<PAGE>




                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-Q

    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended September 30, 1996

                                          OR

    [ ]  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

                  FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                Texas                                       71-0785261
---------------------------------------            ---------------------------
   (State or other jurisdiction of                       (I.R.S. Employer
    incorporation or organization)                    Identification Number)


        200 West Stephenson
        Harrison, Arkansas                                     72601
---------------------------------------            ---------------------------
(Address of principal executive office)                      (Zip Code)


                                 (501) 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 the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  Yes   X    No  
                                                    -----     -------

    Indicate the number of shares outstanding of each of the issuer's 
classes of common stock, as of the latest practicable date:  As of 
October 31, 1996, there were issued and outstanding 5,153,751 shares of the 
Registrant's Common Stock, par value $.01 per share. 

<PAGE>

                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

                              TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----

PART I.  FINANCIAL INFORMATION
-------  ---------------------

Item 1.  Consolidated Financial Statements

         Consolidated Statements of Financial Condition 
         (As of September 30, 1996 (unaudited) and December 31, 1995)        1

         Consolidated Statements of Operations for the three and nine months
         ended September 30, 1996 (unaudited) and 1995 (unaudited)           2

         Consolidated Statement of Stockholders' Equity for the nine
         months ended September 30, 1996 (unaudited)                         3

         Consolidated Statements of Cash Flows for the nine
         months ended September 30, 1996 (unaudited) and 1995 (unaudited)    4

         Notes to Unaudited Consolidated Financial Statements                6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                               9


PART II. OTHER INFORMATION
-------- -----------------

Item 1.  Legal Proceedings                                                  13
Item 2.  Changes in Securities                                              13
Item 3.  Defaults Upon Senior Securities                                    13
Item 4.  Submission of Matters to a Vote of Security Holders                13
Item 5.  Other Information                                                  13
Item 6.  Exhibits and Reports on Form 8-K                                   13

SIGNATURES 


<PAGE>


                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
               CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                (IN THOUSANDS)


                                                September 30,     December 31,
ASSETS                                              1996              1995
                                                -------------     ------------
                                                 (Unaudited)

Cash and cash equivalents                          $  8,210         $  8,845
Investment securities:
   Available for sale                                   301              258
   Held to maturity                                 103,983           96,054
   Federal Home Loan Bank stock                       2,982            2,821
   Loans receivable, net                            385,000          339,505
   Accrued interest receivable                        3,896            3,477
   Real estate acquired in settlement of 
     loans, net                                         184              234
   Office properties and equipment, net               3,564            2,993
   Prepaid expenses and other assets                  1,485              292
                                                   --------         --------
        TOTAL ASSETS                               $509,605         $454,479
                                                   --------         --------
                                                   --------         --------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits                                           $421,531         $417,229
Advance payments by borrowers for
 taxes and insurance                                    625              746
Income taxes payable                                     73               --
Other liabilities                                     4,037            1,196
                                                   --------         --------
     Total Liabilities                              426,266          419,171
                                                   --------         --------

STOCKHOLDERS' EQUITY:
 Preferred Stock, no par value, 5,000,000 shares
  authorized, none issued
 Common Stock, $.01 par value, 20,000,000 shares
  authorized, 5,153,751 shares issued and 
  outstanding as of September 30, 1996                   52               --
 Additional paid-in capital                          49,913               --
 Common Stock acquired by ESOP                       (3,952)              --
 Retained earnings--substantially restricted          37,148           35,157
 Unrealized gain--investment securities
  available for sale, net of income taxes               178              151
                                                   --------         --------
     Total stockholders' equity                      83,339           35,308
                                                   --------         --------

     TOTAL LIABILITIES AND
       STOCKHOLDERS' EQUITY                        $509,605         $454,479
                                                   --------         --------
                                                   --------         --------

                  The accompanying notes are an integral part
                   of the consolidated financial statements.

