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 December 31, 2007





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.


(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
                February 8, 2008Common
                Stock, $.01 par value
            3,303,971








FIRST
      FEDERAL BANKSHARES, INC.





INDEX








PagePART
                I.
            FINANCIAL
                INFORMATIONITEM
                1
            Financial
                Statements of First Federal Bankshares, Inc. and
                Subsidiaries
            1Consolidated
                Statements of Financial Condition at December 31,
                2007 and June 30, 2007
            1Consolidated
                Statements of Income for the three and six month
                periods ended December 31, 2007 and 2006
            2Consolidated
                Statements of Changes in Stockholders’ Equity for
                the three and six month periods ended December 31, 2007 and
                2006
            3Consolidated
                Statements of Comprehensive Income for the three
                and six month periods ended December 31, 2007 and 2006
            4Consolidated
                Statements of Cash Flows for the six month periods
                ended December 31, 2007 and 2006
            5Notes
                to Consolidated Financial Statements
            6ITEM
                2.
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            13ITEM
                3.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            24ITEM
                4.
            Controls
                and Procedures
            25PART
                II.
            OTHER
                INFORMATION
            25ITEM
                1.
            Legal
                Proceedings
            25ITEM
                1A.
            Risk
                Factors
            25ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            25ITEM
                3.
            Defaults
                upon Senior Securities
            25ITEM
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            26ITEM
                5.
            Other
                Information
            26ITEM
                6.
            Exhibits
            26Signatures
            27








Index




PART
                  I.               FINANCIAL  INFORMATIONITEM
                  1.               FINANCIAL  STATEMENTSFirst
                  Federal Bankshares, Inc. and
                  SubsidiariesConsolidated  Statements
                  of Financial Condition(Unaudited)December
                  31,
              
              
              June
                  30,2007
              
              
              2007ASSETSCash
                  and due from
                  banks
              
              $
              12,841,798
              
              
              $
              11,613,908Interest-bearing
                  deposits in other
                  financial institutions
              
              
              7,938,500
              
              
              
              14,124,559Cash
                  and cash
                  equivalents
              
              
              20,780,298
              
              
              
              25,738,467Securities
                  available-for-sale
                  (amortized cost $114,316,904 and $122,595,377,
                  respectively)
              
              
              109,738,083
              
              
              
              122,309,017Securities
                  held-to-maturity (fair
                  value $9,025,175 and $9,472,865, respectively)
              
              
              8,960,362
              
              
              
              9,549,072Mortgage
                  loans held for
                  sale
              
              
              1,663,489
              
              
              
              2,130,709Loans
                  receivable
              
              
              422,315,903
              
              
              
              429,751,342Allowance
                  for loan
                  losses
              
              
              (2,056,057
              )
              
              
              (1,797,393
              )Net
                  loans
              
              
              420,259,846
              
              
              
              427,953,949Federal
                  Home Loan Bank ("FHLB")
                  stock, at cost
              
              
              5,239,500
              
              
              
              3,559,600Office
                  property and equipment,
                  net
              
              
              18,478,045
              
              
              
              16,204,913Accrued
                  interest
                  receivable
              
              
              3,034,715
              
              
              
              2,939,993Goodwill
              
              
              18,417,040
              
              
              
              18,417,040Foreclosed
                  and repossessed
                  assets
              
              
              3,611,144
              
              
              
              2,156,217Other
                  assets
              
              
              15,799,474
              
              
              
              14,857,533Total
                  assets
              
              $
              625,981,996
              
              
              $
              645,816,510LIABILITIES
                  AND STOCKHOLDERS’
                  EQUITYLIABILITIESDeposit
                  liabilities
              
              $
              451,654,705
              
              
              $
              507,865,063Advances
                  from FHLB and other
                  borrowings
              
              
              102,658,731
              
              
              
              62,202,229Advance
                  payments by borrowers for
                  taxes and insurance
              
              
              888,169
              
              
              
              916,021Accrued
                  interest
                  payable
              
              
              2,478,031
              
              
              
              2,690,658Accrued
                  expenses and other
                  liabilities
              
              
              1,862,343
              
              
              
              1,887,317Total
                  liabilities
              
              
              559,541,979
              
              
              
              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
              
              
              50,624
              
              
              
              50,604Additional
                  paid-in
                  capital
              
              
              39,387,859
              
              
              
              39,230,016Retained
                  earnings, substantially
                  restricted
              
              
              59,013,978
              
              
              
              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
              
              
              (2,870,821
              )
              
              
              (179,360
              )Unearned
                  ESOP
              
              
              (605,960
              )
              
              
              (664,840
              )Total
                  stockholders’
                  equity
              
              
              66,440,017
              
              
              
              70,255,222Total
                  liabilities and
                  stockholders’ equity
              
              $
              625,981,996
              
              
              $
              645,816,510See
                  Notes to Consolidated
                  Financial Statements.


1
 Index





First
                  Federal Bankshares, Inc. and
                  SubsidiariesConsolidated
                  Statements of Income(Unaudited)Three
                  months
                  ended
              
              
              Six
                  months
                  endedDecember
                  31,
              
              
              December
                  31,2007
              
              
              2006
              
              
              2007
              
              
              2006Interest
                  income:Loans
                  receivable
              
              $
              7,402,818
              
              
              $
              7,534,928
              
              
              $
              14,833,267
              
              
              $
              15,170,771Investment
                  securities
              
              
              1,994,426
              
              
              
              1,004,556
              
              
              
              4,019,237
              
              
              
              1,798,560Deposits
                  in other financial
                  institutions
              
              
              7,609
              
              
              
              109,615
              
              
              
              58,049
              
              
              
              243,833Total
                  interest
                  income
              
              
              9,404,853
              
              
              
              8,649,099
              
              
              
              18,910,553
              
              
              
              17,213,164Interest
                  expense:Deposits
              
              
              3,914,621
              
              
              
              3,784,219
              
              
              
              8,476,884
              
              
              
              7,206,277Advances
                  from FHLB and other
                  borrowings
              
              
              1,288,960
              
              
              
              1,002,779
              
              
              
              2,152,937
              
              
              
              2,039,757Total
                  interest
                  expense
              
              
              5,203,581
              
              
              
              4,786,998
              
              
              
              10,629,821
              
              
              
              9,246,034Net
                  interest
                  income
              
              
              4,201,272
              
              
              
              3,862,101
              
              
              
              8,280,732
              
              
              
              7,967,130Provision
                  for loan
                  losses
              
              
              492,389
              
              
              
              402,663
              
              
              
              513,037
              
              
              
              502,663Net
                  interest income after
                  provision for loan losses
              
              
              3,708,883
              
              
              
              3,459,438
              
              
              
              7,767,695
              
              
              
              7,464,467Non-interest
                  income:Service
                  charges on deposit
                  accounts
              
              
              834,553
              
              
              
              857,051
              
              
              
              1,617,851
              
              
              
              1,762,700Fees
                  on commercial and consumer
                  loans
              
              
              122,854
              
              
              
              50,763
              
              
              
              220,615
              
              
              
              84,829Gain
                  on sale of real estate held
                  for development
              
              
              46,610
              
              
              
              20,000
              
              
              
              46,610
              
              
              
              60,000Mortgage
                  banking
                  revenue
              
              
              176,995
              
              
              
              177,777
              
              
              
              370,871
              
              
              
              377,528Earnings
                  from bank owned life
                  insurance
              
              
              138,119
              
              
              
              131,493
              
              
              
              274,674
              
              
              
              263,999Other
                  income
              
              
              266,044
              
              
              
              265,989
              
              
              
              562,986
              
              
              
              553,466Total
                  non-interest
                  income
              
              
              1,585,175
              
              
              
              1,503,073
              
              
              
              3,093,607
              
              
              
              3,102,522Non-interest
                  expense:Personnel
                  expense
              
              
              2,824,927
              
              
              
              2,618,066
              
              
              
              5,631,128
              
              
              
              5,138,248Office
                  property and
                  equipment
              
              
              700,616
              
              
              
              686,782
              
              
              
              1,401,863
              
              
              
              1,364,812Data
                  processing, ATM and debit
                  card transaction costs,and
                  other item processing
                  expense
              
              
              416,693
              
              
              
              294,198
              
              
              
              786,702
              
              
              
              602,505Professional,
                  insurance and
                  regulatory expense
              
              
              252,170
              
              
              
              274,719
              
              
              
              507,061
              
              
              
              558,789Advertising,
                  donations and public
                  relations
              
              
              302,600
              
              
              
              216,644
              
              
              
              766,325
              
              
              
              383,675Communications,
                  postage and office
                  supplies
              
              
              224,553
              
              
              
              208,435
              
              
              
              435,313
              
              
              
              402,040Other
                  expense
              
              
              226,638
              
              
              
              206,244
              
              
              
              457,436
              
              
              
              372,450Total
                  non-interest
                  expense
              
              
              4,948,197
              
              
              
              4,505,088
              
              
              
              9,985,828
              
              
              
              8,822,519Income
                  before income taxes
                  anddiscontinued
                  operations
              
              
              345,861
              
              
              
              457,423
              
              
              
              875,474
              
              
              
              1,744,470Income
                  taxes
              
              
              28,000
              
              
              
              77,000
              
              
              
              143,000
              
              
              
              441,000Income
                  from continuing
                  operations
              
              
              317,861
              
              
              
              380,423
              
              
              
              732,474
              
              
              
              1,303,470Income
                  from discontinued
                  operations, net of taxof
                  $20,000 and $46,000
                  respectively in 2006
              
              
              -
              
              
              
              32,101
              
              
              
