**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington
      D.C. 20549**


**FORM
      10-Q**





ý
            Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934 for the quarterly period ended September 30,
                2007





**OR**





 ̈
            Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934








**Commission
      File Number 0-25509**





**First
      Federal Bankshares, Inc.**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            **42-1485449**(State
                or other jurisdiction of
            (I.R.S.
                employerincorporation
                or organization)
            identification
                number)**329
                Pierce Street, Sioux City, Iowa**
            **51101**(Address
                of principal executive offices)
            (Zip
                Code)





**712-277-0200**


(Registrant's
      telephone number)


Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


YES
      þ    NO
o




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  o          Accelerated
      filer þ               Non-accelerated
      filer o





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
      o    NO
þ





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 November 9, 2007Common
                Stock, $.01 par value
            3,302,971





FIRST
      FEDERAL BANKSHARES, INC.





INDEX





Page**PART
                I**.
            FINANCIAL
                INFORMATION**ITEM
                1**.
            Financial
                Statements of First Federal Bankshares, Inc. and
                Subsidiaries
            
            1Consolidated
                Statements of Financial Condition at September 30,
                2007 and June 30, 2007
            
            1Consolidated
                Statements of Income for the three month periods
                ended September 30, 2007 and 2006
            
            2Consolidated
                Statements of Changes in Stockholders’ Equity for
                the three month periods ended September 30, 2007 and
                2006
            
            3Consolidated
                Statements of Comprehensive Income for the three
                month periods ended September 30, 2007 and 2006
            
            4Consolidated
                Statements of Cash Flows for the three month
                periods ended September 30, 2007 and 2006
            
            5Notes
                to Consolidated Financial Statements
            
            6**ITEM
                2**.
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            
            11**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
            
            21Signatures
            
            22


*Index*


**PART
                I.               FINANCIAL  INFORMATION****ITEM
                1.               FINANCIAL  STATEMENTS****First
                Federal Bankshares, Inc. and
                Subsidiaries****Consolidated  Statements
                of Financial Condition *(Unaudited)***September
                30,
            
            
            June
                30,2007
            
            
            2007ASSETSCash
                and due from banks
            
            $
            12,133,808
            
            
            $
            11,613,908Interest-bearing
                deposits in other financial institutions
            
            
            -
            
            
            
            14,124,559Cash
                and cash equivalents
            
            
            12,133,808
            
            
            
            25,738,467Securities
                available-for-sale (amortized cost $115,726,383 and $122,595,377,
                respectively)
            
            
            113,442,137
            
            
            
            122,309,017Securities
                held-to-maturity (fair value $9,229,519 and $9,472,865,
                respectively)
            
            
            9,225,315
            
            
            
            9,549,072Loans
                receivable
            
            
            435,555,715
            
            
            
            431,882,051Less
                allowance for loan losses
            
            
            1,743,404
            
            
            
            1,797,393Net
                loans
            
            
            433,812,311
            
            
            
            430,084,658Office
                property and equipment, net
            
            
            17,916,534
            
            
            
            16,204,913Federal
                Home Loan Bank ("FHLB") stock, at cost
            
            
            4,911,000
            
            
            
            3,559,600Accrued
                interest receivable
            
            
            3,170,558
            
            
            
            2,939,993Goodwill
            
            
            18,417,040
            
            
            
            18,417,040Foreclosed
                and repossessed assets
            
            
            2,251,361
            
            
            
            2,156,217Other
                assets
            
            
            15,280,572
            
            
            
            14,857,533Total
                assets
            
            $
            630,560,636
            
            
            $
            645,816,510LIABILITIES
                AND STOCKHOLDERS’ EQUITYLIABILITIESDeposit
                liabilities
            
            $
            467,280,287
            
            
            $
            507,865,063Advances
                from FHLB and other borrowings
            
            
            90,381,265
            
            
            
            62,202,229Advance
                payments by borrowers for taxes and insurance
            
            
            307,765
            
            
            
            916,021Accrued
                interest payable
            
            
            2,796,116
            
            
            
            2,690,658Accrued
                expenses and other liabilities
            
            
            1,998,132
            
            
            
            1,887,317Total
                liabilities
            
            
            562,763,565
            
            
            
            575,561,288COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS’
                EQUITYPreferred
                stock, $.01 par value, authorized 1,000,000 shares; issued
                none
            
            
            -
            
            
            
            -Common
                stock, $.01 par value, authorized 12,000,000 shares; issued 5,067,226
                shares
            
            
            50,604
            
            
            
            50,604Additional
                paid-in capital
            
            
            39,314,276
            
            
            
            39,230,016Retained
                earnings, substantially restricted
            
            
            59,035,320
            
            
            
            58,704,525Treasury
                stock, at cost, 1,764,255 shares and 1,677,255 shares,
                respectively
            
            
            (28,535,663
            )
            
            
            (26,885,723
            )Accumulated
                other comprehensive income (loss)
            
            
            (1,432,246
            )
            
            
            (179,360
            )Unearned
                ESOP
            
            
            (635,220
            )
            
            
            (664,840
            )Total
                stockholders’ equity
            
            
            67,797,071
            
            
            
            70,255,222Total
                liabilities and stockholders’ equity
            
            $
            630,560,636
            
            
            $
            645,816,510





See
                Notes to Consolidated Financial Statements.




1
 *Index*




**First
                  Federal Bankshares, Inc. and Subsidiaries****Consolidated
                  Statements of Income
                  *(Unaudited)***Three
                  months endedSeptember
                  30,2007
              
              
              2006Interest
                  income:Loans
                  receivable
              
              $
              7,430,449
              
              
              $
              7,635,843Investment
                  securities
              
              
              2,024,811
              
              
              
              794,004Other
                  interest-earning assets
              
              
              50,440
              
              
              
              134,218Total
                  interest income
              
              
              9,505,700
              
              
              
              8,564,065Interest
                  expense:Deposits
              
              
              4,562,263
              
              
              
              3,422,058Advances
                  from FHLB and other borrowings
              
              
              863,977
              
              
              
              1,036,978Total
                  interest expense
              
              
              5,426,240
              
              
              
              4,459,036Net
                  interest income
              
              
              4,079,460
              
              
              
              4,105,029Provision
                  for loan losses
              
              
              20,648
              
              
              
              100,000Net
                  interest income after provision for loan losses
              
              
              4,058,812
              
              
              
              4,005,029Non-interest
                  income:Service
                  charges on deposit accounts
              
              
              783,298
              
              
              
              905,649Fees
                  on commercial and consumer loans
              
              
              97,760
              
              
              
              34,066Gain
                  on sale of real estate held for development
              
              
              -
              
              
              
              40,000Mortgage
                  banking revenue
              
              
              193,876
              
              
              
              199,750Earnings
                  from bank owned life insurance
              
              
              136,555
              
              
              
              132,506Other
                  income
              
              
              296,942
              
              
              
              287,477Total
                  non-interest income
              
              
              1,508,431
              
              
              
              1,599,448Non-interest
                  expense:Personnel
                  expense
              
              
              2,806,201
              
              
              
              2,520,182Office
                  property and equipment
              
              
              701,246
              
              
              
              678,030Data
                  processing, ATM and debit card transaction costs,and
                  other item processing expense
              
              
              370,009
              
              
              
              308,307Professional,
                  insurance and regulatory expense
              
              
              254,891
              
              
              
              284,070Advertising,
                  donations and public relations
              
              
              463,725
              
              
              
              167,031Communications,
                  postage and office supplies
              
              
              210,760
              
              
              
              193,605Other
                  expense
              
              
              230,798
              
              
              
              166,205Total
                  non-interest expense
              
              
              5,037,630
              
              
              
              4,317,430Income
                  before income taxes and discontinued operations
              
              
              529,613
              
              
              
              1,287,047Income
                  taxes
              
              
              115,000
              
              
              
              364,000Income
                  from continuing operations
              
              
              414,613
              
              
              
              923,047Income
                  from discontinued operations, net of tax of $26,000 in
                  2006
              
              
              -
              
              
              
              43,695Net
                  income
              
              $
              414,613
              
              
              $
              966,742Per
                  share information:Basic
                  earnings per share from continuing operations
              
              $
              0.13
              
              
              $
              0.28Basic
                  earnings per share from discontinued operations
              
              
              -
              
              
              
              0.01Basic
                  earnings per share
              
              $
              0.13
              
              
              $
              0.29Diluted
                  earnings per share from continuing operations
              
              $
              0.13
              
              
              $
              0.28Diluted
                  earnings per share from discontinued operations
              
              
              -
              
              
              
              0.01Diluted
                  earnings per share
              
              $
              0.13
              
              
              $
              0.29
 
 See
                  Notes to Consolidated Financial Statements.




