Form 10-QSB


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

         Commission File Number 333-53797

                       MOUND CITY FINANCIAL SERVICES, INC.
        (Exact name of small business issuer as specified in its charter)

            WISCONSIN                                39-1867686
    (State or other jurisdiction          (IRS Employer Identification No.)
    of incorporation or organization)

                25 East Pine Street, Platteville, Wisconsin 53818
               (Address of principal executive offices) (Zip Code)

         Issuer's telephone number, including area code: (608) 348-2685


                                      N/A
                    (Former name, former address and former
                   fiscal year, if changed since last report)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 ___         No X


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date.

             29,336 shares of Issuer's Common Stock, no par value,
                issued and outstanding as of September 30, 1998


<PAGE>
                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements............................................1

          Consolidated  Balance  Sheets  (Unaudited)   September  30,
          1998 and December 31, 1997..........................................2

          Consolidated Statements of Income (Unaudited)
          Three months and Nine months ended September 30, 1998 and 1997......3

          Consolidated Statements of Comprehensive Income (Unaudited)
          Three months and Nine months ended September 30, 1998 and 1997......4

          Consolidated Statements of Changes in 
          Stockholders' Equity (Unaudited)
          Nine months ended September 30, 1998 and 1997.......................5

          Consolidated Statements of Cash Flows (Unaudited)
          Nine months ended September 30, 1998 and 1997.......................6

          Notes to Financial Statements.......................................7

     Item 2 - Management's Discussion and Analysis or Plan of Operation.......8

PART II -- OTHER INFORMATION

     Item 2 - Changes in Securities and Use of Proceeds......................19

     Item 6 - Exhibits and Reports on Form 8-K...............................19



<PAGE>

                         PART I - FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS

The  following   unaudited   consolidated   financial   statements  include  all
adjustments,  which in the opinion of management, are necessary in order to make
such financial statements not misleading.

                                                       1

<PAGE>

MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
--------------------------------------------------------------------------------
                                                    (Unaudited)
                                                     September         December
ASSETS                                                30, 1998         31, 1997
--------------------------------------------------------------------------------
Cash and due from banks                          $   2,862,853    $   3,495,103
Federal funds sold                                   1,669,000        4,562,000
Interest-bearing deposits in banks                       7,320            ---
                                                 -------------------------------
     Cash and cash equivalents                       4,539,173        8,057,103
Available for sale securities 
     stated at fair value                           19,190,258       19,956,739
Loans receivable                                    95,099,978       88,427,414
     Less allowance for estimated loan losses       (1,179,877)      (1,159,300)
Office buildings and equipment, net                  4,297,040        4,343,474
Accrued interest receivable and other assets         2,921,347        2,489,203
                                                 -------------------------------
     Total assets                                $ 124,867,919    $ 122,114,633
                                                 ===============================


LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Liabilities:
  Deposits:
     Demand                                      $   9,129,171    $  10,029,112
     Savings and NOW                                39,566,103       34,400,049
     Other Time                                     59,260,793       64,721,866
                                                 -------------------------------
          Total deposits                           107,956,067      109,151,027
   Short-term borrowings                             3,530,834        4,376,625
   Long-term borrowings                              4,000,000            ---
   Accrued interest payable & other liabilities      1,968,540        1,771,702
                                                 -------------------------------
          Total liabilities                        117,455,441      115,299,354
                                                 -------------------------------

Commitments and contingencies

Stockholders' equity:

   Common stock                                         26,940           26,940
   Surplus                                           6,270,446        6,270,446
   Retained earnings                                   943,143          362,546
                                                 -------------------------------
                                                     7,240,529        6,659,932
     Less treasury stock                                (8,066)          (5,056)
   Accumulated other comprehensive income              180,015          160,403
                                                 -------------------------------
          Total stockholders' equity                 7,412,478        6,815,279
                                                 -------------------------------
          Total liabilities and stock-
               holders' equity                   $ 124,867,919    $ 122,114,633
                                                 ===============================


