UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[Mark One]

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2006

                                       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:   0-25509


                         First Federal Bankshares, Inc.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                                           <C>
                         Delaware                                             42-1485449
-------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification Number)
</TABLE>


                    329 Pierce Street, Sioux City, Iowa 51101
          ------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                  712-277-0200
          ------------------------------------------------------------
              (Registrant's telephone number, including area code)

          ------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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.

                                                                  |X| Yes |_| No

Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One)

Large accelerated filer [ ]   Accelerated filer [X]    Non-accelerated filer [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).

                                                                  |_| Yes |X| No

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

                Class                       Outstanding at May 5, 2006
                -----                       --------------------------
    (Common Stock, $.01 par value)                 3,376,109

<PAGE>

                         FIRST FEDERAL BANKSHARES, INC.

                                      INDEX

                                                                            Page
Part I.  Financial Information
   Item 1.     Financial Statements of First Federal Bankshares, Inc.
                      and Subsidiaries                                         1

               Condensed Consolidated Balance Sheets at                        1

                      March 31, 2006 and June 30, 2005
               Condensed Consolidated Statements of Operations
                      for the three- and nine-month periods ended
                      March 31, 2006 and 2005                                  2

               Condensed Consolidated Statements of Changes in
                      Stockholders' Equity for the nine-month periods
                      ended March 31, 2006 and 2005                            3

               Condensed Consolidated Statements of Comprehensive
                      Income for the three- and nine-month periods ended
                      March 31, 2006 and 2005                                  4

               Condensed Consolidated Statements of Cash Flows for the
                      nine-month periods ended March 31, 2006 and 2005         5

               Notes to Condensed Consolidated Financial Statements

   Item 2.     Management's Discussion and Analysis of
                      Financial Condition and Results of Operations           10

   Item 3.     Quantitative and Qualitative Disclosures about Market Risk     19


   Item 4.     Controls and Procedures                                        20

Part II.   Other Information                                                  21

   Item 1.     Legal Proceedings                                              21

   Item 1A.  Risk Factors                                                     21

   Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds    21

   Item 3.     Defaults upon Senior Securities                                21

   Item 4.     Submission of Matters to a Vote of Security Holders            21

   Item 5.     Other Information                                              21

   Item 6.     Exhibits                                                       21

               Signatures                                                     22


<PAGE>
PART I.  FINANCIAL  INFORMATION
  ITEM 1.  FINANCIAL  STATEMENTS

                 FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
                                                                          March 31,        June 30,
                                                                             2006             2005
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
Assets
------
Cash and due from banks                                                 $  13,829,185    $  15,102,382
Interest-bearing deposits in other financial institutions                  15,858,828       16,233,325
                                                                        -------------    -------------
        Cash and cash equivalents                                          29,688,013       31,335,707
                                                                        -------------    -------------
Securities available-for-sale, at fair value (amortized cost
   of $39,796,970 and $49,724,675, respectively)                           39,513,634       49,978,244
Securities held-to-maturity, at amortized cost (fair value
   of $14,461,093 and $18,611,291, respectively)                           14,407,548       18,196,627

Loans receivable                                                          468,461,717      440,351,738
Less allowance for loan losses                                              5,530,134        6,717,956
                                                                        -------------    -------------
        Net loans                                                         462,931,583      433,633,782
                                                                        -------------    -------------

Office property and equipment, net                                         12,566,130       13,108,654
Federal Home Loan Bank ("FHLB") stock, at cost                              5,384,100        5,762,400
Accrued interest receivable                                                 2,723,236        2,293,315
Goodwill                                                                   18,417,040       18,417,040
Other assets                                                               15,096,405       14,087,122
                                                                        -------------    -------------
        Total assets                                                    $ 600,727,689    $ 586,812,891
                                                                        =============    =============

Liabilities
-----------
Deposits                                                                $ 431,008,828    $ 407,562,405
Advances from FHLB and other borrowings                                    97,361,328      104,564,262
Advance payments by borrowers for taxes and insurance                         402,141          953,281
Accrued interest payable                                                    1,901,971        1,311,724
Accrued expenses and other liabilities                                      2,127,961        2,126,014
                                                                        -------------    -------------
        Total liabilities                                                 532,802,229      516,517,686
                                                                        -------------    -------------

Stockholders' equity
--------------------
Common stock, $.01 par value, 12,000,000 shares authorized;
   5,006,375 and 4,977,029 shares issued, respectively                         50,064           49,770
Additional paid-in capital                                                 38,191,422       37,761,587
Retained earnings, substantially restricted                                56,599,815       55,028,733
Treasury stock, at cost, 1,632,266 and 1,428,826 shares, respectively     (25,920,685)     (21,747,743)
Accumulated other comprehensive income (loss)                                (177,336)         158,570
Unearned Employee Stock Ownership Plan ("ESOP")                              (817,820)        (913,890)
Unearned Employee Stock Grants                                                     --          (41,822)
                                                                        -------------    -------------
        Total stockholders' equity                                         67,925,460       70,295,205
                                                                        -------------    -------------
        Total liabilities and stockholders' equity                      $ 600,727,689    $ 586,812,891
                                                                        =============    =============
</TABLE>

See notes to condensed consolidated financial statements.

                                     1

<PAGE>

                 FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>

                                                                     Three months                    Nine months
                                                                    ended March 31,                ended March 31,
                                                              ---------------------------   ----------------------------
                                                                  2006           2005           2006            2005
                                                              ------------   ------------   ------------    ------------
<S>                                                           <C>            <C>            <C>             <C>
Interest income:
    Loans receivable                                          $  7,497,959   $  6,572,591   $ 21,628,807    $ 19,132,474
    Investment securities                                          691,144        745,924      2,060,584       2,473,208
    Other interest-earning assets                                   74,976         12,797        169,405          32,675
                                                              ------------   ------------   ------------    ------------
    Total interest income                                        8,264,079      7,331,312     23,858,796      21,638,357
                                                              ------------   ------------   ------------    ------------

Interest expense:
    Deposits                                                     2,748,065      1,785,235      7,537,022       5,120,517
    Advances from FHLB and other borrowings                      1,143,565      1,146,222      3,419,363       3,480,409
                                                              ------------   ------------   ------------    ------------
    Total interest expense                                       3,891,630      2,931,457     10,956,385       8,600,926
                                                              ------------   ------------   ------------    ------------
    Net interest income                                          4,372,449      4,399,855     12,902,411      13,037,431
    Provision for losses on loans                                  320,000        130,000      1,070,000         995,000
                                                              ------------   ------------   ------------    ------------
    Net interest income after provision for
    losses on loans                                              4,052,449      4,269,855     11,832,411      12,042,431
                                                              ------------   ------------   ------------    ------------

Noninterest income:
    Service charges on deposit accounts                            696,587        792,805      2,318,398       2,724,082
    Service charges on loans                                        67,815         65,247        267,354         356,328
    Gain on sale of bank branch offices                                 --             --             --       2,185,284
    Gain (loss) on sale of real estate held for development             --         30,000       (241,649)         60,000
    Net gain (loss) on sale of securities                               --             --        202,944        (121,209)
    Gain on sale of loans                                           91,473        121,982        489,441         547,042
    Real estate-related activities                                 172,775        168,294        509,452         511,559
    Other income                                                   393,692        417,239      1,186,864       1,225,301
                                                              ------------   ------------   ------------    ------------
    Total noninterest income                                     1,422,342      1,595,567      4,732,804       7,488,387
                                                              ------------   ------------   ------------    ------------

