**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                         | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                              |
|------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |       |                                                                                                                                                                                                                                                                                       |
|                               |       | **For the  quarterly period ended March 31, 2006**                                                                                                                                                                                                                                         |
|                               |       |                                                                                                                                                                                                                                                                                       |
| **OR**                             |
|                               |       |                                                                                                                                                                                                                                                                                       |
| **o**                              | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                             |
|                               |       |                                                                                                                                                                                                                                                                                       |
|                               |       | **For the  transition period from                        to                     ** |
|                               |       |                                                                                                                                                                                                                                                                                       |
| **Commission File Number 0-28312** |

 

**FIRSTFEDERAL BANCSHARES OF ARKANSAS, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Texas**                                                       | ** ** | **71-0785261**         |
|-----------------------------------------------------------------|------------|------------------------|
| (State or other jurisdiction of incorporation                   |       | (I.R.S. Employer       |
| or organization)                                                |       | Identification Number) |
|                                                            |       |                   |
| **1401 Highway 62-65 North**                                    | ** ** | ** **             |
| **Harrison, Arkansas**                                          | ** ** | **72601**              |
| (Address of principal executive office)                         | ** ** | (Zip Code)             |
|                                                            |       |                   |
| **(870) 741-7641**                                              |
| (Registrant’s telephone number, including area code)  |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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    ý    No    o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer or a non-accelerated filer.

Large accelerated filer    o  Acceleratedfiler    ý  Non-acceleratedfiler    o

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    o    No    ý

 

Indicate the numberof shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date:  As of April18, 2006, there were issued and outstanding 5,023,692 shares of the Registrant’sCommon Stock, par value $.01 per share.

 

 

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

 

**TABLE OF CONTENTS**

 
| **Part I.**    |       | **Financial Information**                                                                                                                                   | ** ** |
|----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|           |       |                                                                                                                                                        |       |
| Item 1.        |       | Consolidated  Financial Statements                                                                                                                          |       |
|           |       |                                                                                                                                                        |       |
|           |       | Consolidated Statements of Financial  Condition as of March 31, 2006 and December 31, 2005 (unaudited)                                                      |       |
|           |       |                                                                                                                                                        |       |
|           |       | Consolidated Statements of Income for the  three months ended March 31, 2006 and 2005 (unaudited)                                                           |       |
|           |       |                                                                                                                                                        |       |
|           |       | Consolidated Statement of Stockholders’  Equity for the three months ended March 31, 2006 (unaudited)                                                  |       |
|           |       |                                                                                                                                                        |       |
|           |       | Consolidated Statements of Cash Flows for  the three months ended March 31, 2006 and 2005 (unaudited)                                                       |       |
|           |       |                                                                                                                                                        |       |
|           |       | Notes to Unaudited Consolidated Financial  Statements                                                                                                       |       |
|           |       |                                                                                                                                                        |       |
| Item 2.        |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                 |       |
|           |       |                                                                                                                                                        |       |
| Item 3.        |       | Quantitative and Qualitative Disclosures  About Market Risk                                                                                                 |       |
|           |       |                                                                                                                                                        |       |
| Item 4.        |       | Controls and Procedures                                                                                                                                     |       |
|           |       |                                                                                                                                                        |       |
| **Part  II.**  |       | **Other  Information**                                                                                                                                      | ** ** |
|           |       |                                                                                                                                                        |       |
| Item 1.        |       | Legal Proceedings                                                                                                                                           |       |
| Item 1A.       |       | Risk Factors                                                                                                                                                |       |
| Item 2.        |       | Unregistered Sales of Equity Securities and  Use of Proceeds                                                                                                |       |
| Item 3.        |       | Defaults Upon Senior Securities                                                                                                                             |       |
| Item 4.        |       | Submission of Matters to a Vote of Security  Holders                                                                                                        |       |
| Item 5.        |       | Other Information                                                                                                                                           |       |
| Item 6.        |       | Exhibits                                                                                                                                                    |       |
|           |       |                                                                                                                                                        |       |
| **Signatures** | ** ** | ** **                                                                                                                                                  |
|           |       |                                                                                                                                                        |       |
| **Exhibits**   | ** ** | ** **                                                                                                                                                  | ** ** |
| 10.9           |       | Change in  Control Severance Agreement between the Company, the Bank and Jeffrey Brandt                                                                     |       |
| 31.1           |       | Certification  of Chief Executive Officer pursuant to Rule 13a-14(a) of Exchange Act, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |       |
| 31.2           |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a) of Exchange Act, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |       |
| 32.1           |       | Section 906  Certification of the CEO                                                                                                                       |       |
| 32.2           |       | Section 906  Certification of the CFO                                                                                                                       |       |

 

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

**CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION**

(In thousands, except share data)

(Unaudited)

 
| ** **                                                                                                                                                                               | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ASSETS                                                                                                                                                                                   |       |                |       |                   |       |
|                                                                                                                                                                                     |       |                |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                |       | $                   | 32,342     |                   | $          | 21,109 |   |
| Investment securities held to maturity                                                                                                                                                   |       | 57,696              |       | 56,695                 |       |
| Federal Home Loan Bank stock                                                                                                                                                             |       | 8,505               |       | 8,412                  |       |
| Loans receivable, net                                                                                                                                                                    |       | 729,813             |       | 719,214                |       |
| Accrued interest receivable                                                                                                                                                              |       | 8,599               |       | 7,490                  |       |
| Real estate acquired in settlement of  loans, net                                                                                                                                        |       | 217                 |       | 892                    |       |
| Office properties and equipment, net                                                                                                                                                     |       | 18,918              |       | 18,522                 |       |
| Cash surrender value of life insurance                                                                                                                                                   |       | 18,838              |       | 18,654                 |       |
| Prepaid expenses and other assets                                                                                                                                                        |       | 1,704               |       | 1,423                  |       |
|                                                                                                                                                                                     |       |                |       |                   |       |
| TOTAL ASSETS                                                                                                                                                                             |       | $                   | 876,632    |                   | $          | 852,411 |   |
|                                                                                                                                                                                     |       |                |       |                   |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                |       |                |       |                   |       |
|                                                                                                                                                                                     |       |                |       |                   |       |
| LIABILITIES:                                                                                                                                                                             |       |                |       |                   |       |
| Deposits                                                                                                                                                                                 |       | $                   | 634,872    |                   | $          | 611,667 |   |
| Federal Home Loan Bank advances                                                                                                                                                          |       | 158,622             |       | 158,240                |       |
| Advance payments by borrowers for taxes and  insurance                                                                                                                                   |       | 972                 |       | 847                    |       |
| Other liabilities                                                                                                                                                                        |       | 4,698               |       | 3,815                  |       |
| Total liabilities                                                                                                                                                                        |       | 799,164             |       | 774,569                |       |
|                                                                                                                                                                                     |       |                |       |                   |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                               |       |                |       |                   |       |
| Preferred stock, no par value, 5,000,000  shares authorized, none issued                                                                                                                 |       |                |       |                   |       |
| Common stock, $.01 par value, 20,000,000  shares authorized, 10,307,502 shares issued, 5,023,692 and 5,048,662 shares  outstanding at March 31, 2006 and December 31, 2005, respectively |       | 103                 |       | 103                    |       |
| Additional paid-in capital                                                                                                                                                               |       | 56,714              |       | 56,252                 |       |
| Employee stock benefit plans                                                                                                                                                             |       | (107                | )          | (140                   | )          |
| Retained earnings-substantially restricted                                                                                                                                               |       | 84,858              |       | 83,584                 |       |
|                                                                                                                                                                                     |       | 141,568             |       | 139,799                |       |
| Treasury stock, at cost, 5,283,810 and  5,258,840 shares at March 31, 2006 and December 31, 2005, respectively                                                                           |       | (64,100             | )          | (61,957                | )          |
| Total stockholders’ equity                                                                                                                                                          |       | 77,468              |       | 77,842                 |       |
|                                                                                                                                                                                     |       |                |       |                   |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                          |       | $                   | 876,632    |                   | $          | 852,411 |   |

 

See notes to unaudited consolidatedfinancial statements.

