net .........................      6,070      6,055

Other assets .............................................      3,587      3,028
                                                             -------------------

   TOTAL ASSETS ..........................................   $335,214   $305,783
                                                             ===================

LIABILITIES AND STOCKHOLDERS' EQUITY
            LIABILITIES

Noninterest bearing deposits .............................   $ 39,421   $ 38,212
Interest bearing deposits ................................    214,894    204,570
                                                             -------------------
   TOTAL DEPOSITS ........................................   $254,315   $242,782
Notes Payable ............................................      7,250          0
Securities sold under agreements to
   repurchase ............................................      5,729      4,259
Federal Home Loan Bank advances ..........................     41,012     26,468
Treasury tax and loan open note ..........................      2,500      1,456
Other liabilities ........................................      2,184      2,193
Federal Funds Purchased ..................................      3,400          0
                                                             -------------------
   TOTAL LIABILITIES .....................................   $316,390   $277,158

STOCKHOLDERS' EQUITY

Common Stock .............................................   $    200   $    200
Surplus ..................................................      4,440      4,440
Retained earnings ........................................     24,497     23,522
                                                             -------------------
                                                             $ 29,137   $ 28,162
Accumulated other comprehensive income, unrealized
gains (losses) on securities available for sale, net .....        437        463
Less net cost of common shares acquired for the treasury .     10,750       --
                                                             -------------------
   TOTAL STOCKHOLDERS' EQUITY ............................   $ 18,824   $ 28,625
                                                             -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...............   $335,214   $305,783
                                                             ===================
</TABLE>

See notes to Consolidated Condensed Financial Statements.
<PAGE>


                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                      (In Thousands, Except Per Share Data)
                                   (Unaudited)
<TABLE>
                                                                            Three Months Ended                 Six Months Ended
                                                                                  June 30,                         June 30,
                                                                          ------------------------         -------------------------
                                                                            1998            1997             1998            1997
                                                                          --------        --------         --------        ---------
<S>                                                                       <C>             <C>              <C>             <C>  
INTEREST INCOME:
   Interest and fees on loans ....................................        $  4,731        $  4,076         $  9,156        $  7,989
   Interest on investment securities .............................             917           1,017            1,837           1,990
   Interest on federal funds sold and securities
     purchased under resale agreements ...........................             285             154              511             250
                                                                          --------        --------         --------        --------
   Total interest income .........................................        $  5,933        $  5,247         $ 11,504        $ 10,229
                                                                          --------        --------         --------        --------

INTEREST EXPENSE:
   Interest on deposits ..........................................        $  2,507        $  2,273         $  4,847        $  4,410
   Interest on repurchase agreements and
     other short-term borrowings .................................             679             319            1,238             565
   Interest on notes payable .....................................              96              --               96              --
                                                                          --------        --------         --------        --------
   Total interest expense ........................................        $  3,282        $  2,592         $  6,181        $  4,975
                                                                          --------        --------         --------        --------

   Net interest income ...........................................        $  2,651        $  2,655         $  5,323        $  5,254

Provision for possible loan losses ...............................              26               1               44               4
                                                                          --------        --------         --------        --------

   Net interest income after provision for
     possible loan losses ........................................        $  2,625        $  2,654         $  5,279        $  5,250

Investment securities gains (losses) .............................              --             (15)               4              (4)
Other income .....................................................             465             437              877             831
Other expense ....................................................           1,882           1,840            3,715           3,561
                                                                          --------        --------         --------        --------

   Income before income taxes ....................................        $  1,208        $  1,236         $  2,445        $  2,516
Applicable income taxes ..........................................             368             399              765             805
                                                                          --------        --------         --------        --------
Net income .......................................................        $    840        $    837         $  1,680        $  1,711
                                                                          ========        ========         ========        ========
Net income per common share :
  Basic ..........................................................        $   0.51        $   0.48         $   0.97        $   0.98
                                                                          ========        ========         ========        ========

  Diluted ........................................................        $   0.51        $   0.47         $   0.97        $   0.95
                                                                          ========        ========         ========        ========