                                      1
<PAGE>

                      FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Earnings Per Share)
                                     (Unaudited)

                                        Three Months Ended    Nine Months Ended
                                           September 30,         September 30,
                                        ------------------    -----------------
                                          1996      1995        1996     1995
                                         ------    ------      ------   ------

Interest income:
  Loans receivable                       $7,784    $6,562     $22,456   $18,650
  Investment securities                   1,729     1,538       4,685     4,883
  Mortgage-backed securities                  5       213          17       663
  Other                                      82        93         378       248
                                         ------    ------     -------   -------
    Total interest income                 9,600     8,406      27,536    24,444
                                         ------    ------     -------   -------

Interest Expense:
  Deposits                                5,556     5,596      16,815    15,836
  Other                                       0         0          35         0
                                         ------    ------     -------   -------
    Total interest expense                5,556     5,596      16,850    15,836
                                         ------    ------     -------   -------
Net interest income before
 provision for loan losses                4,044     2,810      10,686     8,608
Provision for loan losses                     0         0           0         8
                                         ------    ------     -------   -------
Net interest income after
 provision for loan losses                4,044     2,810      10,686     8,600
                                         ------    ------     -------   -------
Noninterest income:
  Gain on sales of investment
    securities                                0         0           1         4
  Deposit fee income                        189       183         565       534
  Other                                     118        96         342       284
                                         ------    ------     -------   -------
    Total noninterest income                307       279         908       822
                                         ------    ------     -------   -------
Noninterest expenses:
  Salaries and employee benefits          1,159       825       3,159     2,565
  Net occupancy expense                     170       153         495       454
  Federal insurance premiums                243       228         717       680
  SAIF special assessment                 2,611         0       2,611         0
  Provision for real estate losses            8         0           8         0
  Data processing                           187       158         555       458
  Postage and supplies                       65        57         218       192
  Other                                     295       227         795       676
                                         ------    ------     -------   -------
    Total noninterest expenses            4,738     1,648       8,558     5,025
                                         ------    ------     -------   -------
Income (loss) before income taxes          (387)    1,441       3,036     4,397
Provision (benefit) for income taxes       (127)      461       1,045     1,396
                                         ------    ------     -------   -------
Net income (loss)                        $ (260)   $  980     $ 1,991   $ 3,001
                                         ------    ------     -------   -------
                                         ------    ------     -------   -------
Earnings (loss) per share                $(0.05)      N/A     $  0.42       N/A
                                         ------               -------   
                                         ------               -------   

                  The accompanying notes are an integral part
                   of the consolidated financial statements.

                                      2
<PAGE>

                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (Unaudited)
                FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
                               (In Thousands)



<TABLE>

<CAPTION>

                                                                  Unrealized
                                                                   Gain on
                                                                  Investment
                                                Shares            Securities
                                    Additional Acquired           Available
                             Common  Paid-In    By The  Retained  For Sale,
                             Stock   Capital     ESOP   Earnings     Net      Total
                             ------ ---------- -------- --------- ----------  -----
<S>                          <C>    <C>        <C>      <C>       <C>         <C>
Balance, December 31, 1995                              $35,157   $151        $35,308
Net income                                                1,991                 1,991

Proceeds from Issuance
   of 5,153,751 shares
   of common stock           $52     $49,848                                   49,900

Loan to Employee Stock
  Ownership Plan (ESOP)                          $(4,123)                     (4,123)

Repayment of ESOP loan
  and related increase
   in share value                         65         171                          236


Net change in unrealized
  gain on investment
  securities available
  for sale, net of
  income taxes                                                      27             27
                             ------ ---------- -------- --------- ----------- --------
Balance, September 30, 1996  $52    $49,913    $(3,952) $37,148   $178        $83,339

</TABLE>
                                       3

<PAGE>

                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

                                              Nine Months Ended September 30,
                                              -------------------------------
                                                   1996              1995
                                                ----------       -----------
                                                      (In Thousands)