2
 *Index*





**First
                  Federal Bankshares, Inc. and
                  Subsidiaries****Consolidated
                  Statements of Stockholders'
                  Equity  *(Unaudited)***Three
                  MonthsEnded
                  September 30,2007
              
              
              2006Capital
                  Stock:Beginning
                  of year balance
              
              $
              50,604
              
              
              $
              50,109Stock
                  options exercised: none and 5,000 shares, respectively
              
              
              -
              
              
              
              29End
                  of period balance
              
              
              50,604
              
              
              
              50,138Additional
                  paid-in capital:Beginning
                  of year balance
              
              
              39,230,016
              
              
              
              38,293,233Stock
                  options exercised
              
              
              -
              
              
              
              (17
              )Stock
                  compensation expense
              
              
              45,398
              
              
              
              18,462Stock
                  appreciation of allocated ESOP shares
              
              
              23,859
              
              
              
              36,601Amortization
                  of employee stock grants
              
              
              15,003
              
              
              
              1,024End
                  of period balance
              
              
              39,314,276
              
              
              
              38,349,303Retained
                  earnings, substantially restricted:Beginning
                  of year balance
              
              
              58,704,525
              
              
              
              57,013,427Adoption
                  of FIN 48
              
              
              180,000
              
              
              
              -Adoption
                  of SFAS 156
              
              
              79,374
              
              
              
              -Net
                  income
              
              
              414,613
              
              
              
              966,742Dividends
                  paid on common stock
              
              
              (343,192
              )
              
              
              (329,518
              )End
                  of period balance
              
              
              59,035,320
              
              
              
              57,650,651Treasury
                  stock, at cost:Beginning
                  of year balance
              
              
              (26,885,723
              )
              
              
              (25,920,685
              )Treasury
                  stock acquired - 87,000 shares in 2007
              
              
              (1,649,940
              )
              
              
              -End
                  of period balance
              
              
              (28,535,663
              )
              
              
              (25,920,685
              )Accumulated
                  other comprehensive income (loss):Beginning
                  of year balance
              
              
              (179,360
              )
              
              
              (325,650
              )Net
                  change in unrealized gains (losses) on securitiesavailable-for-sale,
                  net of tax expense
              
              
              (1,252,886
              )
              
              
              248,949End
                  of period balance
              
              
              (1,432,246
              )
              
              
              (76,701
              )Unearned
                  ESOP shares:Beginning
                  of year balance
              
              
              (664,840
              )
              
              
              (786,540
              )ESOP
                  shares allocated
              
              
              29,620
              
              
              
              31,040End
                  of period balance
              
              
              (635,220
              )
              
              
              (755,500
              )Total
                  stockholders' equity
              
              $
              67,797,071
              
              
              $
              69,297,206
 
 See
                  Notes to Consolidated Financial Statements.




3
 *Index*


**First
                Federal Bankshares, Inc. and
                Subsidiaries****Consolidated
                Statements of Comprehensive Income (Loss)
                *(Unaudited)***Three
                Months EndedSeptember
                30,2007
            
            
            2006Net
                income
            
            $
            414,613
            
            
            $
            966,742Other
                comprehensive income (loss):Unrealized
                holding gains (losses) arising duringthe
                period, net of tax
            
            
            (1,252,886
            )
            
            
            248,949Other
                comprehensive income (loss), net of tax
            
            
            (1,252,886
            )
            
            
            248,949Total
                comprehensive income (loss)
            
            $
            (838,273
            )
            
            $
            1,215,691






4
 *Index*


**First
                  Federal Bankshares, Inc. and Subsidiaries****Consolidated
                  Statements of Cash Flows
                  *(Unaudited)***
              
              Three
                  months endedSeptember
                  30,2007
              
              
              2006Cash
                  flows from continuing operating activities:Net
                  income
              
              $
              414,613
              
              
              $
              966,742Income
                  from discontinued operations
              
              
              -
              
              
              
              (43,695
              )Adjustments
                  to reconcile net income from continuing operations tonet
                  cash provided by continuing operating activities:Loans
                  originated for sale to investors
              
              
              (17,772,000
              )
              
              
              (12,560,000
              )Proceeds
                  from sale of loans originated for sale
              
              
              18,186,637
              
              
              
              12,845,524Provision
                  for losses on loans
              
              
              20,648
              
              
              
              100,000Depreciation
                  and amortization
              
              
              283,050
              
              
              
              299,507Provision
                  for deferred taxes
              
              
              26,000
              
              
              
              (50,000
              )Equity-based
                  compensation
              
              
              113,880
              
              
              
              87,127Net
                  gain on sale of loans
              
              
              (157,463
              )
              
              
              (184,973
              )Net
                  gain on sale of real estate held for development
              
              
              -
              
              
              
              (40,000
              )Amortization
                  of premiums and discounts on loans,mortgage-backed
                  securities and investment securities
              
              
              6,043
              
              
              
              (83,515
              )Increase
                  in accrued interest receivable
              
              
              (230,565
              )
              
              
              (11,875
              )Decrease
                  in other assets
              
              
              293,311
              
              
              
              115,556Increase
                  in accrued interest payable
              
              
              105,458
              
              
              
              595,573Increase
                  in accrued expenses and other liabilities
              
              
              110,815
              
              
              
              45,096Increase
                  in accrued taxes on income
              
              
              84,252
              
              
              
              234,918Net
                  cash provided by continuing operating activities
              
              
              1,484,679
              
              
              
              2,315,985Cash
                  flows from continuing investing activities:Proceeds
                  from maturities of securities held-to-maturity
              
              
              319,906
              
              
              
              684,476Purchase
                  of securities available-for-sale
              
              
              -
              
              
              
              (4,996,978
              )Proceeds
                  from maturities of securities available-for-sale
              
              
              6,855,107
              
              
              
              1,418,790Redemption
                  (purchase) of FHLB stock
              
              
              (1,351,400
              )
              
              
              356,000Loans
                  purchased
              
              
              (2,698,000
              )
              
              
              (7,570,000
              )Decrease
                  (increase) in loans receivable
              
              
              (1,460,693
              )
              
              
              13,523,703Purchase
                  of office property and equipment
              
              
              (1,943,520
              )
              
              
              (1,742,219
              )Proceeds
                  from sale of foreclosed real estate
              
              
              31,466
              
              
              
              8,400Proceeds
                  from sale of real estate held for development
              
              
              394,647
              
              
              
              821,511Expenditures
                  on real estate held for development
              
              
              (229,723
              )
              
              
              (568,556
              )Net
                  cash provided by (used in) continuing investing activities
              
              
              (82,210
              )
              
              
              1,935,127Cash
                  flows from continuing financing activities:Decrease
                  in deposits
              
              
              (40,584,776
              )
              
              
              (9,036,927
              )Proceeds
                  from advances from FHLB and other borrowings
              
              
              37,429,000
              
              
              
              3,136,397Repayment
                  of advances from FHLB and other borrowings
              
              
              (9,249,964
              )
              
              
              (13,000,000
              )Net
                  decrease in advance payments by borrowers for taxes and
                  insurance
              
              
              (608,256
              )
              
              
              (644,027
              )Issuance
                  of common stock under stock options exercised
              
              
              -
              
              
              
              12Repurchase
                  of common stock
              
              
              (1,649,940
              )
              
              
              -Cash
                  dividends paid
              
              
              (343,192
              )
              
              
              (329,518
              )Net
                  cash used in continuing financing activities
              
              
              (15,007,128
              )
              
              
              (19,874,063
              )Cash
                  flows from discontinued operations:Net
                  cash provided by operating activities of discontinued
                  operations
              
              
              -
              
              
              
              35,662Net
                  cash provided by discontinued operations
              
              
              -
              
              
              
              35,662Net
                  decrease in cash and cash equivalents
              
              
              (13,604,659
              )
              
              
              (15,587,289
              )CASH
                  AND CASH EQUIVALENTSBeginning
                  of year
              
              
              25,738,467
              
              
              
              39,904,749End
                  of year
              
              $
              12,133,808
              
              
              
              24,317,460SUPPLEMENTAL
                  DISCLOSURESCash
                  paid during the period for:Interest
              
              $
              5,320,783
              
              
              $
              3,863,463Income
                  taxes
              
              
              4,748
              
              
              
              179,082See
                  Notes to Consolidated Financial Statements.





5
 *Index*


**FIRST
      FEDERAL BANKSHARES, INC. and SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
                1.**
            **Basis
                of presentation**





The
      consolidated financial statements as of and for the three month periods ended
      September 30, 2007, and 2006, 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 omitted pursuant to these rules and
      regulations.  These consolidated financial statements should be read
      in conjunction with the Company’s audited consolidated financial statements and
      notes that are included in its Annual Report for the year ended June 30, 2007,
      filed on Form 10-K.





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 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.





