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                                                                    Exhibit 10.5

                               First Federal Bank
                      Employee Severance Compensation Plan

SECTION 1.01      PURPOSE.

The purpose of this First Federal Bank, F.S.B. Employee Severance Compensation
Plan (the "Plan") is to assure the services of employees of the Bank in the
event of a Change in Control (as defined in Section 2.01 of the Plan). The
benefits contemplated by the Plan recognize the value to the Bank of its
employees and the potential effect upon the Bank resulting from the
uncertainties of continued employment, reduced employee benefits, management
changes and relocations that may arise in the event of a Change in Control. The
Board of Directors of the Bank believes that the Plan will also aid the Bank in
attracting and retaining the qualified individuals essential to the success of
the Bank and will reduce the distractions and other adverse effects on the
performance of employees in the event of a Change in Control.

SECTION 2.01      DEFINITIONS.

In this Plan, whenever the context so indicates, the singular or the plural
number and the masculine or feminine gender shall be deemed to include the
other, the terms "he," "his," and "him," shall refer to a Participant and,
except as otherwise provided, or unless the context otherwise requires, the
capitalized terms shall have the following meanings:

(a) "Annual Compensation" of a Participant means and includes all wages and
salary paid or accrued by the Employer with respect to the Participant's service
during the 12 consecutive-month period ending on the last day of the month
preceding the date the Participant's employment terminates.

(b) "Bank" means First Federal Bank, Colchester, Illinois and any successor to
First Federal Bank.

(c) "Board of Directors" means the Board of Directors of the Bank.

(d) "Change in Control" of the Holding Company or the Bank shall mean an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); or (ii) results in a "Change in Control" of the Bank or the
Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, the Federal Deposit Insurance Act, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board of Directors shall substitute its judgment for that of the
OTS); or (iii) without limitation a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's


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outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
subsidiaries, or (B) individuals who constitute the Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's stockholders was approved by a Nominating
Committee solely composed of members which are Incumbent Board members, shall
be, for purposes of this clause (B), considered as though he were a member of
the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs or is effectuated in which the Bank or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Bank with one or more corporations as a result of which the outstanding shares
of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company shall be distributed, or (E) a tender offer is made
by a person other than the Holding Company for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.

(e) "Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Board of Directors that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
the employee's lifetime.

(f) "Effective Date" means [DATE].

(g) "Employer" means (i) the Bank, (ii) the Holding Company or (iii) any
subsidiary of the Bank or the Holding Company that has adopted the Plan pursuant
to the provision of Article VI.

(h) "Holding Company" means First Federal Bancshares, Inc., the holding company
of the Bank.

(i) "Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.

(j) "Plan" means this First Federal Bank, F.S.B. Employee Severance Compensation
Plan.

(k) "Termination for Cause" means termination of employment because of the
Participant's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit,


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intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or other similar offenses) or any
final cease-and-desist order.

SECTION 3.01      ELIGIBILITY.

(a) Every employee of an Employer shall be eligible to participate in this Plan
upon the completion of a 12 consecutive-month period during which the employee
has been credited with at least 500 hours of service.

(b) Notwithstanding paragraph (a) of this Section 3.01, any employee who has
entered into an employment or change in control agreement with an Employer that
is in effect at the time the employee's employment terminates shall not be
entitled to participate in this Plan.

SECTION 4.01      RIGHT TO BENEFITS.

(a) If a Change in Control occurs, a Participant shall be entitled to receive
benefits under this Plan from his Employer if, within one (1) year of the Change
in Control, he terminates employment for any of the following reasons:

         (i) Dismissal by the Employer or the successor to the Employer for any
         reason other than Termination for Cause;

         (ii) A reduction of the Participant's base salary or rate of
         compensation from that in effect immediately prior to the Change in
         Control or from any increase that occurs subsequent to the Change in
         Control;

         (iii) A material change in the Participant's functions, duties or
         responsibilities which would cause the Participant's position to be one
         of lesser responsibility, importance or scope;

         (iv) A relocation of the Participant's principal place of employment by
         more than twenty-five (25) miles from the location of the Participant's
         principal place of employment immediately prior to the Change in
         Control; provided that the place of relocation is not closer to the
         Participant's primary residence;

         (v) A material reduction in the benefits and perquisites available to
         the Participant immediately prior to the Change in Control;

         (vi) A successor to the Employer fails or refuses to assume the
         Employer's obligations under this Plan, as required by Article VII; or

         (vii) The Employer, or any successor to the Employer, breaches any
         provisions of this Plan.


