First Federal Bankshares 10Q/A 2008 Q2 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q/A

(Amendment No.1)

T	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2007

£	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 incorporation or organization)		(I.R.S. employer 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, 2008
	Common Stock, $.01 par value		3,303,971

FIRST FEDERAL BANKSHARES, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements of First Federal Bankshares, Inc. and Subsidiaries	1

Consolidated Statements of Financial Condition at December 31, 2007 and June 30, 2007
Consolidated Statements of Operations for the three and six month periods ended December 31, 2007 and 2006		2
Consolidated Statements of Changes in Stockholders’ Equity for the three and six month periods ended December 31, 2007 and 2006		3
Consolidated Statements of Comprehensive Income (Loss) for the three and six month periods ended December 31, 2007 and 2006		4
Consolidated Statements of Cash Flows for the six month periods ended December 31, 2007 and 2006		5
Notes to Consolidated Financial Statements		6

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	28

ITEM 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	29

ITEM 1.	Legal Proceedings	29

ITEM 1A.	Risk Factors	30

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

ITEM 3.	Defaults upon Senior Securities	30

ITEM 4.	Submission of Matters to a Vote of Security Holders	30

ITEM 5.	Other Information	30

ITEM 6.	Exhibits	31

	Signatures	32

Explanatory Note

This Amendment No. 1 on Form 10-Q/A ("Form 10-Q/A") to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2007, is being filed with the U.S. Securities and Exchange Commission to restate the Company’s Consolidated Financial Statements as of and for the three and six month periods ended December 31, 2007. The purpose is to provide corrected Consolidated Statements of Financial Condition, Consolidated Statements of Income, Consolidated Statements of Changes in Stockholders' Equity, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows. The restatement of the Company’s Consolidated Financial Statements in this Form 10-Q/A restates earnings due to a pricing error and the recognition of “other than temporary” impairment of one of the Company's trust-preferred pooled securities. Except as set forth in this Form 10-Q/A, all other Items included in the Company’s Quarterly Report on Form 10-Q as of and for the three and six month periods ended December 31, 2007, are unaffected by the changes described above. The information in this Form 10-Q/A is stated as of December 31, 2007, and except as specifically noted herein, does not reflect any subsequent information or events.

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

First Federal Bankshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition (Unaudited)

	December 31,			June 30,
	2007			2007
ASSETS	(as restated)
Cash and due from banks	$	12,841,798		$	11,613,908
Interest-bearing deposits in other financial institutions		7,938,500			14,124,559
Cash and cash equivalents		20,780,298			25,738,467

Securities available-for-sale (amortized cost $111,046,310 and $122,595,377, respectively)		107,013,083			122,309,017
Securities held-to-maturity (fair value $9,025,175 and $9,472,865, respectively)		8,960,362			9,549,072
Mortgage loans held for sale		1,663,489			2,130,709

Loans receivable		422,315,903			429,751,342
Allowance for loan losses		(2,056,057	)		(1,797,393	)
Net loans		420,259,846			427,953,949

Federal Home Loan Bank ("FHLB") stock, at cost		5,239,500			3,559,600
Office property and equipment, net		18,478,045			16,204,913
Accrued interest receivable		3,034,715			2,939,993
Goodwill		18,417,040			18,417,040
Foreclosed and repossessed assets		3,611,144			2,156,217
Other assets		16,795,474			14,857,533
Total assets	$	624,252,996		$	523,507,493

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit liabilities	$	451,654,705		$	507,865,063
Advances from FHLB and other borrowings		102,658,731			62,202,229
Advance payments by borrowers for taxes and insurance		888,169			916,021
Accrued interest payable		2,478,031			2,690,658
Accrued expenses and other liabilities		1,862,343			1,887,317
Total liabilities		559,541,979			575,561,288

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred 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			50,604
Additional paid-in capital		39,387,859			39,230,016
Retained earnings, substantially restricted		56,943,384			58,704,525
Treasury stock, at cost, 1,764,255 shares and 1,677,255 shares, respectively		(28,535,663	)		(26,885,723	)
Accumulated other comprehensive loss		(2,529,227	)		(179,360	)
Unearned ESOP		(605,960	)		(664,840	)
Total stockholders’ equity		64,711,017			70,255,222
Total liabilities and stockholders’ equity	$	624,252,996		$	645,816,510

See Notes to Consolidated Financial Statements.