 

1

----

 

**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

**CONSOLIDATEDSTATEMENTS OF INCOME**

(In thousands, except share data)

(Unaudited)

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **March 31,  2006**    | ** ** | **March 31,  2005** | ** ** |
|                                                 |       |                   |       |   |   |
| INTEREST INCOME:                                     |       |                   |       |   |   |
| Loans receivable                                     |       | $                      | 12,227     |   | $ | 9,884 |   |
| Investment securities:                               |       |                   |       |   |   |
| Taxable                                              |       | 581                    |       | 518 |   |
| Nontaxable                                           |       | 187                    |       | 180 |   |
| Other                                                |       | 96                     |       | 13 |   |
| Total interest income                                |       | 13,091                 |       | 10,595 |   |
|                                                 |       |                   |       |   |   |
| INTEREST EXPENSE:                                    |       |                   |       |   |   |
| Deposits                                             |       | 4,446                  |       | 3,283 |   |
| Other borrowings                                     |       | 1,742                  |       | 844 |   |
| Total interest expense                               |       | 6,188                  |       | 4,127 |   |
|                                                 |       |                   |       |   |   |
| NET INTEREST INCOME                                  |       | 6,903                  |       | 6,468 |   |
|                                                 |       |                   |       |   |   |
| PROVISION FOR LOAN LOSSES                            |       | 285                    |       | 249 |   |
|                                                 |       |                   |       |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR  LOAN LOSSES |       | 6,618                  |       | 6,219 |   |
|                                                 |       |                   |       |   |   |
| NONINTEREST INCOME:                                  |       |                   |       |   |   |
| Deposit fee income                                   |       | 1,078                  |       | 1,008 |   |
| Earnings on life insurance policies                  |       | 184                    |       | 197 |   |
| Gain on sale of loans                                |       | 197                    |       | 134 |   |
| Other                                                |       | 858                    |       | 231 |   |
| Total noninterest income                             |       | 2,317                  |       | 1,570 |   |
|                                                 |       |                   |       |   |   |
| NONINTEREST EXPENSES:                                |       |                   |       |   |   |
| Salaries and employee benefits                       |       | 3,720                  |       | 3,003 |   |
| Net occupancy expense                                |       | 589                    |       | 499 |   |
| Data processing                                      |       | 444                    |       | 341 |   |
| Professional fees                                    |       | 105                    |       | 114 |   |
| Advertising and public relations                     |       | 323                    |       | 241 |   |
| Postage and supplies                                 |       | 221                    |       | 190 |   |
| Other                                                |       | 620                    |       | 508 |   |
| Total noninterest expenses                           |       | 6,022                  |       | 4,896 |   |
|                                                 |       |                   |       |   |   |
| INCOME BEFORE INCOME TAXES                           |       | 2,913                  |       | 2,893 |   |
| INCOME TAX PROVISION                                 |       | 928                    |       | 929 |   |
| NET INCOME                                           |       | $                      | 1,985      |   | $ | 1,964 |   |
|                                                 |       |                   |       |   |   |
| EARNINGS PER SHARE:                                  |       |                   |       |   |   |
| Basic                                                |       | $                      | 0.39       |   | $ | 0.39 |   |
|                                                 |       |                   |       |   |   |
| Diluted                                              |       | $                      | 0.38       |   | $ | 0.37 |   |
|                                                 |       |                   |       |   |   |
| Cash Dividends Declared                              |       | $                      | 0.14       |   | $ | 0.12 |   |

 

See notes to unaudited consolidated financialstatements.

 

2

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

**CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY**

**FOR THE THREE MONTHS ENDED MARCH31, 2006**

(In thousands, except share data)

(Unaudited)

 
| ** **                                                 | ** ** | **Issued  Common Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Employee  Stock  Benefit  Plans** | ** ** | **Retained  Earnings** | ** ** |
|------------------------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|-------------------------------------|------------|------------------------|------------|
| **Shares**                                                 | ** ** | **Amount**               |
|                                                       |       |                     |       |                             |       |                                |       |                   |       |   |   |
| Balance, January 1, 2006                                   |       | 10,307,502               |       | $                                | 103        |                                | $          | 56,252                 |       | $ | (140 | ) | $ | 83,584 |   |
| Net income                                                 |       |                     |       |                             |       |                                |       |                   |       | 1,985 |   |
| Release of ESOP shares                                     |       |                     |       |                             |       | 407                                 |       | 104                    |       |   |   |
| Tax effect of stock compensation plan                      |       |                     |       |                             |       | 230                                 |       |                   |       |   |   |
| Treasury shares reissued due to exercise of  stock options |       |                     |       |                             |       | (234                                | )          |                   |       |   |   |
| Purchase of treasury stock, at cost                        |       |                     |       |                             |       |                                |       |                   |       |   |   |
| Stock compensation expense                                 |       |                     |       |                             |       | 59                                  |       | (71                    | )          |   |   |
| Dividends paid                                             |       |                     |       |                             |       |                                |       |                   |       | (711 | ) |
|                                                       |       |                     |       |                             |       |                                |       |                   |       |   |   |
| Balance, March 31, 2006                                    |       | 10,307,502               |       | $                                | 103        |                                | $          | 56,714                 |       | $ | (107 | ) | $ | 84,858 |   |

 
| ** **                                                 | ** ** | **Treasury Stock** | ** ** | **Total Stockholders’ Equity** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|-------------------------------------|------------|
| **Shares**                                                 | ** ** | **Amount**         |
| ** **                                                 | ** ** |               |       |                                |       |   |   |
| Balance, January 1, 2006                                   |       | 5,258,840          |       | $                                   | (61,957    | ) | $ | 77,842 |   |
| Net income                                                 |       |               |       |                                |       | 1,985 |   |
| Release of ESOP shares                                     |       |               |       |                                |       | 511 |   |
| Tax effect of stock compensation plan                      |       |               |       |                                |       | 230 |   |
| Treasury shares reissued due to exercise of  stock options |       | (95,931            | )          | 960                                 |       | 726 |   |
| Purchase of treasury stock, at cost                        |       | 124,901            |       | (3,150                              | )          | (3,150 | ) |
| Stock compensation expense                                 |       | (4,000             | )          | 47                                  |       | 35 |   |
| Dividends paid                                             |       |               |       |                                |       | (711 | ) |
|                                                       |       |               |       |                                |       |   |   |
| Balance, March 31, 2006                                    |       | 5,283,810          |       | $                                   | (64,100    | ) | $ | 77,468 |   |

 

See notes to unauditedconsolidated financial statements.

 

3

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In Thousands)

(Unaudited)

