<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 March 31, 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 May 12, 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 
 
<TABLE>
<CAPTION>
PART I.              FINANCIAL INFORMATION                                 PAGE
----------          ------------------------                               -----
<S>                <C>                                                     <C>


Item 1.             Consolidated Financial Statements                           

                    Consolidated Statements of Financial Condition (As          
                    of March 31, 1997 (unaudited) and December 31, 1996)      1  
                                                                              
                    Consolidated Statements of Income for the three  
                    months ended March 31, 1997 (unaudited) and 1996   
                    (unaudited)                                               2                                          
                                                                              
                    Consolidated Statement of Stockholders' Equity for                                       
                    the three months ended March 31, 1997 (unaudited)         3                                          
                                                                              
                    Consolidated Statements of Cash Flows for the three    
                    months ended March 31, 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                                         12 
Item 2.             Changes in Securities                                     12 
Item 3.             Defaults Upon Senior Securities                           12 
Item 4.             Submission of Matters to a Vote of Security Holders       12 
Item 5.             Other Information                                         12 
Item 6.             Exhibits and Reports on Form 8-K                          12 


 
Signatures                                                                    13
</TABLE>

                                       
<PAGE>

                                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC. 
                                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
                                               (In Thousands)
 
<TABLE>
<CAPTION>
                                                                     
                                                                     MARCH 31,   DECEMBER 31,
ASSETS                                                                  1997         1996
                                                                    -----------  ------------
                                                                    (UNAUDITED)
<S>                                                                 <C>          <C>
Cash and cash equivalents.........................................   $  10,665    $    6,819
Investment securities:
 Available for sale, at fair value................................         336           340
 Held to maturity, atamortized cost...............................      91,973        90,982
Federal Home Loan Bank stock......................................       3,445         3,026
Loans receivable, net.............................................     403,818       396,508
Accrued interest receivable.......................................       3,733         3,620
Real estate acquired in settlement of loans, net..................         154           154
Office properties and equipment, net..............................       5,027         3,565
Prepaid expenses and other assets.................................         614           725
                                                                    -----------  ------------
   TOTAL ASSETS...................................................   $ 519,765    $  505,739
                                                                    -----------  ------------
                                                                    -----------  ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits..........................................................   $ 431,412     $  422,858
Federal Home Loan Bank advances...................................       3,000             --
Advance payments by borrowers for taxes and insurance.............         881            806
Income taxes payable..............................................         793             --
Other liabilities.................................................       1,458          1,317
                                                                    -----------  ------------
   Total Liabilities..............................................     437,544        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.......................................       50,057         49,975
Unearned ESOP shares.............................................       (3,744)        (3,848)
Unrealized gain on investment securities available for sale, net
 of income taxes.................................................          214            202
Retained earnings-substantially restricted.......................       39,822         38,557
                                                                    -----------  ------------
                                                                        86,401         84,938
Treasury stock, at cost, 257,688 shares..........................       (4,180)       (4,180)
                                                                    -----------  ------------
   Total stockholders' equity....................................       82,221         80,758
                                                                    -----------  ------------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................    $ 519,765     $  505,739
                                                                    -----------  ------------
                                                                    -----------  ------------
</TABLE>
 
 See notes to unaudited consolidated financial statements.
 
                                       1
<PAGE>

                                FIRST FEDERAL BANCSHARES OF ARKANSAS, INC. 
                                   CONSOLIDATED STATEMENTS OF INCOME
                                (In Thousands, Except Earnings Per Share) 
                                                (Unaudited)
 
<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                             --------------------
<S>                                                                          <C>        <C>
                                                                               1997       1996
                                                                             ---------  ---------
INTEREST INCOME:
 Loans receivable..........................................................  $   8,220  $   7,245
 Investment securities.....................................................      1,447      1,368
 Mortgage-backed securities................................................          5          6
 Other.....................................................................         43         85
                                                                             ---------  ---------
   Total interest income...................................................      9,715      8,704
                                                                             ---------  ---------
INTEREST EXPENSE:
 Deposits..................................................................      5,560      5,702
 Other borrowings..........................................................         13         --
                                                                             ---------  ---------
   Total interest expense..................................................      5,573      5,702
                                                                             ---------  ---------
NET INTEREST INCOME........................................................      4,142      3,002
PROVISION FOR LOAN LOSSES..................................................         --         --
NET INTEREST INCOME AFTER                                                    ---------  ---------
 PROVISION FOR LOAN LOSSES.................................................      4,142      3,002