              -
              
              
              
              75,796Net
                  income
              
              $
              317,861
              
              
              $
              412,524
              
              
              $
              732,474
              
              
              $
              1,379,266Per
                  share
                  information:Basic
                  earnings per share from
                  continuing operations
              
              $
              0.10
              
              
              $
              0.11
              
              
              $
              0.23
              
              
              $
              0.40Basic
                  earnings per share from
                  discontinued operations
              
              
              -
              
              
              
              0.01
              
              
              
              -
              
              
              
              0.02Basic
                  earnings per
                  share
              
              $
              0.10
              
              
              $
              0.12
              
              
              $
              0.23
              
              
              $
              0.42Diluted
                  earnings per share from
                  continuing operations
              
              $
              0.10
              
              
              $
              0.11
              
              
              $
              0.22
              
              
              $
              0.39Diluted
                  earnings per share from
                  discontinued operations
              
              
              -
              
              
              
              0.01
              
              
              
              -
              
              
              
              0.02Diluted
                  earnings per
                  share
              
              $
              0.10
              
              
              $
              0.12
              
              
              $
              0.22
              
              
              $
              0.41
  See
                  Notes to Consolidated
                  Financial Statements.
   2
 Index
  First
                  Federal Bankshares, Inc. and
                  SubsidiariesConsolidated
                  Statements of Stockholders' Equity(Unaudited)Six
                  MonthsEnded
                  December
                  31,2007
              
              
              2006Capital
                  Stock:Beginning
                  of year
                  balance
              
              $
              50,604
              
              
              $
              50,109Restricted
                  stock vested: 2,062
                  shares
              
              
              20
              
              
              
              -Stock
                  options exercised: none and
                  40,987 shares, respectively
              
              
              -
              
              
              
              388End
                  of period
                  balance
              
              
              50,624
              
              
              
              50,497Additional
                  paid-in
                  capital:Beginning
                  of year
                  balance
              
              
              39,230,016
              
              
              
              38,293,233Stock
                  options
                  exercised
              
              
              -
              
              
              
              540,252Stock
                  compensation
                  expense
              
              
              90,361
              
              
              
              44,535Employee
                  stock grants
                  awarded
              
              
              -
              
              
              
              (5,742
              )Stock
                  appreciation of allocated
                  ESOP shares
              
              
              39,830
              
              
              
              72,459Amortization
                  of employee stock
                  grants
              
              
              27,652
              
              
              
              6,593End
                  of period
                  balance
              
              
              39,387,859
              
              
              
              38,951,330Retained
                  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
              
              
              732,474
              
              
              
              1,379,266Dividends
                  paid on common stock: $0.21 and $0.205per share,
                  respectively
              
              
              (682,395
              )
              
              
              (677,767
              )End
                  of period
                  balance
              
              
              59,013,978
              
              
              
              57,714,926Treasury
                  stock, at
                  cost:Beginning
                  of year
                  balance
              
              
              (26,885,723
              )
              
              
              (25,920,685
              )Employee
                  stock grants
                  awarded
              
              
              -
              
              
              
              5,742Treasury
                  stock acquired: 87,000
                  and 14,227 shares, respectively
              
              
              (1,649,940
              )
              
              
              (308,680
              )End
                  of period
                  balance
              
              
              (28,535,663
              )
              
              
              (26,223,623
              )Accumulated
                  other comprehensive
                  (loss):Beginning
                  of year
                  balance
              
              
              (179,360
              )
              
              
              (325,650
              )Net
                  change in unrealized gains
                  (losses) on securitiesavailable-for-sale,
                  net of income
                  taxes
              
              
              (2,691,461
              )
              
              
              246,098End
                  of period
                  balance
              
              
              (2,870,821
              )
              
              
              (79,552
              )Unearned
                  ESOP
                  shares:Beginning
                  of year
                  balance
              
              
              (664,840
              )
              
              
              (786,540
              )ESOP
                  shares
                  allocated
              
              
              58,880
              
              
              
              61,720End
                  of period
                  balance
              
              
              (605,960
              )
              
              
              (724,820
              )Total
                  stockholders'
                  equity
              
              $
              66,440,017
              
              
              $
              69,688,758
  See
                  Notes to Consolidated
                  Financial Statements.








3
 Index


First
                  Federal
                  Bankshares, Inc. and SubsidiariesConsolidated
                  Statements of
                  Comprehensive Income (Loss)(Unaudited)Three
                  Months
                  Ended
              
              
              Six
                  Months
                  EndedDecember
                  31,
              
              
              December
                  31,2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  income
              
              $
              317,861
              
              
              $
              412,524
              
              
              $
              732,474
              
              
              $
              1,379,266Accumulated
                  other comprehensive
                  income (loss):Unrealized
                  holding gains (losses)
                  arising duringthe
                  period, net of
                  tax
              
              
              (1,438,575
              )
              
              
              (2,851
              )
              
              
              (2,691,461
              )
              
              
              246,098Total
                  comprehensive income
                  (loss)
              
              $
              (1,120,714
              )
              
              $
              409,673
              
              
              $
              (1,958,987
              )
              
              $
              1,625,364
  See
                  Notes to Consolidated
                  Financial Statements.





4
 Index


First
                  Federal Bankshares, Inc. and
                  SubsidiariesConsolidated
                  Statements of Cash Flows(Unaudited)
              
              Six
                  months
                  endedDecember
                  31,2007
              
              
              2006Cash
                  flows from continuing
                  operating activities:Net
                  income
              
              $
              732,474
              
              
              $
              1,379,266Income
                  from discontinued
                  operations
              
              
              -
              
              
              
              (75,796
              )Adjustments
                  to reconcile net
                  income from continuing operations tonet
                  cash provided by continuing
                  operating activities:Loans
                  originated for sale to
                  investors
              
              
              (33,347,000
              )
              
              
              (21,963,000
              )Proceeds
                  from sale of loans
                  originated for sale
              
              
              33,795,337
              
              
              
              22,447,213Provision
                  for losses on
                  loans
              
              
              513,037
              
              
              
              502,663Depreciation
                  and
                  amortization
              
              
              719,553
              
              
              
              578,302Provision
                  for deferred
                  taxes
              
              
              208,000
              
              
              
              469,000Equity-based
                  compensation
              
              
              216,743
              
              
              
              185,307Tax
                  benefit resulting from stock
                  options exercised
              
              
              -
              
              
              
              (134,000
              )Net
                  gain on sale of
                  loans
              
              
              (370,871
              )
              
              
              (345,907
              )Net
                  gain on sale of real estate
                  held for development
              
              
              (46,610
              )
              
              
              (60,000
              )Amortization
                  of premiums and
                  discounts on loans,mortgage-backed
                  securities and
                  investment securities
              
              
              (6,702
              )
              
              
              (214,359
              )Increase
                  in accrued interest
                  receivable
              
              
              (94,722
              )
              
              
              (73,600
              )Decrease
                  (increase) in other
                  assets
              
              
              219,991
              
              
              
              (32,749
              )Increase
                  (decrease) in accrued
                  interest payable
              
              
              (212,627
              )
              
              
              486,299Increase
                  (decrease) in accrued
                  expenses and other liabilities
              
              
              (24,974
              )
              
              
              85,873Decrease
                  in accrued taxes on
                  income
              
              
              (69,748
              )
              
              
              (972,082
              )Net
                  cash provided by continuing
                  operating activities
              
              
              2,231,881
              
              
              
              2,262,430Cash
                  flows from continuing
                  investing activities:Proceeds
                  from maturities of
                  securities held-to-maturity
              
              
              581,560
              
              
              
              1,169,180Purchase
                  of securities
                  available-for-sale
              
              
              -
              
              
              
              (34,292,531
              )Proceeds
                  from maturities of
                  securities available-for-sale
              
              
              8,254,638
              
              
              
              19,170,972Redemption
                  (purchase) of FHLB
                  stock
              
              
              (1,679,900
              )
              
              
              578,500Loans
                  purchased
              
              
              (5,242,000
              )
              
              
              (8,571,000
              )Decrease
                  in loans
                  receivable
              
              
              11,108,283
              
              
              
              14,969,543Purchase
                  of office property and
                  equipment
              
              
              (2,829,566
              )
              
              
              (2,399,269
              )Proceeds
                  from sale of foreclosed
                  real estate
              
              
              235,154
              
              
              
              72,255Proceeds
                  from sale of real estate
                  held for development
              
              
              804,844
              
              
              
              1,207,277Expenditures
                  on real estate held
                  for development
              
              
              (309,020
              )
              
              
              (1,054,574
              )Net
                  cash provided by (used in)
                  continuing investing activities
              
              
              10,923,993
              
              
              
              (9,149,647
              )Cash
                  flows from continuing
                  financing activities:Increase
                  (decrease) in
                  deposits
              
              
              (56,210,358
              )
              
              
              1,606,145Proceeds
                  from advances from FHLB
                  and other borrowings
              
              
              85,885,467
              
              
              
              3,134,865Repayment
                  of advances from FHLB
                  and other borrowings
              
              
              (45,428,965
              )
              
              
              (18,000,000
              )Net
                  decrease in advance payments
                  by borrowers for taxes and insurance
              
              
              (27,852
              )
              
              
              (62,238
              )Issuance
                  of common stock under
                  stock options exercised
              
              
              -
              
              
              
              406,640Tax
                  benefit resulting from stock
                  options exercised
              
              
              -
              
              
              
              134,000Repurchase
                  of common
                  stock
              
              
              (1,649,940
              )
              
              
              (308,680
              )Cash
                  dividends
                  paid
              
              
              (682,395
              )
              
              
              (677,767
              )Net
                  cash (used in) continuing
                  financing activities
              
              
              (18,114,043
              )
              
              
              (13,767,035
              )Cash
                  flows from discontinued
                  operations:Net
                  cash provided by operating
                  activities of discontinued operations
              
              
              -
              
              
              
              106,526Net
                  cash provided by discontinued
                  operations
              
              
              -
              
              
              
              106,526Net
                  decrease in cash and cash
                  equivalents
              
              
              (4,958,169
              )
              
              
              (20,547,726
              )Beginning
                  of
                  year
              
              
              25,738,467
              
              
              
              39,904,749End
                  of year
              
              $
              20,780,298
              
              
              $
              19,357,023SUPPLEMENTAL
                  DISCLOSURESCash
                  paid during the period
                  for:Interest
              
              $
              10,842,448
              
              
              $
              8,759,735Income
                  taxes
              
              
              4,748
              
              
              
              864,082
  See
                  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 and six month periods
      ended December 31, 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  and six month periods ended December 31,
      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.