Noninterest expense:
    Compensation and benefits (note 6)                           2,576,913      2,659,542      7,554,450       7,855,469
    Office property and equipment                                  731,815        655,544      2,140,648       1,893,473
    Data processing expense                                        123,636        126,813        366,849         360,343
    Advertising                                                     95,405        135,547        340,914         316,670
    Other expense                                                  926,289        992,708      2,607,519       3,099,972
                                                              ------------   ------------   ------------    ------------
    Total noninterest expense                                    4,454,058      4,570,154     13,010,380      13,525,927
                                                              ------------   ------------   ------------    ------------

    Income before income taxes                                   1,020,733      1,295,268      3,554,835       6,004,891
    Income taxes                                                   255,000        397,000        966,000       1,964,000
                                                              ------------   ------------   ------------    ------------
    Net income                                                $    765,733   $    898,268   $  2,588,835    $  4,040,891
                                                              ============   ============   ============    ============

Earnings per share:  (note 4)
    Basic earnings per share                                  $       0.23   $       0.25   $       0.76    $       1.13
                                                              ============   ============   ============    ============
    Diluted earnings per share                                $       0.23   $       0.25   $       0.75    $       1.11
                                                              ============   ============   ============    ============

    Dividends declared per share                              $       0.10   $       0.10   $       0.30    $       0.30
                                                              ============   ============   ============    ============
</TABLE>

See notes to condensed consolidated financial statements.

                                        2
<PAGE>

                 FIRST FEDERAL BANKSHARES, INC. AND SUBSIDIARIES
                        CONDENSED CONSOLIDATED STATEMENTS
                 OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
                                                                          Nine months ended March 31,
                                                                             2006            2005
                                                                         ----------------------------
<S>                                                                      <C>             <C>
Capital Stock
    Beginning of year balance                                            $     49,770    $     49,393
    Stock options exercised: 30,846 and 37,267 shares, respectively               309             372
    Reclassification due to adoption of SFAS123(R)                                (15)             --
-----------------------------------------------------------------------------------------------------
    End of period balance                                                      50,064          49,765
-----------------------------------------------------------------------------------------------------
Additional paid-in capital
    Beginning of year balance                                              37,761,587      37,086,235
    Stock options exercised                                                   299,127         386,047
    Stock compensation expense                                                 36,942              --
    Employee stock grants awarded                                                  --         124,530
    Stock appreciation of allocated ESOP shares                                97,376         123,423
    Amortization of employee stock grants                                      38,197              --
    Reclassification due to adoption of SFAS123(R)                            (41,807)             --
-----------------------------------------------------------------------------------------------------
End of period balance                                                      38,191,422      37,720,235
-----------------------------------------------------------------------------------------------------

Retained earnings, substantially restricted
    Beginning of year balance                                              55,028,733      52,240,273
    Net income                                                              2,588,835       4,040,891
    Dividends paid on common stock                                         (1,017,753)     (1,072,337)
-----------------------------------------------------------------------------------------------------
End of period balance                                                      56,599,815      55,208,827
-----------------------------------------------------------------------------------------------------

Treasury stock, at cost
    Beginning of year balance                                             (21,747,743)    (16,519,093)
    Employee stock grants awarded (forfeited), net                                 --          77,508
    Treasury stock purchased                                               (4,172,942)     (3,723,838)
-----------------------------------------------------------------------------------------------------
End of period balance                                                     (25,920,685)    (20,165,423)
-----------------------------------------------------------------------------------------------------

Accumulated other comprehensive income (loss)
    Beginning of year balance                                                 158,570        (329,644)
    Net change in unrealized gains (losses) on securities
      available-for-sale, net of tax expense                                 (208,660)        234,497
    Less: reclassification adjustment for net realized gains (losses )
      included in net income, net of tax expense                              127,246         (75,998)
-----------------------------------------------------------------------------------------------------
End of period balance                                                        (177,336)        (19,149)
-----------------------------------------------------------------------------------------------------

Unearned ESOP shares
    Beginning of year balance                                                (913,890)     (1,044,710)
    ESOP shares allocated                                                      96,070          98,130
-----------------------------------------------------------------------------------------------------
End of period balance                                                        (817,820)       (946,580)
-----------------------------------------------------------------------------------------------------

Unearned employee stock grants
    Beginning of year balance                                                 (41,822)        (24,732)
    Stock grants forfeited (awarded), net                                          --        (202,037)
    Amortization of employee stock grants                                          --         133,698
    Reclassification due to adoption of SFAS123(R)                             41,822              --
-----------------------------------------------------------------------------------------------------
End of period balance                                                              --         (93,071)
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
Total stockholders' equity                                               $ 67,925,460    $ 71,754,604
=====================================================================================================
</TABLE>

See notes to condensed consolidated financial statements.

                                        3
<PAGE>

                 FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
                        CONDENSED CONSOLIDATED STATEMENTS
                       OF COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
                                                                   Three Months Ended             Nine months ended
                                                                        March 31,                     March 31,
                                                               --------------------------    --------------------------
                                                                  2006           2005            2006           2005
                                                               -----------    -----------    -----------    -----------
<S>                                                            <C>            <C>            <C>            <C>
Net income                                                     $   765,733    $   898,268    $ 2,588,835    $ 4,040,891
Other comprehensive income (loss):
    Unrealized holding gains (losses) arising during
          the period, net of tax                                   (57,043)      (160,039)      (208,660)       234,497
    Less: reclassification adjustment for net realized gains
       (losses) included in net income, net of tax expense              --             --        127,246        (75,998)
                                                               -----------    -----------    -----------    -----------
Other comprehensive income (loss), net of tax                      (57,043)      (160,039)      (335,906)       310,495
                                                               -----------    -----------    -----------    -----------

Comprehensive income                                           $   708,690    $   738,229    $ 2,252,929    $ 4,351,386
                                                               ===========    ===========    ===========    ===========
</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                 FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
                                                                      Nine months ended March 31,
Cash flows from operating activities:                                     2006            2005
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
Net income                                                            $  2,588,835    $  4,040,891
Adjustments to reconcile net income to net cash provided by
  operating activities:
    Loans originated for sale to investors                             (28,026,000)    (25,867,000)
    Proceeds from sale of loans originated for sale                     27,587,349      25,263,560
    Provision for losses on loans                                        1,070,000         995,000
    Depreciation and amortization                                        1,208,045       1,230,002
    Stock compensation expense                                              36,942              --
    Net gain on sale of loans                                             (489,441)       (547,042)
    Net (gain) loss on sale of securities available-for-sale              (202,944)        121,209
    Net gain on sale of bank branch offices                                     --      (2,185,284)
    Net (gain) loss on sale of real estate held for development            241,649         (60,000)
    Net loan fees deferred                                                 (83,509)        (68,791)
    Amortization of premiums and discounts on loans and securities        (161,534)        158,370
    Increase in accrued interest receivable                               (429,921)       (254,007)
    Increase in other assets                                              (602,034)       (616,563)
    Increase in accrued interest payable                                   590,247         186,759
    Decrease in accrued expenses and other liabilities                    (318,914)       (458,600)
    Increase in accrued taxes on income                                    592,878         451,802
                                                                      ------------    ------------
Net cash provided by operating activities                                3,601,648       2,390,306
                                                                      ------------    ------------

