<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, 1997
 
                               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)

 
                              (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 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 November 6, 1997, 
there were issued and outstanding 4,896,063 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, 1997 (unaudited) and December 31, 1996)          1

           Consolidated Statements of Operations for the three
           and nine months ended September 30, 1997 (unaudited)
           and 1996 (unaudited)                                           2

           Consolidated Statement of Stockholders' Equity for
           the nine months ended September 30, 1997 (unaudited)           3

           Consolidated Statements of Cash Flows for the nine
           months ended September 30, 1997 (unaudited) and 1996
           (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                                             14

Item 2.    Changes in Securities                                         14

Item 3.    Defaults Upon Senior Securities                               14

Item 4.    Submission of Matters to a Vote of Security Holders           14

Item 5.    Other Information                                             14

Item 6.    Exhibits and Reports on Form 8-K                              14

Signatures                                                               15

<PAGE>
                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,  DECEMBER 31,
ASSETS                                                                                    1997           1996
------------------------------------------------------------------------------------  -------------  ------------
                                                                                       (UNAUDITED)
<S>                                                                                   <C>            <C>
Cash and cash equivalents...........................................................   $    15,307    $    6,819
Investment securities:
  Available for sale, at fair value.................................................       --                340
  Held to maturity, at amortized cost...............................................        94,560        90,982
Federal Home Loan Bank stock........................................................         3,549         3,026
Loans receivable, net...............................................................       424,114       396,508
Accrued interest receivable.........................................................         3,957         3,620
Real estate acquired in settlement of loans, net....................................           194           154
Office properties and equipment, net................................................         5,137         3,565
Prepaid expenses and other assets...................................................           301           725
                                                                                      -------------  ------------
      TOTAL ASSETS..................................................................   $   547,119    $  505,739
                                                                                      -------------  ------------
                                                                                      -------------  ------------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES:
Deposits............................................................................   $   451,034    $  422,858
Federal Home Loan Bank advances.....................................................        10,000        --
Advance payments by borrowers for taxes and insurance...............................           794           806
Other liabilities...................................................................         3,823         1,317
                                                                                      -------------  ------------
      Total Liabilities.............................................................       465,651       424,981
                                                                                      -------------  ------------
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,
  4,896,063 shares outstanding......................................................            52            52
Additional paid-in capital..........................................................        50,180        49,975
Common stock acquired by or committed to be acquired by employee stock benefit
  plans.............................................................................        (6,499)       (3,848)
Unrealized gain on investment securities available for sale, net of income taxes....       --                202
Retained earnings-substantially restricted..........................................        41,915        38,557
                                                                                      -------------  ------------
                                                                                            85,648        84,938
Treasury stock, at cost, 257,688 shares.............................................        (4,180)       (4,180)
                                                                                      -------------  ------------
      Total stockholders' equity....................................................        81,468        80,758
                                                                                      -------------  ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..........................................   $   547,119    $  505,739
                                                                                      -------------  ------------
                                                                                      -------------  ------------
</TABLE>
 
           See notes to unaudited consolidated financial statements.
 