Other
      Accounting
      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
      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.  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
      of income for the three and six months ended December 31, 2006, as “discontinued
      operations.”   The assets of the business sold have not been
      presented separately because those amounts are not material.


6
 Index


Note
      4.  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 net of
      income tax on July 1, 2007, as a result of the adjustment of its servicing
      asset
      to fair value.  Subsequent adjustments to fair value are reflected in
      income as a component of mortgage banking revenue on the consolidated statements
      of income.





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.




As
      a
      result of the implementation of FIN 48 on July 1, 2007, the Company recognized
      an $180,000 decrease to reserves for uncertain tax positions, resulting in
      a
      liability for unrecognized tax benefits of $127,000 at July 1,
      2007.  The Company has included in the liability for unrecognized tax
      benefits approximately $26,000 for the payment of interest and penalties at
      December 31, 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 December 31, 2007
      and the Company does not expect that there will be any significant increase
      or
      decrease in fiscal year 2008.





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(“EITF 06-04).  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. EITF 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 income tax.  Ongoing expenses will be
      recognized through the current year income.  Management estimates the
      first year’s expense to be approximately $20,000 after income taxes and decrease
      earnings per share by less than $0.01.





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.


7
 Index





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
      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
      5.  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.






8
 Index


Three
                  Months
                  Ended
              
              
              Six
                  Months
                  EndedDecember
                  31,
              
              
              December
                  31,2007
              
              
              2006
              
              
              2007
              
              
              2006Basic
                  earnings per share
                  computation:Income
                  from continuing
                  operations
              
              $
              317,861
              
              
              $
              380,423
              
              
              $
              732,474
              
              
              $
              1,303,470Income
                  from discontinued
                  operations
              
              
              -
              
              
              
              32,101
              
              
              
              -
              
              
              
              75,796Net
                  income
              
              $
              317,861
              
              
              $
              412,524
              
              
              $
              732,474
              
              
              $
              1,379,266Weighted
                  average common shares
                  outstanding
              
              
              3,236,718
              
              
              
              3,318,317
              
              
              
              3,248,309
              
              
              
              3,309,482Basic
                  earnings per share from
                  continuing operations
              
              $
              0.10
              
              
              $
              0.11
              
              
              $
              0.23
              
              
              $
              0.40Basic
                  earnings per share from
                  discontinued operations
              
              
              -
              
              
              
              0.01
              
              
              
              -
              
              
              
              0.02Basic
                  earnings per
                  share
              
              $
              0.10
              
              
              $
              0.12
              
              
              $
              0.23
              
              
              $
              0.42Diluted
                  earnings per share
                  computation:Income
                  from continuing
                  operations
              
              $
              317,861
              
              
              $
              380,423
              
              
              $
              732,474
              
              
              $
              1,303,470Income
                  from discontinued
                  operations
              
              
              -
              
              
              
              32,101
              
              
              
              -
              
              
              
              75,796Net
                  income
              
              $
              317,861
              
              
              $
              412,524
              
              
              $
              732,474
              
              
              $
              1,379,266Weighted
                  average common shares
                  outstanding
              
              
              3,236,718
              
              
              
              3,318,317
              
              
              
              3,248,309
              
              
              
              3,309,482Incremental
                  option and recognition
                  and retention plan sharesusing
                  treasury stock
                  method
              
              
              15,458
              
              
              
              28,697
              
              
              
              17,547
              
              
              
              33,456Diluted
                  shares
                  outstanding
              
              
              3,252,176
              
              
              
              3,347,014
              
              
              
              3,265,856
              
              
              
              3,342,938Diluted
                  earnings per share from
                  continuing operations
              
              $
              0.10
              
              
              $
              0.11
              
              
              $
              0.22
              
              
              $
              0.39Diluted
                  earnings per share from
                  discontinued operations
              
              
              -
              
              
              
              0.01
              
              
              
              -
              
              
              
              0.02Diluted
                  earnings per
                  share
              
              $
              0.10
              
              
              $
              0.12
              
              
              $
              0.22
              
              
              $
              0.41








Note
      6.  Dividends





On
      January 17, 2008, the Company declared a cash dividend on its common stock,
      payable on February 29, 2008, to stockholders of record as of February 15,
      2008,
      equal to $0.105 per share.





Note
      7.  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.





Selected
      financial information on the Company’s segments is presented below for the three
      and six months ended December 31, 2007 and 2006.








9
 Index


Three
                  Months Ended December 31,
                  2007(Dollars
                  in
                  Thousands)
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              9,405
              
              
              
              -
              
              
              $
              9,405Interest
                  expense
              
              
              5,204
              
              
              
              -
              
              
              
              5,204Net
                  interest
                  income
              
              
              4,201
              
              
              
              -
              
              
              
              4,201Provision
                  for loan
                  losses
              
              
              492
              
              
              
              -
              
              
              
              492Net
                  interest income after
                  provision for loan losses
              
              
              3,709
              
              
              
              -
              
              
              
              3,709Non-interest
                  income
              
              
              1,539
              
              
              $
              46
              
              
              
              1,585Non-interest
                  expense
              
              
              4,942
              
              
              
              6
              
              
              
              4,948Income
                  before income
                  taxes
              
              
              306
              
              
              
              40
              
              
              
              346Income
                  taxes
              
              
              13
              
              
              
              15
              
              
              
              28Net
                  income
              
              $
              293
              
              
              $
              25
              
              
              $
              318Depreciation
                  and
                  amortization
              
              $
              507
              
              
              
              -
              
              
              $
              507
  Three
                  Months Ended December 31,
                  2006(Dollars
                  in
                  Thousands)
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              8,649
              
              
              
              -
              
              
              $
              8,649Interest
                  expense
              
              
              4,787
              
              
              
              -
              
              
              
              4,787Net
                  interest
                  income
              
              
              3,862
              
              
              
              -
              
              
              
              3,862Provision
                  for loan
                  losses
              
              
              403
              
              
              
              -
              
              
              
              403Net
                  interest income after
                  provision for loan losses
              
              
              3,459
              
              
              
              -
              
              
              
              3,459Non-interest
                  income
              
              
              1,483
              
              
              $
              20
              
              
              
              1,503Non-interest
                  expense
              
              
              4,489
              
              
              
              15
              
              
              
              4,504Income
                  before income taxes and
                  discontinued operations
              
              
              453
              
              
              
              5
              
              
              
              458Income
                  taxes
              
              
              74
              
              
              
              3
              
              
              
              77Income
                  from continuing
                  operations
              
              
              379
              
              
              
              2
              
              
              
              381Income
                  from discontinued
                  operations, net of tax
              
              
              -
              
              
              
              32
              
              
              
              32Net
                  income
              
              $
              379
              
              
              $
              34
              
              
              $
              413Depreciation
                  and
                  amortization
              
              $
              273
              
              
              
              -
              
              
              $
              273





10
 Index


Six
                  Months Ended December 31,
                  2007(Dollars
                  in
                  Thousands)
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              18,911
              
              
              
              -
              
              
              $
              18,911Interest
                  expense
              
              
              10,630
              
              
              
              -
              
              
              
              10,630Net
                  interest
                  income
              
              
              8,281
              
              
              
              -
              
              
              
              8,281Provision
                  for loan
                  losses
              
              
              513
              
              
              
              -
              
              
              
              513Net
                  interest income after
                  provision for loan losses
              
              
              7,768
              
              
              
              -
              
              
              
              7,768Non-interest
                  income
              
              
              3,043
              
              
              $
              50
              
              
              
              3,093Non-interest
                  expense
              
              
              9,974
              
              
              
              12
              
              
              
              9,986Income
                  before income
                  taxes
              
              
              837
              
              
              
              38
              
              
              
              875Income
                  taxes
              
              
              129
              
              
              
              14
              
              
              
              143Net
                  income
              
              $
              708
              
              
              $
              24
              
              
              $
              732Depreciation
                  and
                  amortization
              
              $
              720
              
              
              
              -
              
              
              $
              720Total
                  assets
              
              $
              625,977
              
              
              $
              5
              
              
              $
              625,982
  Six
                  Months Ended December 31,
                  2006(Dollars
                  in
                  Thousands)
              
              Banking
              
              
              Other
              
              
              ConsolidatedInterest
                  income
              
              $
              17,213
              
              
              
              -
              
              
              $
              17,213Interest
                  expense
              
              
              9,246
              
              
              
              -
              
              
              
              9,246Net
                  interest
                  income
              
              
              7,967
              
              
              
              -
              
              
              