Dividends declared per common share ..............................        $   0.21        $   0.19         $   0.42        $   0.38
                                                                          ========        ========         ========        ========

Comprehensive income .............................................        $    806        $  1,062         $  1,654        $  1,758
                                                                          ========        ========         ========        ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE>

                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                 For The Six Months Ended June 30, 1998 and 1997
                                 (In Thousands)
<TABLE>

                                                                  1998        1997
                                                                --------    --------
<S>                                                             <C>         <C>   
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................   $  1,680    $  1,711

Adjustments to reconcile net income to net cash provided 
  by operating aCtivities:
   Proceeds from  FHLMC .....................................        295          49
   Loans underwritten for FHLMC .............................       (295)        (49)
   Gains on loans sold to FHLMC .............................         --          --
   Provision for loan losses ................................         44           4
   Investment securities (gains) losses, net ................         (4)          4
   Depreciation .............................................        312         201
   Amortization of premiums and accretion of discounts
     on loans and investment securities, net ................         67          85
  (Increase) in other assets ................................       (559)       (331)
  (Decrease) increase in other liabilities ..................         (9)         73
                                                                --------    --------
Net cash provided by operating activities ...................   $  1,531    $  1,747
                                                                --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net (increase) decrease in federal funds sold ............   $ (2,905)   $   (837)
   Proceeds from maturities of investment securities ........     14,254       7,388
   Proceeds from sales of investment securities .............        453       4,936
   Purchases of investment securities .......................    (10,827)    (14,109)
   Net (increase) in loans ..................................    (24,954)     (8,253)
   Purchases of bank premises and equipment .................       (327)     (1,044)
                                                                --------    --------
   Net cash (used in) investing activities ..................   $(24,306)   $(11,919)
                                                                --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in noninterest bearing deposits ..   $  1,209    $ (5,543)
   Net increase in interest bearing deposits ................     10,324       7,344
   Net increase (decrease) in securities sold under
     agreements to repurchase ...............................      1,470      (2,451)
   Net increase in other borrowings .........................     18,988      10,252
   Net increase in notes payable ............................      7,250          --
   Cash dividends paid ......................................       (758)       (664)
   Reissuance of treasury stock .............................         --         280
   Purchases of common stock for the treasury ...............    (10,750)       (161)
                                                                --------    --------
   Net cash provided by financing activities ................   $ 27,733    $  9,057
                                                                --------    --------

   Net increase in cash and due from banks ..................      4,958      (1,115)

Cash and due from banks:
   Beginning ................................................     12,726      14,914
                                                                --------    --------
   Ending ...................................................   $ 17,684    $ 13,799
                                                                ========    ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for: 
     Interest ...............................................   $  6,167    $  4,947

     Income taxes ...........................................   $    628    $    566
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<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  providing
bank and bank related services through its subsidiaries.

Significant accounting policies:

Principles of consolidation:

The accompanying  consolidated  financial statements include the accounts of the
Company and its  wholly-owned  subsidiaries,  First  National  Bank of Muscatine
(Muscatine)  and First  National  Bank in  Fairfield  (Fairfield),  collectively
referred  to  herein  as  (Banks).  All  material   intercompany   accounts  and
transactions  have been  eliminated  in  consolidation.  The  unaudited  interim
financial statements presented reflect all adjustments which are, in the opinion
of  management,  necessary  to a fair  statement  of the results for the interim
periods. All such adjustments are of a normal recurring nature.

Presentation of cash flows:

For  purposes of  reporting  cash flows,  cash and due from banks  include  cash
on-hand and amounts due from banks, including cash items in process of clearing.
Cash flows from demand deposits, NOW accounts,  savings accounts,  federal funds
sold,  securities  sold under  agreements to repurchase,  Federal Home Loan Bank
advances, TT&L open note, certificates of deposits, and loans are reported net.

Investment securities available for sale:

Securities available for sale are accounted for at fair value and the unrealized
holding gains or losses are presented as a separate  component of  stockholders'
equity, net of their deferred income tax effect.

Realized gains or losses, determined using the  specific-identification  method,
are included in earnings.