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





***Critical
      Judgments and Estimates***   The Company describes all
      of its significant accounting policies in Note 1 of the Company's Audited
      Consolidated Financial Statements in its 2007 Annual Report on Form
      10-K.   Particular attention should be paid to the Company’s
      allowance for losses on loans, which requires significant management judgments
      and/or estimates because of the inherent uncertainties surrounding this area
      and/or the subjective nature of the area.  Information on the impact
      loss allowances have had on the Company's financial condition and results of
      operations for the three month periods ended September 30, 2007 and 2006, can
      be
      found below, in the sections entitled  "Results of Operations –
Provision for Losses on Loans" and “Financial Condition – Non-Performing and
      Classified Assets”.





In
      addition, significant judgments and/or estimates are made in the valuation
      of
      the Company’s goodwill.  For a discussion of the judgments and
      estimates relating to goodwill refer to the appropriate section in Note 1 of
      the
      Company’s 2007 Audited Consolidated Financial Statements.





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





**Note
                2.**
            **Organization**





The
      Company is the holding company for Vantus Bank (the “Bank” formerly known as
“First Federal 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.





**Note
                3.**
            **Use
                of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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.





**Note
                4.**
            **Discontinued
                Operations**





The
      Company sold substantially all the assets of its title search and abstract
      continuation business in a cash sale on March 1, 2007.  The results of
      operations of this business are shown in the Company’s consolidated
      statements


6
 *Index*


of
      income
      for the three months ended September 30, 2006, as “discontinued
      operations.”   The assets of the business sold have not been
      presented separately because those amounts are not material.





**Note
                5.**
            **Effect
                of New Accounting
                Standards**





In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards No. 156, *Accounting for Servicing of
      Financial Assets (as Amended)* (“SFAS 156”).  This Statement
      amends Statement of Financial Accounting Standards No. 140, *Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*(“SFAS 140”), with respect to the accounting for separately recognized
      servicing assets and servicing liabilities.  SFAS 156 requires the
      separate accounting for servicing assets and servicing liabilities which arise
      from the sale of financial assets; requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value; permits
      the choice of an amortization method or fair value method for subsequent
      measurements; and requires separate presentation of servicing assets and
      servicing liabilities subsequently measured at fair value in the statement
      of
      financial position and additional disclosures for all separately recognized
      servicing assets and servicing liabilities.  SFAS 156 was effective
      July 1, 2007, for the Company.  The Company has chosen to use the fair
      value method in measuring its servicing asset.  As a result of the
      adoption of SFAS 156, the Company’s stockholders’ equity increased approximately
      $79,000 on July 1, 2007, as a result of the adjustment of its servicing asset
      to
      fair value.





FASB
      Interpretation No. 48, *Accounting for Uncertainty in Income Taxes* (“FIN
      48”) clarifies the accounting for uncertainty in income taxes recognized in
      financial statements in accordance with Statement of Financial Accounting
      Standards No. 109, *Accounting for Income Taxes*(“SFAS
      109”).  FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return.  FIN 48 also
      provides guidance on de-recognition, classification, interest and penalties,
      interim period accounting, disclosure and transition for tax
      positions.  FIN 48 was effective for the Company on July 1,
      2007.  Upon the adoption of FIN 48, the Company’s stockholders’ equity
      increased $180,000.





In
      September 2006, the Emerging Issues Task Force ("EITF") reached a final
      consensus on Issue 06-04, *Accounting for Deferred Compensation and
      Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
      Arrangements*.  In March 2007, the EITF reached a final conclusion
      on Issue 06−10, Accounting for Collateral Assignment Split-Dollar Life Insurance
      Arrangements.  The consensus stipulates that an agreement by an
      employer to share a portion of the proceeds of a life insurance policy with
      an
      employee during the postretirement period is a postretirement benefit
      arrangement required to be accounted for.  The consensus concludes
      that the purchase of a split-dollar life insurance policy does not constitute
      a
      settlement and, therefore, a liability for the postretirement obligation must
      be
      recognized. Issue 06-04 is effective for annual reporting periods beginning
      after December 15, 2007, with earlier adoption permitted.  The Company
      plans to adopt EITF 06-04 on July 1, 2008.  EITF 06-04 allows the
      Company to record the initial recognition of the liability through stockholders’
equity.  Upon the adoption of EITF 06-04 management estimates the
      Company’s stockholders’ equity will decrease approximately $459,000 after
      tax.  Ongoing expenses will be recognized through the current year
      income.  Management estimates the first year’s expense is estimated to
      be approximately $20,000 after tax or less than $0.01 earnings per share after
      tax.





In
      September 2006, the FASB issued Statement No. 157, (“SFAS 157”), *Fair Value
      Measurements.*  SFAS 157 defines fair value, establishes a
      framework for measuring fair value, and expands disclosures about fair value
      measurements.  It clarifies that fair value is the price that would be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants in the market in which the reporting
      entity transacts.  This Statement does not require any new fair value
      measurements, but rather, it provides enhanced guidance to other pronouncements
      that require or permit assets or liabilities to be measured at fair
      value.  This Statement is effective for fiscal years beginning after
      November 15, 2007, with earlier adoption permitted.  At this time, the
      Company does not expect that the adoption of this Statement will have a material
      impact on its financial position, results of operations, and cash
      flows.





In
      February 2007, the FASB issued Statement No. 159, (“SFAS 159”) *The Fair
      Value Option for Financial Assets and Financial Liabilities – Including
      an  amendment of FASB Statement No. 115*.  This
      Statement provides entities with an option to report selected financial assets
      at fair value.  The objective of the Statement is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      earnings caused by measuring related assets and liabilities differently without
      having to apply the complex provisions of hedge accounting.  SFAS 159
      is effective as of


7
 *Index*


the
      beginning of an entity’s first fiscal year beginning after November 15,
      2007.  Early adoption is permitted as of the beginning of a fiscal
      year that begins on or before November 15, 2007 provided the entity also elects
      to apply the provisions of SFAS 157.  At this time, the Company does
      not expect that the adoption of this Statement will have a material impact
      on
      its financial position, results of operations, and cash flows.





In
      September 2006, the FASB issued Statement No. 158, (“SFAS 158”), Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
      amendment of FASB Statements No. 87, 88, 106 and 132(R).  SFAS 158
      requires a company that sponsors a postretirement benefit plan (other than
      a
      multi-employer plan) to fully recognize, as an asset or liability, the
      over-funded or under-funded status of its benefit plan in its balance
      sheet.  The funded status is measured as the difference between the
      fair value of the plan’s assets and its benefit obligation (projected benefit
      obligation for pension plans and accumulated postretirement benefit obligation
      for other postretirement benefit plans).  Currently, the funded status
      of such plans is reported in the notes to the financial
      statements.  This provision was effective for the Company on July 1,
      2006.  In addition, SFAS No. 158 also requires a company to measure
      its plan assets and benefit obligations as of its year end balance sheet date.
      Currently, a company is permitted to choose a measurement date up to three
      months prior to its year end to measure the plan assets and
      obligations.  This provision is effective for the Company on July 1,
      2008.  Since the Company participates in a multi-employer pension
      plan, it expects that the adoption of SFAS 158 will not have a material impact
      on its financial position, results of operation and cash flows.





**Note
      6.  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.





Three
                  Months EndedSeptember
                  302007
              
              
              2006Basic
                  earnings per share computation:Income
                  from continuing operations
              
              $
              414,613
              
              
              $
              923,047Income
                  from discontinued operations
              
              
              -
              
              
              
              43,695Net
                  income
              
              $
              414,613
              
              
              $
              966,742Weighted
                  average common shares outstanding
              
              
              3,263,662
              
              
              
              3,300,648Basic
                  earnings per share from continuing operations
              
              $
              0.13
              
              
              $
              0.28Basic
                  earnings per share from discontinued operations
              
              
              -
              
              
              
              0.01Basic
                  earnings per share
              
              $
              0.13
              
              
              $
              0.29Diluted
                  earnings per share computation:Income
                  from continuing operations
              
              $
              414,613
              
              
              $
              923,047Income
                  from discontinued operations
              
              
              -
              
              
              
              43,695Net
                  income
              
              $
              414,613
              
              
              $
              966,742Weighted
                  average common shares outstanding
              
              
              3,263,662
              
              
              
              3,300,648Incremental
                  option and recognition and retention plan sharesusing
                  treasury stock method
              
              
              13,687
              
              
              
              41,942Diluted
                  shares outstanding
              
              
              3,277,349
              
              
              
              3,342,590Diluted
                  earnings per share from continuing operations
              
              $
              0.13
              
              
              $
              0.28Diluted
                  earnings per share from discontinued operations
              
              
              -
              
              
              
              0.01Diluted
                  earnings per share
              
              $
              0.13
              
              
              $
              0.29




8
 *Index*


**Note
                7.**
            **Dividends**





On
      October 25, 2007, the Company declared a cash dividend on its common stock,
      payable on November 30, 2007, to stockholders of record as of November 16,
      2007,
      equal to $0.105 per share.