                                        2

<PAGE>


MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                    Three months ended             Nine months ended
                                             --------------------------------------------------------------
                                                September       September       September      September
                                                30, 1998        30, 1997        30, 1998       30, 1997
                                             --------------------------------------------------------------
<S>                                          <C>              <C>             <C>            <C> 
Interest income:
   Interest and fees on loans                $   2,034,378    $  1,900,713    $  6,040,208   $  5,537,215
   Interest on investment securities               270,761         290,723         837,958        901,660
   Interest on federal funds sold                   48,269          52,089          99,809         76,867
   Interest on deposits in banks                       604             198           6,224            674
                                             --------------------------------------------------------------
              Total interest income              2,354,012       2,243,723       6,984,199      6,516,416
                                             --------------------------------------------------------------
Interest expense:
   Interest on deposits                          1,254,835       1,285,555       3,789,140      3,540,187
   Interest on short-term borrowings                67,048          69,243         206,833        115,405
   Interest on long-term borrowings                 55,789           ---           108,348          ---
                                             --------------------------------------------------------------
              Total interest expense             1,377,672       1,354,798       4,104,321      3,655,592
                                             --------------------------------------------------------------
              Net interest income before
              provision for loan losses            976,340         888,925       2,879,878      2,860,824
Provision for loan losses                           45,000          30,000         120,000         90,000
                                             --------------------------------------------------------------
              Net interest income after
              provision for loan losses            931,340         858,925       2,759,878      2,770,824
                                             --------------------------------------------------------------
Other operating income:
   Service fees                                     80,474          78,588         226,779        216,359
   Other income                                    113,863          94,429         331,483        266,136
   Securities gain (losses)                          ---            (1,314)         21,666          5,241
                                             --------------------------------------------------------------
              Total other operating income         194,337         171,703         579,928        487,736
                                             --------------------------------------------------------------
Other operating expenses:
   Salaries                                        491,754         443,460       1,508,460      1,322,747
   Occupancy expense                               124,845         123,208         367,416        368,235
   Other expenses                                  237,036         253,121         745,877        709,220
                                             --------------------------------------------------------------
               Total other operating 
               expenses                            853,635         819,789       2,621,753      2,400,202
                                             --------------------------------------------------------------
Income before income taxes                         272,042         210,839         718,053        858,358
   Less applicable income taxes                     62,799          31,500         137,456        159,351
                                             --------------------------------------------------------------
              Net income                     $    209,243     $    179,339    $    580,597    $   699,007
                                             ==============================================================

              Earnings per share:
                Basic                        $       7.77     $      6.66     $      21.55    $     21.19
                                             ==============================================================
                Diluted                      $       7.77     $      6.66     $      21.55    $     21.19
                                             ==============================================================
              Weighted average shares              26,930          26,940           26,936         32,980
                outstanding                  ==============================================================
</TABLE>



                                                       3

<PAGE>




MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months and Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                    Three months ended             Nine months ended
                                             --------------------------------------------------------------
                                                September       September       September      September
                                                30, 1998        30, 1997        30, 1998       30, 1997
                                             --------------------------------------------------------------
<S>                                          <C>              <C>             <C>            <C> 

Net income                                   $     209,243    $    179,339    $    580,597   $   699,007
                                             --------------------------------------------------------------
Other comprehensive income, net of taxes
   Unrealized gains (losses) 
   arising during period                            60,909          13,819          32,612       (30,409)
      Less reclassified adjustment for (gains)
      losses included in net income                  ---               788         (13,000)       (3,145)
                                             --------------------------------------------------------------
              Total other comprehensive
                   income                           60,909          14,607          19,612       (33,554)
                                             --------------------------------------------------------------

              Comprehensive income           $     270,152    $    193,946    $    600,209   $   665,453
                                             ==============================================================


</TABLE>



                                                       4

<PAGE>




MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                                      Accumulated
                                                                                                         other
                                              Common                       Retained      Treasury    comprehensive
                                              stock        Surplus         earnings       stock      income (loss)
                                          ------------------------------------------------------------------------
<S>                                       <C>          <C>             <C>            <C>            <C> 
Balances, December 31, 1996               $   36,000   $  7,464,000    $  2,289,873   $      --      $    151,236
   Net income - 1997                             --             --          699,007          --              --
   Purchase 20 shares of Treasury stock          --             --              --        (5,056)            --
   Purchase of 906 dissenter
      shares of bank stock                    (9,060)    (1,193,554)     (2,637,386)         --              --
   Other comprehensive income (loss)             --             --              --           --           (33,554)
                                          ------------------------------------------------------------------------
Balances, September 30, 1997                  26,940      6,270,446         351,494       (5,056)         117,682
                                          ========================================================================

Balances, December 31, 1997                   26,940      6,270,446         362,546       (5,056)         160,403
   Net income - 1998                             --             --          580,597          --              --
   Purchase 10 shares of Treasury stock          --             --              --        (3,010)            --
   Other comprehensive income                    --             --              --           --            19,612
                                          ------------------------------------------------------------------------
Balances, September 30, 1998              $   26,940   $  6,270,446    $    943,143   $   (8,066)    $    180,015
                                          ========================================================================
</TABLE>







                                                       5

<PAGE>


MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                 September         September
                                                                                 30, 1998          30, 1997
<S>                                                                         <C>                  <C>
                                                                            ------------------------------------
Cash flows from operating activities:
   Net income                                                               $     580,597        $   699,007
                                                                            ------------------------------------
   Adjustments to reconcile net income to net
      cash provided by operating activities:
          Depreciation                                                            194,428            195,300
          Provision for loan losses                                               120,000             90,000
          Securities gains                                                        (21,666)            (5,241)
          Change in assets and liabilities:
             Increase in accrued interest receivable and other assets            (432,144)          (477,770)
             Increase in accrued interest payable and other liabilities           186,688            331,191

                                                                            ------------------------------------
              Total adjustments                                                    47,306            133,480
                                                                            ------------------------------------
              Net cash provided by operating activities                           627,903            832,487
                                                                            ------------------------------------