 
| ** **                                                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                                                               |       |                             |       |   |   |
| OPERATING ACTIVITIES:                                                              |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 1,985      |   | $ | 1,964 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                             |       |   |   |
| Provision for loan losses                                                          |       | 285                              |       | 249 |   |
| Provision for real estate losses                                                   |       | —                           |       | 24 |   |
| Deferred tax (benefit) provision                                                   |       | 221                              |       | (50 | ) |
| Accretion of discounts on investment  securities, net                              |       | (1                               | )          | (3 | ) |
| Federal Home Loan Bank stock dividends                                             |       | (93                              | )          | (39 | ) |
| Gain on disposition of office properties  and equipment                            |       | (234                             | )          | — |   |
| Gain on sale of repossessed assets, net                                            |       | (32                              | )          | (5 | ) |
| Originations of loans held for sale                                                |       | (13,805                          | )          | (9,446 | ) |
| Proceeds from sales of loans held for sale                                         |       | 13,567                           |       | 9,742 |   |
| Gain on sale of loans originated to sell                                           |       | (197                             | )          | (134 | ) |
| Depreciation                                                                       |       | 312                              |       | 294 |   |
| Amortization of deferred loan fees, net                                            |       | 16                               |       | 38 |   |
| Release of ESOP shares                                                             |       | 511                              |       | 493 |   |
| Stock compensation expense                                                         |       | 35                               |       | 6 |   |
| Earnings on life insurance policies                                                |       | (184                             | )          | (197 | ) |
| Changes in operating assets and liabilities:                                       |       |                             |       |   |   |
| Accrued interest receivable                                                        |       | (1,109                           | )          | (647 | ) |
| Prepaid expenses and other assets                                                  |       | (247                             | )          | (13 | ) |
| Other liabilities                                                                  |       | (108                             | )          | (16 | ) |
| Net cash provided by operating activities                                          |       | 922                              |       | 2,260 |   |
|                                                                               |       |                             |       |   |   |
| INVESTING ACTIVITIES:                                                              |       |                             |       |   |   |
| Purchases of investment securities held to  maturity                               |       | —                           |       | (100 | ) |
| Proceeds from maturities/calls of  investment securities held to maturity          |       | —                           |       | 1,318 |   |
| Purchases of FHLB stock                                                            |       | —                           |       | (1,043 | ) |
| Loan participations sold                                                           |       | 3,419                            |       | 1,787 |   |
| Loan originations, net of repayments                                               |       | (13,928                          | )          | (34,231 | ) |
| Proceeds from sales of repossessed assets                                          |       | 717                              |       | 142 |   |
| Proceeds from sales of office properties  and equipment                            |       | 249                              |       | — |   |
| Purchases of office properties and  equipment                                      |       | (723                             | )          | (1,010 | ) |
| Net cash used in investing activities                                              |       | (10,266                          | )          | (33,137 | ) |
|                                                                               |       |                             |       |   |   |
| FINANCING ACTIVITIES:                                                              |       |                             |       |   |   |
| Net increase in deposits                                                           |       | 23,205                           |       | 6,334 |   |
| Advances from FHLB                                                                 |       | 22,500                           |       | 45,900 |   |
| Repayment of advances from FHLB                                                    |       | (22,118                          | )          | (21,767 | ) |
| Net decrease in advance payments by  borrowers for taxes and insurance             |       | 125                              |       | 181 |   |
| Purchase of treasury stock                                                         |       | (3,150                           | )          | (3,291 | ) |
| Reissued treasury stock                                                            |       | 726                              |       | 1,224 |   |
| Dividends paid                                                                     |       | (711                             | )          | (610 | ) |
| Net cash provided by financing activities                                          |       | 20,577                           |       | 27,971 |   |
|                                                                               |       |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                              |       | 11,233                           |       | (2,906 | ) |
|                                                                               |       |                             |       |   |   |
| CASH AND CASH EQUIVALENTS:                                                         |       |                             |       |   |   |
| Beginning of period                                                                |       | $                                | 21,109     |   | $ | 16,003 |   |
| End of period                                                                      |       | $                                | 32,342     |   | $ | 13,097 |   |
|                                                                               |       |                             |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:                                |       |                             |       |   |   |
| Cash paid for:                                                                     |       |                             |       |   |   |
| Interest                                                                           |       | $                                | 6,025      |   | $ | 4,023 |   |
| Income taxes                                                                       |       | $                                | 11         |   | $ | 2 |   |
|                                                                               |       |                             |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING  ACTIVITIES:                            |       |                             |       |   |   |
| Real estate and other assets acquired in  settlement of loans                      |       | $                                | 44         |   | $ | 72 |   |
| Loans to facilitate sales of real estate  owned                                    |       | $                                | —     |   | $ | — |   |
| Investment securities traded, recorded in  investments not yet settled in cash     |       | $                                | 1,000      |   | $ | — |   |

 

See notes to unauditedconsolidated financial statements.

 

4

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

 

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

 

 

# **Note 1 - Basis ofPresentation and Principles of Consolidation**

 

First Federal Bancshares of Arkansas, Inc.(the “Company”) is a unitary holding company which owns all of the stock ofFirst Federal Bank of Arkansas, FA (the “Bank”).  The Bank provides a broad line of financialproducts to individuals and small- to medium-sized businesses.  The unaudited consolidated financialstatements also include the accounts of the Bank’s wholly-owned subsidiary,First Harrison Service Corporation (“FHSC”), which is inactive.

 

The accompanying unaudited consolidatedfinancial statements of the Company have been prepared in accordance withinstructions to Form 10-Q.  Accordingly,they do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements.  However, such information reflects alladjustments which are, in the opinion of management, necessary for a fair statementof results for the interim periods.

 

The accompanying unaudited consolidatedfinancial statements include the accounts of the Company and the Bank.  All material intercompany transactions havebeen eliminated in consolidation.

 

The results of operations for the threemonths ended March 31, 2006, are not necessarily indicative of the results tobe expected for the year ending December 31, 2006.  The unaudited consolidated financialstatements and notes thereto should be read in conjunction with the auditedfinancial statements and notes thereto for the year ended December 31,2005, contained in the Company’s 2005 Annual Report to Stockholders.

 

Certain amounts in the March 31, 2005,unaudited consolidated financial statements have been reclassified to conformto the classifications adopted for reporting in 2006.

 

# **Note 1 – RecentlyAdopted Accounting Standard**

 

We adopted SFAS No. 123(R), *Share-Based Payment*, as of January 1,2006, using the modified prospective approach. The adoption of this Statement did not have a material effect on the financialstatements of the Company nor is it expected to have a material effect on anyfuture periods.

 

**Note 2 - Earningsper Share**

 

The weighted average number of common sharesused to calculate earnings per share for the periods ended March 31, 2006 and 2005were as follows:

 
| ** **                        | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Basic weighted - average shares   |       | 5,032,320                        |       | 4,987,228 |   |
| Effect of dilutive securities     |       | 143,188                          |       | 280,357 |   |
| Diluted weighted - average shares |       | 5,175,508                        |       | 5,267,585 |   |

 

5

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

### **CRITICALACCOUNTING POLICIES**

 

Various elements of our accounting policies, by their nature, areinherently subject to estimation techniques, valuation assumptions and othersubjective assessments.  In particular,the methodology for the determination of our allowance for loan losses, due tothe judgments, estimates and assumptions inherent in that policy, is criticalto preparation of our financial statements. This policy and the judgments, estimates and assumptions are describedin greater detail in subsequent sections of Management’s Discussion andAnalysis and in the notes to the unaudited financial statements includedherein.  We believe that the judgments,estimates and assumptions used in the preparation of our financial statementsare appropriate given the factual circumstances at the time.  However, given the sensitivity of ourfinancial statements to this critical accounting policy, the use of otherjudgments, estimates and assumptions could result in material differences inour financial condition or results of operations.

 

In estimating the amount of credit losses inherent in our loanportfolio, various judgments and assumptions are made.  For example, when assessing the condition ofthe overall economic environment, assumptions are made regarding future marketconditions and their impact on the loan portfolio.  In the event the local or national economywere to sustain a prolonged downturn, the loss factors applied to ourportfolios may need to be revised, which may significantly impact themeasurement of the allowance for loan losses. For impaired loans that are collateral-dependent, the estimated fairvalue of the collateral may deviate significantly from the proceeds receivedwhen the collateral is sold.

##  

## **CHANGES IN FINANCIAL CONDITION**

 

Changes in financial condition between March 31, 2006 and December 31,2005 are presented in the following table (dollars in thousands).  Material changes between the periods arediscussed in the sections which follow the table.

 
| ** **                                | ** ** | **March 31,****2006** | ** ** | **December 31,  2005** | ** ** | **Increase  (Decrease)** | ** ** | **Percentage****Change** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------------|------------|--------------------------|------------|--------------------------|------------|
| ASSETS                                    | ** ** | ** **            | ** ** | ** **             | ** ** | ** **               | ** ** | ** **               | ** ** |
| Cash and cash equivalents                 |       | $                     | 32,342     |                   | $          | 21,109                   |       | $                        | 11,233     |   | 53.2 | % |
| Investment securities held to maturity    |       | 57,696                |       | 56,695                 |       | 1,001                    |       | 1.8                      | %          |
| Federal Home Loan Bank stock              |       | 8,505                 |       | 8,412                  |       | 93                       |       | 1.1                      | %          |
| Loans receivable, net                     |       | 729,813               |       | 719,214                |       | 10,599                   |       | 1.5                      | %          |
| Accrued interest receivable               |       | 8,599                 |       | 7,490                  |       | 1,109                    |       | 14.8                     | %          |
| Office properties and equipment, net      |       | 18,918                |       | 18,522                 |       | 396                      |       | 2.1                      | %          |
| Prepaid expenses and other assets         |       | 20,759                |       | 20,969                 |       | (210                     | )          | (1.0                     | )%         |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| TOTAL                                     |       | $                     | 876,632    |                   | $          | 852,411                  |       | $                        | 24,221     |   | 2.8 | % |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ** ** | ** **            | ** ** | ** **             | ** ** | ** **               | ** ** | ** **               | ** ** |
| LIABILITIES:                              | ** ** | ** **            | ** ** | ** **             | ** ** | ** **               | ** ** | ** **               | ** ** |
| Deposits                                  |       | $                     | 634,872    |                   | $          | 611,667                  |       | $                        | 23,205     |   | 3.8 | % |
| Federal Home Loan Bank advances           |       | 158,622               |       | 158,240                |       | 382                      |       | 0.2                      | %          |
| Other liabilities                         |       | 5,670                 |       | 4,662                  |       | 1,008                    |       | 21.6                     | %          |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| Total liabilities                         |       | 799,164               |       | 774,569                |       | 24,595                   |       | 3.2                      | %          |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| STOCKHOLDERS’ EQUITY                 |       | 77,468                |       | 77,842                 |       | (374                     | )          | (0.5                     | )%         |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| TOTAL                                     |       | $                     | 876,632    |                   | $          | 852,411                  |       | $                        | 24,221     |   | 2.8 | % |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| BOOK VALUE PER SHARE                      |       | $                     | 15.42      |                   | $          | 15.42                    |       |                     |       |   |   |
|                                      |       |                  |       |                   |       |                     |       |                     |       |
| EQUITY TO ASSETS                          |       | 8.8                   | %          | 9.1                    | %          |                     |       |                     |       |

