**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington      D.C. 20549**

**FORM      10-Q**

| þ | Quarterly                Report Pursuant to Section 13 or 15(d) of the Securities Exchange                Act of                1934 for the quarterly period ended September 30,                2006 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**OR**

| o | 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.**

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

**712-277-0200**

| Large                accelerated filer o | Accelerated                filer þ | Non-accelerated                filer o |
|------------------------------------------|-----------------------------------------|----------------------------------------|

| Class                                       | Outstanding                at Nov 7, 2006 |
|---------------------------------------------|-------------------------------------------|
| Common                Stock, $.01 par value | 3,383,588                                 |

----

INDEX

|                                                                                                                                                                                  |                                                                                                                | Page   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|
| **PART                I**.                                                                                                                                                            | FINANCIAL                INFORMATION                                                                                |   |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                1**.                                                                                                                                                            | Financial                Statements of First Federal Bankshares, Inc. and                Subsidiaries               | 1      |
|                                                                                                                                                                                  |                                                                                                                |   |
| Condensed                Consolidated Balance Sheets at September 30, 2006                and June 30, 2006                                                                           |                                                                                                                |
|                                                                                                                                                                                  |                                                                                                                |
| Condensed                Consolidated Statements of Operations for the                three-month periods ended September 30, 2006 and 2005                                           | 2                                                                                                                   |
|                                                                                                                                                                                  |                                                                                                                |
| Condensed                Consolidated Statements of Changes in                Stockholders’ Equity for the three-month periods ended September 30, 2006                and 2005 | 3                                                                                                                   |
|                                                                                                                                                                                  |                                                                                                                |
| Condensed                Consolidated Statements of Comprehensive Income                for three-month periods ended September 30, 2006 and                2005                      | 4                                                                                                                   |
|                                                                                                                                                                                  |                                                                                                                |
| Condensed                Consolidated Statements of Cash Flows for the                three-month periods ended September 30, 2006 and 2005                                           | 5                                                                                                                   |
|                                                                                                                                                                                  |                                                                                                                |
| Notes                to Condensed Consolidated Financial                Statements                                                                                                    | 6                                                                                                                   |
|                                                                                                                                                                                  |                                                                                                                |
| **ITEM                2**.                                                                                                                                                            | Management's                Discussion and Analysis of Financial Condition and                Results of Operations | 10     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                3**.                                                                                                                                                            | Quantitative                and Qualitative Disclosures about Market                Risk                            | 16     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                4**.                                                                                                                                                            | Controls                and Procedures                                                                              | 16     |
|                                                                                                                                                                                  |                                                                                                                |   |
|                                                                                                                                                                                  |                                                                                                                |   |
| **PART                II**.                                                                                                                                                           | OTHER                INFORMATION                                                                                    | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                1**.                                                                                                                                                            | Legal                Proceedings                                                                                    | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                1A**.                                                                                                                                                           | Risk                Factors                                                                                         | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                2**.                                                                                                                                                            | Unregistered                Sales of Equity Securities and Use of                Proceeds                           | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                3**.                                                                                                                                                            | Defaults                upon Senior Securities                                                                      | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                4**.                                                                                                                                                            | Submission                of Matters to a Vote of Security                Holders                                   | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                5**.                                                                                                                                                            | Other                Information                                                                                    | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
| **ITEM                6**.                                                                                                                                                            | Exhibits                                                                                                            | 17     |
|                                                                                                                                                                                  |                                                                                                                |   |
|                                                                                                                                                                                  | Signatures                                                                                                          | 18     |