              7,967Provision
                  for loan
                  losses
              
              
              503
              
              
              
              -
              
              
              
              503Net
                  interest income after
                  provision for loan losses
              
              
              7,464
              
              
              
              -
              
              
              
              7,464Non-interest
                  income
              
              
              3,043
              
              
              $
              60
              
              
              
              3,103Non-interest
                  expense
              
              
              8,774
              
              
              
              49
              
              
              
              8,823Income
                  before income taxes and
                  discontinued operations
              
              
              1,733
              
              
              
              11
              
              
              
              1,744Income
                  taxes
              
              
              436
              
              
              
              5
              
              
              
              441Income
                  from continuing
                  operations
              
              
              1,297
              
              
              
              6
              
              
              
              1,303Income
                  from discontinued
                  operations, net of tax
              
              
              -
              
              
              
              76
              
              
              
              76Net
                  income
              
              $
              1,297
              
              
              $
              82
              
              
              $
              1,379Depreciation
                  and
                  amortization
              
              $
              578
              
              
              
              -
              
              
              $
              578Total
                  assets
              
              $
              599,710
              
              
              $
              930
              
              
              $
              600,640





Note
      8.  Stock-Based Compensation





The
      Company uses the Black-Scholes option pricing model to estimate the fair value
      of share-based payment awards. Weighted-average assumptions used for stock
      appreciation rights (SAR) granted during the six months ended December 31,
      2007
      under the 2006 Stock-Based Incentive Plan were: dividend yield of 3.12%;
      expected volatility of 22.0%; risk-free interest rate of 3.46%; expected life
      of
      5.0 years; and weighted-average grant date fair value of $2.309.





A
      summary
      of SAR activity as of December 31, 2007, and changes since June 30, 2007 is
      presented below:




Weighted-Weighted-
              
              
              AverageAverage
              
              
              Remaining
              
              
              AggregateExercise
              
              
              Contractual
              
              
              IntrinsicNumber
              
              
              Price
              
              
              Term
                  (years)
              
              
              ValueOutstanding
                  SARs as of June 30,
                  2007
              
              
              59,246
              
              
              $
              19.10Granted
              
              
              34,585
              
              
              
              13.45Outstanding
                  at December 31,
                  2007
              
              
              93,831
              
              
              $
              17.02
              
              
              
              9.6
              
              
              $
              20,751Exercisable
                  at December 31,
                  2007
              
              
              3,333
              
              
              $
              22.04
              
              
              
              8.8
              
              
              
              -





No
      stock
      options were granted during the six months ended December 31, 2007.  A
      summary of option activity for the six months ended December 31, 2007 is
      presented below:


11
 Index


Weighted-Weighted-
              
              
              AverageAverage
              
              
              Remaining
              
              
              AggregateExercise
              
              
              Contractual
              
              
              IntrinsicNumber
              
              
              Price
              
              
              Term
                  (years)
              
              
              ValueOutstanding
                  options as of June 30,
                  2007
              
              
              81,000
              
              
              $
              17.49Forfeited
              
              
              (2,750
              )
              
              
              23.46Outstanding
                  at December 31,
                  2007
              
              
              78,250
              
              
              $
              17.28
              
              
              
              5.8
              
              
              $
              96,189Exercisable
                  at December 31,
                  2007
              
              
              57,450
              
              
              $
              15.79
              
              
              
              4.9
              
              
              $
              96,189





Share-based
      compensation expense for the six months ended December 31, 2007 and 2006 totaled
      $90,000 and $45,000, respectively. As of December 31, 2007, there was $353,000
      of total unrecognized compensation cost related to non-vested share-based
      compensation arrangements, to be recognized over a weighted-average period
      of
      1.5 years.





A
      summary
      of the status of the Company’s non-vested shares of restricted stock as of
      December 31, 2007, and changes during the six months ended December 31, 2007,
      is
      as follows:





Weighted-AverageGrant-DateNumber
              
              
              Fair
                  ValueNon-vested
                  restricted
                  shares
              
              
              6,400
              
              
              $
              21.02Vested
              
              
              (1,600
              )
              
              
              19.58Non-vested
                  at December 31,
                  2007
              
              
              4,800
              
              
              $
              21.50





Restricted
      stock expense for the six months ended December 31, 2007 and 2006 was $28,000
      and $7,000, respectively.  As of December 31, 2007, there was $67,000
      of total unrecognized compensation cost related to non-vested restricted
      shares.  The cost is expected to be recognized over a weighted-average
      period of 4.0 years.  The total fair value of shares vested during the
      six months ended December 31, 2007 was $25,000.


12
 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 December 31, 2007, was $318,000 or $0.10 per diluted share compared to
      $413,000 or $0.12 per diluted share in the same period last
      year.  These amounts represent an annualized return on average assets
      (“ROA”) of 0.20% and 0.28%, respectively, and an annualized return on average
      equity (“ROE”) of 1.86% and 2.35%, respectively.





The
      decrease in net income for the three months ended December 31, 2007, as compared
      to the three months ended December 31, 2006, was due to a $443,000 increase
      in
      non-interest expense and a $90,000 increase in provision for loan
      losses.  In addition, discontinued operations contributed $32,000 for
      the three months ended December 31, 2006.  These developments were
      offset by a $339,000 increase in net interest income, an $82,000 increase in
      non-interest income, and a $49,000 decrease in income tax expense.





Six
      Month
      OverviewThe Company’s net income for the six months
      ended December 31, 2007, was $732,000 or $0.22 per diluted share, compared
      to
      $1.4 million or $0.41 per diluted share in the same period last
      year.   These amounts represent an ROA of 0.23% and 0.46%,
      respectively, and an ROE of 2.12% and 3.93%, respectively.





The
      decrease in net income for the six months ended December 31, 2007 as compared
      to
      the same period a year ago was due to a $1.2 million increase in non-interest
      expense, an $11,000 increase in provision for loan losses and a $9,000 decrease
      in non-interest income.    In addition, discontinued
      operations contributed $76,000 for the six months ended December 31,
      2006.  These developments were partially offset by an increase in net
      interest income of $313,000 and a $298,000 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 and six
      month periods ended December 31, 2007.





Net
      Interest
      Income  Net interest income for the three months and the six
      months ended December 31, 2007, totaled $4.2 million and $8.3 million,
      respectively, compared to $3.9 million and $8.0 million, respectively, for
      the
      same periods ended December 31, 2006.  The Company’s net interest
      margin increased 13 basis points to 3.02% for the three months ended December
      31, 2007, from 2.89% during the same period in the previous year.  The
      increase in net interest margin was due to asset yields rising faster than
      the
      cost of the Company’s interest-bearing liabilities.  Asset yields
      increased 29 basis points due primarily to increases in yields on the Company’s
      investment and loan portfolios.  The Company’s interest-bearing
      liabilities only increased eight basis points during the same time
      period.  In addition, average earning assets for the three months
      ended December 31, 2007, increased $21.4 million compared to the same period
      last year.   The asset growth occurred in the Company’s
      investment security portfolio and was offset by decreases in the Company’s loan
      portfolio.  During the previous fiscal year the Bank purchased $50
      million of floating-rate, trust-preferred securities funded with short-term
      borrowings.  This transaction has a current after-tax annualized ROA
      in excess of 1.75%.


13
 Index


The
      improvement in the Company’s net interest margin in the most recent quarter
      represents the third straight increase on a quarter-to-quarter
      basis.  This improvement is due principally to a declining interest
      rate environment.  Also contributing was management’s decision to
      price certain deposit products less aggressively relative to its
      competitors.  Management expects the Company’s net interest margin to
      continue to improve modestly in the near-term in light of continued declines
      in
      market interest rates subsequent to December 31, 2007.  However, there
      can be no assurances.





For
      the
      six months ended December 31, 2007, the Company’s net interest margin declined
      slightly from 3.00% to 2.96%.  The decline in margin was offset by an
      increase in average earning assets.  Average earning assets as of
      December 31, 2007, increased $26.8 million to $565.5 million as compared to
      the
      same period last year.





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 and six month
      periods ended December 31, 2007 and 2006.





Three
                    months ended December
                    31,2007
                
                
                2006Average
                
                
                
                
                
                Average
                
                
                Average
                
                
                
                
                
                Average(Dollars
                    in
                    thousands)
                
                Balance
                
                
                Interest
                
                
                Yield/Cost
                
                
                Balance
                
                
                Interest
                
                
                Yield/CostInterest-earning
                    assets:Loans
                    receivable
                    (1)
                
                $
                434,846
                
                
                $
                7,403
                
                
                
                6.75
                %
                
                $
                455,018
                
                
                $
                7,535
                
                
                
                6.57
                %Investment
                    securities
                    (2)
                
                
                127,477
                
                
                
                1,994
                
                
                
                6.35
                %
                
                
                78,212
                
                
                
                1,004
                
                
                
                5.37
                %Deposits
                    in other financial
                    institutions
                
                
                745
                
                
                
                8
                
                
                
                4.05
                %
                
                
                8,476
                
                
                
                110
                
                
                
                5.13
                %Total
                    interest-earning
                    assets
                
                
                563,068
                
                
                
                9,405
                
                
                
                6.66
                %
                
                
                541,706
                
                
                
                8,649
                
                
                
                6.37
                %Non-interest-earning
                    assets
                
                
                64,322
                
                
                
                
                
                
                
                
                
                
                
                55,184Total
                    assets
                
                $
                627,390
                
                
                
                
                
                
                
                
                
                
                $
                596,890Interest-bearing
                    liabilities:Deposit
                    liabilities
                
                $
                411,313
                
                
                
                3,915
                
                
                