OPERATING ACTIVITIES:
 Net income                                       $ 1,991          $ 3,001
  Adjustments to reconcile net income
    to net cash provided by operating 
    activities:
  Provision for loan losses                            --                8
  Provision for REO losses                              8               --
  Deferred tax provision                               89                52
  Gain on sale of real estate owned                    (5)              (11)
  Depreciation                                        297               293
  Accretion of deferred loan fees                    (505)             (355)
  Repayment of ESOP loan and related
   increase in share value                            236                --
  Changes in operating assets & liabilities:
     Accrued interest receivable                     (419)              (68)
     Prepaid expenses & other assets               (1,193)              (91)
     Other liabilities                              2,809               979
                                                  -------           -------
     Net cash provided by operating activities      3,308             3,808
                                                  -------           -------

INVESTING ACTIVITIES:
  Purchases of investment securities--(held to
   maturity)                                      (40,129)          (13,205)
  Proceeds from maturities of investment
   securities--(held to maturity)                   32,038            31,377
  Loan originations, net of repayments            (45,030)          (38,402)
  Proceeds from sales of real estate owned             88               117
  Purchases of office properties & equipment         (868)             (283)
                                                  -------           -------
     Net cash used by investing activities        (53,901)          (20,396)
                                                  -------           -------
FINANCING ACTIVITIES:
  Net increase in deposits                          4,302            18,891
  Increase (decrease) in advance payments by
   borrowers for taxes & insurance                   (121)               19
  Increase from issuance of common stock, net
   of related expenses                             45,777                --
                                                  -------           -------
     Net cash provided by financing activities     49,958            18,910
                                                  -------           -------

                                                                   (Continued)

                                       4
<PAGE>


                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

                                              Nine Months Ended September 30,
                                              -------------------------------
                                                   1996              1995
                                                ----------       -----------
                                                      (In Thousands)

Net increase (decrease) in cash and
 cash equivalents                                    (635)            2,322
CASH AND CASH EQUIVALENTS: 
  Beginning of period                               8,845             8,280
                                                  -------           -------
  End of period                                    $8,210           $10,602
                                                  -------           -------
                                                  -------           -------

SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION:
  Cash paid for:
    Interest                                      $16,873           $15,759
                                                  -------           -------
                                                  -------           -------
    Income taxes                                  $ 1,724           $ 1,196
                                                  -------           -------
                                                  -------           -------

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
   Real estate acquired in settlement of loans    $    41           $   128
                                                  -------           -------
                                                  -------           -------
   Loans to facilitate sales of real 
     estate owned                                 $    54           $   108
                                                  -------           -------
                                                  -------           -------
   Change in unrealized gains                     $    27           $    35
                                                  -------           -------
                                                  -------           -------

                                                                   (Concluded)

                  The accompanying notes are an integral part
                   of the consolidated financial statements.


                                     5

<PAGE>
                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

             Notes to Unaudited Consolidated Financial Statements

NOTE 1 -- BASIS OF PRESENTATION

First Federal Bancshares of Arkansas, Inc. (the "Corporation") was 
incorporated under Texas law in January 1996 by First Federal Bank of 
Arkansas, FA (the "Bank") in connection with the conversion of the Bank from 
a federally chartered mutual savings and loan association to a federally 
chartered stock savings and loan association, the issuance of the Bank's 
stock to the Corporation, and the offer and sale of the Corporation's common 
stock by the Corporation (the "Conversion").  Upon consummation of the 
conversion on May 3, 1996, the Corporation became the unitary holding company 
for the Bank.  The financial statements for the periods prior to May 3, 1996 
presented herein are those of the Bank prior to the Conversion.

The accompanying unaudited consolidated financial statements of the 
Corporation have been prepared in accordance with instructions to Form 10-Q. 
Accordingly, they do not include all of the information and footnotes 
required by generally accepted accounting principles for complete financial 
statements.  However, such information reflects all adjustments (consisting 
solely of normal recurring adjustments) which are, in the opinion of 
management, necessary for a fair statement of results for the interim periods.

The results of operations for the nine months ended September 30, 1996 are 
not necessarily indicative of the results to be expected for the year ending 
December 31, 1996.  The unaudited consolidated financial statements and notes 
thereto should be read in conjunction with the audited financial statements 
and notes thereto for the year ended December 31, 1995, contained in the 
Corporation's prospectus dated March 22, 1996.