----

|                                                                                  |   |                           |        |                      |   |
|---------------------------------------------------------------------------------------|--------|--------------------------------|-------------|---------------------------|--------|
| **PART                  I. FINANCIAL INFORMATION**                                    |   |                           |        |                      |   |
| **ITEM                  1. FINANCIAL STATEMENTS**                                     |   |                           |        |                      |   |
|                                                                                  |   |                           |        |                      |   |
| **FIRST                  FEDERAL BANKSHARES, INC. and                  SUBSIDIARIES** |
| **CONDENSED                  CONSOLIDATED BALANCE SHEETS**                            |
|                                                                                  |   |                           |        |                      |   |
|                                                                                  |   | September                  30, |        | June                  30, |   |
|                                                                                  |   | 2006                           |        | 2006                      |   |
| ASSETS                                                                                |   | *(Unaudited)*                  |        |                      |   |
| Cash                  and due from banks                                              |   | $                              | 13,289,554  |                      | $      | 15,157,203 |   |
| Interest-bearing                  deposits in other financial institutions            |   |                           | 11,027,906  |                      |   | 24,747,546 |   |
| Cash                  and cash equivalents                                            |   |                           | 24,317,460  |                      |   | 39,904,749 |   |
| Securities                  available-for-sale, at fair value (amortized cost         |   |                           |        |                      |   |   |   |
| of                  $51,410,266 and $47,839,382, respectively)                        |   |                           | 51,288,565  |                      |   | 47,319,732 |   |
| Securities                  held-to-maturity, at amortized cost (fair value           |   |                           |        |                      |   |   |   |
| of                  $12,458,657 and $12,971,633, respectively)                        |   |                           | 12,388,018  |                      |   | 13,077,053 |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| Loans                  receivable                                                     |   |                           | 456,451,932 |                      |   | 462,494,813 |   |
| Less                  allowance for loan losses                                       |   |                           | 5,481,558   |                      |   | 5,465,563 |   |
| Net                  loans                                                            |   |                           | 450,970,374 |                      |   | 457,029,250 |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| Office                  property and equipment, net                                   |   |                           | 14,010,213  |                      |   | 12,545,414 |   |
| Federal                  Home Loan Bank ("FHLB") stock, at cost                       |   |                           | 4,805,600   |                      |   | 5,161,600 |   |
| Accrued                  interest receivable                                          |   |                           | 2,639,855   |                      |   | 2,627,980 |   |
| Goodwill                                                                              |   |                           | 18,417,040  |                      |   | 18,417,040 |   |
| Other                  assets                                                         |   |                           | 16,002,632  |                      |   | 16,452,441 |   |
| Total                  assets                                                         |   | $                              | 594,839,757 |                      | $      | 612,535,259 |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| LIABILITIES                  AND STOCKHOLDERS' EQUITY                                 |   |                           |        |                      |   |   |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| LIABILITIES                                                                           |   |                           |        |                      |   |   |   |
| Deposits                                                                              |   | $                              | 437,019,461 |                      | $      | 446,056,388 |   |
| Advances                  from FHLB and other borrowings                              |   |                           | 82,890,062  |                      |   | 92,753,665 |   |
| Advance                  payments by borrowers for taxes and insurance                |   |                           | 332,631     |                      |   | 976,658 |   |
| Accrued                  interest payable                                             |   |                           | 2,633,313   |                      |   | 2,037,740 |   |
| Accrued                  expenses and other liabilities                               |   |                           | 2,667,084   |                      |   | 2,386,914 |   |
| Total                  liabilities                                                    |   |                           | 525,542,551 |                      |   | 544,211,365 |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| STOCKHOLDERS'                  EQUITY                                                 |   |                           |        |                      |   |   |   |
| Common                  stock, $.01 par value, 12,000,000 shares authorized;          |   |                           |        |                      |   |   |   |
| 5,015,254                  and 5,012,375 shares issued, respectively                  |   |                           | 50,138      |                      |   | 50,109 |   |
| Additional                  paid-in capital                                           |   |                           | 38,349,303  |                      |   | 38,293,233 |   |
| Retained                  earnings, substantially restricted                          |   |                           | 57,650,651  |                      |   | 57,013,427 |   |
| Treasury                  stock, at cost, 1,632,266 shares for each period presented  |   |                           | (25,920,685 | )                         |   | (25,920,685 | ) |
| Accumulated                  other comprehensive loss                                 |   |                           | (76,701     | )                         |   | (325,650 | ) |
| Unearned                  Employee Stock Ownership Plan ("ESOP")                      |   |                           | (755,500    | )                         |   | (786,540 | ) |
| Total                  stockholders' equity                                           |   |                           | 69,297,206  |                      |   | 68,323,894 |   |
| Total                  liabilities and stockholders' equity                           |   | $                              | 594,839,757 |                      | $      | 612,535,259 |   |
|                                                                                  |   |                           |        |                      |   |   |   |
| See                  notes to condensed consolidated financial statements.            |   |                           |        |                      |   |   |   |