First Federal Bankshares, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

	Three months ended					Six months ended
	December 31,					December 31,
	2007			2006		2007			2006
Interest income:	(as restated)					(as restated)
Loans receivable	$	7,402,818		$	7,534,928	$	14,833,267		$	15,170,771
Investment securities		1,994,426			1,004,556		4,019,237			1,798,560
Deposits in other financial institutions		7,609			109,615		58,049			243,833
Total interest income		9,404,853			8,649,099		18,910,553			17,213,164
Interest expense:
Deposits		3,914,621			3,784,219		8,476,884			7,206,277
Advances from FHLB and other borrowings		1,288,960			1,002,779		2,152,937			2,039,757
Total interest expense		5,203,581			4,786,998		10,629,821			9,246,034
Net interest income		4,201,272			3,862,101		8,280,732			7,967,130
Provision for loan losses		492,389			402,663		513,037			502,663
Net interest income after provision for loan losses		3,708,883			3,459,438		7,767,695			7,464,467
Non-interest income:
Service charges on deposit accounts		834,553			857,051		1,617,851			1,762,700
Fees on commercial and consumer loans		122,854			50,763		220,615			84,829
Gain on sale of real estate held for development		46,610			20,000		46,610			60,000
Other-than-temporary impairment of investment securities		(3,270,594	)		-		(3,270,594	)		-
Mortgage banking revenue		176,995			177,777		370,871			377,528
Earnings from bank owned life insurance		138,119			131,493		274,674			263,999
Other income		266,044			265,989		562,986			553,466
Total non-interest income (loss)		(1,685,419	)		1,503,073		(176,987	)		3,102,522
Non-interest expense:
Personnel expense		2,824,927			2,618,066		5,631,128			5,138,248
Office property and equipment		700,616			686,782		1,401,863			1,364,812
Data processing, ATM and debit card transaction costs,and other item processing expense		416,693			294,198		786,702			602,505
Professional, insurance and regulatory expense		252,170			274,719		507,061			558,789
Advertising, donations and public relations		302,600			216,644		766,325			383,675
Communications, postage and office supplies		224,553			208,435		435,313			402,040
Other expense		226,638			206,244		457,436			372,450
Total non-interest expense		4,948,197			4,505,088		9,985,828			8,822,519
Income (loss) before income tax expense (benefit)and discontinued operations		(2,924,733	)		457,423		(2,395,120	)		1,744,470
Income tax expense (benefit)		(1,172,000	)		77,000		(1,057,000	)		441,000
Income (loss) from continuing operations		(1,752,733	)		380,423		(1,338,120	)		1,303,470
Income from discontinued operations, net of tax of $20,000 and $46,000 respectively in 2006		-			32,101		-			75,796
Net income (loss)	$	(1,752,733	)	$	412,524	$	(1,338,120	)	$	1,379,266

Per share information:
Basic earnings (loss) per share from continuing operations	$	(0.54	)	$	0.11	$	(0.41	)	$	0.40
Basic earnings per share from discontinued operations		-			0.01		-			0.02
Basic earnings (loss) per share	$	(0.54	)	$	0.12	$	(0.41	)	$	0.42

Diluted earnings (loss) per share from continuing operations	$	(0.54	)	$	0.11	$	(0.41	)	$	0.39
Diluted earnings per share from discontinued operations		-			0.01		-			0.02
Diluted earnings (loss) per share	$	(0.54	)	$	0.12	$	(0.41	)	$	0.41

See Notes to Consolidated Financial Statements.

First Federal Bankshares, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity (Unaudited)

	Six Months
	Ended December 31,
	2007			2006
Capital Stock:	(as restated)
Beginning of year balance	$	50,604		$	50,109
Restricted stock vested: 2,062 shares		20			-
Stock options exercised: none and 40,987 shares, respectively		-			388
End of period balance		50,624			50,497

Additional paid-in capital:
Beginning of year balance		39,230,016			38,293,233
Stock options exercised		-			540,252
Stock compensation expense		90,361			44,535
Employee stock grants awarded		-			(5,742	)
Stock appreciation of allocated ESOP shares		39,830			72,459
Amortization of employee stock grants		27,652			6,593
End of period balance		39,387,859			38,951,330

Retained earnings, substantially restricted:
Beginning of year balance		58,704,525			57,013,427
Adoption of FIN 48		180,000			-
Adoption of SFAS 156		79,374			-
Net income (loss)		(1,338,120	)		1,379,266
Dividends paid on common stock: $0.21 and $0.205 per share, respectively		(682,395	)		(677,767	)
End of period balance		56,943,384			57,714,926

Treasury stock, at cost:
Beginning of year balance		(26,885,723	)		(25,920,685	)
Employee stock grants awarded		-			5,742
Treasury 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 securities available-for-sale, net of income taxes		(4,400,461	)		246,098
Less: reclassification adjustment for net realized losses included in net income, net of income taxes		2,050,594			-
End of period balance		(2,529,227	)		(79,552	)

Unearned ESOP shares:
Beginning of year balance		(664,840	)		(786,540	)
ESOP shares allocated		58,880			61,720
End of period balance		(605,960	)		(724,820	)
Total stockholders' equity	$	64,711,017		$	69,688,758

See Notes to Consolidated Financial Statements.

