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 March 31, 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 March 31, 1998 there were 1,827,129 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,
                     March 31, 1998 and December 31, 1997                   

                     Consolidated Condensed Statements of
                     Operations, Three Months Ended
                     March 31, 1998 and 1997                    

                     Consolidated Condensed Statements of
                     Cash Flows, Three Months Ended
                     March 31, 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 4.   Submission of Matters to a Vote of
                     Security Holders              


         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>

                                                                  March 31,  December 31,
                                                                     1998      1997
                                                                  -------------------
<S>                                                               <C>        <C>  
               ASSETS

Cash and due from banks .......................................   $ 12,852   $ 12,726

Investment securities available for sale (cost March 31, ......     61,893     65,496
  1998, $61,142; December 31, 1997, $64,758)

Federal funds sold and securities
   purchased under resale agreements ..........................     21,980      9,795

Loans, net of allowance for possible loan
   losses March 31, 1998, $2,616;
   December 31, 1997, $2,604 ..................................    219,976    208,683

Bank premises and equipment, net ..............................      5,962      6,055

Other assets ..................................................      3,268      3,028
                                                                 --------------------

   TOTAL ASSETS ...............................................   $325,931   $305,783
                                                                  ===================

LIABILITIES AND STOCKHOLDERS' EQUITY
            LIABILITIES

Noninterest bearing deposits ..................................   $ 36,309   $ 38,212
Interest bearing deposits .....................................    218,001    204,570
                                                                  -------------------
   TOTAL DEPOSITS .............................................   $254,310   $242,782
Securities sold under agreements to
   repurchase .................................................      5,379      4,259
Federal Home Loan Bank advances ...............................     33,335     26,468
Treasury tax and loan open note ...............................      1,634      1,456
Other liabilities .............................................      2,342      2,193
                                                                  -------------------

   TOTAL LIABILITIES ..........................................   $297,000   $277,158
                                                                  -------------------

STOCKHOLDERS' EQUITY
Common Stock ..................................................   $    200   $    200
Surplus .......................................................      4,440      4,440
Retained earnings .............................................     23,978     23,522
                                                                  -------------------
                                                                  $ 28,618   $ 28,162
Accumulated other comprehensive income, unrealized gains 
  (losses) on securities available for sale, net ..............        471        463
Less net cost of common shares acquired for the treasury ......        158         --
                                                                  -------------------
   TOTAL STOCKHOLDERS' EQUITY .................................   $ 28,931   $ 28,625
                                                                  -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................   $325,931   $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)


                                                  Three Months Ended
                                                      March 31,
                                                  ------------------
                                                    1998     1997
                                                   ---------------

INTEREST INCOME:
   Interest and fees on loans ..................   $4,425   $3,913
   Interest on investment securities ...........      920      973
   Interest on federal funds sold and securities
     purchased under resale agreements .........      226       96
                                                   ---------------

   Total interest income .......................   $5,571   $4,982
                                                   ---------------

INTEREST EXPENSE:
   Interest on deposits ........................   $2,340   $2,137
   Interest on repurchase agreements and other
     borrowings ................................      559      246
                                                   ---------------

   Total interest expense ......................   $2,899   $2,383
                                                   ---------------

   Net interest income .........................   $2,672   $2,599

Provision for loan losses ......................       18        3
                                                   ---------------

   Net interest income after provision for
      loan losses ..............................   $2,654   $2,596

Investment securities gains (losses) ...........        4       11
Other income ...................................      412      394
Other expense ..................................    1,833    1,721
                                                   ---------------

   Income before income taxes ..................   $1,237   $1,280
Applicable income taxes ........................      397      406
                                                   ---------------
Net income .....................................   $  840   $  874
                                                   ===============

Net income per common share:
   Basic .......................................   $ 0.46   $ 0.50
                                                   ===============

   Diluted .....................................   $ 0.46   $ 0.49
                                                   ===============


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

Comprehensive income ...........................   $  848   $  696
                                                   ===============

See notes to Consolidated Condensed Financial Statements.
<PAGE>


                  IOWA FIRST BANCSHARES CORP. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
               For The Three Months Ended March 31, 1998 and 1997
                                 (In Thousands)
<TABLE>