NONINTEREST INCOME:
 Deposit fee income........................................................        190        179
 Other.....................................................................        128        112
                                                                             ---------  ---------
   Total noninterest income................................................        318        291
                                                                             ---------  ---------
NONINTEREST EXPENSES:
 Salaries and employee benefits............................................      1,265        971
 Net occupancy expense.....................................................        188        162
 Federal insurance premiums................................................         68        236
 Data processing...........................................................        205        179
 Postage and supplies......................................................         88         81
 Other.....................................................................        298        241
                                                                             ---------  ---------
   Total noninterest expenses..............................................      2,112      1,870
                                                                             ---------  ---------
INCOME BEFORE PROVISION FOR INCOME TAXES...................................      2,348      1,423
PROVISION FOR INCOME TAXES.................................................        838        480
                                                                             ---------  ---------
NET INCOME.................................................................  $   1,510  $     943
                                                                             ---------  ---------
                                                                             ---------  ---------
EARNINGS PER SHARE.........................................................  $    0.33        N/A
                                                                             ---------  ---------
                                                                             ---------  ---------
DIVIDENDS DECLARED PER SHARE...............................................  $    0.05        N/A
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
See notes to unaudited consolidated financial statements.
 
                                       2
<PAGE>
                  FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE THREE MONTHS ENDED MARCH 31, 1997
                                (In Thousands)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                            Unrealized
                                                              Gain on
                                                             Securities
                                      Additional   Unearned   Available
                             Common    Paid-In       ESOP     for Sale,  Retained    Treasury
                             Stock     Capital      Shares       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                                                                 1,510                    1,510

Repayment of ESOP loan
 and related increase in
 share value                                82         104                                            186

Net change in unrealized
 gain on securities available
 for sale                                                         12                                   12

Dividends Paid                                                              (245)                    (245)
                             -----     -------     -------     -----     --------    -------      --------
Balance, March 31, 1997      $  52     $50,057     $(3,744)    $ 214     $39,822     $(4,180)     $82,221
                             -----     -------     -------     -----     --------    -------      --------
                             -----     -------     -------     -----     --------    -------      --------
</TABLE>

See notes to unaudited consolidated financial statements.

                                       3
<PAGE>

                  FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                              Three Months Ended March 31,
                                           ------------------------------------
                                                 1997              1996
                                           ---------------   ------------------
                                                      (In Thousands)
OPERATING ACTIVITIES:
 Net income                                      $ 1,510           $ 943
 Adjustments to reconcile net income
  to net cash provided by operating activities:
 Deferred tax provision                               16              60
 Gain on sale of real estate owned                    --              (1)
 Depreciation                                        112              96
 Accretion of deferred loan fees                    (143)           (198)
 Repayment of ESOP loan and related
  increase in share value                            186              --
 Changes in operating assets & liabilities:
   Accrued interest receivable                      (113)            (62)
   Prepaid expenses & other assets                   111            (459)
   Other liabilities                                 141             452
   Income taxes payable                              793              --
                                                 -----------      ---------
     Net cash provided by operating activities     2,613             831
                                                 -----------      ---------
INVESTING ACTIVITIES:
 Purchases of investment securities-(held to      (3,419)        (13,065)
  maturity)
 Proceeds from maturities of investment
  securities-(held to maturity)                    2,009          15,045
 Loan originations, net of repayments             (7,167)         (8,688)
 Proceeds from sales of real estate owned             --              84
 Purchases of office properties & equipment       (1,574)           (317)
                                                 -----------      ---------
   Net cash used by investing activities         (10,151)         (6,941)
                                                 -----------      ---------
FINANCING ACTIVITIES:
 Net increase in deposits                          8,554          10,156
 Advances from FHLB                                3,000              --
 Increase in advance payments by
  borrowers for taxes & insurance                     75               6
 Dividends paid                                     (245)             --
                                                 -----------      ---------
  Net cash provided by financing activities        11,384         10,162
                                                 -----------      ---------
                                                                   (Continued)
                                       4
<PAGE>

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

                                              Three Months Ended March 31,
                                           ------------------------------------
<TABLE>
<CAPTION>

<S>                                               <C>               <C>
                                                 1997              1996
                                           ---------------   ------------------
</TABLE>
<TABLE>
<CAPTION>
                                                      (In Thousands)
<S>                                               <C>               <C>

 Net increase (decrease) in cash and
  cash equivalents                                 3,846           4,052
CASH AND CASH EQUIVALENTS:
 Beginning of period                               6,819           8,845
                                               ------------    -----------
 End of period                                   $10,665         $12,897
                                               ------------    -----------
                                               ------------    -----------

SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION:
  Cash paid for:
   Interest                                       $5,507          $5,699
                                               ------------    -----------
                                               ------------    -----------

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
 Loans to facilitate sales of real estate owned  $    --         $    54
                                               ------------     -----------
                                               ------------     -----------
 Change in unrealized gains                      $    12         $     3
                                               ------------     -----------
                                               ------------     -----------

</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 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 three months ended March 31, 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 March 31, 1997 was 4,511,344. Earnings per share for the
three months ended March 1996 is not applicable, as the Conversion was not
completed until May 3, 1996.

