UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON D.C. 20549


                                    FORM 10-Q


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

     For the quarterly period ended September 30, 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 of                                 (IRS Employer 
 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 September 30, 1998 there were  1,524,360  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,
                   September 30, 1998 and December 31, 1997

                   Consolidated Condensed Statements of
                   Operations, Three and Nine Months Ended
                   September 30, 1998 and 1997 

                   Consolidated Condensed Statements of
                   Cash Flows, Nine Months Ended
                   September 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>

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

Cash and due from banks ....................................   $ 12,722   $ 12,726

Investment securities available for sale (cost September 30,     57,471     65,496
  1998, $56,261; December 31, 1997, $64,758)

Federal funds sold and securities
   purchased under resale agreements .......................      6,000      9,795

Loans, net of allowance for possible loan
   losses September 30, 1998, $2,772;
   December 31, 1997, $2,604 ...............................    247,564    208,683

Bank premises and equipment, net ...........................      5,949      6,055

Other assets ...............................................      3,994      3,028
                                                               --------   --------

   TOTAL ASSETS ............................................   $333,700   $305,783
                                                               ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
            LIABILITIES

Noninterest bearing deposits ...............................   $ 38,294   $ 38,212
Interest bearing deposits ..................................    213,645    204,570
                                                               --------   --------
   TOTAL DEPOSITS ..........................................   $251,939   $242,782
Notes payable ..............................................      7,250         --
Federal funds purchased and securities
   sold under agreements to repurchase .....................      6,302      4,259
Federal Home Loan Bank advances ............................     45,268     26,468
Treasury tax and loan open note ............................        914      1,456
Other liabilities ..........................................      2,395      2,193
                                                               --------   --------

   TOTAL LIABILITIES .......................................   $314,068   $277,158
                                                               --------   --------

STOCKHOLDERS' EQUITY

Common Stock ...............................................   $    200   $    200
Surplus ....................................................      4,439      4,440
Retained earnings ..........................................     24,982     23,522
                                                               --------   --------
                                                               $ 29,621   $ 28,162
Accumulated other comprehensive income, unrealized
  gains (losses) on securities available for sale, net .....        759        463
Less net cost of common shares acquired for the treasury ...     10,748         --
                                                               --------   --------
   TOTAL STOCKHOLDERS' EQUITY ..............................   $ 19,632   $ 28,625
                                                               --------   --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................   $333,700   $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     Nine Months Ended
                                                      September 30,          September 30,
                                                   -------------------   -------------------
                                                     1998       1997        1998      1997
                                                   -------------------   -------------------
<S>                                                <C>        <C>        <C>        <C>   
INTEREST INCOME:
   Interest and fees on loans ..................   $  4,975   $  4,261   $ 14,131   $ 12,250
   Interest on investment securities ...........        848      1,023      2,685      3,013
   Interest on federal funds sold and securities
     purchased under resale agreements .........        172         64        683        314
                                                   --------   --------   --------   --------
   Total interest income .......................   $  5,995   $  5,348   $ 17,499   $ 15,577
                                                   --------   --------   --------   --------

INTEREST EXPENSE:
   Interest on deposits ........................   $  2,422   $  2,291   $  7,269   $  6,701
   Interest on repurchase agreements and
     other short-term borrowings ...............        776        392      2,014        957
   Interest on notes payable ...................        136         --        232         --
                                                   --------   --------   --------   --------
   Total interest expense ......................   $  3,334   $  2,683   $  9,515   $  7,658
                                                   --------   --------   --------   --------

   Net interest income .........................   $  2,661   $  2,665   $  7,984   $  7,919
Provision for possible loan losses .............         36         --         80          4
                                                   --------   --------   --------   --------
   Net interest income after provision for
     possible loan losses ......................   $  2,625   $  2,665   $  7,904   $  7,915

Investment securities gains (losses) ...........         15          3         19         (1)
Other income ...................................        472        428      1,349      1,259
Other expense ..................................      1,930      2,020      5,645      5,581
                                                   --------   --------   --------   --------

   Income before income taxes ..................   $  1,182   $  1,076   $  3,627   $  3,592
Applicable income taxes ........................        377        341      1,142      1,146
                                                   --------   --------   --------   --------
Net income .....................................   $    805   $    735   $  2,485   $  2,446
                                                   ========   ========   ========   ========

Net income per common share :
  Basic ........................................   $   0.53   $   0.42   $   1.50   $   1.40
                                                   ========   ========   ========   ========

  Diluted ......................................   $   0.53   $   0.41   $   1.50   $   1.36
                                                   ========   ========   ========   ========

Dividends declared per common share ............   $   0.21   $   0.19   $   0.63   $   0.57
                                                   ========   ========   ========   ========

Comprehensive income ...........................   $  1,127   $    902   $  2,781   $  2,660
                                                   ========   ========   ========   ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.