                                                                  1998        1997
                                                                --------------------
<S>                                                             <C>         <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................   $    840    $    874
Adjustments to reconcile net income to net cash 
  provided by operating activities:
   Proceeds from  FHLMC .....................................         88          --
   Loans underwritten for FHLMC .............................        (87)         --
   Gains on loans sold to FHLMC .............................         (1)         --
   Provision for loan losses ................................         18           3
   Investment securities (gains) losses, net ................         (4)        (11)
   Depreciation .............................................        154          92
   Amortization of premiums and accretion of discounts
     on loans and investment securities, net ................         30          49
  (Increase) decrease in other assets .......................       (240)       (123)
   Increase in other liabilities ............................        146        (217)
                                                                --------------------
Net cash provided by operating activities ...................   $    944    $    667
                                                                --------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net (increase) in federal funds sold .....................   $(12,185)   $ (4,867)
   Proceeds from maturities of investment securities ........      5,253       4,182
   Proceeds from sales of investment securities .............        453       1,669
   Purchases of investment securities .......................     (2,129)     (6,548)
   Net (increase) in loans ..................................    (11,311)     (3,321)
   Purchases of bank premises and equipment .................        (61)       (302)
                                                                --------------------
   Net cash (used in) investing activities ..................   $(19,980)   $ (9,187)
                                                                --------------------


CASH FLOWS FROM FINANCING ACTIVITIES
   Net (decrease) in noninterest bearing deposits ...........   $ (1,903)   $ (8,895)
   Net increase in interest bearing deposits ................     13,431      11,445
   Net increase (decrease) in securities sold under
     agreements to repurchase ...............................      1,120      (1,949)
   Net increase in other borrowings .........................      7,045       5,553
   Cash dividends paid ......................................       (374)       (331)
   Reissuance of treasury stock .............................          3         263
   Purchases of common stock for the treasury ...............       (160)       (136)
                                                                --------------------
   Net cash provided by financing activities ................   $ 19,162    $  5,950
                                                                --------------------

   Net increase in cash and due from banks ..................        126      (2,570)

Cash and due from banks:
   Beginning ................................................   $ 12,726    $ 14,914
                                                                --------------------

   Ending ...................................................   $ 12,852    $ 12,344
                                                                ====================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash payments for: 
    Interest ................................................   $  2,873    $  2,355
    Income taxes ............................................   $     --    $     -- 
</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.


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. The average number of shares
of common stock outstanding for the first three months of 1998 was 1,828,182.


Note 3.  Subsequent Events

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  will be  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 majority of the purchase price of
approximately  $10,600,000  will be funded by debt  financing  in May 1998.  The
Company anticipates only about 50% of the purchase price being borrowed for more
than one year.

<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 March 31, 1998,  were  $325,931,000.  Muscatine's
total assets were $234,808,000 which reflects a $19,703,000 (9.2%) increase from
December 31, 1997,  total assets.  Fairfield's  total assets were $88,227,000 at
March 31,  1998,  which is an  increase  of  $695,000  (0.8%)  when  compared to
December 31, 1997,  total assets.  Total  consolidated  assets increased by 6.6%
during the first three months of 1998.

Net loans  totaled  $219,976,000  at March  31,  1998.  Net  loans at  Muscatine
increased  by  $11,054,000  (7.3%)  during  the first  three  months.  Net loans
increased at Fairfield by $239,000 (0.4%) during the first three months.
Consolidated net loans increased by $11,293,000 (5.4%) year-to-date.

Total available for sale securities  decreased $3,603,000 during the first three
months of 1998 while  federal  funds sold  increased  $12.2  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 March 31,  1998,  less than 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 March 31,  1998,  were  $254,310,000.  Deposits at  Muscatine
increased  $11,861,000  from the prior  year  end.  Fairfield's  total  deposits
decreased  $345,000 during the same period.  This represents a combined  deposit
increase of $11.5 million  (4.7%) for the Company  during the first three months
of 1998. Additionally,  securities sold under agreements to repurchase increased
$1.1 million and  advances  borrowed  from the Federal Home Loan Bank  increased
$6.9 million to total $33.3 million at quarter end.

Results of Operations

Consolidated  net income was $840,000,  or $.46 per share, for the first quarter
of 1998.  This was  $34,000 or 3.9% less than the same  period  last  year,  but
approximately  8% greater than budgeted.  The primary reasons for the decline in
net income were the costs associated with opening two new branches and replacing
another  branch.  Also,  significant  resources  were devoted to  expanding  and
enhancing  our sales  culture as well as  installing  and training  personnel to
operate new item processing equipment,  a new local area network computer system
and other computer hardware and software.