Cash flows from investing activities:
   Purchase of securities                                                     (10,119,678)        (6,877,352)
   Proceeds from sale/maturities of securities                                 10,937,587          7,756,139
   Net increase in loans                                                       (6,771,987)        (6,513,658)
   Purchase of office buildings and equipment                                    (147,994)          (195,391)
                                                                            ------------------------------------
              Net cash used in investing activities                            (6,102,072)        (5,830,262)
                                                                            ------------------------------------
Cash flows from financing activities:

   Net increase (decrease) in deposits                                         (1,194,960)         2,789,183
   Net increase (decrease) in demand
     notes issued to U.S. Treasury                                               (645,791)           293,440
   Payment of dissenter shares                                                      --            (3,840,000)
   Proceeds on long-term borrowing                                              4,000,000               --
   Proceeds (payment) on short-term borrowing                                    (200,000)         3,840,000
   Purchase of treasury shares                                                     (3,010)            (5,056)
                                                                            ------------------------------------
              Net cash provided by financing activities                         1,956,239          3,077,567
                                                                            ------------------------------------
              Decrease in cash and cash equivalents                            (3,517,930)        (1,920,208)

Cash and cash equivalents:
   Beginning of year                                                            8,057,103          7,721,805
                                                                            ------------------------------------
   End of period                                                            $   4,539,173        $ 5,801,597
                                                                            ====================================
</TABLE>




                                                       6

<PAGE>



MOUND CITY FINANCIAL SERVICES, INC.
AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note A.  Principles of Consolidation
------------------------------------
The consolidated  financial  statements of Mound City Financial  Services,  Inc.
(the "Company) include the accounts of its wholly-owned  subsidiary,  Mound City
Bank (the  "Bank").  Mound City Bank  includes the accounts of its  wholly-owned
subsidiary,  Mound City Investments,  Inc. All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.


Note B.  Basis of Presentation
------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with instructions to Form 10-QSB.  Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair  presentation  have been included.  Operating results for
the nine months ended September 30, 1998 are not  necessarily  indicative of the
results that may be expected to the year ended December 31, 1998.


Note C.  Stock Offering
-----------------------
The Company filed a registration statement with the U.S. Securities and Exchange
Commission,  effective August 11, 1998 to issue 12,000 shares of common stock at
$310 per share. The offering period expires on December 4, 1998.




                                        7

<PAGE>

                                     ITEM 2

                                 MOUND CITY BANK
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                      OF COMPANY'S FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

General
-------

The  following  discussion  and  analysis  provides  information  regarding  the
financial condition and historical results of operations of Mound City Financial
Services,  Inc. and Subsidiary (the "Company"),  Platteville,  Wisconsin for the
nine months ended  September  30, 1998 and 1997.  This  discussion  and analysis
should be read in conjunction  with the related  financial  statements and notes
thereto and the other financial information included herein.

          Cautionary Statement for Purposes of the
          "Safe Harbor" Provisions of the Private Securities
          Litigation Reform Act of 1995

          When used in this 10-QSB and in future filings by the Company with the
          Securities and Exchange Commission, in the Company's press releases or
          other public or  shareholder  communications,  and in oral  statements
          made with the approval of an authorized  executive officer,  the words
          or phrases "are expected to," "estimate," "is anticipated," "project,"
          "will  continue,"  "will likely  result," or similar  expressions  are
          intended to identify  "forward-looking  statements" within the meaning
          of  the  Private  Securities  Litigation  Reform  Act  of  1995.  Such
          statements are subject to certain risks and  uncertainties,  including
          changes in economic  conditions in the Company's market area,  changes
          in policies by regulatory  agencies,  fluctuation  in interest  rates,
          demand for loans in the Company's market area, and  competition,  that
          could  cause  actual  results  to differ  materially  from  historical
          earnings and those  presently  anticipated  or projected.  The Company
          wishes to caution  readers  not to place  undue  reliance  on any such
          forward- looking statements, which speak only as of the date made. The
          Company  wishes to advise  readers that factors  addressed  within the
          discussion below could affect the Company's financial  performance and
          could cause the Company's  actual results for future periods to differ
          materially  from any opinions or statements  expressed with respect to
          future periods in any current statements.

          Where any such  forward-looking  statement includes a statement of the
          assumptions or bases underlying such  forward-looking  statement,  the
          Company  cautions that, while it believes such assumptions or bases to
          be  reasonable  and makes them in good faith,  assumed  facts or bases
          almost always vary from actual results,  and the  differences  between
          assumed facts or bases and actual  results can be material,  depending
          on the circumstances.  Where, in any  forward-looking  statement,  the
          Company,  or its Management,  expresses an expectation or belief as to
          the future  results,  such  expectation or belief is expressed in good
          faith and  believed to have a  reasonable  basis,  but there can be no


                                        8

<PAGE>



          assurance that the statement of expectation or belief will result,  or
          be achieved or accomplished.