<PAGE>


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

                                                                  1998         1997
                                                                --------------------
<S>                                                             <C>         <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................   $  2,485    $  2,446
Adjustments to reconcile net income to net cash provided by  
  operating activities:
   Proceeds from  FHLMC .....................................        205         498
   Loans underwritten for FHLMC .............................       (201)       (494)
   Gains on loans sold to FHLMC .............................         (4)         (4)
   Provision for loan losses ................................         80           4
   Investment securities (gains) losses, net ................        (19)          1
   Depreciation .............................................        472         347
   Amortization of premiums and accretion of discounts
     on loans and investment securities, net ................         99         120
  (Increase) in other assets ................................       (966)       (843)
   Increase in other liabilities ............................        588         324
                                                                --------------------
Net cash provided by operating activities ...................   $  2,739    $  2,399
                                                                --------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net decrease in federal funds sold .......................   $  3,795    $  3,723
   Proceeds from maturities of investment securities ........     17,932      10,495
   Proceeds from sales of investment securities .............      2,199       6,426
   Purchases of investment securities .......................    (12,224)    (18,640)
   Net (increase) in loans ..................................    (38,961)    (19,168)
   Purchases of bank premises and equipment .................       (366)     (1,492)
                                                                --------------------
   Net cash (used in) investing activities ..................   $(27,625)   $(18,656)
                                                                --------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in noninterest bearing deposits ..   $     82    $ (5,717)
   Net increase in interest bearing deposits ................      9,075       7,160
   Net increase in securities sold under agreements
      to repurchase .........................................      2,043         114
   Net increase in other borrowings .........................     18,258      12,723
   Proceeds from notes payable ..............................      9,250          --
   Payments on notes payable ................................     (2,000)         --
   Cash dividends paid ......................................     (1,078)       (998)
   Reissuance of treasury stock .............................          5         525
   Purchases of common stock for the treasury ...............    (10,753)       (161)
                                                                --------------------
   Net cash provided by financing activities ................   $ 24,882    $ 13,646
                                                                --------------------

   Net increase in cash and due from banks ..................         (4)     (2,611)
Cash and due from banks:
   Beginning ................................................     12,726      14,914
                                                                --------------------

   Ending ...................................................   $ 12,722    $ 12,303
                                                                ====================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash payments for: 
     Interest ...............................................   $  9,438    $  7,595

     Income taxes ...........................................   $    903    $    811
</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.

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.
<PAGE>



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.
<PAGE>



Note 2.  Capital Stock and Earnings Per Share

Common shares and preferred stock  authorized total 6,000,000 shares and 500,000
shares,  respectively.  Basic  earnings  per share is arrived at by dividing net
income by the weighted average number of shares of common stock  outstanding for
the respective period.  Diluted earnings per share is arrived at by dividing net
income  by the  weighted  average  number  of  common  stock  and  common  stock
equivalents  outstanding  for the respective  period.  The following  table sets
forth the  computation  of basic and diluted  earnings  per share (in  thousands
except per share amounts):


                                           Three Months Ended  Nine Months Ended
                                              September 30,       September 30, 
                                           ------------------  -----------------
                                             1998      1997      1998      1997 
                                           ------------------  -----------------
Numerator income applicable to
   common shares .......................    $  805    $  735    $2,485    $2,446
                                            ================    ================

Denominator:
   Basic-weighted average common
     shares outstanding ................     1,524     1,761     1,661     1,752
   Dilutive effect of employee
     stock options .....................      --          35      --          47
                                            ----------------    ----------------

   Diluted outstanding shares ..........     1,524     1,796     1,661     1,799
                                            ================    ================

Basic earnings per share ...............       .53       .42      1.50      1.40
                                            ================    ================

Diluted earnings per share .............       .53       .41      1.50      1.36
                                            ================    ================


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 September  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 September 30, 1998, were $333,700,000. Muscatine's
total assets were  $239,908,000  which reflects a $24,803,000  (11.5%)  increase
from December 31, 1997, total assets.  Fairfield's total assets were $92,460,000
at September 30, 1998,  which is an increase of $4,928,000  (5.6%) when compared
to December 31, 1997, total assets.  Total consolidated assets increased by 9.1%
during the first nine months of 1998.