                                       1
<PAGE>
                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED    NINE MONTHS ENDED
                                                                            SEPTEMBER 30,         SEPTEMBER 30,
                                                                         --------------------  --------------------
                                                                           1997       1996       1997       1996
                                                                         ---------  ---------  ---------  ---------
<S>                                                                      <C>        <C>        <C>        <C>
INTEREST INCOME:
  Loans receivable.....................................................  $   8,458  $   7,784  $  25,089  $  22,456
  Investment securities................................................      1,565      1,729      4,553      4,685
  Mortgage-backed securities...........................................          4          5         14         17
  Other................................................................        199         82        333        378
                                                                         ---------  ---------  ---------  ---------
  Total interest income................................................     10,226      9,600     29,989     27,536
                                                                         ---------  ---------  ---------  ---------
INTEREST EXPENSE:
  Deposits.............................................................      6,009      5,556     17,322     16,815
  Other borrowings.....................................................        144     --            235         35
                                                                         ---------  ---------  ---------  ---------
      Total interest expense...........................................      6,153      5,556     17,557     16,850
                                                                         ---------  ---------  ---------  ---------
NET INTEREST INCOME....................................................      4,073      4,044     12,432     10,686
PROVISION FOR LOAN LOSSES..............................................     --         --         --         --
                                                                         ---------  ---------  ---------  ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....................      4,073      4,044     12,432     10,686
                                                                         ---------  ---------  ---------  ---------
NONINTEREST INCOME:
  Gain on sales of investment securities...............................     --         --            394     --
  Deposit fee income...................................................        207        189        600        565
  Other................................................................        153        118        556        343
                                                                         ---------  ---------  ---------  ---------
      Total noninterest income.........................................        360        307      1,550        908
                                                                         ---------  ---------  ---------  ---------
NONINTEREST EXPENSES:
  Salaries and employee benefits.......................................      1,480      1,159      4,851      3,159
  Net occupancy expense................................................        205        170        594        495
  Federal insurance premiums...........................................         67        243        203        717
  SAIF special assessment..............................................     --          2,611     --          2,611
  Provision for real estate losses.....................................     --              8         10          8
  Data processing......................................................        192        187        603        555
  Postage and supplies.................................................         77         65        265        218
  Other................................................................        353        295        990        795
                                                                         ---------  ---------  ---------  ---------
      Total noninterest expenses.......................................      2,374      4,738      7,516      8,558
                                                                         ---------  ---------  ---------  ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES........................      2,059       (387)     6,466      3,036
PROVISION (BENEFIT) FOR INCOME TAXES...................................        748       (127)     2,325      1,045
                                                                         ---------  ---------  ---------  ---------
NET INCOME (LOSS)......................................................  $   1,311  $    (260) $   4,141  $   1,991
                                                                         ---------  ---------  ---------  ---------
                                                                         ---------  ---------  ---------  ---------
EARNINGS (LOSS) PER SHARE..............................................  $    0.29  $   (0.05)* $    0.92 $   0.42*
                                                                         ---------  ---------  ---------  ---------
                                                                         ---------  ---------  ---------  ---------
DIVIDENDS DECLARED PER SHARE...........................................  $    0.06  $    0.00  $    0.16  $    0.00
                                                                         ---------  ---------  ---------  ---------
                                                                         ---------  ---------  ---------  ---------
</TABLE>

*   Earnings per share assumes the Corporation was a public company since
    January 1, 1996.
 
           See notes to unaudited consolidated financial statements.
 
                                       2

<PAGE>
              FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                             (In Thousands)
                               (Unaudited)


<TABLE>
<CAPTION>
                                                                                   UNREALIZED
                                                                                    GAIN ON
                                                                       EMPLOYEE    SECURITIES
                                                         ADDITIONAL     STOCK       AVAILABLE
                                               COMMON     PAID-IN      BENEFIT      FOR SALE,    RETAINED   TREASURY
                                                STOCK     CAPITAL       PLANS          NET       EARNINGS     STOCK      TOTAL  
                                               -------  -----------  -----------  -------------  ---------  ---------  ---------
<S>                                             <C>        <C>          <C>         <C>            <C>        <C>          <C>
Balance, December 31, 1996...................    $52      $49,975      $(3,848)       $ 202       $38,557    $(4,180)    $80,758
                                                                                                                           
Net income...................................                                                       4,141                  4,141
                                                                                                                         
Repayment of ESOP loan and related increase                                                                                     
  in share value.............................                 289          312                                               601
                                                                                                                      
Common Stock acquired or committed to be                                                                              
  acquired for MRR Plan......................                 (84)      (3,968)                                           (4,052)
                                                                                                                      
Recognition of MRR Plan costs................                            1,005                                             1,005
                                                                                                                     
Net change in unrealized gain on securities                                                                          
  available for sale.........................                                          (202)                                (202)

Dividends paid...............................                                                        (783)                  (783)
                                               -------  -----------  -----------  -------------  ---------  ---------  ---------
Balance, September 30, 1997..................    $52      $50,180      $(6,499)       $  --       $41,915    $(4,180)    $81,468
                                               -------  -----------  -----------  -------------  ---------  ---------  ---------
                                               -------  -----------  -----------  -------------  ---------  ---------  ---------
 
</TABLE>

    See notes to unaudited consolidated financial statements.
 