**Note
                8.**
            **FASB
                Interpretation No. 48, Accounting for Uncertainty in Income Taxes
                (“FIN
                48”)**





The
      Company and its subsidiaries file income tax returns in the U.S. federal
      jurisdiction and various state jurisdictions, including Iowa.  With
      few exceptions, the Company is no longer subject to U.S. federal and state
      examinations by  authorities for fiscal years prior to June
      30, 2004.





As
      a
      result of the implementation of FIN 48 on July 1, 2007, the Company recognized
      a
      $180,000 decrease to reserves for uncertain tax positions, resulting in a
      liability for unrecognized tax benefits of $127,000 at July 1,
      2007.  This adjustment was accounted for as an adjustment to the
      beginning balance of retained earnings.  There have been no
      significant changes to this amount during the quarter ended September 30, 2007
      and the Company does not expect that there will be any significant increase
      or
      decrease within the next twelve months.





The
      Company recognizes interest and penalties accrued related to unrecognized tax
      benefits in income tax expense.  The Company has included in the
      liability for unrecognized tax benefits approximately $26,000 for the payment
      of
      interest and penalties at September 30, 2007.





**Note
                9.**
            **Operating
                Segments**





An
      operating segment is generally defined as a component of a business for which
      discrete financial information is available and the operating results of which
      are regularly reviewed by the chief operating decision-maker. The Company’s
      primary business segment is banking.  The banking segment generates
      revenue through interest and fees on loans, service charges on deposit accounts,
      and interest on investment securities.  The banking segment includes
      the Bank and the Company and related elimination entries between the two; since
      the Company’s primary activity is its ownership of the common stock of the
      Bank.  The “other” segment includes the Company’s real estate
      development subsidiary.  ‘Discontinued operations’ is related to a
      wholly-owned subsidiary of the Bank that operated a title search and abstract
      continuation business in Iowa.  The Company sold substantially all the
      assets of this subsidiary in March of 2007  (Refer to Note
      4).





Selected
      financial information on the Company’s segments is presented below for the three
      months ended September 30, 2007 and 2006.








9
 *Index*








Three
                  Months Ended September 30, 2007*(Dollars
                  in Thousands)*
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              9,506
              
              
              
              -
              
              
              $
              9,506Interest
                  expense
              
              
              5,426
              
              
              
              -
              
              
              
              5,426Net
                  interest income
              
              
              4,080
              
              
              
              -
              
              
              
              4,080Provision
                  for loan losses
              
              
              21
              
              
              
              -
              
              
              
              21Net
                  interest income after provision for loan losses
              
              
              4,059
              
              
              
              -
              
              
              
              4,059Non-interest
                  income
              
              
              1,504
              
              
              $
              4
              
              
              
              1,508Non-interest
                  expense
              
              
              5,031
              
              
              
              6
              
              
              
              5,037Income
                  before income taxes
              
              
              532
              
              
              
              (2
              )
              
              
              530Income
                  taxes
              
              
              116
              
              
              
              (1
              )
              
              
              115Net
                  income
              
              $
              416
              
              
              $
              (1
              )
              
              $
              415Depreciation
                  and amortization
              
              $
              283
              
              
              
              -
              
              
              $
              283Total
                  assets
              
              $
              630,277
              
              
              $
              284
              
              
              $
              630,561
 
 Three
                  Months Ended September 30, 2006*(Dollars
                  in Thousands)*
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              8,564
              
              
              
              -
              
              
              $
              8,564Interest
                  expense
              
              
              4,459
              
              
              
              -
              
              
              
              4,459Net
                  interest income
              
              
              4,105
              
              
              
              -
              
              
              
              4,105Provision
                  for loan losses
              
              
              100
              
              
              
              -
              
              
              
              100Net
                  interest income after provision for loan losses
              
              
              4,005
              
              
              
              -
              
              
              
              4,005Non-interest
                  income
              
              
              1,559
              
              
              $
              40
              
              
              
              1,599Non-interest
                  expense
              
              
              4,283
              
              
              
              34
              
              
              
              4,317Income
                  before income taxes and discontinued operations
              
              
              1,281
              
              
              
              6
              
              
              
              1,287Income
                  taxes
              
              
              362
              
              
              
              2
              
              
              
              364Income
                  from continuing operations
              
              
              919
              
              
              
              4
              
              
              
              923Income
                  from discontinued operations, net of tax
              
              
              -
              
              
              
              44
              
              
              
              44Net
                  income
              
              $
              919
              
              
              $
              48
              
              
              $
              967Depreciation
                  and amortization
              
              $
              300
              
              
              $
              5
              
              
              $
              305Total
                  assets
              
              $
              593,942
              
              
              $
              898
              
              
              $
              594,840








10
 *Index*


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





**Forward-Looking
      Statements**





This
      report may contain certain forward-looking statements within the meaning of
      Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
      and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), that involve substantial risks and
      uncertainties.  When used in this report, or in the documents
      incorporated by reference herein, the words “anticipate”, “believe”, “estimate”,
“expect”, “intend”, “may”, and similar expressions identify such forward-looking
      statements.  Actual results, performance or achievements could differ
      materially from those contemplated, expressed or implied by the forward-looking
      statements contained herein.  These forward-looking statements are
      based largely on the expectations of the Company’s management and are subject to
      a number of risks and uncertainties, including but not limited to economic,
      competitive, regulatory, and other factors affecting the Company’s operations,
      markets, products and services, as well as expansion strategies and other
      factors discussed elsewhere in this report filed by the Company with the
      Securities and Exchange Commission (“SEC”).  Many of these factors are
      beyond the Company’s control.





**Results
      of Operations**





***Quarter
      Overview***   The Company’s net income for the three
      months ended September 30, 2007, was $415,000 or $0.13 per diluted share
      compared to $967,000 or $0.29 per diluted share in the same period last
      year.  These amounts represent an annualized return on average assets
      (“ROA”) of 0.26% and 0.65%, respectively, and an annualized return on average
      equity (“ROE”) of 2.39% and 5.52%, respectively.  During the most
      recent quarter the Company incurred approximately, $250,000 of non-recurring
      expenses pre-tax due to the Bank’s name change from First Federal Bank to Vantus
      Bank.  Excluding these expenses, management estimates earnings per
      share would have been approximately $0.18 per diluted share.





The
      decrease in net income for the three months ended September 30, 2007, as
      compared to the three months ended September 30, 2006, was due to a $720,000
      increase in non-interest expense, a $91,000 decrease in non-interest income,
      and
      a $26,000 decrease in net interest income.  In addition, discontinued
      operations contributed $44,000 for the three months ended September 30,
      2006.  These developments were offset by a $79,000 decrease in
      provision for loan losses and $249,000 decrease in income tax
      expense.





The
      following paragraphs discuss the aforementioned changes in more detail along
      with other changes in the components of net income during the three month period
      ended September 30, 2007 and 2006.





***Net
      Interest Income*** Net interest income for both of the three-month
      periods ended September 30, 2007 and 2006, was $4.1 million.  A higher
      interest rate environment and a flat yield curve increased the Company’s cost of
      interest-bearing liabilities faster than the Company’s yields on
      interest-earning assets.  The Company’s interest rate margin decreased
      20 basis points to 2.90% for the three months ended September 30, 2007, from
      3.10% during the same period in the previous year.  Offsetting the
      decrease in the interest rate spreads was an increase in the average balance
      of
      interest-earning assets.  The average balance of interest-earning
      assets increased by $33.4 million or 6.2% for the three months ended September
      30, 2007, as compared to the same time period last year.  The
      principal source of this growth occurred in the Company’s investment security
      portfolio.  During the previous fiscal year the Bank purchased $50
      million of floating-rate,  trust-preferred securities initially funded
      by short-term brokered certificates of deposit at an after-tax annualized return
      on assets in excess of 1.0%.





Despite
      the decline in net interest margin year-over-year, the margin improved from
      2.83% in the quarter ended June 30, 2007, to 2.90% in the most recent
      quarter.  The increase from quarter-to-quarter was due to a rise in
      asset yields, primarily from the Company’s loan portfolio, and a corresponding
      decrease in liability costs, primarily from the Company’s interest-bearing
      deposits.  During the most recent quarter, the Company lowered the
      rate it pays on certain variable-rate deposit products, as well as the rate
      it
      pays on its certificates of deposit.  This is the second consecutive
      quarter of increased margins.  Management anticipates no significant
      changes in the net interest margin unless short term rates, in particular the
      Federal Funds rate, decline.