*Index*

----

| **FIRST                  FEDERAL BANKSHARES, INC. and                  SUBSIDIARIES**             |
|---------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF OPERATIONS                  (Unaudited)** |
|                                                                                              |   |   |   |   |   |
|                                                                                              |   | Three                  months |   |
|                                                                                              |   | ended                  September 30, |   |
|                                                                                              |   | 2006 |   | 2005 |   |
| Interest                  income:                                                                 |   |   |   |   |   |   |   |
| Loans                  receivable                                                                 |   | $ | 7,635,843 |   | $ | 6,861,446 |   |
| Investment                  securities                                                            |   |   | 794,004 |   |   | 646,118 |   |
| Interest-bearing                  deposits in other financial institutions                        |   |   | 134,218 |   |   | 76,122 |   |
| Total                  interest income                                                            |   |   | 8,564,065 |   |   | 7,583,686 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Interest                  expense:                                                                |   |   |   |   |   |   |   |
| Deposits                                                                                          |   |   | 3,422,058 |   |   | 2,277,463 |   |
| Advances                  from FHLB and other borrowings                                          |   |   | 1,036,978 |   |   | 1,131,694 |   |
| Total                  interest expense                                                           |   |   | 4,459,036 |   |   | 3,409,157 |   |
| Net                  interest income                                                              |   |   | 4,105,029 |   |   | 4,174,529 |   |
| Provision                  for losses on loans                                                    |   |   | 100,000 |   |   | 240,000 |   |
| Net                  interest income after provision for losses on loans                          |   |   | 4,005,029 |   |   | 3,934,529 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Non-interest                  income:                                                             |   |   |   |   |   |   |   |
| Service                  charges on deposit accounts                                              |   |   | 843,190 |   |   | 839,781 |   |
| Service                  charges on loans                                                         |   |   | 61,703 |   |   | 95,957 |   |
| Gain                  (loss) on sale of real estate held for development                          |   |   | 40,000 |   |   | (241,649 | ) |
| Gain                  on sale of loans                                                            |   |   | 184,973 |   |   | 233,754 |   |
| Real                  estate-related activities                                                   |   |   | 188,867 |   |   | 175,058 |   |
| Other                  income                                                                     |   |   | 422,088 |   |   | 427,924 |   |
| Total                  non-interest income                                                        |   |   | 1,740,821 |   |   | 1,530,825 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Non-interest                  expense:                                                            |   |   |   |   |   |   |   |
| Compensation                  and benefits                                                        |   |   | 2,587,045 |   |   | 2,491,961 |   |
| Office                  property and equipment                                                    |   |   | 684,971 |   |   | 701,260 |   |
| Data                  processing                                                                  |   |   | 117,187 |   |   | 123,005 |   |
| Advertising                  and public relations                                                 |   |   | 167,788 |   |   | 212,345 |   |
| Other                  expense                                                                    |   |   | 832,117 |   |   | 767,645 |   |
| Total                  non-interest expense                                                       |   |   | 4,389,108 |   |   | 4,296,216 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Income                  before income taxes                                                       |   |   | 1,356,742 |   |   | 1,169,138 |   |
| Income                  taxes                                                                     |   |   | 390,000 |   |   | 344,000 |   |
| Net                  income                                                                       |   | $ | 966,742 |   | $ | 825,138 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Earnings                  per share:                                                              |   |   |   |   |   |   |   |
| Basic                  earnings per share                                                         |   | $ | 0.29 |   | $ | 0.24 |   |
| Diluted                  earnings per share                                                       |   | $ | 0.29 |   | $ | 0.24 |   |
|                                                                                              |   |   |   |   |   |   |   |
| Dividends                  declared per share                                                     |   | $ | 0.10 |   | $ | 0.10 |   |
|                                                                                              |   |   |   |   |   |   |   |
|                                                                                              |   |   |   |   |   |   |   |
| See                  notes to condensed consolidated financial statements.                        |   |   |   |   |   |   |   |

*Index*

----

| **FIRST                  FEDERAL BANKSHARES, INC. and                  SUBSIDIARIES** |
|---------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS**                                |
| **OF                  CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)**                   |
|                                                                                  |   |   |   |   |   |
|                                                                                  |   | Three                  months |   |
|                                                                                  |   | ended                  September 30, |   |
|                                                                                  |   | 2006 |   | 2005 |   |
| Capital                  Stock:                                                       |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   | $ | 50,109 |   | $ | 49,770 |   |
| Stock                  options exercised: 5,000 and 2,700 shares, respectively        |   |   | 29 |   |   | 27 |   |
| Amortization                  of employee stock grants                                |   |   | - |   |   | 86 |   |
| Reclassification                  due to adoption of SFAS123(R)                       |   |   | - |   |   | (112 | ) |
| End                  of period balance                                                |   |   | 50,138 |   |   | 49,771 |   |
|                                                                                  |   |   |   |   |   |   |   |
| Additional                  paid-in capital:                                          |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | 38,293,233 |   |   | 37,761,587 |   |
| Stock                  options exercised                                              |   |   | (17 | ) |   | 35,948 |   |
| Stock                  compensation expense                                           |   |   | 18,462 |   |   | 18,644 |   |
| Stock                  appreciation of allocated ESOP shares                          |   |   | 36,601 |   |   | 32,364 |   |
| Amortization                  of employee stock grants                                |   |   | 1,024 |   |   | 35,575 |   |
| Reclassification                  due to adoption of SFAS123(R)                       |   |   | - |   |   | (41,710 | ) |
| End                  of period balance                                                |   |   | 38,349,303 |   |   | 37,842,408 |   |
|                                                                                  |   |   |   |   |   |   |   |
| Retained                  earnings, substantially restricted:                         |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | 57,013,427 |   |   | 55,028,733 |   |
| Net                  income                                                           |   |   | 966,742 |   |   | 825,138 |   |
| Dividends                  paid on common stock                                       |   |   | (329,518 | ) |   | (345,075 | ) |
| End                  of period balance                                                |   |   | 57,650,651 |   |   | 55,508,796 |   |
|                                                                                  |   |   |   |   |   |   |   |
| Treasury                  stock, at cost:                                             |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | (25,920,685 | ) |   | (21,747,743 | ) |
| Treasury                  stock purchased                                             |   |   | - |   |   | (33,306 | ) |
| End                  of period balance                                                |   |   | (25,920,685 | ) |   | (21,781,049 | ) |
|                                                                                  |   |   |   |   |   |   |   |
| Accumulated                  other comprehensive income (loss):                       |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | (325,650 | ) |   | 158,570 |   |
| Net                  change in unrealized gains (losses) on securities                |   |   |   |   |   |   |   |
| available-for-sale,                  net of tax expense                               |   |   | 248,949 |   |   | (81,471 | ) |
| End                  of period balance                                                |   |   | (76,701 | ) |   | 77,099 |   |
|                                                                                  |   |   |   |   |   |   |   |
| Unearned                  ESOP shares:                                                |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | (786,540 | ) |   | (913,890 | ) |
| ESOP                  shares allocated                                                |   |   | 31,040 |   |   | 32,460 |   |
| End                  of period balance                                                |   |   | (755,500 | ) |   | (881,430 | ) |
|                                                                                  |   |   |   |   |   |   |   |
| Unearned                  employee stock grants:                                      |   |   |   |   |   |   |   |
| Beginning                  of year balance                                            |   |   | - |   |   | (41,822 | ) |
| Reclassification                  due to adoption of SFAS123(R)                       |   |   | - |   |   | 41,822 |   |
| End                  of period balance                                                |   |   | - |   |   | - |   |
| Total                  stockholders' equity                                           |   | $ | 69,297,206 |   | $ | 70,815,595 |   |
|                                                                                  |   |   |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |   |   |
| See                  notes to condensed consolidated financial statements.            |   |   |   |   |   |   |   |