Cash flows from investing activities:
    Proceeds from maturities of securities held-to-maturity              3,771,408       4,632,196
    Proceeds from sale of securities available-for-sale                    264,466      30,226,184
    Purchase of securities available-for-sale                           (9,859,625)     (5,389,323)
    Proceeds from maturities of securities available-for-sale           19,529,168       7,416,127
    Redemption of Federal Home Loan Bank Stock, net                        378,300         333,700
    Loans purchased                                                    (21,526,000)    (26,071,000)
    Cash effect of bank branch office sales                                     --      (9,753,387)
    (Increase) decrease in loans receivable                             (7,790,049)      7,599,838
    Purchase of office property and equipment                             (359,548)     (1,187,291)
    Proceeds from sale of foreclosed real estate                           260,725       1,124,562
    Proceeds from sale of real estate held for development                 487,249         994,258
    Net expenditures on real estate held for development                (1,206,526)       (992,006)
                                                                      ------------    ------------
Net cash (used in) provided by investing activities                    (16,050,432)      8,933,858
                                                                      ------------    ------------

Cash flows from financing activities:
    Increase (decrease) in deposits                                     23,446,423      (5,296,878)
    Proceeds from FHLB advances and other borrowings                     9,797,066       6,209,233
    Repayment of FHLB advances and other borrowings                    (17,000,000)    (12,000,000)
    Net decrease in advances from borrowers for taxes and insurance       (551,140)       (824,846)
    Issuance of common stock, net                                          299,436         386,420
    Repurchase of common stock                                          (4,172,942)     (3,723,838)
    Cash dividends paid                                                 (1,017,753)     (1,072,337)
                                                                      ------------    ------------
Net cash (used in) provided by financing activities                     10,801,090     (16,322,246)
                                                                      ------------    ------------
Net decrease in cash and cash equivalents                               (1,647,694)     (4,998,082)
Cash and cash equivalents at beginning of period                        31,335,707      18,857,861
                                                                      ------------    ------------
Cash and cash equivalents at end of period                            $ 29,688,013    $ 13,859,779
                                                                      ============    ============

Supplemental disclosures:
    Cash paid during the period for interest                          $ 10,366,138    $  8,539,083
                                                                      ============    ============
    Cash paid during the period for income taxes                      $    353,122    $  1,501,198
                                                                      ============    ============
</TABLE>

See notes to condensed consolidated financial statements.

                                        5
<PAGE>

                 FIRST FEDERAL BANKSHARES, INC. and SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation
   ---------------------

The condensed consolidated balance sheet information for June 30, 2005 was
derived from the audited Consolidated Balance Sheets of First Federal
Bankshares, Inc. (the "Company") at June 30, 2005. The condensed consolidated
financial statements as of and for the three months and nine months ended March
31, 2006 and 2005 have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosure normally included in year-end financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to these rules and regulations.

In the opinion of management of the Company these financial statements reflect
all adjustments, consisting only of normal recurring accruals necessary to
present fairly these condensed consolidated financial statements. The results of
operations for the interim periods are not necessarily indicative of results
that may be expected for an entire year.

A summary of significant accounting policies followed by the Company is set
forth in Note 1 of the Company's 2005 Annual Report to Stockholders and is
incorporated herein by reference.

Certain amounts previously reported have been reclassified to conform to the
presentation in these condensed consolidated financial statements. These
reclassifications did not affect previously reported net income or retained
earnings.

Critical Accounting Policies. The Company's critical accounting policies relate
----------------------------
to the allowance for loan losses and goodwill. With regard to the allowance for
loan losses, the Company has established a systematic method of periodically
reviewing the credit quality of the loan portfolio in order to establish an
allowance for losses on loans. Management establishes the allowance for loan
losses through a process that begins with estimates of probable loss inherent in
the portfolio based on various statistical analyses. These analyses consider
historical and projected default rates and loss severities; internal risk
ratings; and geographic, industry and other environmental factors. In
establishing the allowance for loan losses, management also considers the
Company's current business strategy and credit processes, including compliance
with established guidelines for credit limits, credit approvals, loan
underwriting criteria and loan workout procedures. The policy of the Company is
to segment the allowance to correspond to the various types of loans in the loan
portfolio according to the underlying collateral, which corresponds to the
respective levels of quantified and inherent risk. The initial assessment takes
into consideration non-performing loans and the valuation of the collateral
supporting each loan. Non-performing loans are risk-rated generally on a
case-by-case basis based on qualitative and quantitative factors that include,
but are not limited to, collateral type and estimated value, financial statement
analysis, specific economic factors, cash flow analysis, delinquency history and
loan workout situations and progress. Based upon this analysis, a quantified
risk factor is assigned to each non-performing loan. This results in an
allocation to the overall allowance for the corresponding type and severity of
each non-performing loan.

Performing loans are also reviewed by collateral type. Risk factors are assigned
and take into consideration, among other matters, delinquency rate trends, the
Company's past loan loss experience, geographic considerations and current
economic conditions that may affect each collateral type. The assigned risk
factors result in allocations to the allowance corresponding to the risk-rated
portfolio of performing loans.

                                       6
<PAGE>

In order to determine its overall adequacy, the allowance for loan losses is
reviewed by management on a monthly basis. This evaluation involves a high
degree of complexity and requires management to make subjective judgments that
often require assumptions or estimates about uncertain matters.

While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary, based on changes in economic and
local market conditions beyond management's control. In addition, various
regulatory agencies periodically review the Company's loan loss allowance as an
integral part of the examination process. Accordingly, the Company may be
required to take certain charge-offs and/or recognize additions to the allowance
based on the judgment of regulators as determined by information provided to
them during their examinations.

With regard to the Company's critical accounting policy relating to goodwill,
goodwill is evaluated by management for impairment at least annually and
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable.

The Company's critical accounting policies and their application are
periodically reviewed by the Audit Committee and the full Board of Directors.

2. Organization
   ------------

The Company is the holding company for First Federal Bank (the "Bank"). The
Company owns 100% of the Bank's common stock. Currently, the Company engages in
no other significant activities beyond its ownership of the Bank's common stock.

3. Use of Estimates
   ----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

                                       7
<PAGE>


4. Earnings per share
   ------------------

The following information was used in the computation of net earnings per common
share on both a basic and diluted basis for the periods presented.

<TABLE>
<CAPTION>
                                                 Three months ended         Nine months ended
                                                      March 31,                 March 31,
                                                  2006         2005         2006         2005
                                               -------------------------------------------------
<S>                                            <C>          <C>          <C>          <C>
Basic EPS computation:
  Net income                                   $  765,733   $  898,268   $2,588,835   $4,040,891
  Weighted average common shares outstanding    3,311,516    3,526,364    3,389,694    3,567,590
                                               -------------------------------------------------
        Basic EPS                              $     0.23   $     0.25   $     0.76   $     1.13
                                               =================================================

Diluted EPS computation:
  Net income                                   $  765,733   $  898,268   $2,588,835   $4,040,891
                                               -------------------------------------------------
  Weighted average common shares outstanding    3,311,516    3,526,364    3,389,694    3,567,590
  Incremental option and RRP shares using
    treasury stock method                          48,199       63,635       51,279       74,025
                                               -------------------------------------------------
        Diluted shares outstanding              3,359,715    3,589,999    3,440,973    3,641,615
                                               =================================================
        Diluted EPS                            $     0.23   $     0.25   $     0.75   $     1.11
                                               =================================================
</TABLE>

5. Dividends
   ---------

On January 19, 2006 the Company declared a cash dividend on its common stock,
payable on February 28, 2006 to stockholders of record as of February 14, 2006
equal to $0.10 per share. Excluding dividends on unallocated Employee Stock
Ownership Plan ("ESOP") shares, dividends totaling $332,453 were paid to
stockholders on February 28, 2006.