          The  Company  does not  undertake  -- and  specifically  declines  any
          obligation -- to publicly  release the result of any  revisions  which
          may be made to any  forward-looking  statements  to reflect  events or
          circumstances  after the date of such  statements  or to  reflect  the
          occurrence of anticipated or unanticipated events.

          Financial Condition
          -------------------

          Total  assets  of   $124,867,919   at  September  30,  1998  increased
          $2,753,286, or 2.3% from $122,114,633 at December 31, 1997.

          Total  deposits of  $107,956,067  at  September  30,  1998  reflects a
          decrease   of   1,194,960   or   1.1%,   from   December   31,   1997.
          Noninterest-bearing  deposits decreased $899,941 or 9.0% to $9,129,171
          at  September  30,  1998  while  interest-bearing  deposits  decreased
          $295,020 to $98,826,896, or 0.3% from December 31, 1997.

          Loans
          -----

          As of September 30, 1998, gross loans outstanding were $95,099,978, an
          increase of  $6,672,564,  or 7.5% from December 31, 1997.  The largest
          increases  were in  commercial  and  residential  real  estate  loans.
          Commercial real estate increased $3,661,382, or 17.2% to 24,931,000 at
          September  30,  1998  and   residential   real  estate   increased  to
          $32,290,000, or 6.3% for same period.

          Asset Quality
          -------------

          The Company  continued its  commitment to credit  quality in 1998. Net
          charge-offs  of $99,000 were recorded in 1998.  Accrual of interest is
          discontinued on a loan when  management  believes,  after  considering
          economic and business  conditions  and  collection  efforts,  that the
          borrower's  financial condition is such that collection of interest is
          doubtful.  As  of  September  30,  1998,   non-accrual  loans  totaled
          $729,000, or 0.77% of gross loans.

          As of September  30, 1998,  34.0% of total gross loans or  $32,290,000
          were secured by residential real estate.

          Total gross loans  increased to  $95,099,978 at September 30, 1998, or
          7.5% from $88,427,414 at December 31, 1997.

          At September  30, 1998,  the  allowance  for possible  loan losses was
          $1,179,877,  or  1.24% of gross  loans.  At  December  31,  1997,  the
          allowance for possible loan losses was  $1,159,300,  or 1.31% of gross
          loans  compared with  $1,104,338,  or 1.35% of gross loans at December
          31, 1996.  Management  considers the  allowance  more than adequate to
   


                                        9

<PAGE>



          cover possible loan losses in the loan portfolio.  Management performs
          a quarterly  analysis to reassess the adequacy of the reserve in order
          to maintain  the  allowance  at an adequate  level to absorb  possible
          future charge-offs of existing loans.

          Capital
          -------

          Total  stockholders'  equity  increased by $597,199 to  $7,412,478  at
          September 30, 1998 due to year to date income of $580,597, an increase
          in  accumulated   comprehensive  income  of  $19,612,  and  additional
          treasury stock purchased of $3,010.

          Capital  requirements  set by federal  regulatory  agencies  establish
          minimum capital levels for the Bank. These guidelines  require minimum
          Tier  1  capital  of  4%,  a Tier 1  leverage  ratio  of 4% and  total
          risk-based  capital  of 8% of  risk-weighted  assets.  The Bank was in
          compliance with all such minimum  capital  guidelines at September 30,
          1998.

          Set forth  below is a  comparison  of the Bank's  September  30,  1998
          actual   capital   levels   with   the   minimum    requirements   for
          well-capitalized  and adequately  capitalized banks, as defined by the
          federal regulatory agencies' Prompt Corrective Action Rules:


<TABLE>
<CAPTION>
                                                                                                   To be well
                                                                          For capital          capitalized under
                                                                           adequacy           prompt corrective
                                                     Actual                 purposes           action provisions
                                            -----------------------  ----------------------  ---------------------

                                                 Amount     Ratio       Amount      Ratio       Amount      Ratio
                                            ----------------------------------------------------------------------
<S>                                         <C>             <C>      <C>            <C>      <C>            <C>
As of September 30, 1998:
   Total capital (to risk
      weighted assets)                      $  8,372,434    9.2%     $  7,292,605   8.0%     $  9,115,756   10.0%
   Tier I capital (to risk
      weighted assets)                      $  7,232,466    7.9%     $  3,646,303   4.0%     $  5,469,454    6.0%
   Tier I capital (to
      average assets)                       $  7,232,466    5.6%     $  5,120,347   4.0%     $  6,400,433    5.0%
</TABLE>

          The Company filed a registration  statement  with the U.S.  Securities
          and Exchange Commission,  Registration No. 333-53797, effective August
          11, 1998,  to issue  12,000  shares of common stock at $310 per share.
          The offering period expires on December 4, 1998.

          The Company and its Board of  Directors  believe  that the best avenue
          for the continued  success of the Bank is through the  controlled  and
          stable  growth of the Bank.  This  offering is intended to further the
          Bank's  growth  strategy  by raising  capital to repay  $3,400,000  in
          borrowings made by the Bank for the purpose of purchasing shares owned
          by  a  Bank  shareholder  who  dissented  from  the  shareholder  vote
          ratifying formation of the Company.  This  offering  is also viewed by



                                       10

<PAGE>



          the Board as an important step in the Bank's growth  strategy  because
          of the Bank's  long-term  interest in expansion,  its need to increase
          its capacity for acquiring  and holding fixed assets,  and its plan to
          provide additional products to Bank customers.