Declines in the fair value of  individual  available-for-sale  securities  below
their cost that are other than  temporary  would  result in  write-downs  of the
individual  securities  to their fair value.  The related  write-downs  would be
included in earnings as realized losses.

Premiums and  discounts  are  recognized  in interest  income using the interest
method over the period to maturity.  There were no investments  held to maturity
or for trading purposes at quarter-end.

Loans:

Loans are stated at the amount of unpaid principal, reduced by unearned discount
and an allowance for loan losses. The Banks record impaired loans at the present
value of expected future cash flows discounted at the loan's effective  interest
rate,  or as an  expedient,  at the loan's  observable  market price or the fair
value of the collateral if the loan is collateral dependent.  A loan is impaired
when it is  probable  the  creditor  will be unable to collect  all  contractual
principal  and interest  payments due in  accordance  with the terms of the loan
agreement.

The allowance for loan losses is maintained at the level considered  adequate by
management   of  the  Banks  to  provide  for  losses  that  can  be  reasonably
anticipated.  The  allowance  is increased  by  provisions  charged to operating
expense and  reduced by net  charge-offs.  In  determining  the  adequacy of the
allowance  balance,  the  Banks  make  continuous  credit  reviews  of the  loan
portfolio and related  off-balance sheet commitments,  consider current economic
conditions,  historical loan loss  experience,  review of specific problem loans
and other factors.
<PAGE>


Unearned  interest on  discounted  loans is amortized to income over the life of
the loans using the interest  method.  For all other loans,  interest is accrued
daily on the outstanding balances. Accrual of interest is discontinued on a loan
when  management  believes,  after  considering  collection  efforts  and  other
factors,  that the  borrower's  financial  condition is such that  collection of
interest is doubtful.  Generally  this occurs when the collection of interest or
principal has become 90 days past due.

Direct loan and lease  origination  fees and costs are generally  being deferred
and the net amount  amortized as an adjustment of the related loan's yield.  The
Banks  generally  amortize these amounts over the contractual  life.  Commitment
fees based  upon a  percentage  of  customers'  unused  lines of credit and fees
related to standby letters of credit are not significant.

Bank premises and equipment:

Bank premises and equipment  are stated at cost less  accumulated  depreciation.
Depreciation  is  computed  primarily  by  the  straight-line  method  based  on
estimated useful lives.

Other assets:

Other  real  estate  (ORE),  which  is  included  in  other  assets,  represents
properties  acquired  through  foreclosure,  in-substance  foreclosure  or other
proceedings.  ORE is  recorded  at the  lower of the  amount of the loan or fair
market value of the properties.  Any write-down to fair market value at the time
of  transfer to ORE is charged to the  allowance  for loan  losses.  Property is
evaluated  regularly  to ensure that the  recorded  amount is  supported  by the
current fair market value.

Income taxes:

The Company  files its tax return on a  consolidated  basis with its  subsidiary
banks.  The entities  follow the direct  reimbursement  method of accounting for
income  taxes  under  which  income  taxes  or  credits  which  result  from the
subsidiary  banks'  inclusion  in the  consolidated  tax  return  are paid to or
received from the parent company.

Deferred taxes are provided on a liability  method  whereby  deferred tax assets
are recognized for deductible  temporary  differences and operating loss and tax
credit  carryforwards  and  deferred  liabilities  are  recognized  for  taxable
temporary  differences.  Temporary  differences are the differences  between the
reported  amounts of assets and  liabilities  and their tax bases.  Deferred tax
assets are reduced by a valuation  allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred  assets will
not be  realized.  Deferred  tax assets and  liabilities  are  adjusted  for the
effects of changes in tax laws and rates on the date of enactment.

Deferred income taxes have not been provided on the equity in undistributed  net
income of the  subsidiaries  as the  entities  file a  consolidated  income  tax
return.

Trust assets:

Trust assets (other than cash deposits) held by the Banks in fiduciary or agency
capacities for its customers are not included in the  accompanying  consolidated
balance sheets since such items are not assets of the Banks.