                                       6
<PAGE>

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4--DECLARATION OF DIVIDENDS
 
    On February 19, 1997 the Board of Directors initiated a quarterly cash
dividend policy and declared its first cash dividend, a $.05 per share cash
dividend on the common stock of the Corporation which was paid on March 17, 1997
to the stockholders of record at the close of business on March 3, 1997.
 
NOTE 5--INVESTMENT SECURITIES
 
    Investment securities consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                  MARCH 31, 1997
                                                                             ------------------------
<S>                                                                          <C>            <C>
                                                                               AMORTIZED      FAIR
AVAILABLE FOR SALE                                                               COST         VALUE
---------------------------------------------------------------------------  -------------  ---------
FHLMC preferred stock......................................................    $      12    $     336
                                                                                     ---    ---------
  Total....................................................................    $      12    $     336
                                                                                     ---    ---------
                                                                                     ---    ---------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                             MARCH 31, 1997
                                                                         ----------------------
<S>                                                                      <C>          <C>
                                                                          AMORTIZED     FAIR
HELD TO MATURITY                                                            COST        VALUE
-----------------------------------------------------------------------  -----------  ---------
U. S. Government and Agency obligations................................   $  91,755   $  90,384

Mortgage-backed securities -FHLMC......................................         218         227
                                                                         -----------  ---------
Total..................................................................   $  91,973   $  90,611
                                                                         -----------  ---------
                                                                         -----------  ---------
</TABLE>

                                       7
<PAGE>
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--LOANS RECEIVABLE
 
    Loans receivable consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                MARCH 31, 1997
                                                                                --------------
<S>                                                                             <C>
First mortgage loans:
 One- to four- family residences..............................................    $  345,728
 Other properties.............................................................        20,734
 Construction.................................................................        17,124
 Less:
  Unearned discounts..........................................................        (1,233)
  Undisbursed loan funds......................................................        (6,727)
  Deferred loan fees, net.....................................................        (3,277)

   Total first mortgage loans.................................................       372,349
                                                                                --------------
Consumer and other loans:
 Commercial loans.............................................................         5,166
 Automobile...................................................................         7,426
 Consumer loans...............................................................         4,008
 Home equity and second mortgage..............................................        12,934
 Savings loans................................................................         1,305
 Other........................................................................         1,746
 Add deferred loan costs......................................................           127
                                                                                --------------
  Total consumer and other loans..............................................        32,712
                                                                                --------------
Allowance for loan losses.....................................................        (1,243)
                                                                                --------------
  Loans receivable, net.......................................................    $  403,818
                                                                                --------------
                                                                                --------------
</TABLE>
 
    Non-accrual loans at March 31, 1997 (in thousands) were $816. 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):
 
<TABLE>
<CAPTION>
                                                                                            REAL
                                                                                LOANS      ESTATE
                                                                              ---------  -----------
<S>                                                                           <C>        <C>
Balance at December 31, 1996................................................  $   1,251   $  --
 Provisions for estimated losses............................................       --        --
 Recoveries.................................................................          3      --
 Losses charged off.........................................................        (11)     --
                                                                              ---------      --
Balance at March 31, 1997...................................................  $   1,243   $  --
                                                                              ---------     ---
                                                                              ---------     ---
</TABLE>

                                       8
<PAGE>

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--LOANS RECEIVABLE (CONTINUED)

                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FINANCIAL CONDITION
 
    At March 31, 1997, the Corporation's assets amounted to $519.8 million as
compared to $505.7 million at December 31, 1996. The $14.1 million or 2.8%
increase was primarily due to an increase of $7.3 million or 1.8% in loans
receivable, net, a $3.8 million or 56.4% increase in cash and cash equivalents,
and a $1.5 million or 41.0% increase in office properties and equipment, net.
The loans receivable increase resulted from the continued origination of loans
during the three months ended March 31, 1997. Originations for the 1997 quarter
consisted of $20.2 million in one- to four- family residential loans, $2.0
million in commercial loans, $3.0 million in construction loans, $5.0 million in
consumer installment loans of which $2.2 million consisted of home equity loans.
At March 31, 1997, the Bank had outstanding loan commitments of $2.4 million,
unused lines of credit of $2.8 million, and the undisbursed portion of
construction loans of $6.7 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 at Crossover Road in Fayetteville, Arkansas.
Liabilities increased $12.6 million or 3.0% to $437.5 million at March 31, 1997
compared to $425.0 million at December 31, 1996. The increase in liabilities was
primarily due to an increase of $8.6 million or 2.02% in deposits and a $3.0
million advance from the Federal Home Loan Bank ("FHLB") of Dallas.
Stockholders' equity amounted to $82.2 million or 15.8% of total assets at March
31, 1997 compared to $80.8 million or 16.0% of total assets at December 31,
1996. The increase in stockholders' equity during the three month period was
primarily due to net income of $1.5 million for the quarter, which was partially
offset by dividend payments aggregating $245,000.
 