The  Company  has been able to expand net  interest  income,  as compared to the
prior year by actively managing asset quality, growth of the loan portfolio, and
rates paid on assets and  liabilities.  Management  has  expressed  concern  for
several quarters, however, as to the ability to continue increasing 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. As a result, margins are put under pressure with the
goal of increasing volume sufficiently to more than offset the margin reduction,
thus, improving earnings over time.

Provisions  for loan losses were  $18,000 for the three  months  ended March 31,
1998, this was $15,000 more than the first quarter of 1997. Net loan charge-offs
totaled  $7,000  compared to net  recoveries of $14,000 for the first quarter of
1997.

Nonaccrual  loans totaled  $1,297,000 at March 31, 1998,  $146,000 less than the
end of the first quarter in 1997.  Other real estate owned totaled  $9,000,  and
loans past due 90 days or more and still accruing totaled $839,000.  The reserve
for loan  losses of  $2,616,000  represents  1.2% of net loans and 122% 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 59.4% for the first three 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.

The  following  table shows the interest  rate  sensitivity  position at several
repricing intervals (dollar amounts in thousands):

<TABLE>
                                                       Repricing Maturities at March 31, 1998
                                               -----------------------------------------------------------
                                               Less Than       1-5      More Than  Noninterest
                                                One Year      Years      5 Years     Bearing       Total
                                               -----------------------------------------------------------
<S>                                            <C>          <C>         <C>         <C>         <C>   

Assets:
  Loans ....................................   $  78,361    $  84,038   $  58,896   $   1,297   $  222,592
  Investment securities ....................      14,605       29,662      17,616          10       61,893
  Other earning assets .....................      22,069           --          --          --       22,069
  Nonearning assets ........................          --           --          --      19,377       19,377
                                               -----------------------------------------------------------

     Total assets ..........................   $ 115,035    $ 113,700   $  76,512   $  20,684   $  325,931
                                               ===========================================================

Liabilities and Equity:
  Deposits .................................   $ 164,260    $  53,741   $      --   %  36,309   $  254,310    
  Other purchased funds ....................       8,013       28,335       4,000          --       40,348
  Other liabilities ........................          --           --          --       2,342        2,342      
    Equity .................................          --           --          --      28,931       28,931
                                               -----------------------------------------------------------

      Total liabilities and equity .........   $ 172,273    $  82,076   $   4,000   $  67,582    $ 325,931
                                               ===========================================================


Repricing gap ..............................   $ (57,238)   $  31,624   $  72,512   $(46,898)    $      --
Cumulative repricing gap ...................   $ (57,238)   $ (25,614)  $  46,898   $     --     $      -- 
</TABLE>

The data in this table  incorporates the contractual  characteristics as well as
an estimate of the actual repricing  characteristics of the Company's assets and
liabilities.  Based  on the  estimate,  fifty  percent  of the  savings  and NOW
accounts are  reflected in the less than one year  category,  with the remaining
50% in the 1-5 year time frame.  Money market  accounts are estimated as 100% in
the less than one year category.

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 March 31, 1998, rate sensitive liabilities exceeded
rate  sensitive  assets within a one year  maturity  range by $57.2 million 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.
<PAGE>


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 March
31, 1998, were $254,310,000 or 78% of total liabilities and equity.

Securities  available for sale with a cost totaling  $61,142,000  at quarter-end
included net unrealized gains of $751,000. 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 $306,000 during the three months ended March 31,
1998.

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 March 31,  1998 with the minimum
requirements is presented below.

                                                                  Minimum
                                                   Actual       Requirements
                                                   -------------------------

Tier 1 risk-based capital ...........              12.66%           4.00%
Total risk-based capital ............              13.85%           8.00%
Tier 1 leverage ratio ...............               8.95%           3.00%

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.
<PAGE>


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

At the Annual  Meeting of the Company held at its offices on April 16, 1998, the
shareholders  elected the  following  individuals  to the Board of Directors for
three year terms:

                                Votes in Favor          Votes Against
                                --------------          -------------

Roy J. Carver, Jr ........         1,323,839               86,193
Dean H. Holst ............         1,323,299               86,733  
Dr. Victor G. McAvoy .....         1,323,389               86,643



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 March 31, 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)


May 11, 1998                 /s/ George A. Shepley
----------------             -------------------------------
Date                         George A. Shepley, Chairman of
                             the Board and Chief Executive Officer





May 11, 1998                 /s/ Kim K. Bartling
----------------             -------------------------------
Date                         Kim K. Bartling, Executive Vice
                             President, Chief Operating
                             Officer & Treasurer