 

6

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**Loans Receivable. **Changesin loancomposition between March 31, 2006 and December 31, 2005 are presented in thefollowing table (dollars in thousands).

 
| ** **                                     | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Increase  (Decrease)** | ** ** | **%****Change** | ** ** |
|------------------------------------------------|------------|---------------------|------------|------------------------|------------|--------------------------|------------|-----------------|------------|
|                                           |       |                |       |                   |       |                     |       |            |       |
| One- to four-family residences                 |       | $                   | 266,853    |                   | $          | 269,660                  |       | $               | (2,807     | ) |   |   |
| Multi-family                                   |       | 12,653              |       | 12,900                 |       | (247                     | )          |            |       |
| Commercial real estate                         |       | 117,866             |       | 119,323                |       | (1,457                   | )          |            |       |
| Land                                           |       | 40,045              |       | 38,355                 |       | 1,690                    |       |            |       |
| Construction:                                  |       |                |       |                   |       |                     |       |            |       |
| One-to four-family residences                  |       | 50,009              |       | 51,579                 |       | (1,570                   | )          |            |       |
| Speculative one-to four-family residences      |       | 106,018             |       | 104,001                |       | 2,017                    |       |            |       |
| Multi-family                                   |       | 17,230              |       | 20,919                 |       | (3,689                   | )          |            |       |
| Commercial real estate                         |       | 23,741              |       | 22,331                 |       | 1,410                    |       |            |       |
| Land development                               |       | 48,173              |       | 40,232                 |       | 7,941                    |       |            |       |
| Total first mortgage loans                     |       | 682,588             |       | 679,300                |       | 3,288                    |       | 0.5             | %          |
|                                           |       |                |       |                   |       |                     |       |            |       |
| Commercial                                     |       | 33,931              |       | 32,693                 |       | 1,238                    |       | 3.8             | %          |
|                                           |       |                |       |                   |       |                     |       |            |       |
| Home equity and second mortgage                |       | 51,905              |       | 49,680                 |       | 2,225                    |       |            |       |
| Automobile                                     |       | 14,668              |       | 15,748                 |       | (1,080                   | )          |            |       |
| Other                                          |       | 13,335              |       | 13,149                 |       | 186                      |       |            |       |
| Total consumer                                 |       | 79,908              |       | 78,577                 |       | 1,331                    |       | 1.7             | %          |
|                                           |       |                |       |                   |       |                     |       |            |       |
| Total loans receivable                         |       | 796,427             |       | 790,570                |       | 5,857                    |       | 0.7             | %          |
| Less:                                          |       |                |       |                   |       |                     |       |            |       |
| Undisbursed loan funds                         |       | (64,338             | )          | (69,086                | )          | 4,748                    |       |            |       |
| Unearned discounts and net deferred loan  fees |       | (25                 | )          | (156                   | )          | 131                      |       |            |       |
| Allowance for loan losses                      |       | (2,251              | )          | (2,114                 | )          | (137                     | )          |            |       |
|                                           |       |                |       |                   |       |                     |       |            |       |
| Loans receivable, net                          |       | $                   | 729,813    |                   | $          | 719,214                  |       | $               | 10,599     |   | 1.5 | % |

 

The growth in the Bank’s loan portfolio wasprimarily due to an increase in construction loans, which increasedapproximately $10.9 million, due to opportunities afforded by the economicgrowth in the Northwest Arkansas area. The robust economy of our entire marketarea provided increased demand and opportunity for certain other loan productsas well.  However, loan growth in thefirst quarter of 2006 occurred at a slower rate than in previous quarters.  Loan originations began trending downwardbeginning in the third quarter of 2005.

 

Several years ago, the Bank began toemphasize commercial real estate lending, construction lending, and commerciallending to diversify its loan portfolio, take advantage of market opportunitiesin these types of loans, and help the Bank transition to a more full-servicecommunity bank, as well as to provide opportunities to cross-sell its otherbanking products.   The Bank plans tocontinue this emphasis as long as prudent lending opportunities are available.

 

7

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**Asset Quality. **The following table sets forth the amounts andcategories of the Bank’s nonperforming assets at the dates indicated.

 
| ** **                                                                                                                   | ** ** | **March 31, 2006**         | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                                                                                                                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Nonaccrual loans:                                                                                                            |       |                       |       |                  |       |
| One- to four-family residential                                                                                              |       | $                          | 3,115      |                  | $          | 2,630 |   |
| Construction loans                                                                                                           |       | 1,690                      |       | 1,177                 |       |
| Commercial real estate                                                                                                       |       | 708                        |       | 707                   |       |
| Commercial loans                                                                                                             |       | 320                        |       | 236                   |       |
| Consumer loans                                                                                                               |       | 968                        |       | 556                   |       |
| Total nonaccrual loans                                                                                                       |       | 6,801                      |       | 5,306                 |       |
|                                                                                                                         |       |                       |       |                  |       |
| Accruing loans 90 days or more past due                                                                                      |       | 1,386                      |       | 1,600                 |       |
| Restructured loans                                                                                                           |       | 6,488                      |       | 6,264                 |       |
| Real estate owned                                                                                                            |       | 217                        |       | 892                   |       |
|                                                                                                                         |       |                       |       |                  |       |
| Total nonperforming assets                                                                                                   |       | $                          | 14,892     |                  | $          | 14,062 |   |
|                                                                                                                         |       |                       |       |                  |       |
| Total nonaccrual, accruing loans 90 days or  more past due and restructured loans as a percentage of total loans  receivable |       | 1.84                       | %          | 1.67                  | %          |
|                                                                                                                         |       |                       |       |                  |       |
| Total nonperforming assets as a percentage  of total assets                                                                  |       | 1.70                       | %          | 1.65                  | %          |

 

Theincrease in nonaccrual loans of approximately $1.5 million is primarily due toincreases in the one- to four-family residential, construction, and consumerloan categories.  This increase includestwo borrowers with loans totaling $1.3 million.   One borrower is a builder with threespeculative construction loans totaling $689,000.  We are currently evaluating the condition ofthe homes.  Based on facts andcircumstances at March 31, 2006, including market conditions, we believe wewill incur no loss on these loans.  Theother borrower has three loans totaling $588,000 on a primary residence and twoduplexes.  We have commenced foreclosureproceedings on the properties.  Based onthe appraised values of the properties, we estimate that we will incur no losson the sale of these properties.

 

At March31, 2006 andDecember 31, 2005, restructured loans consisted of commercial and commercialreal estate loans to two borrowers.  Noneof the loans were past due at March 31, 2006. Based on facts and circumstances at March 31, 2006, including marketconditions, we believe we will not incur a loss on either relationship.

 

8

----

 

**Allowancefor Loan Losses**.  A summary of theactivity in the allowance for loan losses is as follows (in thousands):

 
| ** **                      | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Balance at  beginning of period |       | $                                | 2,114      |   | $ | 1,846 |   |
| Provisions for estimated losses |       | 285                              |       | 249 |   |
| Recoveries                      |       | 47                               |       | 25 |   |
| Losses charged off              |       | (195                             | )          | (170 | ) |
| Balance at  end of period       |       | $                                | 2,251      |   | $ | 1,950 |   |

 

Changes in the composition of the allowance for loan losses betweenMarch 31, 2006 and December 31, 2005 are presented in the following table (inthousands):

 
| ** **  | ** ** | **March 31,****2006** | ** ** | **December 31,  2005** | ** ** | **Increase** | ** ** |
|-------------|------------|-----------------------|------------|------------------------|------------|--------------|------------|
| General     |       | $                     | 1,842      |                   | $          | 1,831        |       | $ | 11 |   |
| Specific    |       | 270                   |       | 183                    |       | 87           |       |
| Unallocated |       | 139                   |       | 100                    |       | 39           |       |
|        |       | $                     | 2,251      |                   | $          | 2,114        |       | $ | 137 |   |

 

The general component of the allowance forloan losses increased due to loan growth. The specific component of the allowance for loan losses increasedprimarily due to specific allowances on two speculative single familyconstruction loans.