                3.78
                %
                
                $
                397,549
                
                
                
                3,784
                
                
                
                3.78
                %Borrowings
                
                
                100,438
                
                
                
                1,289
                
                
                
                5.09
                %
                
                
                82,723
                
                
                
                1,003
                
                
                
                4.81
                %Total
                    interest-bearing
                    liabilities
                
                
                511,751
                
                
                
                5,204
                
                
                
                4.03
                %
                
                
                480,272
                
                
                
                4,787
                
                
                
                3.95
                %Non-interest-bearing:Deposit
                    liabilities
                
                
                42,958
                
                
                
                
                
                
                
                
                
                
                
                41,423Other
                    liabilities
                
                
                5,268
                
                
                
                
                
                
                
                
                
                
                
                5,433Total
                    liabilities
                
                
                559,977
                
                
                
                
                
                
                
                
                
                
                
                527,128Stockholders’
                    equity
                
                
                67,413
                
                
                
                
                
                
                
                
                
                
                
                69,762Total
                    liabilities
                    andstockholders'
                    equity
                
                $
                627,390
                
                
                
                
                
                
                
                
                
                
                $
                596,890Net
                    interest
                    income
                
                
                
                
                
                $
                4,201
                
                
                
                
                
                
                
                
                
                
                $
                3,862Interest
                    rate
                    spread
                
                
                
                
                
                
                
                
                
                
                2.63
                %
                
                
                
                
                
                
                
                
                
                
                2.42
                %Net
                    interest
                    margin
                
                
                
                
                
                
                
                
                
                
                3.02
                %
                
                
                
                
                
                
                
                
                
                
                2.89
                %Ratio
                    of average interest-earning
                    assetsto
                    average interest-bearing
                    liabilities
                
                
                
                
                
                
                
                
                
                
                110.03
                %
                
                
                
                
                
                
                
                
                
                
                112.79
                %
  (1)
              Average
                  balances include
                  nonaccrual loans and loans held for sale.  Interest income
                  includes amortization ofdeferred
                  loan fees, which is not
                  material.(2)
              Investment
                  securities income is
                  presented without the benefit of the tax effect of tax exempt income;
                  yields arepresented
                  on a tax-effected
                  basis.(3)
              Net
                  interest margin represents net
                  interest income, tax-effected, as a percentage of average earning
                  assets.





14
 Index


Six
                    months ended December
                    31,2007
                
                
                2006Average
                
                
                
                
                
                Average
                
                
                Average
                
                
                
                
                
                Average(Dollars
                    in
                    thousands)
                
                Balance
                
                
                Interest
                
                
                Yield/Cost
                
                
                Balance
                
                
                Interest
                
                
                Yield/CostInterest-earning
                    assets:Loans
                    receivable
                    (1)
                
                $
                433,268
                
                
                $
                14,834
                
                
                
                6.79
                %
                
                $
                457,147
                
                
                $
                15,170
                
                
                
                6.58
                %Investment
                    securities
                    (2)
                
                
                129,913
                
                
                
                4,019
                
                
                
                6.28
                %
                
                
                72,140
                
                
                
                1,799
                
                
                
                5.24
                %Deposits
                    in other financial
                    institutions
                
                
                2,326
                
                
                
                58
                
                
                
                4.95
                %
                
                
                9,395
                
                
                
                244
                
                
                
                5.15
                %Total
                    interest-earning
                    assets
                
                
                565,507
                
                
                
                18,911
                
                
                
                6.66
                %
                
                
                538,682
                
                
                
                17,213
                
                
                
                6.38
                %Non-interest-earning
                    assets
                
                
                63,303
                
                
                
                
                
                
                
                
                
                
                
                55,362Total
                    assets
                
                $
                628,810
                
                
                
                
                
                
                
                
                
                
                $
                594,044Interest-bearing
                    liabilities:Deposit
                    liabilities
                
                $
                430,716
                
                
                
                8,477
                
                
                
                3.90
                %
                
                $
                392,063
                
                
                
                7,206
                
                
                
                3.65
                %Borrowings
                
                
                83,126
                
                
                
                2,153
                
                
                
                5.14
                %
                
                
                85,096
                
                
                
                2,040
                
                
                
                4.75
                %Total
                    interest-bearing
                    liabilities
                
                
                513,842
                
                
                
                10,630
                
                
                
                4.10
                %
                
                
                477,159
                
                
                
                9,246
                
                
                
                3.84
                %Non-interest-bearing:Deposit
                    liabilities
                
                
                42,680
                
                
                
                
                
                
                
                
                
                
                
                42,276Other
                    liabilities
                
                
                5,383
                
                
                
                
                
                
                
                
                
                
                
                5,058Total
                    liabilities
                
                
                561,905
                
                
                
                
                
                
                
                
                
                
                
                524,493Stockholders’
                    equity
                
                
                66,905
                
                
                
                
                
                
                
                
                
                
                
                69,551Total
                    liabilities
                    andstockholders'
                    equity
                
                $
                628,810
                
                
                
                
                
                
                
                
                
                
                $
                594,044Net
                    interest
                    income
                
                
                
                
                
                $
                8,281
                
                
                
                
                
                
                
                
                
                
                $
                7,967Interest
                    rate
                    spread
                
                
                
                
                
                
                
                
                
                
                2.56
                %
                
                
                
                
                
                
                
                
                
                
                2.54
                %Net
                    interest
                    margin
                
                
                
                
                
                
                
                
                
                
                2.96
                %
                
                
                
                
                
                
                
                
                
                
                3.00
                %Ratio
                    of average interest-earning
                    assetsto
                    average interest-bearing
                    liabilities
                
                
                
                
                
                
                
                
                
                
                110.05
                %
                
                
                
                
                
                
                
                
                
                
                112.89
                %
  (1)
              Average
                  balances include
                  nonaccrual loans and loans held for sale.  Interest income
                  includes amortization ofdeferred
                  loan fees, which is not
                  material.(2)
              Investment
                  securities income is
                  presented without the benefit of the tax effect of tax exempt income;
                  yields arepresented
                  on a tax-effected
                  basis.(3)
              Net
                  interest margin represents net
                  interest income, tax-effected, as a percentage of average earning
                  assets.





Provision
      for
      Losses on LoansProvision
      for losses on
      loans increased to $492,000 for the three months ended December 31, 2007, from
      $403,000 for the three months ended December 31, 2006.  For the six
      months ended December 31, 2007, the provision for loan losses increased to
      $513,000 from $503,000 during the same time period last year.  The
      increase was primarily attributed to the partial charge-off of two commercial
      real estate loan relationships during the period and the establishment of a
      specific loss allowance on a commercial loan to a concrete pumping
      company.  The loan loss provision in the same quarter of the previous
      year was related to the Company’s reclassification of $10.3 million of
      non-performing and classified loans to held for sale.  These loans
      were subsequently sold in 2007.





The
      Company’s allowance for loan losses totaled $2.1 million as of December 31,
      2007, compared to $1.8 million as of June 30, 2007.  The Company’s
      allowance for loan losses was 68.8% and 144.7% of non-performing loans as of
      December 31, 2007, and June 30, 2007, respectively.  Although the
      Company’s allowance for loan loss has increased in absolute dollars during the
      six months ended December 31, 2007, it has decreased relative to its
      non-performing loans.  Management believes the allowance for loan loss
      is adequate.  The impact of an increase in non-performing loans was
      partially offset by a decrease in the Bank’s long-term historical loan loss
      experience.  This experience is a key driver in the calculation of the
      Company’s allowance for loan loss.





Non-performing
      loans and adversely classified assets have increased in recent months consistent
      with well-publicized difficulties in the overall markets for commercial and
      residential real estate.  Management expects this trend to continue in
      the near term, but believes the Company’s classified assets are
      manageable.  Although management


15
 Index


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 Adversely Classified Assets.”





The
      following table summarizes the activity in the Company’s allowance for loan
      losses for the three and six months ended December 31, 2007 and
      2006.





Three
                  months
                  ended
              
              
              Six
                  months
                  endedDecember
                  31
              
              
              December
                  31(Dollars
                  in
                  Thousands)
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Balance
                  at beginning of
                  period
              
              $
              1,743
              
              
              $
              5,482
              
              
              $
              1,797
              
              
              $
              5,466Provision
                  for loan
                  losses
              
              
              492
              
              
              
              403
              
              
              
              513
              
              
              
              503Charge-offs:Commercial
                  real estate
                  loans
              
              
              (182
              )
              
              
              -
              
              
              
              (182
              )
              
              
              (20
              )Commercial
                  business
                  loans
              
              
              (15
              )
              
              
              (2,617
              )
              
              
              (71
              )
              
              
              (2,617
              )Consumer
                  loans
              
              
              (33
              )
              
              
              (49
              )
              
              
              (79
              )
              
              
              (127
              )Total
                  loans
                  charged-off
              
              
              (230
              )
              
              
              (2,666
              )
              
              
              (332
              )
              
              
              (2,764
              )Loans
                  transferred to held for
                  sale
              
              
              -
              
              
              
              (1,300
              )
              
              
              -
              
              
              
              (1,300
              )Recoveries
              
              
              51
              
              
              
              125
              
              
              
              78
              
              
              
              139Charge-offs,
                  net of
                  recoveries
              
              
              (179
              )
              
              
              (3,841
              )
              
              
              (254
              )
              
              
              (3,925
              )Balance
                  at end of
                  period
              
              $
              2,056
              
              
              $
              2,044
              
              
              $
              2,056
              
              
              $
              2,044Allowance
                  for loan losses to total
                  loans
              