*Index*

----

| **FIRST                  FEDERAL BANKSHARES, INC. and                  SUBSIDIARIES** |
|---------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS**                                |
| **OF                  COMPREHENSIVE INCOME (Unaudited)**                              |
|                                                                                  |   |   |   |   |   |
|                                                                                  |   | Three                  Months Ended |   |
|                                                                                  |   | September                  30, |   |
|                                                                                  |   | 2006 |   | 2005 |   |
| Net                  income                                                           |   | $ | 966,742 |   | $ | 825,138 |   |
| Other                  comprehensive income (loss):                                   |   |   |   |   |   |   |   |
| Unrealized                  holding gains (losses) arising during                     |   |   |   |   |   |   |   |
| the                  period, net of tax                                               |   |   | 248,949 |   |   | (81,471 | ) |
| Other                  comprehensive income (loss), net of tax                        |   |   | 248,949 |   |   | (81,471 | ) |
| Total                  comprehensive income                                           |   | $ | 1,215,691 |   | $ | 743,667 |   |

*Index*

----

| **FIRST                  FEDERAL BANKSHARES, INC. and                  SUBSIDIARIES**             |
|---------------------------------------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS                  (Unaudited)** |
|                                                                                              |   | Three                  Months Ended |   |
|                                                                                              |   | September                  30, |   |
|                                                                                              |   | 2006 |   | 2005 |   |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                                            |   |   |   |   |   |   |   |
| Net                  income                                                                       |   | $ | 966,742 |   | $ | 825,138 |   |
| Adjustments                  to reconcile net income to net cash:                                 |   |   |   |   |   |   |   |
| Loans                  originated for sale to investors                                           |   |   | (12,560,000 | ) |   | (14,882,000 | ) |
| Proceeds                  from sale of loans originated for sale                                  |   |   | 12,845,524 |   |   | 13,760,660 |   |
| Provision                  for losses on loans                                                    |   |   | 100,000 |   |   | 240,000 |   |
| Depreciation                  and amortization                                                    |   |   | 304,575 |   |   | 391,929 |   |
| Provision                  for deferred taxes                                                     |   |   | (50,000 | ) |   | 130,000 |   |
| Equity-based                  compensation                                                        |   |   | 87,127 |   |   | 119,129 |   |
| Tax                  benefit resulting from stock options exercised                               |   |   | - |   |   | 11,000 |   |
| Net                  gain on sale of loans                                                        |   |   | (184,973 | ) |   | (233,754 | ) |
| Net                  (gain) loss on sale of real estate held for development                      |   |   | (40,000 | ) |   | 241,649 |   |
| Amortization                  of premiums and discounts on loans and securities                   |   |   | (83,515 | ) |   | (34,703 | ) |
| Increase                  in accrued interest receivable                                          |   |   | (11,875 | ) |   | (289,785 | ) |
| Decrease                  (increase) in other assets                                              |   |   | 103,693 |   |   | (717,564 | ) |
| Increase                  in accrued interest payable                                             |   |   | 595,573 |   |   | 291,329 |   |
| Increase                  (decrease) in accrued expenses and other liabilities                    |   |   | 19,252 |   |   | (296,430 | ) |
| Increase                  (decrease) in accrued taxes on income                                   |   |   | 260,918 |   |   | (202,414 | ) |
| Net                  cash provided by (used in) operating activities                              |   |   | 2,353,041 |   |   | (645,816 | ) |
|                                                                                              |   |   |   |   |   |   |   |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:                                            |   |   |   |   |   |   |   |
| Proceeds                  from maturities of securities held-to-maturity                          |   |   | 684,476 |   |   | 844,046 |   |
| Purchase                  of securities available-for-sale                                        |   |   | (4,996,978 | ) |   | - |   |
| Proceeds                  from maturities of securities available-for-sale                        |   |   | 1,418,790 |   |   | 2,496,235 |   |
| Redemption                  of Federal Home Loan Bank Stock, net                                  |   |   | 356,000 |   |   | 94,500 |   |
| Loans                  purchased                                                                  |   |   | (7,570,000 | ) |   | (7,649,000 | ) |
| Decrease                  (increase) in loans receivable                                          |   |   | 13,523,703 |   |   | (1,680,771 | ) |
| Purchase                  of office property and equipment                                        |   |   | (1,743,613 | ) |   | (173,553 | ) |
| Proceeds                  from sale of foreclosed real estate                                     |   |   | 8,400 |   |   | 142,098 |   |
| Proceeds                  from sale of real estate held for development                           |   |   | 821,511 |   |   | 487,249 |   |
| Net                  expenditures on real estate held for development                             |   |   | (568,556 | ) |   | (395,062 | ) |
| Net                  cash provided by (used in) investing activities                              |   |   | 1,933,733 |   |   | (5,834,258 | ) |
|                                                                                              |   |   |   |   |   |   |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:                                            |   |   |   |   |   |   |   |
| Decrease                  in deposits                                                             |   |   | (9,036,927 | ) |   | (6,050,839 | ) |
| Proceeds                  from FHLB advances and other borrowings                                 |   |   | 3,136,397 |   |   | 1,265,022 |   |
| Repayment                  of FHLB advances and other borrowings                                  |   |   | (13,000,000 | ) |   | (4,000,000 | ) |
| Net                  decrease in advances from borrowers for taxes and                  insurance |   |   | (644,027 | ) |   | (606,049 | ) |
| Issuance                  of common stock, net                                                    |   |   | 12 |   |   | 24,975 |   |
| Repurchase                  of common stock                                                       |   |   | - |   |   | (33,306 | ) |
| Cash                  dividends paid                                                              |   |   | (329,518 | ) |   | (345,075 | ) |
| Net                  cash used in financing activities                                            |   |   | (19,874,063 | ) |   | (9,745,272 | ) |
| Net                  decrease in cash and cash equivalents                                        |   |   | (15,587,289 | ) |   | (16,225,346 | ) |
| CASH                  AND CASH EQUIVALENTS                                                        |   |   |   |   |   |   |   |
| Beginning                  of year                                                                |   |   | 39,904,749 |   |   | 31,335,707 |   |
| End                  of year                                                                      |   | $ | 24,317,460 |   | $ | 15,110,361 |   |
|                                                                                              |   |   |   |   |   |   |   |
| SUPPLEMENTAL                  DISCLOSURES                                                         |   |   |   |   |   |   |   |
| Cash                  paid during the period for interest                                         |   | $ | 3,863,463 |   | $ | 3,117,828 |   |
| Cash                  paid during the period for income taxes                                     |   | $ | 179,082 |   | $ | 3,039 |   |
|                                                                                              |   |   |   |   |   |   |   |
| See                  notes to condensed consolidated financial statements.                        |   |   |   |   |   |   |   |