 

Theallowance for loan losses is evaluated on a regular basis by management and isbased upon management’s periodic review of the collectibility of the loans in lightof historical experience, the nature and volume of the loan portfolio, adversesituations that may affect the borrower’s ability to repay, the estimated valueof any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective asit requires estimates that are susceptible to significant revision asconditions change and more information becomes available.

 

The allowance consists of specific,general and unallocated components. The specific component relates to loansthat are classified as loss, doubtful, substandard or special mention. For suchloans that are also classified as impaired, an allowance is established whenthe discounted cash flows (or collateral value or observable market price) ofthe impaired loan is lower than the carrying value of that loan. The generalcomponent covers non-classified loans and is based primarily on historical lossexperience. An unallocated component is maintained to cover uncertainties thatcould affect management’s estimate of probable losses. The unallocatedcomponent of the allowance reflects the margin of imprecision inherent in theunderlying assumptions used in the methodologies for estimating specific andgeneral losses in the portfolio.

 

TheBank reviews its non-homogeneous loans for impairment on a quarterlybasis.  The Bank considers commercialreal estate, construction, multi-family, and commercial loans to benon-homogeneous loans.  A loan isconsidered impaired when, based on current information and events, it isprobable that the Bank will be unable to collect the scheduled payments ofprincipal or interest when due according to the contractual terms of the loanagreement.  Factors considered bymanagement in determining impairment include payment status, collateral value,and the probability of collecting scheduled principal and interest paymentswhen due.  Loans that experienceinsignificant payment delays and payment shortfalls generally are notclassified as impaired.  Managementdetermines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstancessurrounding the loan and the borrower, including the length of the delay, thereasons for the delay, the borrower’s prior payment record, and the amount ofthe shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis by either the present value ofexpected future cash flows discounted at the loan’s effective interest rate,the loan’s obtainable market price, or the fair value of the collateral if theloan is collateral dependent.

 

9

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Large groups of smaller balancehomogeneous loans are collectively evaluated for impairment.  Accordingly, the Bank does not separatelyidentify individual consumer and residential loans for impairment disclosures.  Homogeneous loans are those that areconsidered to have common characteristics that provide for evaluation on anaggregate or pool basis.  The Bankconsiders the characteristics of (1) one- to- four family residential firstmortgage loans; (2) unsecured consumer loans; and (3) collateralized consumer loansto permit consideration of the appropriateness of the allowance for losses ofeach group of loans on a pool basis.  Theprimary methodology used to determine the appropriateness of the allowance forlosses includes segregating certain specific, poorly performing loans based ontheir performance characteristics from the pools of loans as to type, valuingthese loans, and then applying a loss factor to the remaining pool balancebased on several factors, including past loss experience, inherent risks, andeconomic conditions in the primary market areas.

 

In estimating the amount of credit losses inherent in our loanportfolio, various judgments and assumptions are made.  For example, when assessing the condition ofthe overall economic environment, assumptions are made regarding future marketconditions and their impact on the loan portfolio.  In the event the national economy were tosustain a prolonged downturn, the loss factors applied to our portfolios mayneed to be revised, which may significantly impact the measurement of theallowance for loan losses.  For impairedloans that are collateral-dependent, the estimated fair value of the collateralmay deviate significantly from the proceeds received when the collateral issold.

 

Although we consider the allowance for loan losses ofapproximately $2.3 million appropriate and adequate to cover losses inherent inour loan portfolio at March 31, 2006, no assurance can be given that we willnot sustain loan losses that are significantly different from the amountprovided, or that subsequent evaluations of the loan portfolio, in light offactors then prevailing, would not result in a significant change in theallowance for loan losses.

 

**Investment Securities. **Changes in the composition ofinvestment securities held to maturity between March 31, 2006 andDecember 31, 2005 are presented in the following table (in thousands).

 
| ** **                             | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Increase** | ** ** |
|----------------------------------------|------------|---------------------|------------|------------------------|------------|--------------|------------|
| U.S. Government and agency obligations |       | 41,035              |       | 40,034                 |       | 1,001        |       |
| Municipal securities                   |       | 16,661              |       | 16,661                 |       | —       |       |
| Total                                  |       | $                   | 57,696     |                   | $          | 56,695       |       | $ | 1,001 |   |
|                                        |            |                     |            |                        |            |              |            |  |  |  |

 

During the first three months of 2006, investment securities totaling $1.0million were purchased and no investments matured or were called.

 

At March 31, 2006,estimated fair values of investment securities held to maturity were as follows(in thousands):

** **
| ** **                              | ** ** | **Amortized Cost** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------|------------|----------------|------------|
|                                    |       |               |       |           |       |
| U.S. Government and agency  obligations |       | $                  | 41,035     |           | $          | 39,472 |   |
| Municipal securities                    |       | 16,661             |       | 16,696         |       |
| Total                                   |       | $                  | 57,696     |           | $          | 56,168 |   |

 

**Accrued Interest Receivable. ** The increase in accrued interest receivablewas primarily due to an increase in the number of days accrued as well as anincrease in the loan yield at March 31, 2006 compared to December 31, 2005.

 

10

----

 

**Deposits. **Changes in the composition of depositsbetween March 31, 2006and December 31, 2005 are presented in the following table (dollars inthousands).

 
| ** **              | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Increase (Decrease)** | ** ** | **Percentage Change** | ** ** |
|-------------------------|------------|---------------------|------------|------------------------|------------|-------------------------|------------|-----------------------|------------|
|                    |       |                |       |                   |       |                    |       |                  |       |
| DDA and NOW accounts    |       | $                   | 138,146    |                   | $          | 125,397                 |       | $                     | 12,749     |   | 10.2 | % |
| Money Market accounts   |       | 60,450              |       | 64,021                 |       | (3,571                  | )          | (5.6                  | )%         |
| Savings accounts        |       | 31,052              |       | 30,521                 |       | 531                     |       | 1.7                   | %          |
| Certificates of deposit |       | 405,224             |       | 391,728                |       | 13,496                  |       | 3.5                   | %          |
|                    |       |                |       |                   |       |                    |       |                  |       |
| Total deposits          |       | $                   | 634,872    |                   | $          | 611,667                 |       | $                     | 23,205     |   | 3.8 | % |

 

Deposits increased in thecomparison period, primarily due to focused marketing efforts to increasechecking accounts and the offering of CD specials.  During the period, DDA and NOW accountbalances increased by $12.7 million and the number of such accounts increasedby 1.9%.  The Bank will continue to aggressivelypromote checking accounts by targeting households and small- and medium-sizedbusiness accounts with its direct mail campaign and “thank you” gifts.   Checkingaccounts are an attractive source of funds for the Bank as they offerlow-interest deposits, fee income potential, and the opportunity to cross-sellother financial services.

 

Certificates of deposit have continued to increase as interest ratescontinue to rise.  Further, the Bank hasadvertised several CD products with special rates and terms ranging from 7 to40 months.  The cost of deposit fundsincreased from 2.85% at December 31, 2005 to 3.00% at March 31, 2006.

 

**Other Liabilities.** Other liabilities increased primarily due to an increase in the payablefor unsettled investment transactions of $900,000.

 

**Stockholders’ Equity. **Stockholders’equity decreased approximately $374,000 from December 31, 2005 to March 31, 2006.  The decrease in stockholders’ equity wasprimarily due to the purchase of treasury stock totaling $3.1 million duringthe first three months of 2006 offset by net income of $2.0 million and theissuance of treasury stock due to proceeds received from the exercise of stockoptions of approximately $726,000.  Inaddition, during the three months ended March31, 2006, cash dividends of approximately $711,000 were paid.  See the Unaudited Consolidated Statement ofStockholders’ Equity for the three months ended March31, 2006 for more detail.