                                       3



<PAGE>

                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>                                                                                  NINE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                         ----------------------
                                                                                            1997        1996
                                                                                         ----------  ----------
<S>                                                                                      <C>         <C>
OPERATING ACTIVITIES:
  Net income...........................................................................  $    4,141  $    1,991
    Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for real estate losses...................................................          10           8
    Deferred tax provision.............................................................          30          89
    Gain on sale of investment securities..............................................        (394)        --
    Gain on sale of real estate owned..................................................        (150)         (5)
    Gain on sale of mortgage loans originated to sell..................................         (18)        --
    Depreciation.......................................................................         345         297
    Accretion of deferred loan fees....................................................        (456)       (505)
    Repayment of ESOP loan and related increase in share value.........................         601         236
    Recognition of MRR Plan costs......................................................       1,005         --
    Changes in operating assets & liabilities:
      Accrued interest receivable......................................................        (337)       (419)
      Prepaid expenses & other assets..................................................         424      (1,193)
      Other liabilities................................................................         514       2,809
                                                                                         ----------  ----------
        Net cash provided by operating activities......................................       5,715       3,308
                                                                                         ----------  ----------
INVESTING ACTIVITIES:
    Purchases of investment securities-held to maturity................................     (36,152)    (40,129)
    Proceeds from sale of investment securities
    -available for sale                                                                         406         --
    Proceeds from maturities of investment securities-held to maturity.................      32,050      32,038
    Loan originations, net of repayments...............................................     (28,476)    (45,030)
    Proceeds from sales of mortgage loans originated to sell...........................       1,234         --
    Proceeds from sales of real estate owned...........................................          63          88
    Purchases of office properties & equipment.........................................      (1,917)       (868)
                                                                                         ----------  ----------
    Net cash used by investing activities..............................................     (32,792)    (53,901)
                                                                                         ----------  ----------
</TABLE>
 
                                                                   (Continued)
 
                                       4

<PAGE>
                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                                                                 SEPTEMBER 30,
                                                                                              --------------------
                                                                                                1997       1996
                                                                                              ---------  ---------
<S>                                                                                           <C>        <C>
OPERATING ACTIVITIES:
FINANCING ACTIVITIES:
    Net increase in deposits................................................................     28,176      4,302
    Advances from FHLB......................................................................     10,000        --
    Decrease in advance payments by borrowers for taxes & insurance.........................        (12)      (121)
    Increase from issuance of common stock, net of related expenses.........................        --      45,777
    Common stock acquired for MRR Plan......................................................     (1,816)       --
    Dividends paid..........................................................................       (783)       --
                                                                                              ---------  ---------
      Net cash provided by financing activities.............................................     35,565     49,958
                                                                                              ---------  ---------
Net increase (decrease) in cash and cash equivalents........................................      8,488       (635)
CASH AND CASH EQUIVALENTS:
    Beginning of period.....................................................................      6,819      8,845
                                                                                              ---------  ---------
    End of period...........................................................................  $  15,307  $   8,210
                                                                                              ---------  ---------
                                                                                              ---------  ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid for:
      Interest..............................................................................  $  17,348  $  16,873
                                                                                              ---------  ---------
                                                                                              ---------  ---------
      Income taxes..........................................................................  $   2,133  $   1,724
                                                                                              ---------  ---------
                                                                                              ---------  ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
    Real estate acquired in settlement of loans.............................................  $     110  $      41
                                                                                              ---------  ---------
                                                                                              ---------  ---------
    Loans to facilitate sales of real estate owned..........................................  $  --      $      54
                                                                                              ---------  ---------
                                                                                              ---------  ---------
    Change in unrealized gains..............................................................  $    (202) $      27
                                                                                              ---------  ---------
                                                                                              ---------  ---------
    Obligation assumed to acquire common stock for the MRR Plan.............................  $   2,236  $  --
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
                                                                   (Concluded)
 
           See notes to unaudited 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 presented herein that include periods prior to May 3, 1996
include the activities 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, 1997 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997. 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, 1996, contained in the
Corporation's 1996 Annual Report to Stockholders.
 