NOTE 2 -- PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of 
the Corporation and the Bank.  All significant intercompany items have been 
eliminated.

NOTE 3 -- EARNINGS PER SHARE

The average number of common shares used to calculate earnings per share for 
the three and nine months ended September 30, 1996 was 4,748,228 and 
4,743,751, respectively.  In addition, such calculations assume that the 
Corporation was a public company as of January 1, 1996.  Earnings per share 
for the three and nine months ended September 1995 is not applicable, as the 
Conversion was not completed until May 3, 1996.

                                       6

<PAGE>

NOTE 4 -- SECURITIES

Investment securities consisted of the following (in thousands of dollars):

                                                 September 30, 1996
                                              ------------------------
                                              Amortized          Fair
AVAILABLE FOR SALE                               Cost            Value
                                              ----------        ------

 FHLMC Preferred Stock                            $12             $301
                                                  ---             ----
    Total                                         $12             $301
                                                  ---             ----
                                                  ---             ----


                                                  September 30, 1996
                                              ------------------------
                                              Amortized          Fair
HELD TO MATURITY                                 Cost            Value
                                              ---------          ------

 U.S. Government and
    Agency Obligations                         $103,749         $102,931

 Mortgage-Backed Securities
     --FHLMC                                        234              242
                                               --------         --------
    Total                                      $103,983         $103,173
                                               --------         --------
                                               --------         --------

                                       7

<PAGE>

NOTE 5 -- LOANS RECEIVABLE

Loans receivable consisted of the following (in thousands of dollars):

                                                        September 30, 1996
                                                        ------------------

First Mortgage Loans:
 One-to-four family residences                               $328,446
 Other properties                                              20,228
 Construction                                                  18,270
 Less:
   Unearned discounts                                          (1,277)
   Undisbursed loan funds                                      (8,238)
   Deferred loan fees, net                                     (3,092)
                                                             --------
     Total first mortgage loans                               354,337
                                                             --------
Consumer and other loans:
  Commercial loans                                              4,008
  Automobile                                                    7,628
  Consumer loans                                                4,097
  Home equity and second mortgage                              12,972
  Savings loans                                                 1,429
  Other                                                         1,608
  Add:
    Deferred loan costs                                           127
                                                             --------
      Total consumer and other loans                           31,869
                                                             --------
Allowance for losses                                           (1,206)
                                                             --------
    Loans receivable, net                                    $385,000
                                                             --------
                                                             --------

Non-accrual loans at September 30, 1996 (in thousands of dollars) were $563. 
All loans 90 days or more past due are reported as non-accrual.

A summary of the activity in the allowances for loan and real estate losses 
is as follows (in thousands of dollars):

                                                                    Real
                                                         Loans     Estate
                                                        --------   --------
Balance at December 31, 1995                             $1,228      $  --
 Provisions for estimated losses                             --          8
 Recoveries                                                   2         --
 Losses charged off                                         (24)        (8)
                                                         ------      -----
Balance at September 30, 1996                            $1,206      $  --
                                                         ------      -----
                                                         ------      -----

                                       8
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS
              OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

    At September 30, 1996, the Corporation's assets amounted to $509.6 
million as compared to $454.5 million at December 31, 1995.  The $55.1 
million or 12.1% increase was primarily due to an increase of $45.5 million 
or 13.4% in loans receivable, net, and a $7.9 million or 8.3% increase in 
investment securities held to maturity.  Such increase in loans receivable, 
net and investment securities held to maturity were due to the deployment of 
net proceeds of $45.8 million resulting from the sale of 5,153,751 shares of 
the Corporation's common stock at a price of $10.00 per share.  As discussed 
in Note 1 to the Notes to Unaudited Consolidated Financial Statements, the 
conversion was consummated on May 3, 1996.  Liabilities increased $7.1 
million or 1.7% to $426.3 million at September 30, 1996 compared to $419.2 
million at December 31, 1995.  Stockholders' equity amounted to $83.3 million 
or 16.4% of total assets at September 30, 1996 compared to $35.3 million or 
7.8% of total assets at December 31, 1995.  The increase in stockholders' 
equity during the nine month period was due to the receipt of net Conversion 
proceeds and net income of $2.0 million.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