###  

11

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### **Average Balance Sheets**

 

The following table sets forth certaininformation relating to the Company’s average balance sheets and reflects theaverage yield on assets and average cost of liabilities for the periodsindicated and the yields earned and rates paid at March 31, 2006.  Such yields and costs are derived by dividingincome or expense by the average balance of assets or liabilities,respectively, for the periods presented and outstanding balances at March 31,2006.  Average balances are based ondaily balances during the period.

 
| ** **                                                        | ** ** | ** **                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------------|------------|
| ** **                                                        | ** ** | **March 31,  2006**        | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | **Yield/Cost**             | ** ** | **Average  Balance**              | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Average  Yield/  Cost** | ** ** |
|                                                              |       | **(Dollars in Thousands)** |       |
| Interest-earning assets:                                          |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Loans receivable(1)                                               |       | 6.90                       | %          | $                                 | 730,761    |   | $ | 12,227 |   | 6.69 | % | $ | 651,582 |   | $ | 9,884 |   | 6.07 | % |
| Investment securities(2)                                          |       | 4.75                       |       | 65,119                            |       | 768 |   | 4.71 |   | 61,783 |   | 698 |   | 4.52 |   |
| Other interest-earning  assets                                    |       | 4.73                       |       | 8,710                             |       | 96 |   | 4.43 |   | 2,348 |   | 13 |   | 2.31 |   |
| Total interest-earning  assets                                    |       | 6.69                       |       | 804,590                           |       | 13,091 |   | 6.51 |   | 715,713 |   | 10,595 |   | 5.92 |   |
| Noninterest-earning assets                                        |       |                       |       | 60,058                            |       |   |   |   |   | 50,914 |   |   |   |   |   |
| Total assets                                                      |       |                       |       | $                                 | 864,648    |   |   |   |   |   | $ | 766,627 |   |   |   |   |   |
| Interest-bearing  liabilities:                                    |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                          |       | 3.00                       |       | 614,263                           |       | 4,446 |   | 2.89 |   | 582,420 |   | 3,283 |   | 2.25 |   |
| FHLB advances                                                     |       | 4.31                       |       | 166,096                           |       | 1,742 |   | 4.19 |   | 103,542 |   | 844 |   | 3.26 |   |
| Total interest-bearing liabilities                                |       | 3.26                       |       | 780,359                           |       | 6,188 |   | 3.17 |   | 685,962 |   | 4,127 |   | 2.41 |   |
| Noninterest-bearing  liabilities                                  |       |                       |       | 6,376                             |       |   |   |   |   | 5,173 |   |   |   |   |   |
| Total liabilities                                                 |       |                       |       | 786,735                           |       |   |   |   |   | 691,135 |   |   |   |   |   |
| Stockholders’ equity                                         |       |                       |       | 77,913                            |       |   |   |   |   | 75,492 |   |   |   |   |   |
| Total liabilities and stockholders’  equity                  |       |                       |       | $                                 | 864,648    |   |   |   |   |   | $ | 766,627 |   |   |   |   |   |
|                                                              |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                               |       |                       |       |                              |       | $ | 6,903 |   |   |   |   |   | $ | 6,468 |   |   |   |
| Net earning assets                                                |       |                       |       | $                                 | 24,231     |   |   |   |   |   | $ | 29,751 |   |   |   |   |   |
| Interest rate spread                                              |       | 3.43                       | %          |                              |       |   |   | 3.34 | % |   |   |   |   | 3.51 | % |
| Net interest margin                                               |       |                       |       |                              |       |   |   | 3.43 | % |   |   |   |   | 3.61 | % |
| Ratio of interest-earning  assets to interest-bearing liabilities |       |                       |       |                              |       |   |   | 103.11 | % |   |   |   |   | 104.34 | % |
|                                                                   |            |                            |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1) Includes nonaccrual loans.

(2) Includes FHLB of Dallas stock.

##  

12

----

 

## **Rate/Volume Analysis**

 

The table below sets forth certaininformation regarding changes in interest income and interest expense of the Companyfor the periods indicated.  For eachcategory of interest-earning assets and interest-bearing liabilities,information is provided on changes attributable to (i) changes in volume(changes in average volume multiplied by prior rate); (ii) changes in rate(change in rate multiplied by prior average volume); (iii) changes inrate-volume (changes in rate multiplied by the change in average volume); and(iv) the net change.

 
| ** **                          | ** ** | **Three Months Ended March  31  2006 vs. 2005** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **Increase (Decrease)  Due to**                 | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Volume**                                      | ** ** | **Rate** | ** ** | **Rate/  Volume** | ** ** | **Total  Increase** | ** ** |
| ** **                          | ** ** | **(In Thousands)**                              | ** ** |
| Interest income:                    |       |                                            |       |   |   |   |   |   |   |
| Loans receivable                    |       | $                                               | 1,201      |   | $ | 1,018 |   | $ | 124 |   | $ | 2,343 |   |
| Investment securities               |       | 38                                              |       | 30 |   | 2 |   | 70 |   |
| Other interest-earning  assets      |       | 36                                              |       | 13 |   | 34 |   | 83 |   |
| Total interest-earning  assets      |       | 1,275                                           |       | 1,061 |   | 160 |   | 2,496 |   |
|                                |       |                                            |       |   |   |   |   |   |   |
| Interest expense:                   |       |                                            |       |   |   |   |   |   |   |
| Deposits                            |       | 179                                             |       | 933 |   | 51 |   | 1,163 |   |
| FHLB advances                       |       | 510                                             |       | 242 |   | 146 |   | 898 |   |
| Total interest-bearing  liabilities |       | 689                                             |       | 1,175 |   | 197 |   | 2,061 |   |
| Net change in net interest  income  |       | $                                               | 586        |   | $ | (114 | ) | $ | (37 | ) | $ | 435 |   |

 

13

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**CHANGES IN RESULTS OFOPERATIONS**

 

The table below presents a comparison of results of operations forthe three months ended March31, 2006 and 2005 (dollars in thousands). Specific changes in captions are discussed in the sections which followthe table.

 
| ** **                                            | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase  (Decrease)** | ** ** | **Percentage  Change** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------|------------|--------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **2006**                          | ** ** | **2005**                 | ** ** | **2006 vs 2005**       | ** ** | **2006 vs 2005** | ** ** |
| Interest income:                                      |       |                              |       |                     |       |                   |       |   |   |
| Loans receivable                                      |       | $                                 | 12,227     |                     | $          | 9,884                  |       | $ | 2,343 |   | 23.7 | % |
| Investment securities                                 |       | 768                               |       | 698                      |       | 70                     |       | 10.0 | % |
| Other                                                 |       | 96                                |       | 13                       |       | 83                     |       | 638.5 | % |
| Total interest income                                 |       | 13,091                            |       | 10,595                   |       | 2,496                  |       | 23.6 | % |
| Interest expense:                                     |       |                              |       |                     |       |                   |       |   |   |
| Deposits                                              |       | 4,446                             |       | 3,283                    |       | 1,163                  |       | 35.4 | % |
| Other borrowings                                      |       | 1,742                             |       | 844                      |       | 898                    |       | 106.4 | % |
| Total interest expense                                |       | 6,188                             |       | 4,127                    |       | 2,061                  |       | 49.9 | % |
| Net interest income before provision for  loan losses |       | 6,903                             |       | 6,468                    |       | 435                    |       | 6.7 | % |
| Provision for loan losses                             |       | 285                               |       | 249                      |       | 36                     |       | 14.5 | % |
| Net interest income after provision for  loan losses  |       | 6,618                             |       | 6,219                    |       | 399                    |       | 6.4 | % |
| Noninterest income:                                   |       |                              |       |                     |       |                   |       |   |   |
| Deposit fee income                                    |       | 1,078                             |       | 1,008                    |       | 70                     |       | 6.9 | % |
| Gain on sale of loans                                 |       | 197                               |       | 134                      |       | 63                     |       | 47.0 | % |
| Other                                                 |       | 1,042                             |       | 428                      |       | 614                    |       | 143.5 | % |
| Total noninterest income                              |       | 2,317                             |       | 1,570                    |       | 747                    |       | 47.6 | % |
| Noninterest expenses:                                 |       |                              |       |                     |       |                   |       |   |   |
| Salaries and employee benefits                        |       | 3,720                             |       | 3,003                    |       | 717                    |       | 23.9 | % |
| Net occupancy expense                                 |       | 589                               |       | 499                      |       | 90                     |       | 18.0 | % |
| Data processing                                       |       | 444                               |       | 341                      |       | 103                    |       | 30.2 | % |
| Advertising and public relations                      |       | 323                               |       | 241                      |       | 82                     |       | 34.0 | % |
| Other                                                 |       | 946                               |       | 812                      |       | 134                    |       | 16.5 | % |
| Total noninterest expenses                            |       | 6,022                             |       | 4,896                    |       | 1,126                  |       | 23.0 | % |
| Income before income taxes                            |       | 2,913                             |       | 2,893                    |       | 20                     |       | .7 | % |
| Provision for income taxes                            |       | 928                               |       | 929                      |       | (1                     | )          | (.1 | )% |
| Net income                                            |       | $                                 | 1,985      |                     | $          | 1,964                  |       | $ | 21 |   | 1.1 | % |
|                                                  |       |                              |       |                     |       |                   |       |   |   |
| Basic earnings per share                              |       | $                                 | 0.39       |                     | $          | 0.39                   |       | $ | 0.00 |   | 0.0 | % |
| Diluted earnings per share                            |       | $                                 | 0.38       |                     | $          | 0.37                   |       | $ | 0.01 |   | 2.7 | % |
|                                                  |       |                              |       |                     |       |                   |       |   |   |
| Interest rate spread                                  |       | 3.34                              | %          | 3.51                     | %          |                   |       |   |   |
| Net interest margin                                   |       | 3.43                              | %          | 3.61                     | %          |                   |       |   |   |
|                                                  |       |                              |       |                     |       |                   |       |   |   |
| Average full-time equivalents                         |       | 309                               |       | 252                      |       |                   |       |   |   |
|                                                  |       |                              |       |                     |       |                   |       |   |   |
| Full-service offices                                  |       | 18                                |       | 15                       |       |                   |       |   |   |