6. Stock Options
   -------------

At March 31, 2006, the Company had two stock-based employee compensation plans,
which are described more fully in Note 11 of the Company's 2005 Annual Report to
Stockholders. The Company adopted Statement No. 123 (Revised 2004), Share-Based
Payment ("SFAS123(R)") which replaces SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, effective July 1, 2005. SFAS123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values. The pro forma disclosures
previously permitted under SFAS No. 123 are no longer an alternative to
financial statement recognition. Upon adoption, the Company used the prospective
transition method. The prospective method requires that compensation expense be
recorded for all non-vested stock options beginning with the first quarter after
adoption of SFAS123(R). Stock-based compensation expense for the three months
and nine months ended March 31, 2006 totaled $13,767 and $36,942, respectively.

                                       8
<PAGE>


Previously, the Company applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for these plans. Accordingly, prior to July 1, 2005 no compensation
cost had been recognized for its stock options in the condensed consolidated
financial statements. Set forth below is a reconciliation of net income and
earnings per share information for the three months and nine months ended March
31, 2005, as if the Company had applied the fair value recognition provisions of
SFAS 123, Accounting for Stock-based Compensation, to stock-based employee
compensation for that period.

<TABLE>
<CAPTION>
                                                                   Three months   Nine months
                                                                       ended March 31, 2005
                                                                   --------------------------
<S>                                                                <C>            <C>
Net income, as reported                                            $   898,268    $ 4,040,891
Deduct: Total stock-based compensation expense determined
  under the fair value method for all awards, net of tax effects       (17,010)       (44,792)
                                                                   --------------------------
Pro forma net income                                               $   881,258    $ 3,996,099
                                                                   ==========================

Pro forma basic earnings per share                                 $      0.25    $      1.11
                                                                   ==========================
Pro forma diluted earnings per share                               $      0.25    $      1.10
                                                                   ==========================
</TABLE>

The fair value of each outstanding option has been estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the interim periods ended March 31, 2006 and 2005,
respectively: dividend yield of 2.17% and 2.44%; expected volatility of 35.00%
and 24.26%; risk free interest rate of 4.34% and 4.54%; and expected life of 7.5
years for all periods presented.

A summary of option activity as of March 31, 2006, and changes since June 30,
2005 is presented below:

<TABLE>
<CAPTION>
                                                 Weighted-average    Weighted-average
                                                    Exercise            Remaining
           Options                      Shares         Price         Contractual Life
-------------------------------------------------------------------------------------
<S>                                   <C>          <C>                   <C>
Outstanding as of June 30, 2005         139,461       $12.09
   Granted                               10,000        20.75
   Exercised                            (31,700)        9.27
                                      -----------------------------------------------
Outstanding at March 31, 2006           117,761       $13.59                5.1
                                      ===============================================
Vested as of March 31, 2006              98,361       $12.59                4.5
                                      ===============================================
Exercisable as of March 31, 2006         98,361       $12.59                4.5
                                      ===============================================
</TABLE>

The weighted-average grant-date fair value of options granted during the nine
months ended March 31, 2006 and 2005 was $7.39 and $6.64, respectively. The
total intrinsic value of options exercised during the three months ended March
31, 2006 and 2005, was $166,000 and $71,000, respectively. The total intrinsic
value of options exercised during the nine months ended March 31, 2006 and 2005,
was $363,000 and $468,000, respectively.


                                       9
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS

Forward-looking statements
--------------------------

This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for the purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
Company's future activities and operating results include, but are not limited
to, changes in: interest rates, general economic conditions, legislative and
regulatory changes, U.S. monetary and fiscal policies, demand for products and
services, deposit flows, competition and accounting policies, principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.

Overview
--------

Increases in market interest rates as the Federal Reserve Board continued its
"measured pace" of interest rate increases resulted in increases in the yield on
interest-earning assets and, more significantly, in the cost of interest-bearing
liabilities. The Company's net interest margin decreased by 15 basis points to
3.22% for the three months ended March 31, 2006 from 3.37% for the three months
ended March 31, 2005 and also decreased by 10 basis points to 3.17% for the nine
months ended March 31, 2006 from 3.27% for the nine months ended March 31, 2005.

Noninterest income decreased by $2.8 million for the nine months ended March 31,
2006 as compared to the nine months ended March 31, 2005 primarily due to a
branch sale transaction in the prior-year period. In September 2004 the Company
sold two branch offices located in Sheldon, Iowa and Orange City, Iowa to
another local financial institution. The purchaser assumed deposits of $27.1
million and acquired loans totaling $17.0 million in addition to the branch
office buildings and certain furniture and equipment. A pre-tax gain of $2.2
million was recorded as a result of the branch sale. Net of tax effect, the gain
on the branch office sale was $1.4 million, or basic and diluted earnings per
share of $0.38 and $0.37, respectively.

Noninterest expense decreased by $516,000, or 3.8%, for the nine months ended
March 31, 2006 as compared to the nine months ended March 31, 2005 primarily due
to decreases in compensation and benefits expense and other general and
administrative expenses. The decrease in compensation and benefits expense was
the result of a decrease in full-time-equivalent employees partly due to the
branch office sales in the prior fiscal-year period. The decrease in other
general and administrative expenses included decreases in fraud losses and
repossession expenses which were partially offset by increases in office
property and equipment expense.

                                       10
<PAGE>

Financial condition
-------------------

Total assets increased to $600.7 million at March 31, 2006 from $586.8 million
at June 30, 2005. Net loans increased by $29.3 million, or 6.8%, to $462.9
million at March 31, 2006 from $433.6 million at June 30, 2005. A decrease in
investment securities that totaled $14.3 million and an increase in deposits
funded the increase in net loans. The increase in net loans was primarily due to
an increase of $45.7 million in the balances of multi-family and commercial real
estate loans and commercial business loans, partially offset by decreases of
$6.9 million and $10.3 million, respectively, in the balances of residential
loans and consumer loans. See "Asset quality" for an analysis of the loan
portfolio by loan type.

Deposits increased by $23.4 million, or 5.8%, to $431.0 million at March 31,
2006 from $407.6 million at June 30, 2005 due to increases of $12.2 million in
checking and savings balances and $11.2 million in time deposit balances. During
the nine months ended March 31, 2006, the Company offered checking accounts with
competitive rates and liquidity features in addition to premium-rate
certificates of deposit in order to attract and retain deposit relationships in
the generally higher market interest rate environment.

Total stockholders' equity decreased by $2.4 million, or 3.4%, to $67.9 million
at March 31, 2006 from $70.3 million at June 30, 2005. The decrease in
stockholders' equity was primarily due to repurchases of common stock under the
Company's buyback program that totaled $4.2 million during the nine months ended
March 31, 2006. Partly offsetting the decrease in stockholders' equity due to
stock repurchases were earnings of $2.6 million for the nine months ended March
31, 2006. Excluding dividends on unallocated Employee Stock Ownership Plan
("ESOP") shares, dividends declared and paid during the nine months ended March
31, 2006 totaled $1.0 million.

Asset quality
-------------

Non-performing assets increased to $4.9 million, or 0.81% of total assets from
$1.8 million, or 0.30% of total assets, at June 30, 2005. During the nine months
ended March 31, 2006, the Company placed the previously classified loans of two
commercial borrowers, with loan balances totaling $4.3 million, on non-accrual
status and subsequently charged-off $1.4 million of those balances. The
allowance for loan losses decreased by $1.2 million, or 17.7%, to $5.5 million,
or 1.2% of total loans, at March 31, 2006 from $6.7 million, or 1.5% of total
loans, at June 30, 2005. Classified assets decreased by $3.6 million, or 37.2%,
to $6.2 million at March 31, 2006 from $9.8 million at June 30, 2005.