    GENERAL.  The Corporation reported a net loss of $260,000 during the 
three months ended September 30, 1996 compared to net income of $980,000 for 
the same period in 1995.  The decrease of $1.2 million in net income in the 
1996 period compared to the same period in 1995 was due primarily to 
legislation passed by Congress to recapitalize the Savings Association 
Insurance Fund ("SAIF").  As a result of such legislation, the Corporation 
recorded a one-time pre-tax charge against third quarter earnings of $2.6 
million with a $1.7 million after-tax affect.  The comparative period decline 
was partially offset by an increase in net interest income.  Net interest 
income is determined by the Corporation's interest rate spread (i.e., the 
difference between the yields earned on its interest-earning assets and the 
rates paid on its interest-bearing liabilities) and the relative amounts of 
interest-earning assets and interest-bearing liabilities.  The increase in 
net interest income of $1.2 million or 43.9% was due to an increase in the 
ratio of interest-earning assets to interest-bearing liabilities to 117.3% 
for the 1996 period compared to 105.8% for the 1995 period.  In addition, the 
Corporation's interest rate spread increased to 2.51% for the 1996 period 
compared to 2.30% for the 1995 period.

    INTEREST INCOME.  Interest income amounted to $9.6 million for the three 
months ended September 30, 1996 compared to $8.4 million for the same period 
in 1995.  The increase of $1.2 million or 14.2% was primarily due to an 
increase in the average balance of loans receivable.  The increase in the 
average balance of loans receivable was due to continued loan demand and 
portfolio growth as well as the deployment of Conversion proceeds in such 
assets.

    INTEREST EXPENSE.  Interest expense decreased $40,000 or .7% to $5.6 
million for the three months ended September 30, 1996 compared to $5.6 
million for the same period in 1995.  Such decrease was primarily due to a 
decrease in the average rate paid on deposits.

                                       9
<PAGE>

    NONINTEREST INCOME.  Noninterest income amounted to $307,000 for the 
three months ended September 30, 1996 compared to $279,000 for the same 
period in 1995.  The increase of $28,000 or 10.0% was due to an increase of 
$6,000 or 3.3% in deposit fee income and an increase of $22,000 or 22.9% in 
other miscellaneous income.

    NONINTEREST EXPENSE.  Noninterest expenses, excluding the SAIF special 
assessment of $2.6 million, increased $479,000 or 29.1% to $2.1 million for 
the three months ended September 30, 1996 compared to $1.6 million for the 
same period in 1995.  Such increase was due primarily to an increase of 
$334,000 or 40.5% in salaries and employee benefits and a $29,000 or 18.4% 
increase in data processing.  The increase in salaries and employee benefits 
was due to normal merit increases, an increase in employees and costs 
associated with the adoption of the Corporation's Employee Stock Ownership 
Plan.  The increase in data processing was primarily due to an increase in 
the number of accounts.

    The SAIF special assessment of $2.6 million for the three months ended 
September 30, 1996 was due to legislation passed by Congress that imposed on 
SAIF members a one-time assessment to recapitalize the SAIF.  See "SAIF 
Special Assessment."

    INCOME TAXES.  Income taxes amounted to a tax benefit of $127,000 and a 
tax provision of $461,000 for the three months ended September 30, 1996 and 
1995, respectively.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

    GENERAL.  The Corporation reported net income of $2.0 million during the 
nine months ended September 30, 1996 compared to $3.0 million for the same 
period in 1995.  The decrease of $1.0 million in net income in the 1996 
period compared to the same period in 1995 was due primarily to legislation 
passed by Congress to recapitalize the SAIF.  As a result of such 
legislation, the Corporation recorded a one-time pre-tax charge against third 
quarter earnings of $2.6 million with a $1.7 million after-tax affect.  The 
comparative period decline was partially offset by an increase in net 
interest income.  The increase in net interest income of $2.1 million or 
24.1% was due to an increase in the ratio of interest-earning assets to 
interest-bearing liabilities to 111.6% for the 1996 period compared to 105.8% 
for the 1995 period.  The Corporation's interest rate spread was 2.46% for 
the 1996 period compared to 2.41% for the 1995 period.