 

14

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**Net InterestIncome. **Net interest income isdetermined by the Company’s interest rate spread (i.e., the difference betweenthe yields earned on its interest-earning assets and the rates paid on itsinterest-bearing liabilities) and the relative amounts of interest-earningassets and interest-bearing liabilities.

 

### **INTEREST INCOME AND INTEREST EXPENSE**

 

Dollar changes in interest income andinterest expense for the comparison periods are presented in the Rate/VolumeAnalysis table which appears on a previous page.

 

**Interest Income. **The increase in interest incomefor the three month comparative period was primarily due to an increase in theaverage balance of loans and an increase in the average yield earned onloans.  The increase in the average yieldearned on loans was due to increased rates on new loans, particularlyconstruction loans, in conjunction with recent increases in market interestrates.  The average balance of loansincreased primarily due to increased construction loan origination activity.

 

**InterestExpense.  **The increase in interest expensefor the three month comparative period was primarily due to an increase in theaverage balance of FHLB advances and an increase in the average rate paid ondeposits.  The average balance of FHLBadvances increased due to advances being used to fund loan growth.  The increase in the average rates paidon deposit accounts reflects both the shift in deposits from money market accountsand savings accounts to higher rate certificates of deposit as well as therecent increases in market interest rates.

 

**Provision for LoanLosses.**  The provision for loan losses includescharges to maintain an allowance for loan losses adequate to cover probablecredit losses related to specifically identified loans as well as probablecredit losses inherent in the remainder of the loan portfolio that have beenincurred as of the balance sheet date. Such provision and the adequacy of the allowance for loan losses isevaluated quarterly by management of the Bank based on the Bank’s past loanloss experience, known and inherent risks in the portfolio, adverse situationsthat may affect the borrower’s ability to repay, the estimated value of anyunderlying collateral and current economic conditions.

 

The increase in the provision for loan lossesin the three month comparative period was due primarily to an increase inspecific loan loss allowances related to two speculative construction loans.

 

**NoninterestIncome. **Deposit fee income increased forthe three month comparative period as a result of the Bank’s continuedpromotion of Bounce ProtectionTM overdraft service as well as an increase in thenumber of checking accounts.  The numberof checking accounts increased approximately 1.9% from March 31, 2005 to March31, 2006.  The Bank plans to continue toaggressively promote checking accounts in 2006 through direct mail campaigns toexpand its checking accounts and increase deposit fee income.

 

Gain on sale of loans increased for the threemonth comparative period due to an increase in volume of loans sold in thefirst quarter.

 

The increase in other noninterest income forthe three month comparative period was primarily due to gains on the sales oftwo properties totaling approximately $528,000. These properties represented excess land and a building adjacent to twoexisting branches.

 

15

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**Noninterest Expense**

 

**Salaries and EmployeeBenefits. **The changes in the compositionof this line item are presented below (in thousands):

 

| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase****(Decrease)** | ** ** |
|-----------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **2006**                          | ** ** | **2005**                   | ** ** | **2006 vs 2005** | ** ** |
| Salaries                          |       | $                                 | 2,514      |                       | $          | 1,977 |   | $ | 537 |   |
| Payroll taxes                     |       | 256                               |       | 234                        |       | 22 |   |
| Insurance                         |       | 170                               |       | 147                        |       | 23 |   |
| ESOP expense (1)                  |       | 508                               |       | 481                        |       | 27 |   |
| Stock compensation expense (2)    |       | 35                                |       | 7                          |       | 28 |   |
| Defined benefit plan contribution |       | 196                               |       | 122                        |       | 74 |   |
| Other                             |       | 41                                |       | 35                         |       | 6 |   |
| Total                             |       | $                                 | 3,720      |                       | $          | 3,003 |   | $ | 717 |   |

 

----

(1)   Employee Stock Ownership Plan

(2)   Includes stock options and ManagementRecognition and Retention Plan (“MRP”) expense.

 

The increase in salaries for the three monthsended March 31, 2006, was due primarily to an increase in the number ofemployees and normal salary and merit increases.  Payroll taxes increased during the period dueto the increase in salaries.  Theincrease in employee stock ownership plan expense during the comparison periodwas due to an increase in the Company’s average stock price in 2006 compared tothe same period in 2005.  Stock compensationexpense increased due to additional MRP grants. Defined benefit plan expense increased due to an increase in therequired contribution to our multi-employer plan primarily resulting from anincrease in amortization cost.

 

We expect a decrease in salaries and employeebenefits in future quarters due to the Company’s ESOP shares becoming fullyallocated as of March 31, 2006. The Company plans to implement a 401(k)Plan in the second quarter of 2006. Employer matching of employee 401(k) contributions is expected tobe approximately 3.0% to 3.5% of salary expense compared to ESOP expenseof approximately 20% of salary expense for the quarter ended March 31, 2006.

 

**Net Occupancy Expense.**  Netoccupancy expense increased in the three month period ended March 31 due to theopening of three new branches since the first quarter of 2005.

 

**Data ProcessingExpense.**  Data processing expense increased primarilydue to the credits received in the first quarter of 2005 related to therenegotiation of the Bank’s contract with its service provider and an increasein electronic banking services.

 

**Advertising and Public Relations.** Advertising and public relations increased for the three  months ended March 31, 2006, compared to thesame period in 2005, primarily due to increased costs in 2006 associated withthe checking account marketing program, including direct mail, “thank you”gifts, marketing brochures, posters and billboards, and the business accountmarketing program that began in the second quarter of 2005.

 

**Other Expenses.** The changes in the composition of this line item are presented below (inthousands):

 

| ** **           | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase** | ** ** |
|----------------------|------------|-----------------------------------|------------|--------------|------------|
| ** **           | ** ** | **2006**                          | ** ** | **2005**     | ** ** | **2006 vs 2005** | ** ** |
| Postage and supplies |       | $                                 | 221        |         | $          | 190 |   | $ | 31 |   |
| Other                |       | 725                               |       | 622          |       | 103 |   |
| Total                |       | $                                 | 946        |         | $          | 812 |   | $ | 134 |   |

 

Other expenses increased in the three monthcomparative period primarily due to expenses associated with the start up ofnew branches.

 

16

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**Income Taxes. **Theeffective tax rate decreased slightly from 32.1% for the first quarter of 2005to 31.9% for the first quarter of 2006. The decrease in the effective tax rate was offset by the increase intaxable income.

 

**OFF-BALANCESHEET ARRANGEMENTS**

 

The Company, in the normal course ofbusiness, makes commitments to buy or sell assets or to incur or fundliabilities.  Commitments include, butare not limited to:

 

•                  the origination, purchase orsale of loans;

•                  the fulfillment of commitmentsunder letters-of-credit, extensions of credit on home equity lines of credit,construction loans, and predetermined overdraft protection limits; and

•                  the commitment to fundwithdrawals of certificates of deposit at maturity.

 

At March 31, 2006, the Bank’s off-balancesheet arrangements principally included lending commitments, which aredescribed below.  At March 31, 2006, theCompany had no interests in non-consolidated special purpose entities.

 

At March 31, 2006, commitments included:

 

•                  total approved commitments tooriginate loans amounting to $16.9 million, including $2.9 million of loanscommitted to sell;

•                  rate lock agreements withcustomers of $5.4 million, all of which have been locked with an investor;

•                  funded mortgage loans committedto sell of $3.1 million;

•                  unadvanced portion ofconstruction loans of $64.3 million;

•                  unused lines of credit of $28.5million;

•                  outstanding standby letters ofcredit of approximately $900,000;

•                  total predetermined overdraftprotection limits of $10.8 million; and

•                  certificates of depositscheduled to mature in one year or less totaling $242.6 million.