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SECTION 4.02      DETERMINATION OF BENEFITS.

(a) Each Participant entitled to a Payment under this Plan shall receive from
his Employer or any successor to his Employer, a lump sum cash payment equal to
one-twenty-sixth of his or her Annual Compensation for each calendar year or
fraction thereof during which he or she was employed by an Employer or any
successor to an Employer. Notwithstanding the preceding sentence, a Participant
shall not receive a severance benefit in excess of 100% of his or her Annual
Compensation.

(b) Notwithstanding the provisions of paragraph (a) of this Section 4.02, if any
of the payments and benefits provided to a Participant under this Plan or
otherwise constitute an "excess parachute payment" for purposes of Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended, then the benefits
provided under this Plan to the Participant shall be reduced to the extent that
they no longer constitute an excess parachute payment.

(c) A Participant shall not be required to mitigate the benefits provided under
this Plan in any way, including seeking other employment.

(d) The benefits provided under this Plan shall not be in lieu of or reduced by
any compensation earned by the Participant as a result of employment following
his termination of employment with his Employer.

(e) Neither the provisions of this Plan nor the benefits provided for under this
Plan shall reduce any amounts otherwise payable to a Participant under any plan
or arrangement of the Participant's Employer.

SECTION 4.03      TIME OF PAYMENT.

Any Participant entitled to benefits under this Plan shall receive payment of
those benefits from the Employer or the successor to the Employer, in cash and
in full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after becoming entitled
to benefits under this Plan but before he has received payment of the benefits,
then the Employer or the successor to the Employer shall pay the benefits, in
full, to the Participant's named beneficiary, if living, or, if not living, to
the Participant's personal representative on behalf of or for the benefit of the
Participant's estate.

SECTION 4.04      SUSPENSION OF PAYMENT.

Notwithstanding the foregoing, no payments or portions thereof shall be made
under this Plan, if such payment or portion would result in the Bank failing to
meet its minimum regulatory capital requirements as required by 12 C.F.R.
Section 567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum


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regulatory capital requirements. Any portion of benefit payments which have not
been suspended will be paid to Participants on an equitable basis, pro rata,
based upon amounts due each Participant.

SECTION 5.01      PARTICIPATING EMPLOYERS.

Upon approval by the Board of Directors of this Plan, any subsidiary of the Bank
or the Holding Company may adopt this Plan for the benefit of its employees.
Upon adoption, the subsidiary shall become an Employer for purposes of this Plan
and the provisions of the Plan shall be fully applicable to the employees of
that subsidiary. For this purpose, the term "subsidiary" means any corporation
in which the Bank or the Holding Company, directly or indirectly, holds a
majority of the voting power of its outstanding shares of capital stock.

SECTION 5.02      SUCCESSORS TO THE EMPLOYERS.

The Bank and the Holding Company shall require that any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Bank or the Holding
Company, expressly and unconditionally to assume and agree to perform the
obligations of the Employers under this Plan.

SECTION 6.01      ADMINISTRATION.

The Board of Directors or a committee appointed by the Board of Directors shall
administer the Plan. Subject to the specific provisions of the Plan, the Board
of Directors or the committee shall have the authority to adopt, amend, alter
and repeal any administrative rules, guidelines or practices it may consider
advisable with respect to the Plan. The Board of Directors or the committee
shall also have the authority to interpret the provisions of the Plan and to
resolve all disputes arising in connection with the Plan. The Board of Directors
or the committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan in the manner and to the extent it deems appropriate
to carry out the purpose of the Plan. The decisions and interpretations of the
Board of Directors or the committee shall be final and binding. Any action of
the Board of Directors or the committee with respect to the administration of
the Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of the members of the Board of Directors or the committee, as
appropriate.

SECTION 6.02.     CLAIMS AND REVIEW PROCEDURES.