The allowance for loan losses is increased by the provision for loan losses
charged to operations and reduced by net charge-offs. See Note 1. Basis of
Presentation in the Notes to Condensed Consolidated Financial Statements for
further discussion regarding the Company's critical policies related to the
allowance for loan losses.


                                       11
<PAGE>

Based on relevant and presently available information, management believes that
the current allowance for loan losses is adequate. Following are tables
presenting (a) an analysis of the loan portfolio; (b) a summary of the allowance
for loan losses; and (c) non-performing asset balances.

(a) Analysis of the loan portfolio by loan type on the dates indicated
    ------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                 March 31, 2006            June 30, 2005
                                             ---------------------    ----------------------
                                               Amount          %        Amount           %
                                             ---------------------    ----------------------
<S>                                         <C>             <C>      <C>              <C>
                                                           (Dollars in Thousands)
One- to four-family residential (1)          $ 137,321       29.66%   $ 144,238        33.26%
Multi-family residential (1)                    53,205       11.49%      46,070        10.62%
Commercial real estate (1)                     157,842       34.10%     133,626        30.82%
Commercial business loans                       51,858       11.20%      37,485         8.64%
Home equity & second mortgage loans             32,209        6.96%      32,134         7.41%
Other non-mortgage loans (2)                    36,309        7.84%      46,649        10.76%
                                             ---------------------    ----------------------
    Total loans                              $ 468,744      101.25%   $ 440,202       101.51%

Less:
  Allowance for loan losses                      5,530        1.19%       6,718         1.55%
  Unearned income net of unamortized premium       282        0.06%        (150)      -0.04%
                                             ---------------------    ----------------------
    Total loans, net                         $ 462,932      100.00%   $ 433,634       100.00%
                                             =====================    ======================
</TABLE>

----------------------------------------------------
       (1) Includes construction loans.
       (2) Includes other secured and unsecured non-mortgage loans to consumers.

(b) Summary of the allowance for loan losses
    ----------------------------------------

<TABLE>
<CAPTION>
                                 For the three months ended    For the nine months ended
                                          March 31,                     March 31,
                                    2006           2005           2006            2005
                                 --------------------------------------------------------
<S>                              <C>            <C>            <C>            <C>
Balance at beginning of period   $ 5,571,830    $ 4,924,711    $ 6,717,956    $ 4,316,286
  Provision for loan losses          320,000        130,000      1,070,000        995,000
  Charge-offs                       (373,918)      (159,425)    (2,320,924)      (459,608)
  Recoveries                          12,222         32,043         63,102         75,651
                                 --------------------------------------------------------
Balance at end of period         $ 5,530,134    $ 4,927,329    $ 5,530,134    $ 4,927,329
                                 ========================================================
</TABLE>


                                       12
<PAGE>

(c) Non-performing assets
    ---------------------

<TABLE>
<CAPTION>
                                                       March 31, 2006   June 30, 2005
                                                       ------------------------------
<S>                                                     <C>             <C>
Loans accounted for on a non-accrual basis:                (Dollars in Thousands)
       One- to four-family residential                  $        149    $        496
       Commercial real estate                                    217             143
       Commercial business                                     3,745             227
       Consumer                                                  268             301
                                                        ----------------------------
           Total                                               4,379           1,167
                                                        ----------------------------

Loans accounted for on an accrual basis (1)(2):
       One- to four-family residential                           239             468

                                                        ----------------------------
           Total                                                 239             468
                                                        ----------------------------
       Total non-performing loans                              4,618           1,635
                                                        ----------------------------
       Other non-performing assets (3) (4)                       241             142
                                                        ----------------------------
       Total non-performing assets                      $      4,859    $      1,777
                                                        ============================
Restructured loans not included in
   other non-performing categories above                $      3,463    $      7,517
                                                        ============================

Non-performing loans as a percentage of total loans             0.99%           0.37%
Non-performing assets as a percentage of total assets           0.81%           0.30%

</TABLE>

-------------------------------------------------
 (1)   Includes loans 90 days or more contractually delinquent.
 (2)   Delinquent FHA/VA guaranteed loans and delinquent loans with past due
       interest that, in the opinion of management, is collectible, are not
       placed on non-accrual status.
 (3)   Represents the net book value of real property acquired by the Company
       through foreclosure or deed in lieu of foreclosure. Upon acquisition,
       this property is carried at the lower of cost or fair market value less
       estimated costs of disposition. The total carrying amount was $154,000
       and $69,000, respectively, at March 31, 2006 and June 30, 2005.
 (4)   Includes repossessed automobiles, boats and trailers carried at the lower
       of cost or fair market value less estimated disposal costs. The total
       carrying amount was $87,000 and $73,000, respectively, at March 31, 2006
       and June 30, 2005.

                                       13
<PAGE>

Capital
-------

The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum
tangible, leverage (core) and risk-based capital requirements. As of March 31,
2006, the Bank was in compliance with all regulatory capital requirements. The
Bank's actual and required capital amounts and ratios as of March 31, 2006 and
June 30, 2005 were as follows:

<TABLE>
<CAPTION>
                                                             March 31, 2006
                           ---------------------------------------------------------------------------------
                                                                                          To Be Well
                                                                                       Capitalized Under
                                                               For Capital             Prompt Corrective
                                      Actual                Adequacy Purposes          Action Provisions
                           --------------------------   -------------------------   ------------------------
                              Amount           Ratio       Amount          Ratio       Amount        Ratio
                           ---------------------------------------------------------------------------------
<S>                               <C>          <C>            <C>           <C>           <C>          <C>
                                                           Dollars in Thousands
Tangible capital            $     44,546        7.67%   $      8,709        1.50%   $         --          --%
Tier 1 leverage (core)            44,546        7.67          23,224        4.00          29,029        5.00
Tier 1 risk-based capital         44,546        9.73          18,306        4.00          27,460        6.00
Risk-based capital                50,076       10.94          36,613        8.00          45,766       10.00

<CAPTION>
                                                             June 30, 2005
                           ---------------------------------------------------------------------------------
                                                                                          To Be Well
                                                                                       Capitalized Under
                                                               For Capital             Prompt Corrective
                                      Actual                Adequacy Purposes          Action Provisions
                           --------------------------   -------------------------   ------------------------
                              Amount           Ratio       Amount          Ratio       Amount        Ratio
                           ---------------------------------------------------------------------------------
<S>                               <C>          <C>            <C>           <C>           <C>          <C>
                                                           Dollars in Thousands

Tangible capital            $     47,468        8.38%   $      8,501        1.50%   $         --          --%
Tier 1 leverage (core)            47,468        8.38          22,670        4.00          28,338        5.00
Tier 1 risk-based capital         47,468       10.98          17,289        4.00          25,934        6.00
Risk-based capital                52,887       12.24          34,579        8.00          43,223       10.00

</TABLE>

Liquidity
---------

The Company is required by OTS regulation to maintain sufficient liquidity to
assure its safe and sound operation. Liquid assets include cash, certain time
deposits, banker's acceptances and specified United States government, state or
federal agency obligations. The Company adjusts its liquid assets in order to
meet funding needs for deposit outflows, payment of real estate taxes from
escrowed funds, when applicable, loan commitments and capital strategies. The
Company also adjusts liquidity as appropriate to meet its asset/liability
objectives.