 

Total unfunded commitments to originate loansfor sale and the related commitments to sell of $5.4 million meet thedefinition of a derivative financial instrument.  The related asset and liability areconsidered immaterial at March 31, 2006.

 

Historically, a very small percentage ofpredetermined overdraft limits have been used. At March 31, 2006, overdrafts of accounts with Bounce ProtectionTMrepresented usage of 2.2% of the limit. We expect utilization of these overdraft limits to remain at comparablelevels in the future.

 

Based on historical experience, managementbelieves that a significant portion of maturing deposits will remain with theBank.  We anticipate that we willcontinue to have sufficient funds, through repayments, deposits and borrowings,to meet our current commitments.

 

### **LIQUIDITY ANDCAPITAL RESOURCES**

 

The Bank’s liquidity, represented by cash and cash equivalents andeligible investment securities, is a product of its operating, investing andfinancing activities.  The Bank’s primarysources of funds are deposits, borrowings, collections on outstanding loans,maturities and calls of investment securities and other short-term investmentsand funds provided from operations. While scheduled loan amortization and maturing investment securities andshort-term investments are relatively predictable sources of funds, depositflows and loan prepayments are greatly influenced by general interest rates,economic conditions and competition.  TheBank manages the pricing of its deposits to maintain a steady depositbalance.  In addition, the Bank investsexcess funds in overnight deposits and other short-term interest-earning assetswhich provide liquidity to meet lending requirements.  During 2006, the use of FHLB advancesincreased due to increased demand for the Bank’s loan products.  At March 31, 2006,available borrowing capacity with the FHLB was in excess of $122.3 million.

 

Liquidity management is both a daily and long-term function of businessmanagement.  Excess liquidity isgenerally invested in short-term investments such as overnight deposits andcertificates of deposit.  On alonger-term basis, the Bank maintains a strategy of investing in variouslending products.   The Bank uses itssources of funds primarily to

 

17

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meet its ongoing commitments, to pay maturing savings certificates andsavings withdrawals, to repay maturing FHLB of Dallas advances, and to fundloan commitments.

 

As of March31, 2006, the Bank’s regulatory capital was in excess of allapplicable regulatory requirements.  At March 31, 2006,the Bank’s tangible, core and risk-based capital ratios amounted to 8.79%, 8.79%and 12.00%, respectively, compared to regulatory requirements of 1.5%, 4.0% and8.0%, respectively.

 

### **IMPACT OF INFLATION AND CHANGING PRICES**

 

The financial statements and relatedfinancial data presented herein have been prepared in accordance with generallyaccepted accounting principles, which require the measurement of financialposition and operating results in terms of historical dollars, withoutconsidering changes in relative purchasing power over time due to inflation.

 

Unlikemost industrial companies, virtually all of the Bank’s assets and liabilitiesare monetary in nature.  As a result,interest rates generally have a more significant impact on a financialinstitution’s performance than does the effect of inflation.

 

### **FORWARD-LOOKING STATEMENTS**

 

The Company’s Quarterly Report on Form 10-Qcontains certain forward-looking statements and information relating to theCompany that are based on the beliefs of management as well as assumptions madeby and information currently available to management.  In addition, in this document, thewords “anticipate”, “believe,” “estimate,”****“expect,”“intend,” “should” and similar expressions, or the negative thereof, as theyrelate to the Company or the Company’s management, are intended to identifyforward-looking statements.  Suchstatements reflect the current views of the Company with respect to futurelooking events and are subject to certain risks, uncertainties andassumptions.  Should one or more of theserisks or uncertainties materialize or should underlying assumptions proveincorrect, actual results may vary materially from those described herein asanticipated, believed, estimated, expected or intended.  The Company does not intend to update theseforward-looking statements.

 

**QUANTITATIVE AND QUALITATIVE DISCLOSURES**

**ABOUT MARKET RISK**

 

There has been no materialchange in the market value of the Bank’s portfolio equity since December 31,2005.  Similarly, while there has been nomaterial change in the Company’s asset and liability position since such time,the Bank’s negative gap position has adversely impacted net income as interestexpense during the three months ended March 31, 2006 increased at a greaterpace than the comparable increase in interest income.  Correspondingly, the Bank’s net interestmargin decreased from 3.61% for the three months ended March 31, 2005 to 3.43%for the same period in 2006.   Based onthe current market interest rate environment and increased competition,management anticipates continued pressure on the Bank’s interest rate spreadand interest margin for the second quarter of 2006.

 

**CONTROLS AND PROCEDURES**

 

Our management evaluated, with theparticipation of our Chief Executive Officer and Chief Financial Officer, theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the SecuritiesExchange Act of 1934) as of the end of the period covered by this report.  Based on such evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our disclosure controlsand procedures are designed to ensure that information required to be disclosedby us in the reports that we file or submit under the Securities Exchange Actof 1934 is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and regulations and are operating in an effectivemanner.

 

No change in the Company’s internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) underthe Securities Exchange Act) occurred during the most recent fiscal quarterthat has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

18

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**FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.**

 

**Part II**

 

Item 1.                                                             LegalProceedings

 

Neither the Company nor the Bank is involved in any pending legalproceedings other than non-material legal proceedings occurring in the ordinarycourse of business.

 

Item 1A.                                                   RiskFactors

 

There have been nomaterial changes in the Company’s risk factors from those previously disclosedin the Company’s Form 10-K for the year ended December 31, 2005.

 

Item 2.                                                             UnregisteredSales of Equity Securities and Use of Proceeds

 
| ISSUER PURCHASES OF  EQUITY SECURITIES |
|----------------------------------------|

 
| ** **                       | ** ** | **(a) Total  Number of  Shares  Purchased** | ** ** | **(b) Average  Price Paid  per Share** | ** ** | **(c) Total Number of Shares Purchased as  Part of Publicly Announced Plans or Programs** | ** ** | **(d) Maximum Number  of Shares that May Yet  be Purchased Under the  Plans or Programs** | ** ** |
|----------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | ** **                                  | ** ** | ** **                             | ** ** | ** **                                                                                | ** ** | ** **                                                                                | ** ** |
| January 1, to  January 31, 2006  |       | —                                      |       | —                                 |       | —                                                                                    |       | —                                                                                    |       |
| February 1, to February 28, 2006 |       | 68,483                                      |       | $                                      | 25.32      |                                                                                      | 68,483     |                                                                                      | 172,738    |   |
| March 1, to  March 31, 2006      |       | 56,418                                      |       | 25.10                                  |       | 56,418                                                                                    |       | 116,320                                                                                   |       |
|                                  |            |                                             |            |                                        |            |                                                                                           |            |                                                                                           |            |  |

 

The Company is inits 18th announced repurchase program, which was approved by the board ofdirectors on July 28, 2005, and publicly announced on December 2, 2005.  Total shares approved to be purchased in thisprogram are 248,316 of which 131,996 have been purchased as of March 31,2006.  All treasury stock purchases aremade under publicly announced repurchase programs.

 

Item 3.                                                             DefaultsUpon Senior Securities

 

Not applicable.

 

Item 4.                                                             Submissionof Matters to a Vote of Security Holders

 

Not applicable.

 

Item 5.                                                             OtherInformation

 

None.

 

Item 6.                                                             Exhibits

 

Exhibit 10.9  – Change in Control Severance Agreementbetween the Company, the Bank and Jeffrey Brandt

 

Exhibit 31.1 –Certification of Chief Executive Officer,

Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

Exhibit 31.2 –Certification of Chief Financial Officer,

Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

19

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Exhibit 32.1 –Certification of Chief Executive Officer,

Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

Exhibit 32.2 –Certification of Chief Financial Officer,

Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

20

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                  | **FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.** |
|-----------------------|------------------------------------------------|
|                  |                                           |   |
|                  |                                           |
| Date: April  25, 2006 | By:                                            | /s/Larry J.  Brandt |   |
|                  |                                           | Larry J.  Brandt |   |
|                  |                                           | President/CEO |   |
|                  |                                           |   |
|                  |                                           |   |
| Date: April  25, 2006 | By:                                            | /s/Sherri R.  Billings |   |
|                  |                                           | Sherri R.  Billings |   |
|                  |                                           | EVP/CFO |   |
|                       |                                                |  |  |  |  |

 

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