First Federal Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2007			2006			2007			2006
	(as restated)						(as restated)
Net income (loss)	$	(1,752,733	)	$	412,524		$	(1,338,120	)	$	1,379,266
Net change in unrealized gains (losses) on securities available-for-sale, net of taxes		(3,147,575	)		(2,851	)		(4,400,461	)		246,098
Less: reclassification adjustment for net realized losses included in net income, net of taxes		2,050,594			-			2,050,594			-
Total comprehensive income (loss)	$	(2,849,714	)	$	409,673		$	(3,687,987	)	$	1,625,364

See Notes to Consolidated Financial Statements.

First Federal Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)	Six months ended
	December 31,
	2007			2006
Cash flows from continuing operating activities:	(as restated)
Net income (loss)	$	(1,338,120	)	$	1,379,266
Income from discontinued operations		-			(75,796	)
Adjustments to reconcile net income (loss) from continuing operations to net 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			22,447,213
Provision for losses on loans		513,037			502,663
Depreciation and amortization		719,553			578,302
Provision for deferred taxes		208,000			469,000
Equity-based compensation		216,743			185,307
Tax 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	)
Other-than-temporary impairment on investment securities		3,270,594			-
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	)		486,299
Increase (decrease) in accrued expenses and other liabilities		(24,974	)		85,873
Decrease in accrued taxes on income		(1,269,748	)		(972,082	)
Net cash provided by continuing operating activities		2,231,881			2,262,430
Cash flows from continuing investing activities:
Proceeds from maturities of securities held-to-maturity		581,560			1,169,180
Purchase of securities available-for-sale		-			(34,292,531	)
Proceeds from maturities of securities available-for-sale		8,254,638			19,170,972
Redemption (purchase) of FHLB stock		(1,679,900	)		578,500
Loans purchased		(5,242,000	)		(8,571,000	)
Decrease in loans receivable		11,108,283			14,969,543
Purchase of office property and equipment		(2,829,566	)		(2,399,269	)
Proceeds from sale of foreclosed real estate		235,154			72,255
Proceeds from sale of real estate held for development		804,844			1,207,277
Expenditures 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	)		1,606,145
Proceeds from advances from FHLB and other borrowings		85,885,467			3,134,865
Repayment 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		-			406,640
Tax benefit resulting from stock options exercised		-			134,000
Repurchase 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		-			106,526
Net cash provided by discontinued operations		-			106,526
Net decrease in cash and cash equivalents		(4,958,169	)		(20,547,726	)
Beginning of year		25,738,467			39,904,749
End of year	$	20,780,298		$	19,357,023

SUPPLEMENTAL DISCLOSURES
Cash paid (received) during the period for:
Interest	$	10,842,448		$	8,759,735
Income taxes		4,748			864,082

See Notes to Consolidated Financial Statements.

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 First Federal Bankshares, Inc. (the “Company”) 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”.

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.

Management also makes judgments and estimates to determine whether the decline in fair value of available-for-sale securities below their cost is “other than temporary.” Declines in fair value of available-for-sale securities below their cost that are deemed “other than temporary” are reflected in earnings as realized losses. In estimating “other than temporary” impairment losses, management considers a number of factors including (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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.

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.

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.

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2007			2006		2007			2006
Basic earnings (loss) per share computation:
Income (loss) from continuing operations	$	(1,752,733	)	$	380,423	$	(1,338,120	)	$	1,303,470
Income from discontinued operations		-			32,101		-			75,796
Net income (loss)	$	(1,752,733	)	$	412,524	$	(1,338,120	)	$	1,379,266
Weighted average common shares outstanding		3,236,718			3,318,317		3,248,309			3,309,482
Basic earnings (loss) per share from continuing operations	$	(0.54	)	$	0.11	$	(0.41	)	$	0.40
Basic earnings per share from discontinued operations		-			0.01		-			0.02
Basic earnings (loss) per share	$	(0.54	)	$	0.12	$	(0.41	)	$	0.42

Diluted earnings (loss) per share computation:
Income (loss) from continuing operations	$	(1,752,733	)	$	380,423	$	(1,338,120	)	$	1,303,470
Income from discontinued operations		-			32,101		-			75,796
Net income (loss)	$	(1,752,733	)	$	412,524	$	(1,338,120	)	$	1,379,266
Weighted average common shares outstanding		3,236,718			3,318,317		3,248,309			3,309,482
Incremental option and recognition and retention plan shares
using treasury stock method		-			28,697		-			33,456
Diluted shares outstanding		3,236,718			3,347,014		3,248,309			3,342,938
Diluted earnings (loss) per share from continuing operations	$	(0.54	)	$	0.11	$	(0.41	)	$	0.39
Diluted earnings per share from discontinued operations		-			0.01		-			0.02
Diluted earnings (loss) per share	$	(0.54	)	$	0.12	$	(0.41	)	$	0.41
Anti-dilutive options not included in diluted shares outstanding		142,007			27,833		139,751			24,191

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.