Fair value of financial instruments:

FAS No. 107,  Disclosures  about Fair  Market  Value of  Financial  Instruments,
requires  disclosure  of fair value  information  about  financial  instruments,
whether or not recognized in the balance  sheet,  for which it is practicable to
estimate that value.  Interim condensed financial statements are not required to
include the disclosures outlined by FAS 107 and,  accordingly,  are not included
herein.


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. Dilutive earnings per share is arrived at by dividing net
income  by the  weighted  average  number  of  common  stock  and  common  stock
equivalents  outstanding for the respective period. 
<PAGE>



The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
<TABLE>

                                        Three Months Ended       Nine Months Ended
                                             June 30,                 June 30,
                                        -------------------     -------------------
                                          1998       1997         1998        1997
                                        -------------------     -------------------
<S>                                     <C>       <C>           <C>        <C>  
Numerator income applicable to
  common shares                         $   840   $     837     $  1,680   $  1,711
                                        ===================     ===================

Denominator:
  Basic-weighted average common
    shares outstanding                    1,637       1,755        1,732      1,748
  Dilutive effect of employee stock 
    options                                  --          44           --         47
                                        -------------------     -------------------
  Dulited outstanding shares              1,637       1,799        1,732      1,795
                                        ===================     ===================

Basic earnings per share                    .51         .48          .97        .98
                                        ===================     ===================

Diluted earnings per share                  .51         .47          .97        .95
                                        ===================     ===================
</TABLE>

Note 3.  Purchase of Treasury Shares

On May 4, 1998, the Company  entered into a signed  agreement to purchase shares
representing  approximately 16.5% of the previously  outstanding common stock of
the  Company.  These  shares  were  purchased  from a  director  of  Iowa  First
Bancshares Corp. as well as various  companies  controlled or influenced by him,
his family, his business associates and charities.  The purchase of these shares
was approved by the required  regulators.  The purchase  price of  approximately
$10.6 million was funded from internal cash and $9.25 million of debt financing.
The  Company  has  repaid $2 million  of this debt as of June 30,  1998.  Of the
remaining $7.25 million of debt,  $1.75 million matures within one year and $5.5
million is amortized over ten years with annual principal payments and a balloon
payment of the remaining balance at the end of five years.
<PAGE>



                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Discussion and Analysis of Financial Condition


The  Company's  total assets at June 30, 1998,  were  $335,214,000.  Muscatine's
total assets were  $242,791,000  which reflects a $27,686,000  (12.9%)  increase
from December 31, 1997, total assets.  Fairfield's total assets were $91,290,000
at June 30, 1998,  which is an increase of  $3,758,000  (4.3%) when  compared to
December 31, 1997,  total assets.  Total  consolidated  assets increased by 9.6%
during the first six months of 1998.

Net  loans  totaled  $233,628,000  at June 30,  1998.  Net  loans  at  Muscatine
increased  by  $21,262,000  (14.1%)  during  the  first  six  months.  Net loans
increased  at  Fairfield  by  $3,683,000  (6.4%)  during  the first six  months.
Consolidated  net loans  increased  by  $24,945,000  (12.0%)  year-to-date  with
slightly more than half of the increase during the second quarter.

Total available for sale securities  decreased  $3,951,000  during the first six
months of 1998  while  federal  funds sold  increased  $2.9  million.  The Banks
emphasize  purchase of securities with maturities of five years and less as such
purchases  offer  reasonable  yields  with very  little  credit  risk as well as
limited  interest  rate risk.  Additionally,  selected  securities  with  longer
maturities  have been  purchased  in order to enhance  overall  portfolio  yield
without  significantly  increasing risk. At June 30, 1998,  approximately 30% of
investment securities mature in more than five years and less than 10% mature in
more than ten years.  Securities totaling  approximately $450,000 have been sold
during the year, generating net gains of $4,000.

Total  deposits at June 30,  1998,  were  $254,315,000.  Deposits  at  Muscatine
increased $13,299,000 (8.0%) from the prior year end. Fairfield's total deposits
decreased  $1,777,000 (2.3%) during the same period.  This represents a combined
deposit  increase of $11.5 million  (4.8%) for the Company  during the first six
months of 1998.  Additionally,  securities  sold under  agreements to repurchase
increased  $1.5  million and advances  borrowed  from the Federal Home Loan Bank
increased $14.5 million to total $41 million at quarter end.