Net loans totaled  $247,564,000  at September  30, 1998.  Net loans at Muscatine
increased  by  $32,069,000  (21.3%)  during  the first  nine  months.  Net loans
increased  at  Fairfield  by  $6,812,000  (11.8%)  during the first nine months.
Consolidated  net loans  increased  by  $38,881,000  (18.6%)  year-to-date  with
slightly more than one-third of the increase during the third quarter.

Total available for sale securities  decreased  $8,025,000 during the first nine
months of 1998  while  federal  funds sold  decreased  $3.8  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 September 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 $1.2 million have been
sold during the year, generating net gains of $19,000.

Total deposits at September 30, 1998, were  $251,939,000.  Deposits at Muscatine
increased  $7,051,000 (4.2%) from the prior year end. Fairfield's total deposits
increased  $2,116,000 (2.8%) during the same period.  This represents a combined
deposit  increase of $9.2 million  (3.8%) for the Company  during the first nine
months of 1998.  Additionally,  securities  sold under  agreements to repurchase
increased  $2.0  million and advances  borrowed  from the Federal Home Loan Bank
increased $18.8 million to total $45 million at quarter end.

Results of Operations

Consolidated  net income was $805,000,  or $.53 per diluted share, for the third
quarter of 1998,  compared to $735,000  and $.41 per diluted  share for the same
period last year. For the first nine months,  net income  totaled  $2,485,000 or
$1.50 per diluted share  compared to $2,446,000 and $1.36 per diluted share last
year. Last year's net income  included  expenses,  after income tax effects,  of
approximately  $100,000  related to a problem loan.  Net income in 1998 included
significant costs associated with opening two new branches and replacing another
branch,  the costs of which were only partly reflected in 1997.  Also,  interest
expense  totaling  $136,000  and  $232,000  for the three and nine months  ended
September 30, 1998, respectively, 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).

Management  has  expressed  concern  for  several  quarters as to the ability to
maintain or 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 $80,000 for the nine months ended  September 30,
1998,  this was $76,000 more than the same period in 1997.  Net loan  recoveries
totaled  $89,000  compared to net  charge-offs  of  $161,000  for the first nine
months of 1997.

Nonaccrual loans totaled $599,000 at September 30, 1998;  $545,000 less than the
end of 1997.  Other real estate owned  totaled  $500,000,  and loans past due 90
days or more and still accruing totaled $280,000. The reserve for loan losses of
$2,772,000  represents 1.1% of net loans and more than 200% of total  nonaccrual
loans,  other real  estate  owned,  and loans past due 90 days or more and still
accruing.

The  efficiency  ratio,  defined  as  noninterest  expense  as a percent  of net
interest income plus noninterest  income, was 60.5% for the first nine months of
1998 compared to 61.1% for all of 1997.
<PAGE>



Interest Rate Sensitivity

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

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

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

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

Liquidity

For  banks,  liquidity  represents  ability  to meet both loan  commitments  and
deposit withdrawals.  Factors which influence the need for liquidity are varied,
but include general economic  conditions,  asset/liability mix, bank reputation,
future  FDIC  funding  needs,  changes  in  regulatory  environment,  and credit
standing.  Assets which provide liquidity consist principally of loans, cash and
due from  banks,  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
September 30, 1998, were $251,939,000 or 75% of total liabilities and equity.

Securities  available for sale with a cost totaling  $56,261,000  at quarter-end
included net  unrealized  gains of $1,210,000.  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 million during the nine months ended September
30, 1998.  The main reason for this  decline was the purchase of treasury  stock
totaling $10.8 million.

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 September 30, 1998 with the minimum
requirements is presented below.
                                                                      Minimum
                                                     Actual         Requirements
                                                     ------         ------------
Tier 1 risk-based capital ......................      7.47%             4.00%
Total risk-based capital .......................      8.64%             8.00%
Tier 1 leverage ratio ..........................      5.40%             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.