	Three Months Ended December 31, 2007
(Dollars in Thousands)	Banking			Other		Consolidated
Interest income	$	9,405			-	$	9,405
Interest expense		5,204			-		5,204
Net interest income		4,201			-		4,201
Provision for loan losses		492			-		492
Net interest income after provision for loan losses		3,709			-		3,709
Non-interest income (loss)		(1,732	)	$	46		(1,686	)
Non-interest expense		4,942			6		4,948
Income (loss) before income tax (benefit)		(2,965	)		40		(2,925	)
Income tax (benefit)		(1,187	)		15		(1,172	)
Net income (loss)	$	(1,778	)	$	25	$	(1,753	)
Depreciation and amortization	$	507			-	$	507

	Three Months Ended December 31, 2006
(Dollars in Thousands)	Banking			Other		Consolidated
Interest income	$	8,649			-	$	8,649
Interest expense		4,787			-		4,787
Net interest income		3,862			-		3,862
Provision for loan losses		403			-		403
Net interest income after provision for loan losses		3,459			-		3,459
Non-interest income		1,483		$	20		1,503
Non-interest expense		4,489			15		4,504
Income before income taxes and discontinued operations		453			5		458
Income taxes		74			3		77
Income from continuing operations		379			2		381
Income from discontinued operations, net of tax		-			32		32
Net income	$	379		$	34	$	413
Depreciation and amortization	$	273			-	$	273

	Six Months Ended December 31, 2007
(Dollars in Thousands)	Banking			Other		Consolidated
Interest income	$	18,911			-	$	18,911
Interest expense		10,630			-		10,630
Net interest income		8,281			-		8,281
Provision for loan losses		513			-		513
Net interest income after provision for loan losses		7,768			-		7,768
Non-interest income (loss)		(227	)	$	50		(177	)
Non-interest expense		9,974			12		9,986
Income (loss) before income tax (benefit)		(2,433	)		38		(2,395	)
Income tax (benefit)		(1,071	)		14		(1,057	)
Net income (loss)	$	(1,362	)	$	24	$	(1,338	)
Depreciation and amortization	$	720			-	$	720
Total assets	$	624,248		$	5	$	624,253

	Six Months Ended December 31, 2006
(Dollars in Thousands)	Banking			Other		Consolidated
Interest income	$	17,213			-	$	17,213
Interest expense		9,246			-		9,246
Net interest income		7,967			-		7,967
Provision for loan losses		503			-		503
Net interest income after provision for loan losses		7,464			-		7,464
Non-interest income		3,043		$	60		3,103
Non-interest expense		8,774			49		8,823
Income before income taxes and discontinued operations		1,733			11		1,744
Income taxes		436			5		441
Income from continuing operations		1,297			6		1,303
Income from discontinued operations, net of tax		-			76		76
Net income	$	1,297		$	82	$	1,379
Depreciation and amortization	$	578			-	$	578
Total 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-		Average				��
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Number		Price		Term (years)		Value
Outstanding SARs as of June 30, 2007		59,246	$	19.10
Granted		34,585		13.45
Outstanding at December 31, 2007		93,831	$	17.02		9.6	$	20,751
Exercisable 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:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Number			Price		Term (years)		Value
Outstanding options as of June 30, 2007		81,000		$	17.49
Forfeited		(2,750	)		23.46
Outstanding at December 31, 2007		78,250		$	17.28		5.8	$	96,189
Exercisable 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-Average
				Grant-Date
	Number			Fair Value
Non-vested restricted shares		6,400		$	21.02
Vested		(1,600	)		19.58
Non-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.

Note 9.

Restatement of Financial Information

On February 19, 2008, the Audit Committee of the Board of Directors of the Company, upon the recommendation of the Company’s management, concluded that the Company’s Consolidated Statements of Financial Condition, Consolidated Statements of Changes in Stockholders’ Equity, and Consolidated Statements of Comprehensive Income as of December 31, 2007, previously issued on Form 10-Q should no longer be relied upon and would require restatement. The Company issued Form 8-K on February 25, 2008, announcing these decisions. The restatement was necessitated by an error in determining the fair value of one of the Company’s trust-preferred pooled securities. The error was due to inaccurate pricing information from the third party entities that provide this information to the Company. At the time of the decision, the Board of Directors and management concluded that the restated fair value of this security, which was significantly lower than the security’s carrying value, did not constitute an “other than temporary” impairment of the security.