*Index*

----

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

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

***Critical      Judgments and Estimates***

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

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

*Index*

----

**Note      4.**
**Effect      of New Accounting Standards**

*Accounting      for Servicing of Financial Assets (as Amended)*
*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities*

*Accounting      for Uncertainty in Income Taxes*
*Accounting      for Income Taxes*

*,        Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans        - an amendment of FASB Statements No. 87, 88, 106 and 132 (R).*

**Note      5. Earnings per share**

|                                                                          |   | Three                  months ended |      |
|-------------------------------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                                          |   | September                  30,      |      |
|                                                                          |   | 2006                                |      | 2005 |   |
| Basic                  earnings per share computation:                        |   |                                |      |   |   |   |   |
| Net                  income                                                   |   | $                                   | 966,742   |   | $ | 825,138 |   |
| Weighted                  average common shares outstanding                   |   |                                | 3,300,648 |   |   | 3,447,124 |   |
| Basic                  earnings per share                                     |   | $                                   | 0.29      |   | $ | 0.24 |   |
|                                                                          |   |                                |      |   |   |   |   |
| Diluted earnings                  per share computation:            |   |                                |      |   |   |   |   |
| Net                  income                                                   |   | $                                   | 966,742   |   | $ | 825,138 |   |
| Weighted                  average common shares outstanding                   |   |                                | 3,300,648 |   |   | 3,447,124 |   |
| Incremental                  option and recognition and retention plan shares |   |                                |      |   |   |   |   |
| using                  treasury stock method                                  |   |                                | 41,942    |   |   | 57,725 |   |
| Diluted                  shares outstanding                                   |   |                                | 3,342,590 |   |   | 3,504,849 |   |
| Diluted                  earnings per share                                   |   | $                                   | 0.29      |   | $ | 0.24 |   |

*Index*

----

**Note      6. Dividends**

**Note      7.**
**Stock      Options **

*Share-Based      Payment*
*Accounting      for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees,*

|                                                |   |   |    |      |   | Weighted-                     |   |      |   |
|-----------------------------------------------------|--------|--------|---------|-----------|--------|-------------------------------|--------|-----------|--------|
|                                                |   |   |    | Weighted- |   | Average                       |   |      |   |
|                                                |   |   |    | Average   |   | Remaining                     |   | Aggregate |   |
|                                                |   |   |    | Exercise  |   | Contractual                   |   | Intrinsic |   |
| Options                                             |   | Shares |    | Price     |   | Term                  (years) |   | Value     |   |
| Outstanding                  as of June 30, 2006    |   |   | 118,061 |      | $      | 14.10                         |   |      |   |   |   |   |   |
| Granted                                             |   |   | -       |      |   | -                             |   |      |   |   |   |   |   |
| Exercised                                           |   |   | (5,000  | )         |   | 9.25                          |   |      |   |   |   |   |   |
| Outstanding                  at September 30, 2006  |   |   | 113,061 |      |   | 14.32                         |   |      | 5.0    |   | $ | 860,543 |   |
| Vested,                  or expected to vest, as of |   |   |    |      |   |                          |   |      |   |   |   |   |   |
| September                  30, 2006                 |   |   | 109,673 |      |   | 14.16                         |   |      | 4.9    |   |   | 852,177 |   |
| Exercisable                  at September 30, 2006  |   |   | 88,861  |      | $      | 12.94                         |   |      | 4.1    |   | $ | 800,783 |   |