11
 *Index*


The
      following tables set forth information regarding the average balances of the
      Company’s assets, liabilities, and equity, as well as the average yield on
      assets and average cost of liabilities for the periods indicated.  The
      information is based on daily average balances during the three-month periods
      ended September 30, 2007 and 2006.




Three
                  months ended September 30,2007
              
              2006Average
              
              
              
              
              
              Average
              
              Average
              
              
              
              
              
              Average*(Dollars
                  in thousands)*
              
              Balance
              
              
              Interest
              
              
              Yield/Cost
              
              Balance
              
              
              Interest
              
              
              Yield/CostInterest-earning
                  assets:Loans
                  receivable (1)
              
              $
              432,897
              
              
              $
              7,430
              
              
              
              6.81
              %
              
              $
              459,282
              
              
              $
              7,636
              
              
              
              6.60
              %Investment
                  securities (2)
              
              
              132,316
              
              
              
              2,025
              
              
              
              6.21
              %
              
              
              66,082
              
              
              
              794
              
              
              
              5.09
              %Short-term
                  investments and otherinterest-earning
                  assets
              
              
              3,885
              
              
              
              51
              
              
              
              5.15
              %
              
              
              10,296
              
              
              
              134
              
              
              
              5.17
              %Total
                  interest-earning assets
              
              
              569,098
              
              
              
              9,506
              
              
              
              6.66
              %
              
              
              535,660
              
              
              
              8,564
              
              
              
              6.38
              %Non-interest-earning
                  assets
              
              
              62,422
              
              
              
              
              
              
              
              
              
              
              
              55,538Total
                  assets
              
              $
              631,520
              
              
              
              
              
              
              
              
              
              
              $
              591,198Interest-bearing
                  liabilities:Deposit
                  liabilities
              
              $
              448,957
              
              
              
              4,562
              
              
              
              4.03
              %
              
              $
              386,629
              
              
              
              3,422
              
              
              
              3.51
              %Borrowings
              
              
              65,940
              
              
              
              864
              
              
              
              5.20
              %
              
              
              87,443
              
              
              
              1,037
              
              
              
              4.70
              %Total
                  interest-bearing liabilities
              
              
              514,897
              
              
              
              5,426
              
              
              
              4.18
              %
              
              
              474,072
              
              
              
              4,459
              
              
              
              3.73
              %Non-interest-bearing:Deposit
                  liabilities
              
              
              42,388
              
              
              
              
              
              
              
              
              
              
              
              43,099Other
                  liabilities
              
              
              4,826
              
              
              
              
              
              
              
              
              
              
              
              4,688Total
                  liabilities
              
              
              562,111
              
              
              
              
              
              
              
              
              
              
              
              521,859Stockholders’
                  equity
              
              
              69,409
              
              
              
              
              
              
              
              
              
              
              
              69,339Total
                  liabilities andstockholders' equity
              
              $
              631,520
              
              
              
              
              
              
              
              
              
              
              $
              591,198Net
                  interest income
              
              
              
              
              
              $
              4,080
              
              
              
              
              
              
              
              
              
              
              $
              4,105Interest
                  rate spread
              
              
              
              
              
              
              
              
              
              
              2.48
              %
              
              
              
              
              
              
              
              
              
              
              2.65
              %Net
                  yield on averageinterest-earning
                  assets (3)
              
              
              
              
              
              
              
              
              
              
              2.90
              %
              
              
              
              
              
              
              
              
              
              
              3.10
              %Ratio
                  of average interest -earning assetsto
                  average interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              110.53
              %
              
              
              
              
              
              
              
              
              
              
              112.99
              %


(1)
              Average
                  balances include nonaccrual loans and loans held for
                  sale.  Interest income includes amortization of deferred loan
                  fees, which is not material.
 (2)
              Investment
                  securities income is presented without the benefit of the tax effect
                  of
                  tax exempt income; yields are presented on a tax-effected
                  basis.
 (3)
              Net
                  yield on average interest-earning assets represents net interest
                  income,
                  tax-effected, as a percentage of average interest-earning
                  assets.





***Provision
      for Losses on
      Loans*****Provision for losses on loans decreased to
      $21,000 for the three months ended September 30, 2007, from $100,000 for the
      three months ended September 30, 2006.  The decrease was due to a
      general overall decline in non-performing loans as compared to the previous
      year.





The
      Company’s allowance for loan losses totaled $1.7 million as of September 30,
      2007, compared to $5.5 million as of September 30, 2006.  The
      Company’s methodology for establishing allowance for loan loss is heavily
      influenced by the level of the Company’s non-performing and classified
      loans.  As previously reported, the Company sold a significant amount
      of non-performing and classified assets during the prior fiscal year, which
      explains the decrease in allowance for loan losses compared to the previous
      year.  The Company’s allowances for loan losses was 45.4% and 64.1% of
      non-performing loans as of September 30, 2007 and 2006,
      respectively.   The allowance for loan losses at June 30, 2007,
      totaled $1.8 million or 144.7% of non-performing loans.  The decrease
      is attributable to charge-offs of specific reserves during the
      quarter.   Non-performing loans and classified assets have
      increased in recent months in response to well-publicized difficulties in the
      overall markets for commercial and residential real


12
 *Index*


estate.  Management
      expects this trend to continue in the near term, but believes the situation
      is
      manageable.  Although management believes that the Company’s present
      level of allowance for loan losses is adequate, there can be no assurance that
      future adjustments to the allowance will not be necessary, which could adversely
      affect the Company’s results of operations.  For additional
      discussion, refer to “Financial Condition – Non-Performing and Classified
      Assets.”





The
      following table summarizes the activity in the Company’s allowance for loan
      losses for the three months ended September 30, 2007 and 2006.





Three
                    months endedSeptember
                    3*(Dollars
                    in Thousands)*
                
                2007
                
                
                2006Balance
                    at beginning of period
                
                $
                1,797
                
                
                $
                5,466Provision
                    for loan losses
                
                
                21
                
                
                
                100Charge-offs:Commercial
                    real estate loans
                
                
                -
                
                
                
                (20
                )Commercial
                    business loans
                
                
                (56
                )
                
                
                -Consumer
                    loans
                
                
                (46
                )
                
                
                (78
                )Total
                    loans charged-off
                
                
                (102
                )
                
                
                (98
                )Recoveries
                
                
                27
                
                
                
                14Charge-offs,
                    net of recoveries
                
                
                (75
                )
                
                
                (84
                )Balance
                    at end of period
                
                $
                1,743
                
                
                $
                5,482Allowance
                    for loan losses to total loans
                
                
                0.40
                %
                
                
                1.20
                %Allowance
                    for loan losses to non-performing loans
                
                
                45.40
                %
                
                
                64.10
                %Net
                    annualized charge-offs to average loans outstanding
                
                
                0.07
                %
                
                
                0.07
                %


***Non-Interest
      Income***  Non-interest income totaled $1.5 million for the three
      months ended   September 30, 2007, compared to $1.6 million
      during the same period in 2006.  The following paragraphs discuss the
      principal components of non-interest income and the primary reasons for the
      changes from 2006 to 2007.





**Service
      Charges on Deposit
      Accounts** Service charges on deposits decreased $122,000 or
      14% for the three month period ended September 30, 2007, as compared to the
      same
      period in the previous year.  The decline was primarily due the
      elimination of fees on internet banking services and lower income from overdraft
      fees as a result of the implementation of an overdraft protection
      product.  These changes were driven by competitive forces in the
      Company’s market places.





**Service
      Charges on Commercial
      and Consumer Loan   S**ervice charges on commercial and
      consumer loans increased $64,000 for the three month period ended September
      30,
      2007, as compared to the same period in the previous year.  The
      increase was primarily due to the collection of a prepayment penalty on a large
      commercial loan during the current period.




**Gain
      (Loss) on Sale of Real
      Estate Held for Development**The gain on sale of real
      estate held for development for the three months ended September 30, 2007 and
      2006, was zero and $40,000, respectively.  The gains recognized in the
      three months ended September 30, 2006, were due to sales from a condominium
      development project in the Company’s real estate development
      subsidiary.  Management anticipates that this project will be
      completed in the second quarter of fiscal year 2008 and expects to record gains
      of approximately $40,000 on the final sales of the units in this
      project.  Once this project is completed, it is expected that no other
      real estate development projects will be undertaken.





**Mortgage
      Banking
      Revenue**   Mortgage banking revenue consists of gain on
      sale, collection of loan fees, and mortgage servicing
      income.  Mortgage banking revenue declined $6,000 from $200,000 for
      the three months ended September 30, 2006, to $194,000 for the three months
      ended September 30, 2007.  The decrease was attributable to the
      decline in fixed rate mortgage origination volumes due to a generally higher
      interest rate environment.


13
 *Index*





**Other
      Income**Other income increased $10,000 during the three
      month period ended September 30, 2007, as compared to the same period in
      the previous year.  The change was primarily due to an increase in
      sales of the Company’s fixed annuity and mutual funds.