The company subsequently entered into discussions with the staff of the Securities and Exchange Commission regarding the impairment of this security. As a result of these discussions, on May 13, 2008, the Audit Committee, upon the recommendation of management, concluded that the impairment of the security as of December 31, 2007, was “other than temporary” due to the severity and duration of the decline in the security’s fair value. As such, the Audit Committee and management of the Company concluded that, in addition to the financial statements mentioned in the previous paragraph, the Company’s Consolidated Statements of Income and Consolidated Statements of Cash Flows for the three- and six-month periods ended December 31, 2007, should also no longer be relied upon. The Company has restated these statements, as well as the statements described in the previous paragraph, as part of this Form 10-Q/A.

The following table contains a summary of each of the line items in the Consolidated Financial Statements included herein that were impacted by this restatement.

	December 31, 2007						December 31, 2007
Consolidated Statements of Financial Condition:	(as reported)			Adjustments			(as restated)
Securities available-for-sale	$	109,738,083		$	(2,725,000	)	$	107,013,083
Other assets (deferred taxes)		15,799,474			996,000			16,795,474
Retained earnings, substantially restricted		59,013,978			(2,070,594	)		56,943,384
Accumulated other comprehensive income (loss)		(2,870,821	)		341,594			(2,529,227	)

	Three months ended						Three months ended
	December 31, 2007						December 31, 2007
Consolidated Statements of Operations:	(as reported)			Adjustments			(as restated)
Other-than-temporary impairment of investment securities		-		$	(3,270,594	)	$	(3,270,594	)
Net income (loss)	$	317,861			(2,070,594	)		(1,752,733	)
Income tax expense (benefit)		28,000			(1,200,000	)		(1,172,000	)
Basic earnings (loss) per share from continuing operations	$	0.10		$	(0.64	)	$	(0.54	)
Diluted earnings (loss) per share from continuing operations	$	0.10		$	(0.64	)	$	(0.54	)

	Six months ended						Six months ended
	December 31, 2007						December 31, 2007
Consolidated Statements of Operations:	(as reported)			Adjustments			(as restated)
Other-than-temporary impairment of investment securities		-		$	(3,270,594	)	$	(3,270,594	)
Net income (loss)	$	732,474			(2,070,594	)		(1,338,120	)
Income tax expense (benefit)		143,000			(1,200,000	)		(1,057,000	)
Basic earnings (loss) per share from continuing operations	$	0.23		$	(0.64	)	$	(0.41	)
Diluted earnings (loss) per share from continuing operations	$	0.22		$	(0.63	)	$	(0.41	)

	Six months ended						Six months ended
	December 31, 2007						December 31, 2007
Consolidated Statements of Stockholders' Equity:	(as reported)			Adjustments			(as restated)
Net income (loss)	$	732,474		$	(2,070,594	)	$	(1,338,120	)
Net change in unrealized gains (losses) on securities available-for-sale, net of income taxes		(2,691,461	)		(1,709,000	)		(4,400,461	)
Less: reclassification adjustment for net realized losses
Included in net income, net of income taxes		-			2,050,594			2,050,594
Total stockholders' equity		66,440,017			(1,729,000	)		64,711,017

	Three months ended						Three months ended
	December 31, 2007						December 31, 2007
Consolidated Statements of Comprehensive Income (Loss):	(as reported)			Adjustments			(as restated)
Net income (loss)	$	317,861		$	(2,070,594	)	$	(1,752,733	)
Net change in unrealized gains (losses) on securities available-for-sale, net of income taxes		(1,438,575	)		(1,709,000	)		(3,147,575	)
Less: reclassification adjustment for net realized losses Included in net income, net of income taxes		-			2,050,594			2,050,594
Total comprehensive income (loss)		(1,120,714	)		(1,729,000	)		(2,849,714	)

	Six months ended						Six months ended
	December 31, 2007						December 31, 2007
Consolidated Statements of Comprehensive Income (Loss):	(as reported)			Adjustments			(as restated)
Net income (loss)	$	732,474		$	(2,070,594	)	$	(1,338,120	)
Net change in unrealized gains (losses) on securities available-for-sale, net of income taxes		(2,691,461	)		(1,709,000	)		(4,400,461	)
Less: reclassification adjustment for net realized losses Included in net inocme, net of income taxes		-			2,050,594			2,050,594
Total comprehensive income (loss)		(1,958,987	)		(1,729,000	)		(3,687,987	)

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.