    INTEREST INCOME.  Interest income amounted to $27.5 million for the nine 
months ended September 30, 1996 compared to $24.4 million for the same period 
in 1995.  The increase of $3.1 million or 12.6% was primarily due to an 
increase in the average balance of loans receivable.  The increase in the 
average balance of loans receivable was due to continued loan demand and 
portfolio growth as well as the deployment of Conversion proceeds in such 
assets.  The increase in interest income resulting from a higher average 
balance of loans was partially offset by a decrease in interest income on 
investment and mortgage-backed securities due to a decrease in the average 
balance of such securities.  Such decrease was due to sales of 
mortgage-backed securities and payments and maturities of mortgage-backed and 
investment securities.  The Corporation used such cash primarily

                                      10
<PAGE>

to fund loan originations. Management intends to continue to use funds from 
the payments and maturities of mortgage-backed and investment securities to 
originate higher yielding loans.

    INTEREST EXPENSE.  Interest expense increased $1.0 million or 6.4% to 
$16.8 million for the nine months ended September 30, 1996 compared to $15.8 
million for the same period in 1995.  Such increase was due to an increase in 
the average balance of deposits, reflecting interest credited on deposits, as 
well as an increase in the average rate paid on such liabilities from 5.25% 
during the nine months ended September 30, 1995 to 5.34% for the same period 
in 1996.

    NONINTEREST INCOME.  Noninterest income amounted to $908,000 for the nine 
months ended September 30, 1996 compared to $822,000 for the same period in 
1995.  The increase of $86,000 or 10.5% was due to an increase of $31,000 or 
5.8% in deposit fee income and an increase of $58,000 or 20.4% in other 
miscellaneous income.

    NONINTEREST EXPENSE.  Noninterest expenses, excluding the SAIF special 
assessment of $2.6 million, increased $922,000 or 18.3% to $5.9 million for 
the nine months ended September 30, 1996 compared to $5.0 million for the 
same period in 1995.  Such increase was due primarily to an increase of 
$594,000 or 23.2% in salaries and employee benefits and a $97,000 or 21.2% 
increase in data processing.  The increase in salaries and employee benefits 
was due to normal merit increases, an increase in employees and costs 
associated with the adoption of the Corporation's Employee Stock Ownership 
Plan.  The increase in data processing was primarily due to an increase in 
the number of accounts.

    The SAIF special assessment of $2.6 million for the nine months ended 
September 30, 1996 is due to legislation passed by Congress that imposed on 
SAIF members a one-time assessment to recapitalize the SAIF.  See "SAIF 
Special Assessment."

    INCOME TAXES.  Income taxes amounted to $1.0 million and $1.4 million for 
the nine months ended September 30, 1996 and 1995, respectively.

LIQUIDITY AND CAPITAL RESOURCES

    The Corporation's liquidity, represented by cash and cash equivalents, is 
a product of its operating, investing and financing activities.  The 
Corporation's primary sources of funds are deposits, amortization, 
prepayments and maturities of outstanding loans, maturities of investment 
securities, mortgage-backed securities and other short-term investments and 
funds provided from operations.  While scheduled loan amortization and 
maturing investment securities, mortgage-backed securities and short-term 
investments are relatively predictable sources of funds, deposit flows and 
loan prepayments are greatly influenced by general interest rates, economic 
conditions and competition.  The Corporation manages the pricing of its 
deposits to maintain a steady deposit balance.  In addition, the Corporation 
invests excess funds in overnight deposits and other short-term 
interest-earning assets which provide liquidity to meet lending requirements. 
The Corporation has generally been able

                                      11
<PAGE>

to generate enough cash through the retail deposit market, its traditional 
funding source, to offset the cash utilized in investing activities.  As an 
additional source of funds, the Corporation may borrow from the Federal Home 
Loan Bank ("FHLB") of Dallas.  At September 30, 1996, the Corporation did not 
have any outstanding advances from the FHLB of Dallas.