***Non-Interest
      Expense***  Non-interest expense for the three months ended
      September 30, 2007, was $5.0 million compared to $4.3 million for the three
      months ended September 30, 2006.  The following paragraphs discuss the
      principal components of non-interest expense and the primary reasons for the
      changes from 2006 to 2007.





**Personnel
      Expense**    Compensation and employee benefits was
      $2.8 million for the three months ended September 30, 2007, compared to $2.5
      million for the three months ended September 30, 2006.  The increase
      in expense was due to annual merit increases and an increase in the number
      of
      full-time equivalent employees.  The number of full-time equivalent
      employees was 191 as of September 30, 2007, as compared to 180 at the same
      time
      last year.  The number of employees increased during the year due to
      the opening of the Jordan Creek banking center as well as the hiring of certain
      key employees over the last twelve months.





**Office
      Property and
      Equipment**   Office property and equipment expense
      increased $23,000 or 3% during the three months ended September 30, 2007,
      compared to the same period in the previous year.  The increase was
      primarily due to increased maintenance costs at the Company’s banking
      centers.





**Data
      Processing, ATM and Debit Card Transaction Costs, and Other Item Processing
      Expense**Data processing, ATM and debit
      card transaction costs, and other item processing expense increased from
      $308,000 for the three months ended September 30, 2006, to $370,000 for the
      three months ended September 30, 2007.  The increase was primarily due
      to costs associated to the aforementioned Bank name change.





**Professional,
      Insurance, and Regulatory**Professional, insurance and
      regulatory expense decreased to $255,000 from $284,000 for the three months
      ended September 30, 2007, as compared to the same period last
      year.  The Company incurred consulting and legal costs last year
      related to the implementation of the Company’s long-term incentive plan and cash
      incentive plan.





**Advertising,
      Donations, and Public Relations**Expenses related to
      advertising, donations and public relations increased from $167,000 for the
      three months ended September 30, 2006, to $464,000 for the three months ended
      September 30, 2007.  The increase was due to the aforementioned
      non-recurring costs related to the Bank’s name change and brand
      image.  Management anticipates the cost level of this line item to
      return to more historical levels in the third and fourth quarters of fiscal
      year
      2008.





**Communication,
      Postage, and
      Office Supplies**Communications, postage, and office
      supplies expense increased by $17,000 from $194,000 for the three months ended
      September 30, 2006, to $211,000 for the three months ended September 30,
      2007.  These increases were primarily due printing and postage related
      to the Bank’s name change.





**Other
      Non-Interest
      Expense**Other non-interest expense increased by
      $65,000 for the three month period ended September 30, 2007, as compared to
      the
      same period in the previous year.  This increase was due to costs
      incurred by the Company to dispose of foreclosed property.





***Income
      Tax
      Expense***Income tax expense for the three months
      ended September 30, 2007, and 2006, was $115,000 and $364,000, respectively,
      or
      21.7% and 28.3% of pre-tax income, respectively.  The effective tax
      rate decreased primarily due to tax exempt income becoming a larger percentage
      of pretax income.





**Financial
      Condition**





***Overview***
      Total assets decreased by $15.3 million or 2.4%, to $630.6 million at September
      30, 2007, from $645.8 million at June 30, 2007.  During the quarter
      funds from the maturity of investment securities, interest bearing deposits
      at
      other financial institutions and additional borrowings from the Federal Home
      Loan Bank were primarily used to fund a decline in the Company’s deposit
      liabilities.  The following paragraphs discuss the
      aforementioned


14
 *Index*


changes
      in more detail along with other changes in the components of the assets and
      liabilities for the period ended September 30, 2007.





***Interest-Bearing
      Deposits
      with Banks*** Interest-bearing deposits with banks, which consist
      primarily of overnight investments at the Federal Home Loan Bank (“FHLB”),
      decreased by $14.1 million to zero at September 30, 2007.  These
      balances were used to fund decreases in the Company’s deposit
      liabilities.





***Securities
      Available-for-Sale and Held-for-Investment***Total
      securities decreased by $9.2 million to $122.7 million at September 30, 2007,
      from $131.9 million at June 30, 2007.  The decrease was primarily due
      to the maturity of commercial paper during the quarter.  These funds
      were also used to fund the aforementioned decline of interest bearing
      deposits.  In addition, the fair value of the Company’s Collateralized
      Debt Obligations (CDOs) declined.  Please refer to “Financial
      Condition – Stockholders’ Equity” for a further discussion of the Company’s
      CDOs.





***Loans
      Receivable***  Loans receivable increased by $3.7 million,
      to $435.6 million as of September 30, 2007, from $431.9 million at June 30,
      2007.  During the quarter, commercial and commercial real estate loans
      increased.  These increases were offset by repayments of one-to-four
      family residential loans.  The following table sets forth information
      regarding the Company’s loan portfolio, by type of loan, on the dates
      indicated.





September
                  30, 2007
              
              June
                  30, 2007*(Dollars
                  in Thousands)*
              
              Amount
              
              
              %
              
              Amount
              
              
              %First
                  mortgage loans:Secured
                  by one to four family residences (1)
              
              $
              123,536
              
              
              
              28.5
              
              
              $
              126,360
              
              
              
              29.4Secured
                  by multi-family and non-residential properties (2)
              
              
              198,919
              
              
              
              45.8
              
              
              
              197,952
              
              
              
              46.1Commercial
                  business loans
              
              
              55,475
              
              
              
              12.8
              
              
              
              50,439
              
              
              
              11.7Home
                  equity and second mortgage loans
              
              
              28,983
              
              
              
              6.7
              
              
              
              28,594
              
              
              
              6.6Other
                  non-mortgage loans (3)
              
              
              29,194
              
              
              
              6.7
              
              
              
              28,996
              
              
              
              6.7Loans
                  in process, unearned discounts, premiums andnet
                  deferred loan fees and costs
              
              
              (552
              )
              
              
              (0.1
              )
              
              
              (459
              )
              
              
              (0.1
              )Subtotal
              
              
              435,555
              
              
              
              100.4
              
              
              
              431,882
              
              
              
              100.4Allowance
                  for  loan losses
              
              
              1,743
              
              
              
              0.4
              
              
              
              1,797
              
              
              
              0.4Total
                  loans receivable
              
              
              433,812
              
              
              
              100.0
              
              
              $
              430,085
              
              
              
              100.0
 
 (1)
              Includes
                  construction loans of $6.3 million and $9.7 million,
                  respectively.(2)
              Includes
                  construction loans of $23.6 million and $29.1 million,
                  respectively.(3)
              Includes
                  other secured non-mortgage loans, secured and unsecured personal
                  loans,
                  and loans on deposits.





***Office
      property and equipment***  Office property and equipment
      increased $1.7 million from $16.2 million at June 30, 2007, to $17.9 million
      at
      September 30, 2007.  The increase was due to construction costs
      associated with a new banking office in the Ankeny, Iowa.  The Company
      expects the banking center to open in the spring of 2008.  The Company
      continues to search for additional locations for full-service offices in the
      fast growing Des Moines metro area.





***FHLB
      Stock***   The Company’s FHLB stock increased from
      $3.6 million at June 30, 2007, to $4.9 million at September 30,
      2007.  The increase was a direct result of the increase in FHLB
      advances, which increases the level of FHLB stock required to be
      held.





***Deposit
      Liabilities***   Deposit liabilities decreased by
      $40.6 million, to $467.3 million at September 30, 2007, from $507.9 million
      at
      June 30, 2007.  The decrease in deposits was partially due to the
      replacement of matured brokered certificates of deposits with FHLB advances
      of
      similar term.  The following table sets forth information regarding
      the Company’s deposit portfolio on the dates indicated.





15
 *Index*


September
                  30, 2007
              
              June
                  30, 2007*(Dollars
                  in Thousands)*
              
              Amount
              
              
              %
              
              Amount
              
              
              %Non-interest-bearing
                  checking
              
              $
              41,804
              
              
              
              8.95
              
              
              $
              45,200
              
              
              
              8.90Interest-bearing
                  checking accounts
              
              
              88,360
              
              
              
              18.91
              
              
              
              91,723
              
              
              
              18.06Money
                  market accounts
              
              
              53,891
              
              
              
              11.53
              
              
              
              55,848
              
              
              
              11.00Savings
                  accounts
              
              
              23,261
              
              
              
              4.98
              
              
              
              25,931
              
              
              
              5.10Certificates
                  of deposit
              
              
              259,964
              
              
              
              55.63
              
              
              
              289,163
              
              
              
              56.94Total
                  deposits
              
              $
              467,280
              
              
              
              100.00
              
              
              $
              507,865
              
              
              
              100.00





***FHLB
      Advances and Other
      Borrowings***The Company’s FHLB advances and other
      borrowings increased by $28.2 million, to $90.4 million at September 30, 2007,
      from $62.2 million at June 30, 2007.  The increase was due to the
      aforementioned replacement of brokered certificates of deposit with FHLB
      advances.