Comparison of the results of operations for the three months ended March 31,
----------------------------------------------------------------------------
2006 and 2005
-------------

General. Net income for the three months ended March 31, 2006 totaled $766,000,
-------
or basic and diluted earnings per share of $0.23 each. Net income for the three
months ended March 31, 2005 totaled $898,000, or basic and diluted earnings per
share of $0.25 each.

Interest Income. Interest income increased by $933,000, or 12.7%, to $8.3
---------------
million for the three months ended March 31, 2006 from $7.3 million for the
three months ended March 31, 2005 primarily due to an increase in the average
yield on interest-earning assets. The average yield on interest-earning assets
increased by 52 basis points to 6.27% for the three months ended March 31, 2006
from 5.75% for the three months ended March 31, 2005 due to increases in overall
market interest rates resulting from the series of interest rate increases to
short-term rates implemented by the Federal Reserve Board since June

                                       14
<PAGE>

2004. Also contributing to the increase in interest income was an increase in
the average balance of interest-earning assets. The average balance of
interest-earning assets increased by $16.1 million, or 3.1%, to $537.9 million
for the three months ended March 31, 2006 from $521.8 million for the three
months ended March 31, 2005.

The increase in interest income was primarily due to an increase in interest
income on loans. Interest income on loans increased by $925,000, or 14.1%, to
$7.5 million for the three months ended March 31, 2006 from $6.6 million for the
three months ended March 31, 2005. The increase in interest income on loans was
primarily due to an increase in the average yield on loans. The average yield on
loans increased by 44 basis points to 6.49% for the three months ended March 31,
2006 from 6.05% for the three months ended March 31, 2005 primarily due to new
loan production and the repricing of adjustable rate loans, particularly
commercial loans tied to current rate indices, in the higher market interest
rate environment in the current-year period as compared to the same period of
the prior year. In addition, the average balance of loans increased by $28.2
million, or 6.4%, to $468.8 million for the three months ended March 31, 2006
from $440.6 million for the three months ended March 31, 2005.

Partially offsetting the increase in interest income on loans was a decrease in
interest income on investment securities. Interest income on investment
securities decreased by $55,000, or 7.3%, to $691,000 for the three months ended
March 31, 2006 from $746,000 for the three months ended March 31, 2005. The
decrease in interest income on investment securities was primarily due to a
decrease in the average balance of such securities. The average balance of
investment securities decreased by $16.7 million, or 21.2%, to $62.3 million for
the three months ended March 31, 2006 from $79.0 million for the three months
ended March 31, 2005 as the Company partially funded the increase in loans
receivable with maturities and principal payments from its investment securities
portfolio. The average tax-equivalent yield on investment securities increased
by 69 basis points to 4.86% for the three months ended March 31, 2006 from 4.17%
for the three months ended March 31, 2005 in the generally higher interest rate
environment during fiscal 2006 as compared to fiscal 2005.

Interest Expense. Interest expense increased by $960,000, or 32.8%, to $3.9
----------------
million for the three months ended March 31, 2006 from $2.9 million for the
three months ended March 31, 2005 primarily due to an increase in the cost of
interest-bearing deposits due to increases in market interest rates as the
Federal Reserve continued its "measured pace" of short-term interest rate
increases. The cost of interest-bearing liabilities increased by 74 basis points
to 3.31% for the three months ended March 31, 2006 from 2.57% for the three
months ended March 31, 2005.

The increase in interest expense was due to an increase in interest on deposits.
Interest on deposits increased by $963,000, or 53.9%, to $2.7 million for the
three months ended March 31, 2006 from $1.8 million for the three months ended
March 31, 2005 primarily due to an increase in the cost of deposits. The average
cost of deposits increased by 91 basis points to 2.96% for the three months
ended March 31, 2006 from 2.05% for the three months ended March 31, 2005 as the
Company increased rates on certain deposit products and offered premium-rate
certificates of deposit in order to attract and retain deposits in the
increasing market interest rate environment. In addition, the average balance of
interest-bearing deposits increased by $23.7 million, or 6.7%, to $376.6 million
for the three months ended March 31, 2006 from $352.9 million for the three
months ended March 31, 2005 primarily due to increases in the balance of
transaction accounts and time certificates of deposit.

Interest on FHLB advances and other borrowings totaled $1.1 million for the
three months ended March 31, 2006 and 2005. The average balance of borrowings
decreased by $9.0 million, or 8.3%, to $99.8 million for the three months ended
March 31, 2006 from $108.8 million for the three months ended March 31, 2005
while the average cost of borrowings increased to 4.65% for the three months
ended March 31, 2006 from 4.27% for the three months ended March 31, 2005.

                                       15
<PAGE>

Net Interest Income. Net interest income before provision for losses on loans
-------------------
totaled $4.4 million for the three months ended March 31, 2006 and 2005. The
cost of interest-bearing liabilities increased more rapidly than the yield on
interest-earning assets for the three months ended March 31, 2006 as compared to
the three months ended March 31, 2005. As a result, the interest rate spread
decreased by 22 basis points to 2.96% for the three months ended March 31, 2006
from 3.18% for the three months ended March 31, 2005.

Provision for Losses on Loans. Provision for losses on loans increased to
-----------------------------
$320,000 for the three months ended March 31, 2006 from $130,000 for the three
months ended March 31, 2005 based on management's periodic evaluation of the
estimated net realizable value or fair value of underlying collateral on certain
classified loans as of March 31, 2006. Charge-offs, net of recoveries, totaled
$362,000 and $127,000, respectively, for the three months ended March 31, 2006
and 2005. Non-performing loans increased to $4.6 million, or 0.99% of total
loans, at March 31, 2006 from $2.8 million, or 0.63% of total loans at March 31,
2005. For more information on asset quality see "Asset quality" in Management's
Discussion and Analysis of Financial Condition.

Noninterest Income. Noninterest income decreased by $173,000, or 10.9%, to $1.4
------------------
million for the three months ended March 31, 2006 from $1.6 million for the
three months ended March 31, 2005. Service charges on deposit accounts decreased
by $96,000, or 12.1%, and gain on sale of loans deceased by $31,000, or 25.0%,
for the three months ended March 31, 2006 as compared to the three months ended
March 31, 2005. The balance of transaction accounts and time certificates
increased in the current-year period as noted in the interest expense
discussion. However, these increases were primarily in deposit types that are
not generally subject to service charges due to activity limitations and higher
minimum balance requirements. The decrease in gain on sale of loans resulted
primarily from lower origination volumes in the current-year period as loans
sold to investors decreased by $1.2 million, or 16.2%, to $6.2 million for the
three months ended March 31, 2006 from $7.4 million for the three months ended
March 31, 2005. During the three months ended March 31, 2005, the Company
recorded a $30,000 gain on sale of real estate held for development. No gain on
sale of real estate held for development was recorded for the three months ended
March 31, 2006.

Noninterest expense. Noninterest expense decreased by $116,000, or 2.5%, to $4.5
-------------------
million for the three months ended March 31, 2006 from $4.6 million for the
three months ended March 31, 2005. Compensation and benefits expense decreased
by $83,000, or 3.1%, as the number of full-time-equivalent employees decreased
to 188 at March 31, 2006 from 207 at March 31, 2005. The Company reduced staff,
primarily through attrition, in order to better match staffing to asset size and
number of accounts. In addition, advertising expense decreased by $40,000, or
29.6%, to $96,000 for the three months ended March 31, 2006 from $136,000 for
the three months ended March 31, 2005. During the prior fiscal-year period,
grand opening activities for a new Bank branch office and commercial
relationship promotions resulted in an increase in advertising expense. Other
general and administrative expenses decreased by $66,000, or 6.7%, for the three
months ended March 31, 2006 as compared to the prior-year period largely due to
decreases in fraud losses, repossession expense and stationery and supply
expense. The decreases in other general and administrative expenses were more
than offset by an increase in office property and equipment expense. Office
property and equipment expense increased by $76,000, or 11.6%, for the three
months ended March 31, 2006 as compared to the three months ended March 31, 2005
largely due to the addition of a new branch office in March 2005 and to an
increase in software maintenance expense.