    As of September 30, 1996, the Bank's regulatory capital was well in 
excess of all applicable regulatory requirements.  At September 30, 1996, the 
Bank's tangible, core and risk-based capital ratios amounted to 12.0%, 12.0% 
and 23.2%, respectively, compared to regulatory requirements of 1.5%, 3.0% 
and 8.0%, respectively.

SAIF SPECIAL ASSESSMENT

    The deposits of the Bank are insured by the SAIF of the Federal Deposit 
Insurance Corporation ("FDIC").  Both the SAIF and the Bank Insurance Fund 
("BIF"), the federal deposit insurance fund that covers commercial bank 
deposits, are required by law to attain and thereafter maintain a reserve 
ratio of 1.25% of insured deposits.  The BIF had achieved a fully funded 
status in contrast to the SAIF and the FDIC had recently reduced the average 
deposit insurance premium paid by BIF-insured commercial banks to a level 
substantially below the average premium paid by SAIF-insured institutions.

    In late 1995, the FDIC approved a final rule regarding deposit insurance 
premiums which, effective with the semiannual premium assessment on January 1, 
1996, reduced deposit insurance premiums for BIF member institutions to 
zero (subject to an annual minimum of $2,000) for institutions in the lowest 
risk category.  Deposit insurance premiums for SAIF members were maintained 
at their then existing levels (23 basis points for institutions in the lowest 
risk category).  Accordingly, until the SAIF had attained a reserve ratio of 
1.25% of insured deposits, SAIF members such as the Bank would have been 
competitively disadvantaged as compared to commercial banks due to this 
premium differential.

    Legislation, passed by the U.S. House of Representatives and the Senate, 
was signed into law by the President on September 30, 1996 to recapitalize 
the SAIF.  The special assessment was fully anticipated by the Bank because 
legislation had been close to enactment on several occasions over the past 
year.  As a result of such legislation, the Bank was required to pay a 
one-time special assessment of 65.7 cents for every $100 of deposits which 
amounted to $2.6 million pre-tax with a $1.7 million after-tax effect.

    The legislation also mandated that SAIF-insured institutions' (such as 
the Bank) deposit insurance premiums decline from 23 basis points to 
approximately 6.4 basis points, effective January 1, 1997.  The mandated 
decline in the premium rate is expected to reduce the Bank's pre-tax annual 
SAIF premiums by approximately $700,000 (based on current deposit levels).  
Management believes that based on current deposit levels, it will take 
approximately four years of such reduced future annual premiums to offset the 
negative impact on the Bank's third quarter earnings.

                                      12
<PAGE>

                 FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

                                   PART II

Item 1.  LEGAL PROCEEDINGS
         -----------------
         Neither the Corporation nor the Bank is involved in any pending 
         legal proceedings other than non-material legal proceedings occurring
         in the ordinary course of business.

Item 2.  CHANGES IN SECURITIES
         ---------------------
         Not applicable.

Item 3.  DEFAULTS UPON SENIOR SECURITIES
         -------------------------------
         Not applicable.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------
         Not applicable.

Item 5.  OTHER INFORMATION
         -----------------
         None.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------
         July 8, 1996 -- Press release dated June 24, 1996;  
                         Director resignation for health reasons

                                      13
<PAGE>

                                  SIGNATURES

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

                                    FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.


Date: October 31, 1996              By: /s/ Larry J. Brandt
                                        --------------------------------
                                        Larry J. Brandt 
                                        President


Date: October 31, 1996              By: /s/ Tommy W. Richardson
                                        --------------------------------
                                        Tommy W. Richardson
                                        Chief Financial Officer


                                      14