***Stockholders’
      Equity*** Total stockholders’ equity decreased by $2.5 million from
      $70.3 million at June 30, 2007, to 67.8 million at September 30,
      2007.  The decrease was partially attributed to an increase in
      accumulated other comprehensive loss.  This increase was caused by a
      decline in the fair value of the Company’s available-for-sale securities, most
      notability its CDOs.  In recent months, volatility in world credit
      markets has resulted in significant fluctuations in the value of the Company’s
      CDOs.  In the opinion of management this volatility is due to market
      perceptions of credit risk.  It does not reflect the underlying credit
      quality or performance of the banks, thrifts, insurance companies, or REITS,
      that secure the Company’s CDOs.  There have been no significant
      defaults or payment deferrals, or other financial difficulties reported by
      the
      firms that secure the Company’s CDOs.  Regardless, continued
      volatility in the market value of these securities could result in significant
      fluctuations in the value of these securities.  This could have an
      adverse effect on the Company’s comprehensive income and accumulated other
      comprehensive income.  In addition, the Company repurchased 87,000
      treasury shares during the period at an average price of $18.96.





***Non-Performing
      and Classified Assets***Non-performing assets
      increased to $6.1 million on September 30, 2007, from $3.4 million as of June
      30, 2007.  As a result, non-performing assets as a percentage of total
      assets increased from 0.19% at June 30, 2007, to 0.97% as of September 30,
      2007.  The following table sets forth information regarding
      non-accrual loans and other non-performing assets at the dates
      indicated.





*(Dollars
                  in Thousands)*
              September
                  30, 2007
              
              
              June
                  30, 2007Loans
                  accounted for on a non-accrual basis:Single-family
                  mortgage loans
              
              $
              1,263
              
              
              $
              405Commercial
                  real estate loans
              
              
              974
              
              
              
              732Commercial
                  business loans
              
              
              1,378
              
              
              
              -Consumer
                  loans
              
              
              224
              
              
              
              105Total
                  non-performing loans
              
              
              3,839
              
              
              
              1,242Other
                  non-performing assets (1)
              
              
              2,251
              
              
              
              2,156Total
                  non-performing assets
              
              $
              6,090
              
              
              $
              3,398Restructured
                  loans not included in other non-performing categories
                  above
              
              $
              1,153
              
              
              $
              2,827Non-performing
                  loans as a percentage of total loans
              
              
              0.88
              %
              
              
              0.29
              %Non-performing
                  assets as a percentage of total assets
              
              
              0.97
              %
              
              
              0.19
              %
 (1)
              Includes
                  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.  Also includes repossessed automobiles, boats,
                  and trailers carried at the lower of cost or fair
                  market value less estimated
                  cost-to-sell.


As
      of
      September 30, 2007, the Company’s adversely classified assets totaled $9.2
      million (which includes non-performing loans in the above table) or 1.46% of
      total assets compared to $4.9 million, or 0.76%, as of June 30,
      2007.  Adversely classified assets include loans rated “Substandard”,
“Doubtful”, or “Loss”, as well as foreclosed and repossessed
      assets.  Although the Company’s classified assets increased,
      management believes the allowance for loan


16
 *Index*


loss
      is
      adequate.  The increase in classified assets was offset by a decrease
      in historical loan loss history which is a key driver in the calculation of
      the
      Company’s allowance for loan loss.  The Company is closely monitoring
      eight adversely classified loan relationships totaling $8.8 million that are
      included in the $9.2 million of adversely classified loans.  Seven of
      these loan relationships are classified “Substandard” and one was classified
“Doubtful” as of that date.  The following paragraphs contain a brief
      discussion of each relationship.





In
      2004,
      the Bank purchased $1.7 million participation of a $5.6 million tax increment
      financing note on a condominium project in Richfield, Minnesota.  In
      June of 2007, the Bank was informed that the tax increment collections on the
      project were significantly below what was expected.  As a result,
      current cash flows will not be sufficient to service the debt.  The
      bank group is currently meeting with borrower and the city to determine how
      to
      restructure loan so cash flow can service the debt.  Since this loan
      is sufficiently secured by real estate tax receipts, management classified
      this
      loan as “substandard”.  Management anticipates the restructuring to
      occur in second quarter of fiscal year 2008 and a loss, if any, will be recorded
      at that time.  Management believes that if a loss occurs, it will not
      be significant;  however, there can be no assurances.





In
      January of 2006 the Bank purchased $1.4 million participation of a $5.3 million
      loan to a concrete pumping business in Englewood, Colorado.  In
      November 2006, the Bank was notified that the borrower was having cash flow
      problems stemming from the slow down in residential construction and a slower
      than expected ramp up of business in a new market.  In June of 2007,
      the business hired a consultant to determine the capability of the company
      to
      service its debt.  The consultant’s findings determined that a
      restructure is necessary.  Since this loan is primarily secured by
      equipment, management has rated this loan as “Doubtful” in order to properly
      reflect the risk in the calculation of the Company’s allowance for loan
      loss.  Management anticipates the restructuring to occur in second
      quarter of fiscal year 2008.   Management believes that if a loss
      occurs, it will not be significant; however, there can be no
      assurances.





In
      2005,
      the Bank purchased a $1.8 million participation in a $19.3 million loan for
      construction of a senior housing facility in Brooklyn Park,
      Minnesota.  At the time of closing a significant portion of the units
      in the project were pre-sold with valid purchase agreements and escrowed
      deposits.  The loan was paying as agreed until December of
      2006.  At that time the borrower started to accept requests for
      cancellation of the original purchase agreements based on accusations of fraud
      on the part of an unrelated third party responsible for marketing the
      project.  As a result, the bank group was forced to commence
      foreclosure proceedings against the borrower.  The loan was
      transferred to foreclosed assets in the fourth quarter of the previous fiscal
      year.  Management believes this asset is adequately secured and no
      loss is expected at this time; however, there can be no assurances.





In
      2002,
      the Bank purchased a $0.5 million participation of a $3.2 million loan to a
      private golf and social club.  The loan was paying as agreed until
      December 2006.  At that time the borrower notified the bank group of a
      significant operating shortfall.  Management believes this loan is
      adequately secured by the underlying collateral, which consists primarily of
      real estate and to a lesser degree accounts receivable and
      equipment.  No loss is expected at this time; however, there can be no
      assurances.





In
      1999
      and 2000 the Bank originated loans to an educational toy
      retailer.  The current balance of these loans totaled $0.5
      million.  The borrower has experienced several years of operating
      losses and cash flow from that business is not sufficient to service the
      debt.  Despite the lack of cash flow, the loan is current due to the
      guarantor injecting cash into the business.  Management believes this
      loan is adequately secured by the underlying collateral which consists of real
      estate and to a lesser degree inventory and equipment.  No loss is
      expected at this time; however, there can be no assurances.





In
      1999
      and subsequent years the Bank originated loans to a local
      restaurant.  The current balance of these loans totaled $0.6
      million.  The borrower has experienced several years of operating
      losses and cash flow from the business is not sufficient to service the
      debt.  Despite the lack of cash flow, the loan is current due to
      guarantor cash injections.  Management does not expect a loss at this
      time; however, there can be no assurances.





In
      2005
      and 2006 the Bank originated loans to a real estate developer in Des Moines
      Iowa.  The current balance of these loans was $1.7 million at
      September 30, 2007.  The borrower is in development and construction
      of single-family, real estate properties.  However, a large increase
      in inventory has created a drain on cash and is affecting the ability of the
      borrower to remain current with its debt obligations.  This
      relationship is the reason for the increase in non-accrual


17
 *Index*


single-family
      mortgage loans.  Management is closely watching the situation and does
      not expect a loss at this time.  However, there can be no
      assurances.





In
      2004,
      the Bank originated loans to a small manufacturer.  The current
      balance of these loans total $0.6 million.  The loans are current;
      however, capital injections will be required from the new owners in order to
      continue operations.  The Bank is working with the borrowers to
      determine the ability and the level of capital they can inject into the
      business.   Management does not expect a loss at this
      time.  However, there can be no assurances.