Restatement of Previously Reported Financial Information

On May 13, 2008, the Audit Committee of the Board of Directors of the Company, upon the recommendation of the Company’s management, concluded that the Company’s Consolidated Statements of Financial Condition, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Consolidated Statements of Changes in Stockholders’ Equity, and Consolidated Statements of Comprehensive Income at and for the three and six month periods ended December 31, 2007, previously issued on Form 10-Q should no longer be relied upon. The Company has restated each of these statements as of December 31, 2007, and has filed such statements as part of this amended Form 10-Q.

The restatement was necessitated by an error in determining the fair value of one of the Company’s trust-preferred pooled securities. The error was due to inaccurate pricing information from the third party entities that provide this information to the Company. The restated fair value of the security was substantially lower than its carrying value as of December 31, 2007. As such, the Company concluded that the impairment of the security was “other than temporary” due to the severity and duration of the decline in fair value.

As restated, the fair value of the Company’s securities available for sale as of December 31, 2007, declined by $2.7 million, and the Company’s stockholders’ equity declined by $1.7 million. The Company’s net income declined by $2.1 million for the three and six month periods ended December 31, 2007. In addition, the Company’s deferred income taxes receivable increased by $1.0 million, which is included as a component of other assets in the Company’s Consolidated Statements of Financial Condition. For additional discussion, refer to Note 9 of the Company’s Consolidated Financial Statements included herein, as well as “Financial Condition – Stockholders’ Equity” and “Financial Condition – Securities Available-for-Sale and Held-for-Investment”, below.

The Audit Committee of the Board of Directors of he Company discussed this matter with the Company’s independent accountants prior to the issuance of this amended Form 10-Q.

Results of Operations

Quarter Overview The Company’s net loss for the three months ended December 31, 2007, was $1.7 million or $0.54 per diluted share compared to net income of $413,000 or $0.12 per diluted share in the same period last year.

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 $3.2 million decrease in non-interest income, 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, and a $1.2 million decrease in income tax expense.

Six Month Overview The Company’s net loss for the six months ended December 31, 2007, was $1.3 million or $0.41 per diluted share, compared to net income of $1.4 million or $0.41 per diluted share in the same period last year.

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 $3.3 million decrease in non-interest income, a $1.2 million increase in non-interest expense, and an $11,000 increase in provision for loan losses. 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 $1.5 million 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%.

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							2006
	Average				Average			Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-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							55,184
Total assets	$	627,390						$	596,890
Interest-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							41,423
Other liabilities		5,268							5,433
Total liabilities		559,977							527,128
Stockholders’ equity		67,413							69,762
Total liabilities and stockholders' equity	$	627,390						$	596,890
Net interest income			$	4,201						$	3,862
Interest rate spread						2.63	%						2.42	%
Net interest margin						3.02	%						2.89	%
Ratio of average interest-earning assets to average interest-bearing liabilities						110.03	%						112.79	%

(1)	Average balances include nonaccrual loans and loans held for sale. Interest income includes amortization of deferred loan fees, which is not material.

(2)	Investment securities income is presented without the benefit of the tax effect of tax exempt income; yields are presented on a tax-effected basis.

(3)	Net interest margin represents net interest income, tax-effected, as a percentage of average earning assets.

	Six months ended December 31,
	2007							2006
	Average				Average			Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-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							55,362
Total assets	$	628,810						$	594,044
Interest-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							42,276
Other liabilities		5,383							5,058
Total liabilities		561,905							524,493
Stockholders’ equity		66,905							69,551
Total liabilities and stockholders' equity	$	628,810						$	594,044
Net interest income			$	8,281						$	7,967
Interest rate spread						2.56	%						2.54	%
Net interest margin						2.96	%						3.00	%
Ratio of average interest-earning assets to average interest-bearing liabilities						110.05	%						112.89	%

(1)	Average balances include nonaccrual loans and loans held for sale. Interest income includes amortization of deferred loan fees, which is not material.

(2)	Investment securities income is presented without the benefit of the tax effect of tax exempt income; yields are presented on a tax-effected basis.

(3)	Net interest margin represents net interest income, tax-effected, as a percentage of average earning assets.