Year 2000 Compliance

The Year 2000 issue is the result of computer programs using two-digits  instead
of four-digits to represent the year. These computer systems,  if not renovated,
will be unable to interpret dates past 1999,  which could cause a system failure
or other computer  errors,  leading to a disruption in  operations.  The Company
developed  a  five-phase  program for Year 2000  compliance,  as outlined by the
Federal Financial  Institutions  Examination  Council ("FFIEC") in a supervisory
letter.  These phases are Awareness,  Assessment,  Renovation,  Validation,  and
Implementation.
<PAGE>



The Awareness phase is intended to define the problem and obtain executive level
support for the resources  necessary to perform  compliance work. This phase was
completed with the formation of a Year 2000  Committee and the  appointment of a
Year 2000 Project  Manager.  The goal of the  Assessment  phase is to assess the
size and complexity of the problem,  including  identifying all systems that may
be affected by the Year 2000. The Year 2000 Committee identified any system that
might be affected with emphasis on high risk and mission critical systems.  This
assessment included hardware,  software, vendor services and computer-controlled
devices  such as alarms,  elevators,  and heating and cooling  systems.  Through
correspondence with vendors,  the Company has determined the Year 2000 status of
these systems and has made determinations regarding replacement,  upgrades, etc.
In the Renovation  phase, the goal is to undertake code  enhancements,  hardware
and  software  upgrades,  system  replacements  and vendor  correspondence.  The
Company does not perform any of its own programming and is reliant on vendors to
provide  updates.  The responses  received have indicated  that systems  needing
upgrades or replacements will, in most instances,  be available for installation
by December 31, 1998. The Company is working on developing contingency plans for
any system that does meet this deadline. The Validation phase will encompass the
testing and  verification  of changes to systems and  coordination  with outside
parties.  The  Company  will be working  to test the  mission  critical  systems
starting in October 1998. The Company expects to be finished  testing all of its
mission critical applications by June 30, 1999. By the Implementation phase, all
systems  should be  certified as Year 2000  compliant  and should be in use. The
Company expects this phase also to be completed by June 30, 1999.  Because there
remain so many  unknowns  about the  potential  issues  with the Year 2000,  the
Company is evaluating its disaster  recovery plan and will be adding  provisions
for potential Year 2000 related disaster recovery situations.

The Company believes it will incur  approximately  $150,000 in Year 2000 related
costs,  although this number could vary significantly  based upon the results of
testing and other factors. This estimate includes hardware and software upgrades
in addition to human  resources  costs and  consulting  fees. At this time,  the
Company has not  identified  any  situations  that it  anticipates  will require
material cost expenditures.

The Company is also aware of the potential impact of the Year 2000 on the Bank's
borrowing  customers  and their  ability to repay.  Loan  officers  have been in
communication with key bank borrowing  customers to raise awareness and evaluate
their  progress  and will  continue to do so to help ensure they will not suffer
serious adverse consequences. The Company keeps its customers informed as to its
progress  in dealing  with the Year 2000  problem  through  quarterly  statement
enclosures and other forms of communication.

The federal banking regulators have issued several statements providing guidance
to  financial   institutions  on  the  steps  the  regulators  expect  financial
institutions  to take  to  become  Year  2000  compliant.  The  federal  banking
regulators   are  also   examining  the  financial   institutions   under  their
jurisdiction  to  assess  each  institution's  compliance  with the  outstanding
guidance.  If an  institution's  progress in addressing the Year 2000 problem is
deemed  by its  primary  federal  regulator  to be less than  satisfactory,  the
institution  will be required to enter into a memorandum of  understanding  with
the  regulator  which will,  among other  things,  require  the  institution  to
promptly  develop and submit an acceptable plan for becoming Year 2000 compliant
and to  provide  periodic  reports  describing  the  institution's  progress  in
implementing the plan.  Failure to satisfactorily  address the Year 2000 problem
may also expose a financial  institution  to other forms of  enforcement  action
that its primary federal regulator deems appropriate to address the deficiencies
in the institution's year 2000 remediation program.  Management currently has no
reason to believe the Company will be subjected to any such regulatory actions.

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.

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 September 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)


November 13, 1998            /s/ George A. Shepley
----------------             -------------------------------
Date                         George A. Shepley, Chairman of
                             the Board and Chief Executive Officer





November 13, 1998            /s/ Kim K. Bartling
----------------             -------------------------------
Date                         Kim K. Bartling, Executive Vice
                             President, Chief Operating
                             Officer & Treasurer