          Liquidity
          ---------

          The  liquidity  position  of the  Company is  managed  to ensure  that
          sufficient  funds are available to meet customers' needs for loans and
          deposit   withdrawals.   Liquidity  to  meet  demand  is  provided  by
          maintaining marketable investment  securities,  federal funds sold, as
          well as,  maintaining a full line of competitively  priced deposit and
          short-term borrowing products. The ratio of loans to deposits is a key
          indicator  of a  bank's  liquidity  position.  The  Company's  loan to
          deposit  ratio was 87% on September 30, 1998.  The  Company's  loan to
          deposit  ratio  was  80%  and  78%  at  December  31,  1997  and  1996
          respectively.

          Asset/Liability Management
          --------------------------

          Closely   related  to  liquidity   management  is  the  management  of
          interest-earning assets and interest-bearing  liabilities. The Company
          manages  its rate  sensitivity  position  to avoid wide  swings in net
          interest  margins  and to  minimize  risk due to changes  in  interest
          rates.

          Changes in net interest  income,  other than volume  related  changes,
          arise  when  interest  rates  on  assets  reprice  in a time  frame or
          interest rate  environment that is different from the repricing period
          for  liabilities.  Changes  in net  interest  income  also  arise from
          changes in the mix of  interest  earning  assets and  interest-bearing
          liabilities.

          The Company does not expect to experience any significant fluctuations
          in its net  interest  income as a  consequence  of changes in interest
          rates.

          Year 2000 Update
          ----------------

               New Federal Minimum Safety and Soundness Standards
               --------------------------------------------------

               The  federal  banking   regulators   recently  issued  guidelines
               establishing minimum safety and soundness standards for achieving
               Year 2000 compliance.  The guidelines,  which took effect October
               15, 1998 and apply to all FCIC-insured  depository  institutions,
               establish standards for developing and managing Year 2000 project
               plans,    testing    remediation   efforts   and   planning   for
               contingencies.  The guidelines are based upon guidance previously
               issued  by  the  agencies  under  the  auspices  of  the  Federal
               Financial Institutions Examination Council (the "FFIEC"), but are
               not intended to replace or supplant the FFIEC guidance which will
               continue   to  apply   to  all   federally   insured   depository
               institutions.



                                       11

<PAGE>



               The  guidelines  were  issued  under  Section  39 of the  Federal
               Deposit  Insurance  Act, as amended (the "FDIA"),  which requires
               the federal  banking  regulators  to establish  standards for the
               safe  and  sound  operation  of  federally   insured   depository
               institutions.  Under  Section 39 of the FDIA,  if an  institution
               fails to meet any of the standards established in the guidelines,
               the  institution's  primary  federal  regulatory  may require the
               institution  to  submit a plan for  achieving  compliance.  If an
               institution  fails to submit an  acceptable  compliance  plan, or
               fails in any material respect to implement a compliance plan that
               has  been  accepted  by  its  primary  federal  regulatory,   the
               regulator is required to issue an order directing the institution
               to cure the deficiency. Such order is enforceable in court in the
               same  manner as a cease and desist  order.  Until the  deficiency
               cited  in the  regulator's  order is  cured,  the  regulator  may
               restrict   the   institution's   rate  of  growth,   require  the
               institution  to  increase  its  capital,  restrict  the rates the
               institution  pays on deposits or require the  institution to take
               any   action   the   regulator   deems   appropriate   under  the
               circumstances.   In  addition  to  the   enforcement   procedures
               established  in  Section 39 of the FDIA,  noncompliance  with the
               standards  established  by the guidelines may also be grounds for
               other  enforcement  action  by the  federal  banking  regulators,
               including  cease  and  desist  orders  and  civil  money  penalty
               assessments.

               Year 2000 Plan
               --------------

               The  Company  utilizes  and is  dependent  upon  data  processing
               systems,  software,  and certain  non-information  technology  to
               conduct its business.  The data  processing  systems and software
               include  those  developed and  maintained  by the Company's  data
               processor  and  purchased  software  which  is  run  on  in-house
               computer networks.  In response to the issue of computer programs
               and embedded  computer chips being unable to distinguish  between
               the year 1900 and the year 2000,  the Company has a written  plan
               for the  correction  of, or  contingency  plan for, the Year 2000
               problem ("Plan").  This Plan is generally proceeding on schedule.
               Pursuant  to the  Plan,  senior  management  of the Bank has been
               reporting  to the Board at least  monthly on the Bank's year 2000
               progress.

               Pursuant to the Plan,  the  Company has divided its efforts  into
               eight different phases:

               1.  Awareness of the  Problem:  Includes  informing  the Board of
               Directors,  senior management,  officers and staff, and customers
               about the  problem;  attending  seminars;  and hiring a full-time
               computer network administrator.