*Index*

----

**Note      8.**
**Operating      Segments**

|                                                                 |   | **September                  30, 2006 Segments** |        |
|----------------------------------------------------------------------|--------|--------------------------------------------------|-------------|
| *(Dollars                  in Thousands)*                            |   | Banking                                          |        | Other |   | Consolidated |   |
| Interest                  income                                     |   | **$**                                            | **8,564**   |   |   | - |   | $ | 8,564 |   |
| Interest                  expense                                    |   |                                             | **4,459**   |   |   | - |   |   | 4,459 |   |
| Net                  interest income                                 |   |                                             | **4,105**   |   |   | - |   |   | 4,105 |   |
| Provision                  for loan losses                           |   |                                             | **100**     |   |   | - |   |   | 100 |   |
| Net                  interest income after provision for loan losses |   |                                             | **4,005**   |   |   | - |   |   | 4,005 |   |
| Non-interest                  income                                 |   |                                             | **1,512**   |   | $ | 229 |   |   | 1,741 |   |
| Non-interest                  expense                                |   |                                             | **4,232**   |   |   | 157 |   |   | 4,389 |   |
| Income                  (loss) before income taxes              |   |                                             | **1,285**   |   |   | 72 |   |   | 1,357 |   |
| Income                  taxes                                        |   |                                             | **362**     |   |   | 28 |   |   | 390 |   |
| Net                  income (loss)                                   |   | **$**                                            | **923**     |   | $ | 44 |   | $ | 967 |   |
|                                                                 |   |                                             |        |   |   |   |   |   |   |   |
| Depreciation                  and amortization                       |   | **$**                                            | **300**     |   | $ | 5 |   | $ | 305 |   |
|                                                                 |   |                                             |        |   |   |   |   |   |   |   |
| Total                  assets                                        |   | **$**                                            | **593,857** |   | $ | 983 |   | $ | 594,840 |   |

|                                                                 |   | **September                  30, 2005 Segments** |        |
|----------------------------------------------------------------------|--------|--------------------------------------------------|-------------|
| *(Dollars                  in Thousands)*                            |   | Banking                                          |        | Other |   | Consolidated |   |
| Interest                  income                                     |   | **$**                                            | **7,584**   |   |   | - |   | $ | 7,584 |   |
| Interest                  expense                                    |   |                                             | **3,409**   |   |   | - |   |   | 3,409 |   |
| Net                  interest income                                 |   |                                             | **4,175**   |   |   | - |   |   | 4,175 |   |
| Provision                  for loan losses                           |   |                                             | **240**     |   |   | - |   |   | 240 |   |
| Net                  interest income after provision for loan losses |   |                                             | **3,935**   |   |   | - |   |   | 3,935 |   |
| Non-interest                  income                                 |   |                                             | **1,597**   |   |   | ($66 | ) |   | 1,531 |   |
| Non-interest                  expense                                |   |                                             | **4,122**   |   |   | 174 |   |   | 4,296 |   |
| Income                  (loss) before income taxes                   |   |                                             | **1,410**   |   |   | (240 | ) |   | 1,170 |   |
| Income                  taxes                                        |   |                                             | **434**     |   |   | (90 | ) |   | 344 |   |
| Net                  income (loss)                                   |   | **$**                                            | **976**     |   |   | ($150 | ) | $ | 826 |   |
|                                                                 |   |                                             |        |   |   |   |   |   |   |   |
| Depreciation                  and amortization                       |   | **$**                                            | **386**     |   | $ | 6 |   | $ | 392 |   |
|                                                                 |   |                                             |        |   |   |   |   |   |   |   |
| Total                  assets                                        |   | **$**                                            | **577,450** |   | $ | 486 |   | $ | 577,936 |   |

*Index*

----

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

**Forward-Looking      Statements**

**Results      of Operations for the Three Months Ended September 30, 2006 and      2005**

***Overview***

***Net      interest Income***

**Provision      for Losses on Loans**

*Index*

----

|                                                                                                     |   | For                  the three months ended |          |
|----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------------|
|                                                                                                     |   | September                  30,              |          |
| *(Dollars                  in Thousands)*                                                                |   | 2006                                        |          | 2005 |   |
| Allowance                  for loan losses at beginning of period                                        |   | $                                           | 5,466         |   | $ | 6,718 |   |
| Provision                  charged to operations                                                         |   |                                        | 100           |   |   | 240 |   |
| Charge-offs:                                                                                             |   |                                        |          |   |   |   |   |
| One-                  to four-family residential                                                    |   |                                        |  – |   |   | (10 | ) |
| Multi-family                  and non-residential real estate                                       |   |                                        | (20           | ) |   | (41 | ) |
| Commercial                  business                                                                |   |                                        |  – |   |   | (108 | ) |
| Consumer                                                                                            |   |                                        | (78           | ) |   | (104 | ) |
| Total                  charge-offs                                                                       |   |                                        | (98           | ) |   | (263 | ) |
| Recoveries                                                                                               |   |                                        | 14            |   |   | 28 |   |
| Allowance                  for loan losses at end of period                                              |   | $                                           | 5,482         |   | $ | 6,723 |   |
|                                                                                                     |   |                                        |          |   |   |   |   |
| Allowance                  for loan losses as a % of total loans outstanding                             |   |                                        | 1.20          | % |   | 1.49 | % |
| Allowance                  for loan losses as a % of non-performing loans                                |   |                                        | 64.10         | % |   | 122.08 | % |
| Net                  loans charged off as a % of average loans outstanding                  (annualized) |   |                                        | 0.07          | % |   | 0.21 | % |