Income tax expense. Income tax expense totaled $255,000, or an effective tax
------------------
rate of 25.0%, and $397,000, or an effective tax rate of 30.7%, for the three
months ended March 31, 2006 and 2005, respectively. The effective tax rate
decreased for the current-year period primarily because tax-exempt income
comprised a larger percentage of pre-tax income for the three months ended March
31, 2006 than for the three months ended March 31, 2005.

                                       16
<PAGE>

Comparison of the results of operations for the nine months ended March 31, 2006
--------------------------------------------------------------------------------
and 2005
--------

General. Net income for the nine months ended March 31, 2006 totaled $2.6
-------
million, or basic and diluted earnings per share of $0.76 and $0.75,
respectively. Net income for the nine months ended March 31, 2005 totaled $4.0
million, or basic and diluted earnings per share of $1.13 and $1.11,
respectively. During the prior-year period the Company recorded a gain of $1.4
million, net of tax effect, or basic and diluted earnings per share of $0.38 and
$0.37, respectively, from the sale of two Bank branch offices.

Interest Income. Interest income increased by $2.2 million, or 10.3%, to $23.9
---------------
million for the nine months ended March 31, 2006 from $21.6 million for the nine
months ended March 31, 2005 primarily due to an increase in the average yield on
interest-earning assets. The average yield on interest-earning assets increased
by 51 basis points to 6.04% for the nine months ended March 31, 2006 from 5.53%
for the nine months ended March 31, 2005 due to increases in market interest
rates resulting from continued short-term interest rate increases implemented by
the Federal Reserve Board during the current fiscal year period. Also
contributing to the increase in interest income was a change in the mix of
interest-earning assets. During the nine months ended March 31, 2006, the
average balance of loans increased by $24.3 million, while the average balance
of investment securities decreased by $23.4 million. The generally higher yield
on loans as compared to the yield on investment securities resulted in an
increase in the weighted average yield on total interest-earning assets for the
current-year period.

The increase in interest income was primarily due to an increase in interest
income on loans. Interest income on loans increased by $2.5 million, or 13.1%,
to $21.6 million for the nine months ended March 31, 2006 from $19.1 million for
the nine months ended March 31, 2005. The increase in interest income on loans
was due to an increase in the average yield on loans and also to an increase in
the average balance of loans. The average yield on loans increased by 42 basis
points to 6.31% for the nine months ended March 31, 2006 from 5.89% for the nine
months ended March 31, 2005 primarily due to commercial real estate and
commercial business loan production and the repricing of adjustable rate loans,
particularly commercial loans tied to current rate indices, in the higher market
interest rate environment in the current year period as compared to the same
period of the prior year. The average balance of loans increased by $24.3
million, or 5.6%, to $456.9 million for the nine months ended March 31, 2006
from $432.6 million for the nine months ended March 31, 2005.

Partially offsetting the increase in interest income on loans was a decrease in
interest income on investment securities. Interest income on investment
securities decreased by $413,000, or 16.7%, to $2.1 million for the nine months
ended March 31, 2006 from $2.5 million for the nine months ended March 31, 2005.
The decrease in interest income on investment securities was primarily due to a
decrease in the average balance of such securities. The average balance of
investment securities decreased by $23.4 million, or 25.7%, to $67.6 million for
the nine months ended March 31, 2006 from $91.0 million for the nine months
ended March 31, 2005 as the Company funded the increase in loans receivable with
maturities and principal payments from its investment securities portfolio. The
average tax-equivalent yield on investment securities increased by 52 basis
points to 4.43% for the nine months ended March 31, 2006 from 3.91% for the nine
months ended March 31, 2005 in the generally higher interest rate environment
during the nine months ended March 31, 2006 as compared to the nine months ended
March 31, 2005.

Interest Expense. Interest expense increased by $2.4 million, or 27.4%, to $11.0
----------------
million for the nine months ended March 31, 2006 from $8.6 million for the nine
months ended March 31, 2005 due to an increase in the cost of interest-bearing
deposits due to increases in market interest rates as the Federal Reserve
continued its "measured pace" of short-term interest rate increases.

                                       17
<PAGE>

Interest on deposits increased by $2.4 million, or 47.2%, to $7.5 million for
the nine months ended March 31, 2006 from $5.1 million for the nine months ended
March 31, 2005 primarily due to an increase in the cost of deposits. The average
cost of deposits increased by 86 basis points to 2.75% for the nine months ended
March 31, 2006 from 1.89% for the nine months ended March 31, 2005 as the
Company increased rates on certain deposit products and offered premium-rate
certificates of deposit in order to attract and retain deposits in the
increasing market interest rate environment. Additionally, the average balance
of deposits increased by $4.7 million, or 1.3%, for the three months ended March
31, 2006 as compared to the same period of the prior year. The increase in the
average balance of deposits was primarily due to increases in the average
balance of time deposits, partly offset by decreases in the average balance of
savings accounts.

Interest on FHLB advances and other borrowings decreased slightly to $3.4
million for the nine months ended March 31, 2006 from $3.5 million for the nine
months ended March 31, 2005 due to a decrease in the average balance of
borrowings. The average balance of borrowings decreased by $6.5 million, or
6.0%, to $101.7 million for the nine months ended March 31, 2006 from $108.2
million for the nine months ended March 31, 2005 while the average cost of
borrowings increased to 4.48% for the nine months ended March 31, 2006 from
4.28% for the nine months ended March 31, 2005.

Net Interest Income. Net interest income before provision for losses on loans
-------------------
decreased by $135,000, or 1.0%, to $12.9 million for the nine months ended March
31, 2006 from $13.0 million for the nine months ended March 31, 2005. The
decrease in net interest income was primarily due to a decrease in the interest
rate spread as the cost of interest-bearing liabilities increased more rapidly
than the yield on interest-earning assets. The cost of interest-bearing
liabilities increased by 68 basis points to 3.12% for the nine months ended
March 31, 2006 from 2.44% for the nine months ended March 31, 2005 while the
yield on interest-earning assets increased by 51 basis points to 6.04% for the
nine months ended March 31, 2006 from 5.53% for the nine months ended March 31,
2005. As a result, the Company's interest rate spread decreased to 2.92% for the
nine months ended March 31, 2006 from 3.09% for the nine months ended March 31,
2005.

Provision for Losses on Loans. Provision for losses on loans increased by
-----------------------------
$75,000, or 7.5%, to $1.1 million for the nine months ended March 31, 2006 from
$1.0 million for the nine months ended March 31, 2005. For more information on
asset quality see "Asset quality" in Management's Discussion and Analysis of
Financial Condition.