              
              0.47
              %
              
              
              0.46
              %
              
              
              0.47
              %
              
              
              0.46
              %Allowance
                  for loan losses to
                  non-performing loans
              
              
              68.81
              %
              
              
              73.66
              %
              
              
              68.81
              %
              
              
              73.66
              %Net
                  annualized charge-offs to
                  average loans outstanding
              
              
              0.16
              %
              
              
              3.38
              %
              
              
              0.12
              %
              
              
              1.72
              %





Non-Interest
      Income  Non-interest income totaled $1.6 million for the three
      months ended December 31, 2007, compared to $1.5 million during the same period
      in 2006.  For the six months ended December 31, 2007 and 2006,
      non-interest income totaled $3.1 million in both periods.  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 $22,000 to
      $835,000 for the three month period ended December 31, 2007, as compared to
      the
      same period in the previous year.  For the six months ended December
      31, 2007, service charges on deposit accounts totaled $1.6 million as compared
      to $1.8 million for the six months ended December 31, 2006.   The
      decline in both periods 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   Service charges on commercial and consumer
      loans increased $72,000 to $123,000 for the three month period ended December
      31
      2007, as compared to the same period in the previous year.  For the
      six months ended December 31, 2007, service charges on loans increased $136,000
      to $220,000.  The increase was primarily due to the collection of
      prepayment penalties on commercial and commercial real estate loans during
      the
      current period.  The collection of prepayment penalties increased due
      to the general decline in market interest rates during the period and a
      corresponding increase in refinancing activity in the commercial real estate
      portfolio.





Gain
      on Sale of Real Estate Held for
      DevelopmentThe gain on sale of real estate held for
      development for the three months ended December 31, 2007 and 2006, was $47,000
      and $20,000, respectively.  For the six months ended December 31, 2007
      and 2006, gain on the sale of real estate held for development totaled $47,000
      and $60,000, respectively.  The gains recognized in both periods were
      due to sales from a condominium development project in the Company’s real estate
      development subsidiary.  This project is now completed.  The
      Company does not intend to undertake any further real estate development
      projects.





Mortgage
      Banking
      Revenue   Mortgage banking revenue consists of gain on
      sale of residential loans, loan origination and closing fees, and mortgage
      servicing income.  Mortgage banking revenue declined
      $1,000


16
 Index


from
      $178,000 for the three months ended December 31, 2006, to $177,000 for the
      three
      months ended December 31, 2007.  For the six months ended December 31,
      2007, mortgage banking revenue decreased $7,000 to $371,000 from $378,000 during
      the same period last year.  The decrease was due to a decline in the
      market value of the Company’s mortgage servicing portfolio.  This
      decline was offset by an increase in fixed rate mortgage origination volumes
      due
      to the overall decline in market interest rates.





Earnings
      from bank owned life
      insurance   Earnings from bank owned life insurance
      increased $7,000 to $138,000 for the three months ended December 31,
      2007.  For the six months ended December 31, 2007, earnings for bank
      owned life insurance increased $11,000 to $275,000 from $264,000 during the
      same
      period last year.  The change was attributed to an increase in the
      investment yield of the underlying insurance policies.





Other
      IncomeOther income for the three months ended December
      31, 2007 and 2006, was $266,000 in both periods.  For the six months
      ended December 31, 2007, other income totaled $563,000 as compared to $553,000
      for the six months ended December 31, 2006.  The change was primarily
      due to an increase in sales of fixed annuities and mutual funds.




Non-Interest
      Expense  Non-interest expense for the three months ended
      December 31, 2007, was $5.0 million compared to $4.5 million for the three
      months ended December 31, 2006.  For the six months
      ended      December 31, 2007, non-interest expense
      totaled $10.0 million compared to $8.9 million for the same period a year
      ago.   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 December 31, 2007, compared to $2.6
      million for the three months ended December 31, 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 196 as of December 31, 2007, compared to 177 at the same time
      last
      year.  The number of employees increased during the year due to the
      opening of a new banking center in the Des Moines market as well as the hiring
      of certain key employees over the last twelve months.





Office
      Property and
      Equipment   Office property and equipment expense
      increased $14,000 or 2.0% during the three months ended December 31, 2007,
      compared to the same period in the previous year.  For the six months
      ended December 31, 2007, office property and equipment expense increased $37,000
      to $1.4 million as compared to the same time period one year
      ago.  Depreciation expense increased as compared to the prior year due
      to the aforementioned opening of a new banking center in the Des Moines
      area.  In addition, building lease and property tax expenses increased
      from the prior year as a result of general inflationary increases.





Data
      Processing, ATM and Debit Card
      Transaction Costs, and Other Item Processing
      ExpenseThis expense category increased from
      $294,000 for the three months ended December 31, 2006, to $417,000 for the
      three
      months ended December 31, 2007.  For the six months ended December 31,
      2007, this expense increased to $787,000 from $603,000.  The increase
      was partially due to costs associated with the purchase of new debit card stock
      in association with the Bank’s name change.  In addition, the Company
      has been successful in increasing the number of individuals using online banking
      and bill pay as well as cell phone banking.  As a result, processing
      costs through these channels have increased.





Professional,
      Insurance, and
      RegulatoryProfessional, insurance and regulatory
      expense for the three months ended December 31, 2007, decreased to $252,000
      from
      $275,000 for the same period a year ago.  For the six months ended
      December 31, 2007, professional, insurance, and regulatory expense decreased
      $52,000 or 9.3% to $507,000 as compared to the six months ended December 31,
      2006.  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
      RelationsExpenses related to advertising, donations,
      and public relations increased from $217,000 for the three months ended December
      31, 2006, to $303,000 for the three months ended December 31,
      2007.  For the six months ended December 31, 2007, expenses related to
      advertising, donations and public relations totaled $766,000 as compared to
      $384,000 for the six months ended December 31, 2006. The increase in both
      periods was due to non-recurring costs related to the Bank’s name change and
      brand image.


17
 Index


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
      SuppliesCommunications, postage, and office supplies
      expense increased by $16,000 from $208,000 for the three months ended December
      31, 2006, to $225,000 for the three months ended December 31,
      2007.  For the six months ended December 31, 2007, communication
      postage and office supply expense increased $33,000 to $435,000 as compared
      to
      last year.   These increases were due to printing and postage
      related to the Bank’s name change and the opening of the aforementioned Des
      Moines banking center.





Other
      Non-Interest
      ExpenseOther non-interest expense increased from
      $206,000 for the three months ended December 31, 2006, to $227,000 for the
      three
      months ended December 31, 2007.  For the six months ended December 31,
      2007, other expense increased to $457,000 compared to $372,000 for the six
      months ended December 31 2006.  This increase was due to costs
      incurred by the Company to dispose of foreclosed property and the recognition
      of
      allowances for debit card fraud and checking account overdraft
      losses.





Income
      Tax
      ExpenseIncome tax expense for the three months ended
      December 31, 2007 and 2006, was $28,000 and $77,000, respectively, or 8.1%
      and
      16.8% of pre-tax income, respectively.  For the six months ended
      December 31, 2007 and 2006, income tax expense was $143,000 and $441,000,
      respectively, or 16.3% and 25.3%, 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 $19.8 million or 3.1%, to $626.0 million at December
      31, 2007, from $645.8 million at June 30, 2007.  The maturity of
      investment securities and declines in interest bearing deposits at other
      financial institutions were primarily used to fund a decrease in deposit
      liabilities and maturities of FHLB advances.  The following paragraphs
      discuss the aforementioned changes in more detail along with other changes
      in
      the components of the assets and liabilities for the period ended December
      31,
      2007.





Interest-Bearing
      Deposits with Banks Interest-bearing deposits with banks, which consist
      primarily of overnight investments at the FHLB, decreased by $6.2 million to
      $7.9 million December 31, 2007.  These balances were used to fund the
      aforementioned decreases in the Company’s deposit liabilities.





Securities
      Available-for-Sale and Held-for-InvestmentTotal
      securities decreased by $13.2 million to $118.7 million at December 31, 2007,
      from $131.9 million at June 30, 2007.  The decrease was primarily due
      to the maturity of commercial paper and principal payments from the Company’s
      mortgage backed security (“MBS”) portfolio.  These funds were also
      used to fund the aforementioned decline of deposit liabilities and maturities
      of
      FHLB advances.  In addition, the fair value of the Company’s
      trust-preferred pooled securities (“TPSs”) declined.  Please refer to
“Financial Condition – Stockholders’ Equity” for a further discussion of the
      Company’s TPSs.





Loans
      Receivable  Loans receivable decreased by $7.4 million, to
      $422.3 million as of December 31, 2007, from $429.8 million at June 30,
      2007.  Repayments from the one-to-four family residential and
      commercial real estate portfolios were offset by an increase in commercial
      business loans and home equity and second mortgage loans.  The
      following table sets forth information regarding the Company’s loan portfolio,
      by type of loan, on the dates indicated.