               The Company  believes that, as of September 30, 1998,  this phase
               is 100% complete.



                                       12

<PAGE>



               2.  Assessment:  Includes  assessing  the need for  renovation or
               replacement  of  information   and   non-information   technology
               systems; rating date sensitive items by risk and criticality, and
               contacting Company vendors to obtain completed compliance dates.

               The Company  believes that, as of September 30, 1998,  this phase
               is 100% complete.

               3. Credit Policy and Underwriting:  Includes  contacting affected
               customers;  gathering  information from those customers about the
               consequences  of  Year  2000  on  their  ability  to  repay;  and
               developing a risk rating  system for these  customers in order to
               determine  whether the Company's  loan loss reserves are adequate
               and to adjust the  Company's  reserves  accordingly.  The Company
               completed  its customer  review and risk rating  assessment as of
               September 30, 1998. It was determined  from this  assessment that
               an additional $24,748.79 be added to the current reserve for loss
               on  loans.  The  Company  anticipates  that this  review  will be
               approved by the Board of Directors and the reserve  addition will
               be made in October 1998.

               The  Company  has added to its new loan  documents  entered  into
               after April 22, 1998 new covenants that the borrower be Year 2000
               compliant.

               The Company  believes that, as of September 30, 1998,  this phase
               is 100% complete, but in continual review.

               4.  Renovation:  Involves  renovating  or replacing the Company's
               in-house software and hardware and embedded technology as well as
               working  with its outside  data  processor  and vendors to ensure
               that all of its mission critical  operating systems are year 2000
               compliant by December 31, 1998. In 1997, the Company  initiated a
               review and  assessment  of all  hardware  and software to confirm
               that it will  function  properly in the year 2000.  The Company's
               data  processing   provider  and  those  vendors  who  have  been
               contacted  indicate that their hardware  and/or  software will be
               Year 2000  compliant  by the end of 1998.  Additionally,  alarms,
               heating  and  cooling   systems  and  other   computer-controlled
               mechanical   devices  on  which  the  Company  relies  have  been
               evaluated.  We have received certifications on all equipment that
               will not need to be tested. The Company has replaced and modified
               equipment found not to be in compliance. The Company has replaced
               six computers  and upgraded the  operating  system to become Year
               2000  compliant.  The costs  associated  with these upgrades were
               approximately $10,000.

               The Company  believes that, as of September 30, 1998,  this phase
               is 50% complete.

               5.  Contingency  Plan:  Involves  prioritizing  all core business
               processes  and  developing a  contingency  plan in the event that



                                       13

<PAGE>


               certain mission  critical  systems are not Year 2000 compliant on
               or before  certain  targeted  date. The plan has not needed to be
               revised to date as system vendors certified year 2000 compliance,
               but the  Company  anticipates  that it may need to be  revised as
               additional system vendors certify year 2000 compliance.

               The Company  believes that, as of September 30, 1998,  this phase
               is 100% complete, but in continual review.

               6. Strategies to Discuss Customer  Awareness:  Includes informing
               all Company  officers  and  employees  of the year 2000  problem;
               mailing  brochures  to all  Company  customers  and  making  them
               available  to customers at the Company  lobby,  and  conducting a
               seminar  on the year 2000  problem  for  Company  customers.  The
               Company  conducted  the seminar for  customers on  September  15,
               1998.

               The Company  believes that, as of September 30, 1998,  this phase
               is  100%  complete.   However,  the  Company  anticipates  making
               additional   customer   notifications   in   November   1998  and
               thereafter.

               7.  Validation:  Involves  testing  the  Company's  outside  data
               processor and other systems critical to the Company.  The Company
               anticipates  that  all  hardware  and  software  testing  will be
               substantially  completed  by December  31,  1998.  The  Company's
               outside data processor concluded 19xx testing in August 1998, and
               will conclude 20xx testing in March 1999. The Company anticipates
               testing the data  processing  renovation  on October 4, 1998.  To
               date,  some  internal  software  and  hardware,  as  well as some
               non-information  technology has been tested.  Some test plans for
               certain services, such as credit cards, are dependent upon notice
               from the outside  vendor that its systems are ready for  testing.
               The Company intends to test such services when the vendors notify
               the Company of the proper test script.  To date,  the Company has
               tested some of these  services.  Some of the providers have begun
               their own testing this fall.

               The Company has rated its computer systems based on the degree of
               risk of  noncompliance,  and has 39  systems  that  are  high and
               medium  risk.  Of the 39  systems,  65% are  currently  Year 2000
               compliant.  The Company  continues to anticipate that 75% will be
               year 2000  compliant by December  31, 1998,  and that all will be
               compliant by June 30, 1999.

               The Company  believes that, as of September 30, 1998,  this phase
               is 50% complete.

               8.  Implementation:  Involves the implementation of the Company's
               mission critical systems. The Company's outside data processor is
               scheduled to implement the Company's  mission  critical system on


                                       14

<PAGE>


               October 3, 1998. The Company  anticipates  that December 31, 1998
               will be the  implementation  date for all of its mission critical
               systems.