Noninterest Income. Noninterest income decreased by $2.8 million, or 36.8%, to
------------------
$4.7 million for the nine months ended March 31, 2006 from $7.5 million for the
nine months ended March 31, 2005. The decrease in noninterest income was
primarily due to a prior-year pre-tax gain of $2.2 million on the sale of two
northwest Iowa branch offices that was completed in September 2004. Net of tax
effect, the gain on the branch office sale was $1.4 million, or basic and
diluted earnings per share of $0.38 and $0.37, respectively. Service charges on
deposit accounts decreased by $406,000, or 14.9%, for the nine months ended
March 31, 2006 as compared to the nine months ended March 31, 2005 due to a
decrease in transactions accounts subject to such service charges that resulted
partly from the branch office sale in 2004. Service charges on loans decreased
by $89,000, or 25.0%, for the nine months ended March 31, 2006 as compared to
the nine months ended March 31, 2005 primarily due to a decrease in prepayment
penalty fees as refinancing activity slowed due to the increase in market
interest rates. Non-interest income also decreased due to a loss on sale of real
estate held for development. During the nine months ended March 31, 2006 the
Company's real estate development subsidiary completed a development project and
recorded a loss of $242,000 for the current-year period while a gain of $60,000
on sale of real estate held for development was recorded in the prior-year
period. Partly offsetting these decreases in noninterest income was a gain on
the sale of securities for the nine months ended March 31, 2006 that totaled
$203,000 as compared to a loss on the sale of investment securities of $121,000
for the nine months ended March 31, 2005.

                                       18
<PAGE>

Noninterest expense. Noninterest expense decreased by $516,000, or 3.8%, to
-------------------
$13.0 million for the nine months ended March 31, 2006 from $13.5 million for
the nine months ended March 31, 2005. Compensation and benefits expense
decreased by $301,000, or 3.8%, for the nine months ended March 31, 2006 as
compared to the nine months ended March 31, 2005 due to the decrease in the
number of full-time-equivalent employees as mentioned in the three-month
discussion. Other noninterest expenses decreased by $492,000, or 15.9%, for the
nine months ended March 31, 2006 as compared to the prior-year period as the
Company implemented cost control measures in line with its business plan
objectives. Other noninterest expense for the prior-year period ended March 31,
2005 was higher due to a loss on real estate owned totaling $94,000 and a charge
of $68,000 for a credit life insurance settlement. In addition, fees to a
third-party vendor for support services related to retail deposit account
programs decreased by approximately $70,000 for the nine months ended March 31,
2006 as the contract expired in November 2004 and was not renewed. Other
decreases in other noninterest expenses included decreases in fraud losses and
repossession and collection expenses for the nine months ended March 31, 2006 as
compared to the nine months ended March 31, 2005. The decreases in noninterest
expenses were partially offset by increases in office property and equipment
expense and advertising expense. Office property and equipment expense increased
by $247,000, or 13.1%, for the nine months ended March 31, 2006 as compared to
the nine months ended March 31, 2005 largely due to the addition of a new branch
office in March 2005 and to an increase in software expense for automation
initiatives. Advertising expense increased by $24,000, or 7.7%, for the nine
months ended March 31, 2006 as compared to the same period of the prior year as
the Company aggressively promoted its retail and commercial products.

Income tax expense. Income tax expense totaled $966,000, or an effective tax
------------------
rate of 27.2%, and $2.0 million, or an effective tax rate of 32.7%,
respectively, for the nine months ended March 31, 2006 and 2005. The effective
tax rate decreased for the current-year period primarily because tax-exempt
income comprised a larger percentage of pre-tax income for the nine months ended
March 31, 2006 than for the nine months ended March 31, 2005.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company's market risk is primarily comprised of interest
rate risk resulting from its core banking activities of lending and deposit
taking. Interest rate risk is the risk that changes in market interest rates
might adversely affect the Company's net interest income or the economic value
of its portfolio of assets, liabilities and off-balance-sheet contracts.
Management continually develops and applies strategies to mitigate this risk.
The Company primarily relies on the OTS Net Portfolio Value Model (the "Model")
to measure its susceptibility to interest rate changes. For various assumed
hypothetical changes in market interest rates, the Model estimates the current
economic value of each type of asset, liability and off-balance-sheet contract.
The present value of expected net cash flows from existing assets minus the
present value of expected net cash flows from existing liabilities plus or minus
the present value of expected net cash flows from existing off-balance-sheet
contracts results in a net portfolio value ("NPV") estimate. An analysis of the
changes in NPV in the event of hypothetical changes in interest rates is
presented in the Form 10-K filed by the Company for the fiscal year ended June
30, 2005. The Company's NPV ratio after a 200 basis point rate-shock was 8.86%
and 8.96%, respectively, at June 30, 2005 and December 31, 2005, as measured by
the Model. As of both dates, the Company's interest rate risk, as measured by
the Model, was within the Company's Asset Liability Policy guidelines and the
OTS "level of risk" was reported as "minimal". Management does not believe that
the Company's primary market risk exposures and how those exposures were managed
during the three months ended March 31, 2006 have changed significantly when
compared to the immediately preceding quarter ended December 31, 2005. However,
the Company's primary market risk exposure has not yet been quantified at March
31, 2006, and the complexity of the Model makes it difficult to accurately
predict results.

                                       19
<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. Based on such
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, the Company's
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

Under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, the Company
also conducted an evaluation of the Company's internal control over financial
reporting to determine whether any changes occurred during the Company's third
fiscal quarter ended March 31, 2006 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. Based on such evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered by
this report, there have been no significant changes in the Company's internal
control over financial reporting that occurred during the Company's second
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.


                                       20
<PAGE>

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
--------------------------

         There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.

Item 1A. Risk Factors
---------------------

         Not applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
--------------------------------------------------------------------

         There were no sales of unregistered securities during the nine months
ended March 31, 2006.

         The following table presents a summary of the Company's share
repurchases during the quarter ended March 31, 2006.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                       Total Number of         Maximum
                                                                      Shares Purchased     Number of Shares
                                        Total Number      Average    as Part of Publicly   that May Yet be
                                         of Shares      Price Paid        Announced        Purchased Under
                Period                   Purchased       Per Share       Program (1)       the Program (1)
-----------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>            <C>                    <C>
January 1 through January 31, 2006           none              --             none             270,495
February 1 through February 28, 2006        30,000         $22.42           30,000             240,495
March 1 through March 31, 2006              15,000         $22.70           15,000             225,495
-----------------------------------------------------------------------------------------------------------
</TABLE>

      (1) On December 12, 2005 the Company announced that its Board of Directors
         had authorized a stock repurchase program pursuant to which the Company
         intends to repurchase up to 10% of its issued and outstanding shares,
         or up to 346,000 shares. The repurchase program expires on November 22,
         2006.

Item 3.  Default upon Senior Securities
---------------------------------------

         None.

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

         No matters were submitted to a vote of security holders during the
period covered by this report.

Item 5.  Other Infomations
--------------------------

         (a) Not applicable.
         (b) Not applicable.

Item 6.  Exhibits
-----------------

      Exhibit 31.1   Certification of Chief Executive Officer Pursuant
                         to Section 302
      Exhibit 31.2    Certification of Chief Financial Officer Pursuant
                         to Section 302
      Exhibit 32      Certification Pursuant to 18 U.S.C. Section 1350,
                         as adopted pursuant to Section 906  of the
                         Sarbanes-Oxley Act of 2002

                                       21
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.


                                       FIRST FEDERAL BANKSHARES, INC.



         DATE:  May 10, 2006           BY: /s/ Michael W. Dosland
                                           ----------------------
                                           Michael W. Dosland
                                           President and Chief Executive Officer




         DATE:  May 10, 2006           BY: /s/ Michael S. Moderski
                                           -----------------------
                                           Michael S. Moderski
                                           Senior Vice President and
                                           Chief Financial Officer



                                       22