Results of Operations

Consolidated net income was $840,000,  or $.51 per diluted share, for the second
quarter of 1998,  compared to $837,000  and $.47 per diluted  share for the same
period last year.  For the first six months,  net income  totaled  $1,680,000 or
$.97 per diluted share  compared to  $1,711,000  and $.95 per diluted share last
year. The primary  reasons for the decline in  year-to-date  net income were the
costs  associated  with opening two new branches and replacing  another  branch.
Also,  interest expense totaling $96,000 for the three and six months ended June
30, 1998, was incurred on debt related to the repurchase of approximately  16.5%
of  the  outstanding  common  shares  of  the  Company  (see  Note  3  for  more
information).

While net interest income has increased  slightly as compared to the prior year,
management  has  expressed  concern  for  several  quarters as to the ability to
increase net interest  income each  successive  quarter.  The increased usage of
wholesale funding sources, while mitigating  intermediate and long-term interest
rate risk,  increases interest expense. The interest expense associated with the
debt incurred to purchase treasury shares also adds pressure to the net interest
margin.  Finally, the intense competition for all types of loans does not afford
the Company much pricing power when dealing with borrowers.

Provisions  for loan losses were $44,000 for the six months ended June 30, 1998,
this was $40,000 more than the same period in 1997. Net loan recoveries  totaled
$43,000 compared to net charge-offs of $67,000 for the first six months of 1997.

Nonaccrual loans totaled  $862,000 at June 30, 1998;  $282,000 less than the end
of 1997. Other real estate owned totaled $425,000, and loans past due 90 days or
more and  still  accruing  totaled  $242,000.  The  reserve  for loan  losses of
$2,692,000  represents  1.2% of net  loans and 176% of total  nonaccrual  loans,
other real estate owned, and loans past due 90 days or more and still accruing.
<PAGE>


The  efficiency  ratio,  defined  as  noninterest  expense  as a percent  of net
interest income plus noninterest  income,  was 59.9% for the first six months of
1998 compared to 61.1% for all of 1997.

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, 1998, rate sensitive  liabilities exceeded
rate sensitive assets within a one year maturity range by  approximately  15% of
total assets and,  thus,  the Company is positioned to benefit from a decline in
interest rates within the next year.

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

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

Liquidity

For  banks,  liquidity  represents  ability  to meet both loan  commitments  and
deposit withdrawals.  Factors which influence the need for liquidity are varied,
but include general economic  conditions,  asset/liability mix, bank reputation,
future  FDIC  funding  needs,  changes  in  regulatory  environment,  and credit
standing.  Assets which provide liquidity consist principally of loans, cash and
due from  banks,  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 subsidiary banks do not have brokered deposits.

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, 1998, were $254,315,000 or 76% of total liabilities and equity.

Securities  available for sale with a cost totaling  $60,846,000  at quarter-end
included net unrealized gains of $699,000. 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.
<PAGE>


Capital

Stockholders'  equity decreased  $9,801,000 during the six months ended June 30,
1998.  The main  reason for this  decline was the  purchase  of  treasury  stock
totaling $10,750,000.

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 more  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,  1998 with the  minimum
requirements is presented below.
                                                            Minimum
                                             Actual       Requirements
                                             ------       ------------

Tier 1 risk-based capital                     7.78%           4.00%
Total risk-based capital                      8.96%           8.00%
Tier 1 leverage ratio                         5.37%           4.00%

Impact of Inflation and Changing Prices

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

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

Trends, Events or Uncertainties

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

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




                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                                OTHER INFORMATION





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


         Reports on Form 8-K.      No Form 8-K has been  filed for
                                   the quarter ended June 30, 1998.


<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)


8/12/98                      /s/ George A. Shepley
----------------             -------------------------------
Date                         George A. Shepley, Chairman of
                             the Board and Chief Executive Officer


8/12/98                      /s/ Kim K. Bartling
----------------             -------------------------------
Date                         Kim K. Bartling, Executive Vice
                             President, Chief Operating
                             Officer & Treasurer