(a) Claims procedure. If any person believes he or she is being denied any
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (i)
specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if


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the person wishes to submit a request for review. Such notification will be
given within 90 days after the claim is received by the Board (or within 180
days, if special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not given
within such period, the claim will be considered denied as of the last day of
such period and such person may request a review of his claim.

(b) Review procedure. Within 60 days after the date on which a person receives a
written notice of a denied claim (or, if applicable, within 60 days after the
date on which such denial is considered to have occurred) such person (or his
duly authorized representative) may (i) file a written request with the Board
for a review of his denied claim and of pertinent documents and (ii) submit
written issues and comments to the Board. The Board will notify such person of
its decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific reasons for
the decision as well as specific references to pertinent Plan provisions. The
decision on review will be made within 60 days after the request for review is
received by the Board (or within 120 days, if special circumstances require an
extension of time for processing the requests such as an election by the Board
to hold a hearing, and if written notice of such extension and circumstances is
given to such person within the initial 60 day period). If the decision on
review is not made within such period, the claim will be considered denied.

SECTION 6.03      NAMED FIDUCIARY.

The Board will be a "named fiduciary" for purposes of Section 402(a)(1) of ERISA
with authority to control and manage the operation and administration of the
Plan, and will be responsible for complying with all of the reporting and
disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.

SECTION 7.01      AMENDMENT AND TERMINATION.

(a) At any time prior to a Change in Control, the Bank may amend or terminate
the Plan by a resolution adopted by a majority of the Board of Directors. Any
amendment or termination of the Plan by the Bank shall apply equally to all
Employers. Further, at any time prior to a Change in Control, any Employer may
terminate its participation in the Plan by a resolution adopted by a majority of
its board of directors.

(b) The form of any amendment to the Plan shall be a written instrument signed
by a duly authorized officer or officers of the Bank, certifying that the
amendment has been approved by the Board of Directors.

SECTION 7.02      NO ATTACHMENT.

(a) Except as required by law, no right to receive benefits under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or


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hypothecation, or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
affect such action shall be null, void, and of no effect.

(b) The provisions of this Plan shall be binding upon, and inure to the benefit
of, each Participant, the Employers and their respective successors and assigns.

SECTION 7.03      LEGAL FEES AND EXPENSES.

All reasonable legal fees and other expenses paid or incurred by a Participant
or an Employer with respect to any claim under this Plan shall be paid or
reimbursed to the prevailing party by the other party in any legal judgment,
arbitration or settlement.

SECTION 7.04      APPLICABLE LAW.

The laws of the State of Illinois shall be controlling law in all matters
relating to the Plan to the extent not preempted by federal law.

SECTION 7.05      SEVERABILITY.

If any provision of this Plan is held illegal or invalid, the illegality or
invalidity of that provision shall not affect the remaining provisions of the
Plan and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.

SECTION 7.06      EMPLOYMENT STATUS.

This Plan does not constitute a contract of employment or impose on any Employer
any obligation to retain a Participant, to maintain the status of the
Participant's employment, or to change the Employer's policies regarding
termination of employment.

SECTION 8.01      REQUIRED PROVISIONS.

(a) An Employer may terminate a Participant's employment at any time, but any
termination by the Employer, other than Termination for Cause, shall not
otherwise prejudice the Participant's right to compensation or other benefits
under this Plan.

(b) If a Participant is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Sections 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this Plan shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Participant all or part of the compensation withheld while the
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.


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(c) If a Participant is removed and/or permanently prohibited from participating
in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4)
or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or
(g)(1), all obligations of the Bank under this Plan shall terminate as of the
effective date of the order.

(d) If the Bank is in default, as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), all obligations of the Bank
under this Plan shall terminate as of the date of default; provided, however,
that this paragraph shall not affect any vested rights of the parties to this
Plan.

(e) Any payments made to a Participant pursuant to this Plan, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k)
and any regulations promulgated thereunder.

Having been adopted by the Board of Directors on [DATE], this Plan is executed
by a duly authorized officer of the Bank on this [DATE].

Attest



------------------------------------           ---------------------------------
                                               For the Entire Board of Directors


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