| *(Dollars                  in Thousands)*                              |   | September                  30, 2006 |   | June                  30, 2006 |   |
|------------------------------------------------------------------------|--------|-------------------------------------|--------|--------------------------------|--------|
| Loans                  accounted for on a non-accrual basis:           |   |                                |   |                           |   |   |   |
| One-                  to four-family residential                       |   | $                                   | 864    |                           | $      | 1,104 |   |
| Non-residential                  real estate                           |   |                                | 1,784  |                           |   | 346 |   |
| Commercial                  business                                   |   |                                | 5,594  |                           |   | 4,835 |   |
| Consumer                                                               |   |                                | 310    |                           |   | 258 |   |
| Total                  non-performing loans                            |   |                                | 8,552  |                           |   | 6,543 |   |
| Other                  non-performing assets (1)                       |   |                                | 75     |                           |   | 73 |   |
| Total                  non-performing assets                           |   | $                                   | 8,627  |                           | $      | 6,616 |   |
| Restructured                  loans not included in                    |   |                                |   |                           |   |   |   |
|                    other non-performing categories above          |   | $                                   | 884    |                           | $      | 2,126 |   |
|                                                                   |   |                                |   |                           |   |   |   |
| Non-performing                  loans as a percentage of total loans   |   |                                | 1.87   | %                              |   | 1.41 | % |
| Non-performing                  assets as a percentage of total assets |   |                                | 1.45   | %                              |   | 1.08 | % |

| (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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

*Index*

----

***Noninterest      Income***

***Noninterest      expense***

**Income      tax expense **

**Financial      Condition**

***Overview***

***Interest-Bearing      Deposits with Banks***

***Securities      Available-for-Sale and Held-for-Investment***

*Index*

----

***Loans      Receivable***

|                                                                |   | September                  30, 2006 |    | June                  30, 2006 |   |
|---------------------------------------------------------------------|--------|-------------------------------------|---------|--------------------------------|--------|
|                                                                |   | Amount                              |    |  %                        |   | Amount |   |  % |   |
| *(Dollars                  in Thousands)*                           |   |                                |    |                           |   |   |   |   |   |
| One-                  to four-family residential (1)                |   | $                                   | 132,819 |                           |   | 29.46 |   | $ | 133,630 |   |   | 29.25 |   |
| Multi-family                  residential (1)                       |   |                                | 50,643  |                           |   | 11.23 |   |   | 51,984 |   |   | 11.37 |   |
| Non-residential                  real estate (1)                    |   |                                | 155,405 |                           |   | 34.46 |   |   | 157,099 |   |   | 34.38 |   |
| Commercial                  business loans                          |   |                                | 54,454  |                           |   | 12.07 |   |   | 54,586 |   |   | 11.94 |   |
| Home                  equity & second mortgage                  |   |                                | 29,674  |                           |   | 6.58 |   |   | 29,850 |   |   | 6.53 |   |
| Other                  non-mortgage loans (2)                       |   |                                | 33,864  |                           |   | 7.51 |   |   | 35,724 |   |   | 7.81 |   |
| Loans                  in process, unearned discounts and premiums, |   |                                |    |                           |   |   |   |   |   |   |   |   |   |
| and                  net deferred loan fees and costs               |   |                                | (407    | )                              |   | (0.09 | ) |   | (378 | ) |   | (0.08 | ) |
| Subtotal                                                            |   |                                | 456,452 |                           |   | 101.22 |   |   | 462,495 |   |   | 101.20 |   |
| Allowance                  for loan losses                          |   |                                | 5,482   |                           |   | 1.22 |   |   | 5,466 |   |   | 1.20 |   |
| Total                  loans, net                                   |   | $                                   | 450,970 |                           |   | 100.00 |   | $ | 457,029 |   |   | 100.00 |   |

| (1)                  Includes construction loans.                                                                                                             |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)                  Includes other secured non-mortgage loans, secured and unsecured                  personal                  loans and loans on deposits. |
|                                                                                                                                                          |