Provision for Losses on Loans Provision 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. Although management believes that the Company’s present level of allowance for loan losses is adequate, there can be no assurance that future

adjustments to the allowance will not be necessary, which could adversely affect the Company’s results of operations. For additional discussion, refer to “Financial Condition – Non-Performing and 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 ended
	December 31						December 31
(Dollars in Thousands)	2007			2006			2007			2006
Balance at beginning of period	$	1,743		$	5,482		$	1,797		$	5,466
Provision for loan losses		492			403			513			503
Charge-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			139
Charge-offs, net of recoveries		(179	)		(3,841	)		(254	)		(3,925	)
Balance at end of period	$	2,056		$	2,044		$	2,056		$	2,044

Allowance 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 (Loss) For the three months ended December 31, 2007 the Company recorded non-interest loss of $1.7 million compared to non-interest income of $1.5 million during the same period in 2006. For the six months ended December 31, 2007, the Company recorded non-interest loss of $200,000 compared to non-interest income of $3.1 for the six months ended December 31, 2006. The following paragraphs discuss the principal components of non-interest income and the primary reasons for the changes from 2006 to 2007.

Service Charges on Deposit Accounts Service charges on deposits decreased $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 Development The 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.

Other-than-Temporary Impairment on Investment Securities In December 2007, the Company recognized a $3.3 million write-down related to one of its trust preferred securities. During the most recent quarter, the security was downgraded to triple-C by one rating agency. As a result, the market price of this security declined significantly. Although management believes it is possible all principal and interest will be received, the market value decline was severe enough and was of sufficient duration to warrant the recognition of the security as “other than temporarily” impaired. For further discussion, please refer to “Financial Condition – Securities Available-for-Sale and Held-to-Maturity” and “ Financial Condition – Stockholders’ Equity.”

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 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 Income Other 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 Expense This 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 Regulatory Professional, 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 Relations Expenses 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. Management anticipates the cost level of this line item to return to more historical levels in the third and fourth quarters of fiscal year 2008.

Communication, Postage, and Office Supplies Communications, postage, and office supplies expense increased by $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 Expense Other 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 Expense Income tax benefit for the six months ended December 31, 2007, was $1.1 million compared to an expense of $441,000 for the six months ended December 31, 2006. Income tax benefit for the three months ended December 31, 2007, was $1.2 million compared to an expense of $77,000 for the same period a year ago.

Financial Condition

Overview Total assets decreased by $21.5 million or 3.3%, to $624.3 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-Investment Total securities decreased by $15.9 million to $116.0 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, during the most recent quarter the Company recognized a $3.3 million write-down related to one of its trust preferred securities. The security was downgraded to triple-C by one rating agency. As a result, the market price of this security declined significantly. Although management believes it is possible all principal and interest will be received, the market value decline was severe enough and was of sufficient duration to warrant the recognition of the security as “other than temporarily” impaired.

Federal law and regulation generally permit the Company's federal savings association subsidiary to invest up to 35% of its assets in commercial paper and corporate debt securities. Notwithstanding this investment limit, guidance issued by the Office of Thrift Supervision ("OTS") imposes lower limits on such investments, absent OTS approval. The Company was recently advised by the OTS that the aggregate amount of the Company's portfolio of trust-preferred pooled securities ($61.9 million carrying value at December 31, 2007) exceeds OTS regulatory guidelines. The

Company is currently in discussions with the OTS about the size of this portfolio and, in response to an OTS request, expects to file with them by May 15, 2008, a plan to come into compliance with such regulatory guidelines and the timeframe for doing so. It should be noted, the OTS granted the Company an extension to May 15th for the submission of this plan from the original deadline that was reported in Form 8-K filed on February 25, 2008. As part of such plan, the Company intends to seek OTS approval to allow the Company to retain such securities, notwithstanding the regulatory guidelines. There can be no assurance that the Company will obtain the approval. Any future directive by the OTS to sell such securities could result in the securities being classified as “other than temporarily impaired” due to a lack of positive intent and ability by the Company to hold these securities to maturity and/or forecasted recovery. Regardless of the OTS’s decision, continued deterioration in the performance and/or fair value of these securities could result in the securities being classified as “other than temporarily impaired” or “permanently impaired” in a future reporting period. Such classification, regardless of reason, could have a material adverse effect on the Company's future earnings and stockholders' equity.

Please refer to “Financial Condition – Stockholders’ Equity,” below, for additional discussion relating to the Company’s TPS portfolio.

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.