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 months ended September 30, 1997 and September 30, 1996 was 4,532,143
and 4,748,228, respectively, and for the nine months ended September 30, 1997
and September 30, 1996 was 4,521,820 and 4,743,751, respectively. In addition,
such calculations for the 1996 periods assume that the Corporation was a public
company as of January 1, 1996.
 
 
                                       6
<PAGE>



NOTE 4--DECLARATION OF DIVIDENDS
 
    At their meeting on August 27, 1997, the Board of Directors declared a $.06
(six cent) per share cash dividend on the common stock of the Corporation. The
cash dividend was paid on September 26, 1997 to the stockholders of record at
the close of business on September 12, 1997.

NOTE 5--INVESTMENT SECURITIES
 
    Investment securities consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                               SEPTEMBER 30, 1997
                                                                                             ----------------------
                                                                                              AMORTIZED     FAIR
HELD TO MATURITY                                                                                COST        VALUE
-------------------------------------------------------------------------------------------  -----------  ---------
<S>                                                                                          <C>          <C>
U. S. Government and Agency obligations....................................................   $  94,359   $  94,378
Mortgage-backed securities--FHLMC..........................................................         201         207
                                                                                             -----------  ---------
      Total................................................................................   $  94,560   $  94,585
                                                                                             -----------  ---------
                                                                                             -----------  ---------
</TABLE>
 


                                       7
<PAGE>



NOTE 6--LOANS RECEIVABLE
 
Loans receivable consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                                SEPTEMBER 30, 1997
                                                                                                ------------------
<S>                                                                                             <C>
First mortgage loans:
  One- to four- family residences.............................................................     $    361,917
  Other properties............................................................................           21,054
  Construction................................................................................           22,204
  Less:
    Unearned discounts........................................................................           (1,193)
    Undisbursed loan funds....................................................................           (9,384)
    Deferred loan fees, net...................................................................           (3,360)
                                                                                                       --------
      Total first mortgage loans..............................................................          391,238
                                                                                                       --------
Consumer and other loans:
  Commercial..................................................................................            5,378
  Automobile..................................................................................            8,213
  Consumer....................................................................................            4,186
  Home equity and second mortgage.............................................................           12,994
  Savings.....................................................................................            1,214
  Other.......................................................................................            1,973
  Add deferred loan costs.....................................................................              140
                                                                                                       --------
      Total consumer and other loans..........................................................           34,098
                                                                                                       --------
Allowance for loan losses.....................................................................           (1,222)
                                                                                                       --------
      Loans receivable, net...................................................................     $    424,114
                                                                                                       --------
                                                                                                       --------
</TABLE>
 
    Non-accrual loans at September 30, 1997 were $5.0 million. All loans 90 days
or more past due are recorded as non-accrual. The Bank has classified a $4.4
million commercial real estate loan as non-accrual. While the Bank is working
with counsel to pursue a positive resolution to this matter, the nature and
extent of a loss, if any, is not determinable at this time. The borrower is
currently negotiating a sale of the property to a third party.
 
    A summary of the activity in the allowances for loan and real estate losses
is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                          REAL
                                                                               LOANS     ESTATE
                                                                             ---------  ---------
<S>                                                                          <C>        <C>
Balance at December 31, 1996...............................................  $   1,251  $  --
Provisions for estimated losses............................................     --             10
Recoveries.................................................................         11     --
Losses charged off.........................................................        (40)       (10)
                                                                             ---------  ---------
Balance at September 30, 1997..............................................  $   1,222  $  --
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>