***Deposit      Liabilities***

***FHLB      Advances and Other Borrowings***

***Stockholders’      Equity***

*Index*

----

**Capital**

|                                       |   | September                  30, 2006     |   |
|--------------------------------------------|--------|-----------------------------------------|--------|
|                                       |   |                                    |   |   |   |   |   |   |   | To                  Be Well |   |
|                                       |   |                                    |   |   |   |   |   |   |   | Capitalized                  Under |   |
|                                       |   |                                    |   |   |   | For                  Capital |   | Prompt                  Corrective |   |
|                                       |   | Actual                                  |   | Adequacy                  Purposes |   | Action                  Provisions |   |
|                                       |   | Amount                                  |   | Ratio |   | Amount |   | Ratio |   | Amount |   | Ratio |   |
|                                       |   | *Dollars                  in Thousands* |   |
| Tangible                  capital          |   | $                                       | 46,462 |   |   | 8.08 | % | $ | 8,628 |   |   | 1.50 | % |   | - |   |   | - |   |
| Tier                  1 leverage (core)    |   |                                    | 46,462 |   |   | 8.08 |   |   | 23,007 |   |   | 4.00 |   | $ | 28,759 |   |   | 5.00 | % |
| Tier                  1 risk-based capital |   |                                    | 46,462 |   |   | 10.37 |   |   | 17,915 |   |   | 4.00 |   |   | 26,873 |   |   | 6.00 |   |
| Risk-based                  capital        |   |                                    | 49,790 |   |   | 11.12 |   |   | 35,830 |   |   | 8.00 |   |   | 44,788 |   |   | 10.00 |   |

|                                       |   | June                  30, 2006          |   |
|--------------------------------------------|--------|-----------------------------------------|--------|
|                                       |   |                                    |   |   |   |   |   |   |   | To                  Be Well |   |
|                                       |   |                                    |   |   |   |   |   |   |   | Capitalized                  Under |   |
|                                       |   |                                    |   |   |   | For                  Capital |   | Prompt                  Corrective |   |
|                                       |   | Actual                                  |   | Adequacy                  Purposes |   | Action                  Provisions |   |
|                                       |   | Amount                                  |   | Ratio |   | Amount |   | Ratio |   | Amount |   | Ratio |   |
|                                       |   | *Dollars                  in Thousands* |   |   |   |   |   |   |   |   |   |   |   |
| Tangible                  capital          |   | $                                       | 45,386 |   |   | 7.66 | % | $ | 8,891 |   |   | 1.50 | % |   | - |   |   | - |   |
| Tier                  1 leverage (core)    |   |                                    | 45,386 |   |   | 7.66 |   |   | 23,709 |   |   | 4.00 |   | $ | 29,636 |   |   | 5.00 | % |
| Tier                  1 risk-based capital |   |                                    | 45,386 |   |   | 10.04 |   |   | 18,080 |   |   | 4.00 |   |   | 27,121 |   |   | 6.00 |   |
| Risk-based                  capital        |   |                                    | 48,972 |   |   | 10.83 |   |   | 36,161 |   |   | 8.00 |   |   | 45,201 |   |   | 10.00 |   |

**Liquidity      and Capital Resources **

*Index*

----

|                                   |   | Payments                  Due in:  |   |
|----------------------------------------|--------|------------------------------------|--------|
| *(In                  thousands)*      |   | Less                  than OneYear |   | One                  Year toLess                  ThanThree                  Years |   | Three                  Yearsto                  Less ThanFive                  Years |   | Five                  Years orGreater |   | Total |   |
| FHLB                  advances         |   | $                                  | 25,500 |   | $ | 42,500 |   | $ | 8,000 |   |   | - |   | $ | 76,000 |   |
| Other                  borrowings (1)  |   |                               | 6,890  |   |   | - |   |   | - |   |   | - |   |   | 6,890 |   |
| Operating                  lease       |   |                               | 108    |   |   | 219 |   |   | 229 |   | $ | 408 |   |   | 964 |   |
| Off-balance-sheet                  (2) |   |                               | 67,362 |   |   | - |   |   | - |   |   | - |   |   | 67,362 |   |
| Total                                  |   | $                                  | 99,860 |   | $ | 42,719 |   | $ | 8,229 |   | $ | 408 |   | $ | 151,216 |   |

| (1)                    Includes securities sold under repurchase agreements.                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------|
| (2)                    Includes commitments to extend credit, net of commitments to                    sell                    loans. |

**Off-Balance      Sheet Arrangements **

*Index*

----

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**ITEM      4. CONTROLS AND PROCEDURES**

*Index*

----

**PART      II.** **OTHER      INFORMATION**

**ITEM      1. Legal Proceedings**

**ITEM      1A. Risk Factors**

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

**ITEM      3. Default upon Senior Securities**

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

**ITEM      5. Other Information**

**ITEM      6. Exhibits**

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

*Index*

----

**SIGNATURES**

|                                  | FIRST                FEDERAL BANKSHARES, INC. |
|---------------------------------------|-----------------------------------------------|
|                                  |                                          |   |
|                                  |                                          |   |
|                                  |                                          |   |
| DATE:                November 9, 2006 | BY:                                           | /s/                Michael W. Dosland |
|                                  |                                          | Michael                W. Dosland |
|                                  |                                          | President                and Chief Executive Officer |
|                                  |                                          |   |
|                                  |                                          |   |
|                                  |                                          |   |
|                                  |                                          |   |
| DATE:                November 9, 2006 | BY:                                           | /s/                Michael S. Moderski |
|                                  |                                          | Michael                S. Moderski |
|                                  |                                          | Senior                Vice President |
|                                  |                                          | Chief                Financial                Officer, and Treasurer |

*Index*