	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			29.0
Secured by multi-family and non-residential properties (2)		184,851			44.0			197,952			46.2
Commercial business loans		60,200			14.3			50,439			11.8
Home equity and second mortgage loans		28,922			6.9			28,594			6.7
Other non-mortgage loans (3)		29,319			7.0			28,996			6.8
Loans in process, unearned discounts, premiums and net deferred loan fees and costs		(401	)		(0.1	)		(459	)		(0.1	)
Subtotal		422,316			100.5			429,751			100.4
Allowance 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		8.90
Interest-bearing checking accounts		88,302		19.55		91,723		18.06
Money market accounts		52,838		11.70		55,848		11.00
Savings accounts		22,380		4.96		25,931		5.10
Certificates of deposit		242,881		53.77		289,163		56.94
Total deposits	$	451,655		100.00	$	507,865		100.00

FHLB Advances and Other Borrowings The 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 $5.6 million from $70.3 million at June 30, 2007, to $64.7 million at December 31, 2007. This decrease was due in part to $1.3 million net loss during the six months ended December 31, 2007, as well as $2.4 million increase in accumulated other comprehensive loss during the period. This increase was caused by a decline in the fair value of the Company’s TPS portfolio. 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 principally due to market perceptions of credit risk and only secondarily to actual deterioration in the underlying credit quality or performance of the community banks, thrifts, insurance companies, and, to a much lesser degree, REITs that secure the Company’s TPSs.

Continued volatility in the market value for the Company’s TPSs, whether caused by changes in market perceptions of credit risk or actual defaults of the financial companies that secure the Company’s portfolio of TPSs, could result in significant fluctuations in the value of these securities. This could have a material adverse impact on the Company’s accumulated other comprehensive loss and stockholders’ equity depending on the direction of the fluctuations. Furthermore, future defaults of the companies that secure the Company’s TPSs could result in future classifications of these securities as “other than temporarily impaired,” “permanently impaired,” or a combination thereof. This will likely have a material adverse impact on the Company’s future earnings and stockholders’ equity.

Refer to “Financial Condition–Securities Available-for-Sale and Held-for-Investment,” above, for additional discussion relating to the Company’s TPS portfolio.

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 Assets Non-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, 2007
Loans accounted for on a non-accrual basis:
Single-family mortgage loans	$	213		$	405
Commercial real estate loans		1,236			732
Commercial business loans		1,378			-
Consumer loans		161			105
Total non-performing loans		2,988			1,242
Foreclosed and repossessed assets		3,611			2,156
Total non-performing assets	$	6,599		$	3,398
Restructured loans not included in other non-performing categories above	$	3,710		$	2,827

Non-performing loans as a percentage of total loans		0.70	%		0.29	%
Non-performing assets as a percentage of total assets		1.06	%		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.

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.

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:

	December 31, 2007
											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	Dollars in Thousands
Tangible capital	$	46,159		7.57	%	$	9,143		1.50	%		-		-
Tier 1 leverage (core)		46,159		7.57			24,382		4.00		$	30,477		5.00	%
Tier 1 risk-based capital		46,159		9.82			18,802		4.00			28,204		6.00
Risk-based capital		47,733		10.15			37,605		8.00			47,006		10.00

	June 30, 2007
											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	Dollars in Thousands
Tangible capital	$	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		6.00
Risk-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.

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 One Year		One Year to Less Than Three Years		Three Years to Less Than Five Years		Five Years or Greater		Total
FHLB advances	$	77,000	$	12,500		-	$	1,250	$	90,750
Other borrowings (1)		8,909		-		-		3,000		11,909
Operating lease		139		308	$	365		493		1,305
Data processing		509		462		106		-		1,077
Off-balance-sheet (2)		65,420		-		-		-		65,420
Total	$	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 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 period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

On February 19, 2008, the Audit Committee of the Board of Directors of the Company (the “Committee”) and management met to discuss the error in the Company’s previously filed Form 10-Q (refer to “Restatement of Previously Reported Financial Information” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein). Management described to the Committee its usual and customary practice of receiving security ratings information and market price indications from third party sources after the close of each reporting period. Management noted that these sources did not indicate that the security in question had been downgraded as of the reporting date. Management also noted that none of the market price indications received from third-party brokers on the security in question indicated that a downgrade had occurred. Indeed, when presented with the knowledge of the downgrade after it was discovered by management, the brokers substantially lowered the price indications they had previously provided to the Company. In light of these facts, the Committee concluded that the Company’s internal controls were functioning as intended and that a material weakness did not exist. Further, the Committee concluded that given the facts, circumstances, and timing of the Company’s discovery of the error, a material weakness did not exist in the Company’s disclosure controls.

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.

ITEM 3. Default upon Senior Securities

None.

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 of
					total Voted Shares
Director	For		Withheld		Voted in Favor
Barry 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			Abstain
Number 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

SIGNATURES

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

FIRST FEDERAL BANKSHARES, INC.

DATE: May 16,2008	BY:	/s/ Michael W. Dosland
		Michael W. Dosland
		President and Chief Executive Officer




DATE: May 16, 2008	BY:	/s/ Michael S. Moderski
		Michael S. Moderski
		Senior Vice President, Chief Financial Officer and Treasurer

First Federal Bankshares (FFSX) Inactive 10-Q/A2008 Q2 Quarterly report (amended)