               The Company  believes that, as of September 30, 1998,  this phase
               is 75% complete.

               Updated Year 2000 Budget
               ------------------------

               The  Company has  updated  its budget  established  for year 2000
               compliance.  The total amount of the budget as of  September  30,
               1998, is $89,251.74, and is comprised of the following:


                                  To Date           Projected            Total
                                ----------         ----------         ----------
Hardware Replacement            $47,517.08         $17,659.87         $65,176.95
Hardware Upgrade                       -0-           5,486.06           5,486.06
Software Replacement              7,053.73                -0-           7,053.73
Software Upgrade                       -0-           2,500.00           2,500.00
Education of Problem              3,000.00             925.00           3,925.00
ATM Upgrades                           -0-           5,110.00           5,110.00
                                ----------         ----------         ----------
TOTALS                          $57,570.81         $31,680.93         $89,251.74


               All  hardware  costs to date will be  capitalized  on a five year
               depreciated schedule.  Software costs to date will be capitalized
               on a three year depreciated  schedule.  The remaining  balance of
               $3,925 constitutes operational expenses for 1998.

               The total cost associated with required  modifications  to become
               Year  2000  compliant  is  not  expected  to be  material  to the
               Company's financial position.

               Risks
               -----

               The failure to correct a material  Year 2000 problem could result
               in an  interruption  in, or a failure of, certain normal business
               activities or  operations.  Such failures  could  materially  and
               adversely affect the Company's  results of operations,  liquidity
               or financial  condition.  Due to the general uncertainty inherent
               in the Year 2000 problem,  resulting in part from the uncertainty
               of the Year 2000 readiness of third-party  vendors and customers,
               the  Company  is unable to  determine  at this time  whether  the
               consequences of Year 2000 failures will have a material impact on
               the  Company's  results of  operations,  liquidity  or  financial
               condition. The Year 2000 Plan is expected to significantly reduce


                                                       15

<PAGE>



               the Company's  level of  uncertainty  about the Year 2000 problem
               and about the Year 2000  compliance and readiness of its material
               outside  vendors.  The Company believes that, with the completion
               of  the  Plan  as  scheduled,   the  possibility  of  significant
               interruptions of normal operations should be reduced.


               Readers are cautioned that  forward-looking  statements contained
               in the Year 2000 Update  should be read in  conjunction  with the
               Company's disclosures under the heading "Cautionary Statement for
               Purposes  of  the  'Safe   Harbor'   Provisions  of  the  Private
               Securities Litigation Reform Act of 1995" beginning on page 8.


                                       16

<PAGE>



Results of operations for nine months ended
September 30, 1998 compared with the
nine months ended September 30, 1997
--------------------------------------------

Results of Operations Overview
------------------------------

For the nine months ended  September 30, 1998,  the Bank's net income  decreased
from the same period in 1997 by $118,410, or 16.9%.

Interest Revenue
----------------

Net interest  income  increased by $19,054,  or 0.7% to $2,879,878 for the first
nine  months  of 1998  compared  to the same  period  in 1997.  Interest  income
increased  $467,783,  or 7.2% while interest expense  increased by $448,729,  or
12.3%. The increase in interest expense was caused by an increase in interest on
short-term and long-term borrowings of $199,776, or 173.1%.

Allowance for Loan Losses
-------------------------

The  allowance  for loan  losses is  adequate to cover  probable  credit  losses
relating to  specifically  identified  loans,  as well as probable credit losses
inherent  in  the  balance  of the  loan  portfolio.  In  accordance  with  FASB
Statements 5 and 114, the allowance is provided for losses that have incurred as
of the balance  sheet date.  The  allowance  is based on past events and current
economic  conditions,  and does not  included  the effect of expected  losses on
specific  loans or groups of loans that are related to future events or expected
changes in economic conditions.

During the first nine months of 1998,  provisions  of $120,000  were made to the
allowance for loan losses compared to $90,000 for the same period in 1997. Total
non-performing  loans  increased  $600,000 at September  30,  1998,  from a year
earlier.  Non-performing  loans  totaled  $729,000  at  September  30,  1998 and
$129,000 at September  30, 1997.  There were net  charge-offs  of $99,000 in the
first nine  months of 1998 and net  recoveries  of $57,000 in the same period in
1997.

Other Operating Revenue and Expenses
------------------------------------

Other operating income increased $92,192, or 18.9% between periods. Service fees
increased by $10,420 while other income increased by $65,347.  Realized gains on
securities  increased to $21,666 for the nine month period ended  September  30,
1998  compared to gains of $5,241 for the same period in 1997.  Other  operating
expenses  increased  $221,551 or 9.2% to  $2,621,753  for the nine months  ended
September 30, 1998,  compared to the same period in 1997.  Salaries and benefits
increased $185,713,  or 14.0% between periods.  All other operating expenses had
modest increases or decreases.