**Liquidity
      and Capital**


The
      Bank is required to maintain specified amounts of capital pursuant to
      regulations promulgated by the Office of Thrift Supervision (“OTS”) and the
      Federal Deposit Insurance Corporation (“FDIC”).  The Bank's objective
      is to maintain its regulatory capital in an amount sufficient to be classified
      in the highest regulatory capital category (i.e., as a "well-capitalized"
      institution).  At September 30, 2007, the Bank's regulatory capital
      exceeded all regulatory minimum requirements, as well as the amount required
      to
      be classified as a "well-capitalized" institution.  The Bank's actual
      and required capital amounts and ratios as of September 30, 2007, and June
      30,
      2007, were as follows:


September
                  30, 2007To
                  Be WellCapitalized
                  UnderFor
                  Capital
              
              
              Prompt
                  CorrectiveActual
              
              
              Adequacy
                  Purposes
              
              
              Action
                  ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio*Dollars
                  in Thousands*Tangible
                  capital
              
              $
              49,825
              
              
              
              8.12
              %
              
              $
              9,209
              
              
              
              1.50
              %
              
              
              -
              
              
              
              -Tier
                  1 leverage (core)
              
              
              49,825
              
              
              
              8.12
              
              
              
              24,557
              
              
              
              4.00
              
              
              $
              30,696
              
              
              
              5.00
              %Tier
                  1 risk-based capital
              
              
              49,825
              
              
              
              10.37
              
              
              
              19,222
              
              
              
              4.00
              
              
              
              28,834
              
              
              
              6.00Risk-based
                  capital
              
              
              51,464
              
              
              
              10.71
              
              
              
              38,445
              
              
              
              8.00
              
              
              
              48,056
              
              
              
              10.00
 
 June
                  30, 2007To
                  Be WellCapitalized
                  UnderFor
                  Capital
              
              
              Prompt
                  CorrectiveActual
              
              Adequacy
                  Purposes
              
              
              Action
                  ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio*Dollars
                  in Thousands*Tangible
                  capital
              
              $
              49,018
              
              
              
              7.83
              %
              
              $
              9,395
              
              
              
              1.50
              %
              
              
              -
              
              
              
              -Tier
                  1 leverage (core)
              
              
              49,018
              
              
              
              7.83
              
              
              
              25,054
              
              
              
              4.00
              
              
              $
              31,317
              
              
              
              5.00
              %Tier
                  1 risk-based capital
              
              
              49,018
              
              
              
              10.17
              
              
              
              19,280
              
              
              
              4.00
              
              
              
              28,920
              
              
              
              6.00Risk-based
                  capital
              
              
              50,620
              
              
              
              10.50
              
              
              
              38,559
              
              
              
              8.00
              
              
              
              48,199
              
              
              
              10.00


The
      Company is also required by OTS regulation to maintain sufficient liquidity
      to
      assure its safe and sound operation.  The Company's primary sources of
      liquidity are deposits obtained through its branch office network, borrowings
      from the FHLB and other sources, amortization, maturity, and prepayment of
      outstanding loans and investments, and sales of loans and other
      assets.  During the three months ended September 30, 2007, the Company
      used these sources of funds to fund loan commitments, purchase loans, and cover
      maturing liabilities and deposit withdrawals.  The Company had a total
      of $66.5 million of loan commitments outstanding as of September 30,
      2007.   In addition, at September 30, 2007 the Company had $245.8
      million in certificates of deposits, $68.2 million in FHLB advances, and $5.4
      million in other borrowings that were scheduled to mature within one
      year.





Management
      believes that the Company has adequate resources to fund all of these
      obligations as well as the loan commitments it makes in the normal course of
      its
      business.  The Company also believes it can adjust the rates it offers
      on certificates of deposit and other customer deposits to retain these deposits
      in changing interest rate environments.  Management is not aware of
      any known trends, events or uncertainties that will have or are
      reasonably


18
 *Index*


likely
      to
      have a material effect on the Company’s or the Bank’s liquidity, capital or
      operations, nor is management aware of any current recommendations by regulatory
      authorities which, if implemented would have a material effect on the Company’s
      or the Bank’s liquidity, capital or operations.





The
      Company also has a $5.0 million line of credit with another financial
      institution to provide liquidity at the holding company.  The line of
      credit has a one-year term and is priced at 175 basis points over the three
      month LIBOR rate.  The purpose of this line of credit is to provide
      cash for stock buybacks or to provide the holding company the ability to inject
      capital into the Bank.  As of September 30, 2007, there was no
      outstanding balance on this line of credit.  In addition, the Bank
      entered into agreements with three financial institutions to provide federal
      funds lines of credit in the amount of $5.0 million per financial
      institution.  As of September 30, 2007, there were no outstanding
      balances on any of the lines of credit.





The
      following table presents, as of September 30, 2007, the expected future payments
      of the Bank’s contractual obligations.




Payments
                  Due in:*(In
                  thousands)*
              
              Less
                  than One
                Year
              
              
              One
                  Year to
                Less
                  Than
                Three
                  Years
              
              
              Three
                  Years
                to
                  Less Than
                Five
                  Years
              
              
              Five
                  Years or
                Greater
              
              
              TotalFHLB
                  advances
              
              $
              68,179
              
              
              $
              12,500
              
              
              $
              1,250
              
              
              
              -
              
              
              $
              81,929Other
                  borrowings (1)
              
              
              5,452
              
              
              
              3,000
              
              
              
              -
              
              
              
              -
              
              
              
              8,452Operating
                  lease
              
              
              130
              
              
              
              286
              
              
              
              334
              
              
              $
              496
              
              
              
              1,246Data
                  processing
              
              
              509
              
              
              
              562
              
              
              
              133
              
              
              
              -
              
              
              
              1,204Off-balance-sheet
                  (2)
              
              
              66,459
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              66,459Total
              
              $
              140,729
              
              
              $
              16,348
              
              
              $
              1,717
              
              
              $
              496
              
              
              $
              159,290
 (1)
              Includes
                  securities sold under repurchase agreements.(2)
              Includes
                  commitments to extend credit, net of commitments to sell
                  loans.


**Off-Balance
      Sheet Arrangements**





In
      addition to the normal course of operations, the Company engages in a variety
      of
      financial transactions that, in accordance with accounting principles generally
      accepted in the United States of America are not recorded in our financial
      statements.  These transactions involve, to varying degrees, elements
      of credit, interest rate and liquidity risk.  Such transactions are
      used primarily to manage customers’ requests for funding and take the form of
      loan commitments, lines of credit and letters of credit.  For the
      three months ended September 30, 2007, the Company engaged in no off-balance
      sheet transactions reasonably likely to have a material effect on our financial
      condition, results of operations or cash flows.





**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,
      2007.  The Company’s NPV ratio after a 200 basis point rate-shock was
      9.16% at June 30, 2007, compared to 8.91% at June 30, 2006, as measured by
      the
      Model.  As of that date, 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


19
 *Index*


market
      risk exposures and how those exposures were managed during the three months
      ended September 30, 2007, have changed significantly when compared to the
      immediately preceding quarter ended June 30, 2007.  However, the
      Company’s primary market risk exposure has not yet been quantified at September
      30, 2007, and the complexity of the Model makes it difficult to accurately
      predict results.





**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 fiscal
      quarter
      ended            September
      30, 2007, 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 first fiscal
      quarter that have materially affected, or are reasonably likely to materially
      affect, the Company’s internal control over financial reporting.





20
 *Index*


**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**





There
      have been no material changes to the risk factors disclosed in the Company’s
      2007 Annual Report on Form 10-K.





**ITEM
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds**





There
      were no sales of unregistered securities during the nine months ended September
      30, 2007.





The
      following table presents a summary of the Company’s share repurchases during the
      quarter ended September 30, 2007.


Period
              
              Total
                  Number
                of
                  Shares
                Purchased
              
              
              Average
                Price
                  Paid
                Per
                  Share
              
              
              Total
                  Number of Shares
                Purchased
                  as Part of
                Publicly
                  Announced
                Program
                  (1)
              
              
              Maximum
                  Number
                of
                  Shares that May
                Yet
                  be Purchased
                Under
                  the Program
                (1)July
                  1 through July 31, 2007
              
              
              24,000
              
              
              $
              19.02
              
              
              
              24,000
              
              
              
              156,095August
                  1 through August 31, 2007
              
              
              63,000
              
              
              $
              18.94
              
              
              
              63,000
              
              
              
              93,095September
                  1 through September 30, 2007
              
              none
              
              
              
              -
              
              
              
              -
              
              
              
              93,095


(1)
              On
                  December 12, 2005 the Company announced that its Board of Directors
                  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 program expires on October 25, 2008,
                  pursuant to a one-year extension approved by the Board of Directors
                  on
                  October 25, 2007.


**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 Information**





(a)
      Not
      applicable.


(b)
      Not
      applicable.





**ITEM
      6.  Exhibits**





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


21
 *Index*


**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:  November
                9, 2007
            BY:
            /s/
                Michael W. DoslandMichael
                W. DoslandPresident
                and Chief Executive OfficerDATE:  November
                9, 2007
            BY:
            /s/
                Michael S. ModerskiMichael
                S. ModerskiSenior
                Vice President, Chief Financial Officerand
                Treasurer








22