                                       8
<PAGE>

 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FINANCIAL CONDITION
 
    At September 30, 1997, the Corporation's assets amounted to $547.1 
million as compared to $505.7 million at December 31, 1996. The $41.4 million 
or 8.2% increase was primarily due to an increase of $27.6 million or 7.0% in 
loans receivable, net, a $8.5 million or 124.5% increase in cash and cash 
equivalents, and a $1.6 million or 44.1% increase in office properties and 
equipment, net. The loans receivable increase resulted from the continued 
origination of loans during the nine months ended September 30, 1997. 
Originations for the nine month period ended September 30, 1997 consisted of 
$66.3 million in one- to four-family residential loans, $7.0 million in 
commercial loans, $17.5 million in construction loans and $17.5 million in 
consumer installment loans, of which $6.7 million consisted of home equity 
loans. At September 30, 1997, the Bank had outstanding loan commitments of 
$5.3 million, unused lines of credit of $3.3 million, and the undisbursed 
portion of construction loans of $9.4 million. The increase in office 
properties and equipment primarily consisted of a land acquisition for future 
construction of a North Harrison, Arkansas full service branch facility and 
the purchase of an existing full service branch on Crossover Road in 
Fayetteville, Arkansas. Liabilities increased $40.7 million or 9.6% to $465.7 
million at September 30, 1997 compared to $425.0 million at December 31, 
1996. The increase in liabilities was primarily due to an increase of $28.2 
million or 6.7% in deposits, a $10.0 million increase in advances from the 
Federal Home Loan Bank ("FHLB") of Dallas and a $2.2 million outstanding 
commitment by the Corporation to purchase stock to fund the management 
recognition and retention plan ("MRR Plan"). The increases in deposits and 
advances from the FHLB of Dallas were used to fund the net loan increase and 
to increase cash and cash equivalents. Stockholders' equity amounted to $81.5 
million or 14.89% of total assets at September 30, 1997 compared to $80.8 
million or 15.97% of total assets at December 31, 1996. The increase in 
stockholders' equity was primarily due to net income in the amount of $4.1 
million. The increase in stockholders' equity was offset by the cost of $4.0 
million for the management recognition and retention plan shares which was 
partially reduced by the shares of stock vested and accrued for in the 
current fiscal year of $1.0 million. In addition, during the nine months 
ended September 30, 1997 cash dividends aggregating $783,000 were paid.
 
    Non-accrual loans at September 30, 1997 were $5.0 million. All loans 90 
days or more past due are recorded as non-accrual. The Bank has classified a 
$4.4 million commercial real estate loan as non-accrual. While the Bank is 
working with counsel to pursue a positive resolution to this matter, the 
nature and extent of a loss, if any, is not determinable at this time. The 
borrower is currently negotiating a sale of the property to a third party.

                                       9

<PAGE>

    Results of Operations for the Three Months Ended September 30, 1997 and 
1996
 
    GENERAL.  The Corporation reported net income of $1.3 million during the 
three months ended September 30, 1997 compared to a net loss of $260,000 for 
the same period in 1996. The increase of $1.6 in net income in the 1997 
period compared to the same period in 1996 was due primarily to legislation 
passed in 1996 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 1996 third quarter earnings of $2.6 million 
with a $1.7 million after-tax affect. Net interest income remained relatively 
unchanged. 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 Corporation's interest rate spread 
decreased to 2.34% for the 1997 period compared to 2.51% for the 1996 period. 
Noninterest income, noninterest expense excluding the 1996 SAIF special 
assessment, and income taxes increased. These and other significant 
fluctuations in operations are discussed below.
 
    INTEREST INCOME.  Interest income amounted to $10.2 million for the three 
months ended September 30, 1997 compared to $9.6 million for the same period 
in 1996. The increase of $600,000 or 6.5% 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. 
Such increase was partially offset by a decline in the average rate earned on 
such assets due primarily to the origination of loans at market interest 
rates which are currently lower than the average yield of the Bank's loan 
portfolio. The average balance in investment securities declined due to 
maturities and calls of such securities. Such proceeds were reinvested into 
loans and cash equivalents.
 
    INTEREST EXPENSE.  Interest expense increased $600,000 or 10.7% to $6.2 
million for the three months ended September 30, 1997 compared to $5.6 
million for the same period in 1996. Such increase was primarily due to an 
increase in the average balance of deposits as well as an increase in 
interest paid on other borrowings.
 
    NONINTEREST INCOME.  Noninterest income amounted to $360,000 for the 
three months ended September 30, 1997 compared to $307,000 for the same 
period in 1996. The increase of $53,000 or 17.3% was primarily due to an 
increase of $23,000 or 50.9% in loan related income and an increase of 
$18,000 or 9.5% in deposit fee income.
 