                                       17

<PAGE>




Income Taxes
------------

Income tax expense  decreased  $21,895 in the first nine months of 1998 compared
to the same  period in 1997  resulting  from an  decrease  in  pretax  income of
$140,305.




                                       18

<PAGE>



                           PART II - OTHER INFORMATION
                           ---------------------------


ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
--------------------------------------------------

(d) On  August  11,  1998,  the  Securities  and  Exchange  Commission  declared
effective  the Mound City  Financial  Services,  Inc.  Form SB-2/A  Registration
Statement, Registration No. 333-53797, pertaining to Mound City's initial public
offering of 12,000 shares of its common stock (the "Offering"). The Offering was
commenced on August 14, 1998. The Offering has not  terminated.  With respect to
the Offering:

     i.   There are no managing underwriters;

     ii.  The securities registered pursuant to Form SB-2/A are 12,000 shares of
          Mound City Financial  Services,  Inc. common stock, no par value, at a
          proposed maximum aggregate Offering price of $3,720,000;

     iii. As of September  30, 1998,  2,426 shares had been sold pursuant to the
          Offering at an aggregate price of $752,060.00;

     iv.  Expenses  incurred for Mound City Financial  Services,  Inc.'s account
          prior to August  11,  1998  (the  effective  date of the  Registration
          Statement) in  connection  with the issuance and  distribution  of the
          securities  registered totaled $58,075.77.  From August 11, 1998 until
          September  30,  1998,  the amount of expenses  incurred for Mound City
          Financial Services, Inc.'s account in connection with the issuance and
          distribution of the securities  registered  totaled  $2,783.41.  These
          totals  represent  reasonable  estimates  of the  amount  of  expenses
          incurred.  All  of the  expenses  incurred  were  direct  or  indirect
          payments to others.

     v.   From  August 11,  1998 until  September  30,  1998,  the amount of net
          offering proceeds to Mound City Financial Services, Inc. used for:

                       temporary investments - $752,060.00
                        (100% invested in Mound City Bank
                        Money Market Investment Account)

          This amount represents the actual amount of net offering proceeds used
          for the above purpose.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a)  Exhibits.


                                       19

<PAGE>



     The following  Exhibits are filed as part of this report.  (Exhibit numbers
correspond to the exhibits  required by item 601 of Regulation S-B for an annual
report on Form 10-KSB).

     Exhibit No.

     3(i) Articles of Incorporation of Mound City Financial Services, Inc.*

     3(ii) Bylaws of Mound City Financial Services, Inc.*

     4(i) Articles of  Incorporation  of Mound City  Financial  Services,  Inc.*
          Bylaws of Mound City Financial Services, Inc.* Stock Certificate.*

     27   Financial Data Schedule.

     *Incorporated by reference from the Registration Statement on Form S-4/A of
Mound City Financial  Services,  Inc., as amended,  Registration No.  333-14825,
filed December 4, 1996.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by Mound City  Financial  Services,  Inc.
during three months ending September 30, 1998.


                                   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.

                                      MOUND CITY FINANCIAL SERVICES, INC.


Dated:  November 13, 1998             /s/ Robert J. Just, Jr.
                                      -----------------------------------
                                      Robert J. Just, Jr., President, Principal
                                      Financial and Accounting Officer


                                       20
<PAGE>
<TABLE>
<CAPTION>
Mound City Financial Services
Financial Data Schedule
3rd Qtr 1998
<S>                                      <C>

Period Type                              9 mos
Fiscal Year end                          12/31/98
Period End                               09/30/98
Cash                                       2,863,000
Interest Bearing Deposits                      7,000
Fed Funds Sold                             1,669,000
Trading Assets                                     0
Investments Held for Sale                 19,190,000
Investments Carrying                               0
Investments Market                                 0
Loans                                     95,100,000
Allowance                                  1,180,000
Total Assets                             124,868,000
Deposits                                 107,956,000
Short term                                 3,531,000
Liabilities Other                          1,969,000
Long term                                  4,000,000
Preferred Mandatory                                0
Preferred                                          0
Common                                        27,000
Other SE                                   7,385,000
Total Liabilities and Equity             124,868,000
Interest Loan                              6,040,000
Interest Invest                              838,000
Interest Other                               106,000
Interest Total                             6,984,000
Interest Deposit                           3,789,000
Interest Expense                           4,104,000
Total Interest income net                  2,880,000
Loan Losses                                  120,000
Securities Gains                              22,000
Expense Other                              2,622,000
Income Pre-tax                               718,000
Income Pre-Extraordinary                     718,000
Extraordinary                                      0
Changes                                            0
Net income                                   581,000
EPS Primary                                       22
EPS Diluted                                       22
Yield Actual                                    8.72
Loans Non                                    729,000
Loans Past                                   389,000
Loans Troubled                               729,000
Loans Problem                                729,000
Allowance Open                             1,159,000
Charge Offs                                  119,000
Recoveries                                    20,000
Allowance Close                            1,180,000
Allowance Domestic                         1,180,000
Allowance Foreign                                  0
Allowance unallocated                              0


                                       21
</TABLE>