Results of Operations for the Three Months Ended March 31, 1997
 
    GENERAL.  The Corporation reported net income of $1.5 million during the 
three months ended March 31, 1997 compared to net income of $943,000 for the 
same period in 1996. The conversion from a mutual association to a stock 
company was not completed until May 3, 1996, therefore the first quarter 
earnings of 1996 do not reflect the utilization of the stock conversion net 
proceeds. The increase of $567,000 or 60.1% in net income in the 1997 period 
compared to the same period in 1996 was primarily due to an increase in net 
interest income. The comparative period increase was partially reduced by an 
increase in noninterest expenses and an increase in the provision for income 
taxes. 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 $1.1 
million or 38.0% was due to an increase in the ratio of interest-earning 
assets to interest-bearing liabilities to 116.8% for the 1997 period compared 
to 106.2% for the 1996 period. In addition, the Corporation's interest rate 
spread and net interest margin increased to 2.58% and 3.33%, 

 
                                       9
<PAGE>

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--LOANS RECEIVABLE (CONTINUED)

respectively, for the 1997 period compared to 2.38% and 2.69%, respectively, 
for the 1996 period.
 
    INTEREST INCOME.  Interest income amounted to $9.7 million for the three
months ended March 31, 1997 compared to $8.7 million for the same period in
1996. The increase of $1.0 million or 11.6% 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.
 
    INTEREST EXPENSE.  Interest expense decreased $129,000 or 2.3% to $5.6
million for the three months ended March 31, 1997 compared to $5.7 million for
the same period in 1996. Such decrease was primarily due to a decrease in the
average rate paid on deposits.
 
    NONINTEREST INCOME.  Noninterest income amounted to $318,000 for the three
months ended March 31, 1997 compared to $291,000 for the same period in 1996.
The increase of $27,000 or 9.3% was primarily due to an increase of $16,000 or
13.6% in insufficient checks fee income and an increase of $17,000 or 53.6% in
servicing fees on loans.
 
    NONINTEREST EXPENSE.  Noninterest expenses increased $242,000 or 12.9% to
$2.1 million for the three months ended March 31, 1997 compared to $1.9 million
for the same period in 1996. Such increase was due primarily to an increase of
$294,000 or 30.3% in salaries and employee benefits and a $26,000 or 14.7%
increase in data processing. Also, additional costs were incurred related to
being a public company. The increase in salaries and employee benefits was due
to normal merit increases, an increase in the number of 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 increase in noninterest expenses was offset by a $169,000
decrease for the comparative periods in Federal Deposit Insurance Corporation
premiums due to the assessment rate being reduced.
 
    INCOME TAXES.  Income taxes amounted to $838,000 and $480,000 for the three
months ended March 31, 1997 and 1996, respectively. The higher provision in the
1997 period was due to increased pre-tax income.
 
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

 
                                       11
<PAGE>

        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6--LOANS RECEIVABLE (CONTINUED)

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 Corporation may borrow from the FHLB of Dallas. At March 31, 1997, the 
Corporation had outstanding advances from the FHLB of Dallas in the amount of 
$3.0 million. 

    As of March 31, 1997, the Bank's regulatory capital was well in excess of 
all applicable regulatory requirements. At March 31, 1997, the Bank's 
tangible, core and risk-based capital ratios amounted to 12.2%, 12.2% and 
23.2%, respectively, compared to regulatory requirements of 1.5%, 3.0% and 
8.0%, respectively.
 
<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

         None.

                                       12

<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: MAY 12, 1997              BY: /S/LARRY J. BRANDT 
                                  LARRY J. BRANDT 
                                  PRESIDENT 


DATE: MAY 12, 1997              BY: /S/TOMMY W. RICHARDSON 
                                  TOMMY W. RICHARDSON
                                  CHIEF FINANCIAL OFFICER
 
                                       



                                       13