    NONINTEREST EXPENSE.  Noninterest expenses, excluding the SAIF special 
assessment of $2.6 million, increased $246,000 or 11.6% between the 1997 and 
1996 three month periods. Such increase was due primarily to increases in 
salaries and employee benefits, including costs associated with the adoption 
and implementation of the Corporation's employee stock ownership plan and the 
Corporation's management recognition and retention plan, advertising costs 
related to targeting special promotions and branch openings and occupancy 
costs due to branch expansions. Such increases were partially offset by a 
decline in the quarterly deposit insurance premiums, excluding the SAIF 
special assessment, in the amount of $176,000 or 72.4% from 

                                       10

<PAGE>


$243,000 to $67,000 for the three month period September 30, 1996 and 1997, 
respectively. The increase in salaries and employee benefits consisted 
primarily of a $190,000 expense related to the management recognition and 
retention plan. The recognition of costs associated with the release of 
unallocated shares from the employee stock ownership plan increased by 
$50,000 or 33.9% from $147,000 to $196,000 for the three month period 
September 30, 1996 and 1997 due to. The increase in salaries and employee 
benefits was also due to normal salary and merit increases as well as an 
increase in personnel resulting from expansion of the Bank's operations. 
Advertising costs which are included as other noninterest expenses are 
related to targeting special promotions and branch openings increased to 
$77,000 compared to $35,000 for the previous year comparable quarter. 
Occupancy expenses were $205,000 and $170,000 for the three month period 
ended September 30, 1997 and 1996, respectively, resulting in a $35,000 or 
20.7% increase. Such increase was primarily due to branch expansions.
 
    The SAIF special assessment of $2.6 million, accrued in September, 1996, 
was due to legislation passed by Congress that imposed on SAIF members a 
one-time assessment to recapitalize the SAIF. The decline in deposit 
insurance premiums is a direct result of this one-time assessment paid in 
1996.
 
    INCOME TAXES.  Income taxes amounted to a tax provision of $748,000 and a 
tax benefit of $127,000 for the three months ended September 30, 1997 and 
1996, respectively. The tax provision in the 1997 period resulted in an 
effective tax rate of 36.3%. The tax benefit of $127,000 for the 1996 period 
was due to a net loss for the quarter due to the one-time SAIF special 
assessment.
 
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

    GENERAL.  The Corporation reported net income of $4.1 million during the 
nine months ended September 30, 1997 compared to $2.0 million for the same 
period in 1996. The increase of $2.1 million or 108.1% in net income in the 
1997 period compared to the same period in 1996 was due to an increase in net 
interest income, the sale of an investment held as available for sale, the 
current recognition of a previously deferred profit on the sale of real 
estate owned and a decline in the deposit insurance premiums due to the 1996 
SAIF special assessment. Such changes were partially offset by an increase in 
noninterest expenses primarily due to increases in salaries and employee 
benefits, income taxes, advertising costs related to targeting special 
promotions and branch openings, and occupancy costs due to branch expansions. 
The increase in net interest income of $1.7 million or 16.3% was due to an 
increase in the ratio of interest-earning assets to interest-bearing 
liabilities to 116.4% for the 1997 period compared to 111.6% for the 1996 
period. In addition, the Corporation's interest rate spread and net interest 
margin increased to 2.48% and 3.23%, respectively, for the 1997 period 
compared to 2.46% and 3.01%, respectively, for the 1996 period.
 
    INTEREST INCOME.  Interest income amounted to $30.0 million for the nine 
months ended September 30, 1997 compared to $27.5 million for the same period 
in 1996. The increase of $2.5 million or 8.9% was primarily due to an 
increase in the average balance of loans receivable

                                       11

<PAGE>

which was due to continued loan demand and portfolio growth. Such increase 
was partially offset by a decline in the average balance of investment 
securities, due to maturities and calls of such investments. Such increase 
was also affected by a slight decline in the average rate earned on loans 
receivable and a slight increase in the average rate earned on investment 
securities.
 
    INTEREST EXPENSE.  Interest expense increased $700,000 or 4.2% to $17.6 
million for the nine months ended September 30, 1997 compared to $16.9 
million for the same period in 1996. Such increase was due to an increase in 
the average balance of deposits which was offset by a slight decrease in the 
rate paid on such liabilities from 5.34% during the nine months ended 
September 30, 1996 to 5.29% for the same period in 1997. Also, interest 
expense increased due to an increase in the average balance of FHLB of Dallas 
advances.