18
 Index


December
                    31,
                    2007
                
                
                June
                    30,
                    2007(Dollars
                    in
                    Thousands)
                
                Amount
                
                
                %
                
                
                Amount
                
                
                %First
                    mortgage
                    loans:Secured
                    by one to four family
                    residences (1)
                
                $
                119,425
                
                
                
                28.4
                
                
                $
                124,229
                
                
                
                29.0Secured
                    by multi-family and
                    non-residential properties (2)
                
                
                184,851
                
                
                
                44.0
                
                
                
                197,952
                
                
                
                46.2Commercial
                    business
                    loans
                
                
                60,200
                
                
                
                14.3
                
                
                
                50,439
                
                
                
                11.8Home
                    equity and second mortgage
                    loans
                
                
                28,922
                
                
                
                6.9
                
                
                
                28,594
                
                
                
                6.7Other
                    non-mortgage loans
                    (3)
                
                
                29,319
                
                
                
                7.0
                
                
                
                28,996
                
                
                
                6.8Loans
                    in process, unearned
                    discounts, premiums andnet
                    deferred loan fees and
                    costs
                
                
                (401
                )
                
                
                (0.1
                )
                
                
                (459
                )
                
                
                (0.1
                )Subtotal
                
                
                422,316
                
                
                
                100.5
                
                
                
                429,751
                
                
                
                100.4Allowance
                    for  loan
                    losses
                
                
                (2,056
                )
                
                
                (0.5
                )
                
                
                (1,797
                )
                
                
                (0.4
                )Total
                    loans
                    receivable
                
                $
                420,260
                
                
                
                100.0
                
                
                $
                427,954
                
                
                
                100.0
 (1)
              Includes
                  construction loans of
                  $7.1 million and $6.4 million, respectively.(2)
              Includes
                  construction loans of
                  $24.9 million and $18.7 million, respectively.(3)
              Includes
                  other secured and
                  unsecured personal loans.





Office
      property
      and equipment  Office property and equipment increased $2.3
      million from $16.2 million at June 30, 2007, to $18.5 million at December 31,
      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 $5.2 million at December 31, 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 $56.2
      million, to $451.7 million at December 31, 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 lower cost FHLB advances
      of
      similar term.  The following table sets forth information regarding
      the Company’s deposit portfolio on the dates indicated.





December
                  31,
                  2007
              
              
              June
                  30,
                  2007(Dollars
                  in
                  Thousands)
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %Non-interest-bearing
                  checking
              
              $
              45,254
              
              
              
              10.02
              
              
              $
              45,200
              
              
              
              8.90Interest-bearing
                  checking
                  accounts
              
              
              88,302
              
              
              
              19.55
              
              
              
              91,723
              
              
              
              18.06Money
                  market
                  accounts
              
              
              52,838
              
              
              
              11.70
              
              
              
              55,848
              
              
              
              11.00Savings
                  accounts
              
              
              22,380
              
              
              
              4.96
              
              
              
              25,931
              
              
              
              5.10Certificates
                  of
                  deposit
              
              
              242,881
              
              
              
              53.77
              
              
              
              289,163
              
              
              
              56.94Total
                  deposits
              
              $
              451,655
              
              
              
              100.00
              
              
              $
              507,865
              
              
              
              100.00





FHLB
      Advances and
      Other BorrowingsThe Company’s FHLB advances and other
      borrowings increased by $40.5 million, to $102.7 million at December 31, 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 $3.8 million from $70.3
      million at June 30, 2007, to $66.4 million at December 31, 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 notably its
      trust-preferred pooled securities (“TPSs”).  In recent months,
      well-publicized volatility in world credit markets has resulted in significant
      fluctuations in the value of the Company’s TPSs.  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 community banks, thrifts, insurance companies, or REITS,
      that
      secure


19
 Index


the
      Company’s TPSs.  There have been no significant defaults or payment
      deferrals, or other financial difficulties reported by the firms that secure
      the
      Company’s TPSs.  In addition, management does not believe these
      securities are “other than temporarily impaired.”  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 affect on the Company’s accumulated other comprehensive
      loss.  If the securities become “other than temporarily impaired”
operating earnings could also be affected.  Management believes the
      Company’s TPS portfolio is its single most profitable earning asset as measured
      by the estimated return on assets and return on equity.





Stockholders’
      equity also declined due to the Company’s repurchase of 87,000 treasury shares
      during the six months ended December 31, 2007 at an average price of
      $18.96.





Non-Performing
      and Adversely Classified AssetsNon-performing assets
      increased to $6.6 million on December 31, 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 1.05% as of December 31,
      2007.  The following table sets forth information regarding
      non-accrual loans and other non-performing assets at the dates
      indicated.




(Dollars
                  in
                  Thousands)
              
              December
                  31,
                  2007
              
              
              June
                  30,
                  2007Loans
                  accounted for on a
                  non-accrual basis:Single-family
                  mortgage
                  loans
              
              $
              213
              
              
              $
              405Commercial
                  real estate
                  loans
              
              
              1,236
              
              
              
              732Commercial
                  business
                  loans
              
              
              1,378
              
              
              
              -Consumer
                  loans
              
              
              161
              
              
              
              105Total
                  non-performing
                  loans
              
              
              2,988
              
              
              
              1,242Foreclosed
                  and repossessed
                  assets
              
              
              3,611
              
              
              
              2,156Total
                  non-performing
                  assets
              
              $
              6,599
              
              
              $
              3,398Restructured
                  loans not included in
                  other non-performing categories above
              
              $
              3,710
              
              
              $
              2,827Non-performing
                  loans as a
                  percentage of total loans
              
              
              0.70
              %
              
              
              0.29
              %Non-performing
                  assets as a
                  percentage of total assets
              
              
              1.05
              %
              
              
              0.19
              %




As
      of
      December 31, 2007, the Company’s adversely classified assets totaled $8.5
      million (which includes most non-performing loans in the above table) or 1.36%
      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 adversely classified assets has
      increased in recent periods, management believes the allowance for loan loss
      is
      adequate.  The impact of an increase in adversely classified assets
      was partially offset by a decrease in historical loan loss experience which
      is
      also a key driver in the calculation of the Company’s allowance for loan loss as
      previously described.





The
      Company is closely monitoring five loan relationships and two foreclosed assets
      totaling $7.2 million that are included in the $8.5 million of adversely
      classified assets.  The following paragraphs contain a brief
      discussion of each of these items.





In
      January of 2006 the Bank purchased $1.4 million participation of a $5.3 million
      loan to a concrete pumping business in 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.  The loan is not anticipated to be restructured until later
      in 2008.  However, management analyzed loan proposals made by the bank
      group as well as the borrower’s financial statements to determine the amount of
      debt this company could reasonably service.  As a result, an $180,000
      specific allowance was recorded in the second quarter of fiscal year
      2008.  In addition, since this loan is primarily secured by equipment,
      management continues to classify this loan as “Doubtful” in order to properly
      reflect the risk in the calculation of the Company’s allowance for loan
      loss.  This loan is also accounted for on a non-accrual
      basis.  Management anticipates no additional loss on this loan at this
      time.  However, there can be no assurances.


20
 Index


In
      1999
      and 2000 the Bank originated loans to an educational toy retailer in Sioux
      City.  The current balance of these loans totaled $0.5 million at
      December 31, 2007.  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.  This loan
      remains on accrual, but has been classified as “Substandard”.  No loss
      is expected at this time. However, there can be no assurances.





In
      1999
      and subsequent years the Bank originated loans to a restaurant in Sioux
      City.  The current balance of these loans totaled $0.6 million at
      December 31, 2007.  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
      the guarantor injecting cash into the business.  This loan remains on
      accrual, but has been classified as “Substandard”.  Management
      believes the value of the collateral securing this loan is insufficient to
      repay
      the loan should the borrower default.  Should the Company be forced to
      foreclose, management anticipates that a loss could exceed
      $100,000.  However, management does not believe a loss is probable at
      this time, although there can be no assurances.





In
      2004
      the Bank originated loans to a small manufacturer in Des Moines.  The
      current balance of these loans total $0.6 million at December 31,
      2007.  The loans are current and remain on
      accrual.  However, the owners of the company do not have the ability
      to inject additional capital in the business.  Capital injections are
      needed to improve the company’s overall cash flow.  Management has
      classified this loan as “Substandard”.  Management believes the value
      of the collateral securing this loan is sufficient to repay the loan if
      foreclosure is necessary.  No loss is expected at this time. However,
      there can be no assurances.





In
      December of 2006 the Bank originated a loan to a real estate developer in Des
      Moines.  The purpose of the loan was to purchase and develop lots and
      single-family residences.  The current balance of this loan is $0.8
      million.  It is delinquent as of December 31,
      2007.  Management is currently negotiating with the borrowers to bring
      the loan current.  However, if the borrower cannot bring the loan
      current, foreclosure proceedings will commence.  Management has
      classified this loan as “Substandard” and has placed it on
      non-accrual.  Management does not anticipate a loss on this loan at
      this time.  However, there can be no assurances.





In
      2005
      the Bank purchased a $1.8 million participation in a $19.3 million loan for
      a
      senior housing facility in Brooklyn Park, Minnesota.  The borrower
      subsequently defaulted on the loan and the collateral was transferred to
      foreclosed assets in the fourth quarter of the previous fiscal
      year.  An offer to purchase the property for $21.0 million has been
      accepted by the bank group but is contingent on bank group financing not to
      exceed $17.0 million.  In addition, it is anticipated that the
      purchaser will invest an additional $3.0 million of cash into this project
      for
      improvements.   The transaction is anticipated to close by the
      fourth quarter of fiscal year 2008.  Management expects no loss at
      this time.  However, there can be no assurances.





In
      the
      current quarter the Company foreclosed on $1.5 million of singe-family
      residences and lot loans to two real estate developers in Des
      Moines.  Upon foreclosure a charge-off of $182,000 was
      recorded.  The single family residences are in various stages of
      construction.  Management does not believe a material loss on the
      ultimate disposition of these properties is probable at this
      time.  However, there can be no assurances.





In
      addition to the aforementioned adversely classified assets, the Company is
      also
      closely monitoring four loan relationships rated “Special
      Mention”.  The total of these relationships is $11.4
      million.  The following paragraphs contain a brief discussion of each
      of these relationships.