    NONINTEREST INCOME.  Noninterest income amounted to $1.6 million for the 
nine months ended September 30, 1997 compared to $900,000 for the same period 
in 1996. The increase of $700,000 or 70.7% was primarily due to a gain of 
$394,000 on the sale of FHLMC stock, which was previously classified as an 
available for sale investment, and to the current recognition of $145,000 on 
previously deferred profit on the sale of real estate owned.
 
    NONINTEREST EXPENSE.  Noninterest expenses, excluding the SAIF special 
assessment of $2.6 million, increased $1.6 million or 26.4% between the 1997 
and 1996 nine month periods. Such increase was due primarily to increases in 
salaries and employee benefits, including costs associated with the adoption 
and implementation of the Corporation's employee stock ownership plan and the 
Corporation's management recognition and retention plan, additional costs 
attributable to being a public company, advertising costs related to 
targeting special promotions and branch openings and occupancy costs due to 
branch expansions. Such increases were partially offset by a decline in the 
deposit insurance premiums, excluding the SAIF special assessment, in the 
amount of $514,000 or 71.7% from $717,000 to $203,000 for the nine month 
period September 30, 1996 and 1997, respectively. The increase in salaries 
and employee benefits consisted primarily of a $754,000 expense related to 
the grant and immediate vesting of 20% of the shares of stock awarded to the 
Bank's executive officers and directors pursuant to the management 
recognition and retention plan. In addition, in accordance with a 20% per 
year vesting schedule, the nine month period ended September 30, 1997 also 
included $252,000 in accrued costs for the shares that will vest in May 1998. 
Salary and benefit costs also increased by $302,000 for the 1997 nine month 
period over the previous year comparable period due to recognition of costs 
associated with the release of unallocated shares from the employee stock 
ownership plan. Other increases in salaries and employee benefits were due to 
normal salary and merit increases as well as an increase in personnel 
resulting from expansion of the Bank's operations. Advertising costs amounted 
to $205,000 for the nine months ended September 30, 1997 compared to $126,000 
for the same period in 1996. The increase of $79,000 or 62.1% was primarily 
due to costs related to targeting special promotions and to branch openings. 
Occupancy costs at September 30, 1997 and 1996 were $594,000 and $495,000, 
respectively. Such increase of $99,000 or 20.0% was primarily due to branch 
expansions.
 

                                       12

<PAGE>

    The SAIF special assessment of $2.6 million, accrued in September, 1996, 
was due to legislation passed by Congress that imposed on SAIF members a 
one-time assessment to recapitalize the SAIF. The decline in deposit 
insurance premiums is a direct result of this one-time assessment paid in 
1996.
 
    INCOME TAXES.  Income taxes amounted to $2.3 million and $1.0 million for 
the nine months ended September 30, 1997 and 1996, respectively, resulting in 
effective tax rates of 36.0% and 34.4%, 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 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 Bank 
may borrow from the FHLB of Dallas. At September 30, 1997, the Bank had 
outstanding advances from the FHLB of Dallas in the amount of $10.0 million. 
Such advances were used in the Bank's normal operations and investing 
activities.
 
    As of September 30, 1997, the Bank's regulatory capital was in excess of 
all applicable regulatory requirements. At September 30, 1997, the Bank's 
tangible, core and risk-based capital ratios amounted to 11.8%, 11.8% and 
22.5%, respectively, compared to regulatory requirements of 1.5%, 3.0% and 
8.0%, respectively.

                                       13

<PAGE>
 
                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                                    PART II
 
<TABLE>
<S>        <C>
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
 
           None.
</TABLE>
 
                                       14

<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: NOVEMBER 6, 1997                             BY: /S/ LARRY J. BRANDT
                                                      -------------------------
                                                       LARRY J. BRANDT
                                                       PRESIDENT


DATE: NOVEMBER 6, 1997                             BY: /S/ TOMMY W. RICHARDSON
                                                      -------------------------
                                                       TOMMY W. RICHARDSON
                                                       CHIEF FINANCIAL OFFICER

 
                                       15