In
      2005,
      the Bank originated a loan to an investor group for the purchase and renovation
      of an existing office building into condominiums in Des Moines.  The
      current balance of this loan is $6.9 million.  Condominium sales have
      been slow and the project has not met its sales targets.  As a result,
      capital injections by the investor group are needed to improve cash flow,
      service the debt, and complete the renovation.  Management has
      classified this loan “Special Mention”.  Management fully expects that
      the necessary capital injections will be made by the investor group. Management
      does not expect a loss at this time.  However, there can be no
      assurances.


21
 Index


In
      2006,
      the Bank originated a loan to an investment group for the purpose of acquiring
      and constructing an office building near the Jordan Creek Mall area in Des
      Moines.  The current balance of this loan is $2.4
      million.  One of the guarantors, the primary developer, has
      experienced financial difficulties.  As a result, construction of the
      office building was delayed and the loan became past due.  Management
      has classified this loan as “Special Mention”.  Subsequently, the
      other guarantors of the project brought the loan current and are currently
      looking for another developer for the project.  Should the Company be
      forced to foreclose, management anticipates that a loss could exceed
      $500,000.  However, management does not believe a loss is probable at
      this time, although there can be no assurances.





In
      2002,
      the Bank purchased a $0.4 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.  During the most recent quarter a
      group of investors brought the loan current and are currently in negotiations
      to
      purchase the assets of the club.  As a result, of these actions, the
      loan was upgraded from “Substandard” to “Special Mention” in the most recent
      quarter.  Although the loan has been upgraded it continues to be
      accounted for on a non-accrual basis.  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
      2004,
      the Bank purchased a $1.7 million participation of a $5.6 million tax increment
      financing note on a condominium project near Minneapolis,
      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 are not sufficient to
      service the debt.  Since this loan is secured by real estate tax
      receipts the bank group has agreed to accept a lower
      payment.  However, as property taxes increase, the bank group expects
      the excess cash flow to be sufficient to service the
      debt.    As a result of the current cash shortfall, a
      $150,000 specific allowance was recorded in accordance to generally accepted
      accounting principles.  The specific allowance represents the present
      value of the current estimated cash flows compared to the expected cash flows
      of
      the project.  Management expects the specific allowance will decline
      over time as property taxes increase and as cash flows improve on this project.
      As a result, of these actions, the loan was upgraded from “Substandard” to
“Special Mention” in the most recent quarter.  Management believes the
      value of the collateral securing this loan is sufficient to repay the loan
      if
      foreclosure is necessary.  No loss is expected 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 December 31, 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 December 31, 2007, and June 30,
      2007, were as follows:





22
 Index


December
                  31,
                  2007To
                  Be WellCapitalized
                  UnderFor
                  Capital
              
              
              Prompt
                  CorrectiveActual
              
              
              Adequacy
                  Purposes
              
              
              Action
                  ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              RatioDollars
                  in
                  ThousandsTangible
                  capital
              
              $
              48,230
              
              
              
              7.88
              %
              
              $
              9,179
              
              
              
              1.50
              %
              
              
              -
              
              
              
              -Tier
                  1 leverage
                  (core)
              
              
              48,230
              
              
              
              7.88
              
              
              
              24,478
              
              
              
              4.00
              
              
              $
              30,597
              
              
              
              5.00
              %Tier
                  1 risk-based
                  capital
              
              
              48,230
              
              
              
              10.25
              
              
              
              18,824
              
              
              
              4.00
              
              
              
              28,236
              
              
              
              6.00Risk-based
                  capital
              
              
              49,804
              
              
              
              10.58
              
              
              
              37,647
              
              
              
              8.00
              
              
              
              47,059
              
              
              
              10.00
  June
                  30,
                  2007To
                  Be WellCapitalized
                  UnderFor
                  Capital
              
              
              Prompt
                  CorrectiveActual
              
              
              Adequacy
                  Purposes
              
              
              Action
                  ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              RatioDollars
                  in
                  ThousandsTangible
                  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 six months ended December 31, 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 $65.4 million of loan commitments outstanding as of December 31,
      2007.   In addition, at December 31, 2007 the Company had $185.5
      million in certificates of deposits, $77.0 million in FHLB advances, and $8.9
      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
      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 December 31, 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 December 31, 2007, there were no outstanding
      balances on any of the lines of credit.





On
      October 25, 2007, the Board of Directors authorized an extension of the
      Company’s stock repurchase plan.  In November of 2005, the Board of
      Directors initially authorized the repurchase of 346,000 shares, or
      approximately 10% of the Company’s then outstanding shares of
      stock.  The extension is for one year, expiring on October 25,
      2008.





23
 Index


In
      January 2008, the FHLB informed the Company that its borrowing limit at the
      FHLB
      was reduced from 35% of total assets to 25% of total assets (or approximately
      from $219.0 million to $156.0 million).  The Bank currently has $90.8
      million in borrowings with the FHLB.  As a result, this development is
      not expected to have a near-term impact on the Bank’s operations.  In
      any event, the Bank has access to adequate levels of alternative borrowing
      sources such as the aforementioned fed funds lines, as well as repurchase
      agreements and brokered certificates of deposit.  The FHLB’s decision
      affected other financial institutions as well as the Company and was based
      on
      the FHLB’s analysis of non-performing assets and earnings trends in recent
      periods.  Management expects that its borrowing limit at the FHLB will
      be restored as asset quality and earnings improve, although there can be no
      assurances.





The
      following table presents, as of December 31, 2007, the expected future payments
      of the Bank’s contractual obligations.




Payments
                    Due
                    in:(In
                    thousands)
                
                Less
                    than
                    OneYear
                
                
                One
                    Year toLess ThanThree
                    Years
                
                
                Three
                    Yearsto Less
                    ThanFive Years
                
                
                Five
                    Years
                    orGreater
                
                
                TotalFHLB
                    advances
                
                $
                77,000
                
                
                $
                12,500
                
                
                
                -
                
                
                $
                1,250
                
                
                $
                90,750Other
                    borrowings
                    (1)
                
                
                8,909
                
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                
                11,909Operating
                    lease
                
                
                139
                
                
                
                308
                
                
                $
                365
                
                
                
                493
                
                
                
                1,305Data
                    processing
                
                
                509
                
                
                
                462
                
                
                
                106
                
                
                
                -
                
                
                
                1,077Off-balance-sheet
                    (2)
                
                
                65,420
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                65,420Total
                
                $
                151,977
                
                
                $
                13,270
                
                
                $
                471
                
                
                $
                4,743
                
                
                $
                170,461
  (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 December 31, 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
      9.37% at September 30, 2007, compared to 9.16% at June 30, 2007, and 8.92%
      at
      September 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
      market risk exposures and how those exposures were managed during the three
      months ended December 31, 2007, have changed significantly when compared to
      the
      immediately preceding quarter


24
 Index


ended
      September 30, 2007.  However, the Company’s primary market risk
      exposure has not yet been quantified at December 31, 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 December 31, 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.





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 six months ended December
      31, 2007.





The
      Company did not repurchase any shares during the quarter ended December 31,
      2007.





On
      October 25, 2007, the Board of Directors authorized an extension of the
      Company’s stock repurchase plan.  In November of 2005, the Board of
      Directors initially authorized the repurchase of 346,000 shares, or
      approximately 10% of the Company’s then outstanding shares of
      stock.  The extension is for one year, expiring on October 25,
      2008.











ITEM
      3.  Default upon Senior Securities





None.





25
 Index


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





The
      Company convened its 2007 Annual Meeting of Stockholders on October 25,
      2007.  At the meeting, the Stockholders of the Company considered and
      voted on the following proposals:





Ballot
      No.
      1.  The election of Barry Backhaus, Ronald A. Jorgensen, and
      Charles D. Terlouw, each to serve as a director for a term of three years and
      until his successor had been elected and qualified.





Percentage
                  oftotal
                  Voted
                  SharesDirector
              
              For
              
              
              Withheld
              
              
              Voted
                  in
                  FavorBarry
                  E.
                  Backhaus
              
              
              2,418,564
              
              
              
              367,215
              
              
              
              86.8
              %Ronald
                  A.
                  Jorgensen
              
              
              2,449,476
              
              
              
              336,303
              
              
              
              87.9
              %Charles
                  D.
                  Terlouw
              
              
              2,456,176
              
              
              
              329,603
              
              
              
              88.2
              %





Ballot
      No.
      2.  The ratification of McGladrey & Pullen, LLP as the
      independent registered public accounting firm of the Company for the fiscal
      year
      ending June 30, 2008.





For
              
              
              Against
              
              
              AbstainNumber
                  of
                  Votes
              
              
              2,752,012
              
              
              
              19,952
              
              
              
              13,815%
                  of Total Shares
                  Voted
              
              
              99.3
              %
              
              
              0.7
              %








ITEM
      5.  Other Information





(a) Not applicable.


(b)
      Not
      applicable.





ITEM
      6.  Exhibits





Exhibit
                31.1
            Certification
                of Chief Executive Officer Pursuant to Section 302


Exhibit
                31.2
            Certification
                of Chief Financial Officer Pursuant to Section 302


Exhibit
                32
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002





26
 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:  February
                11, 2008
            BY:
            /s/
                Michael W.
                DoslandMichael
                W. DoslandPresident
                and Chief Executive OfficerDATE:  February
                11, 2008
            BY:
            /s/
                Michael S.
                ModerskiMichael
                S. ModerskiSenior
                Vice President, Chief Financial Officerand
                Treasurer







27