|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, 2003 Commission file number 0-37053


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

|Delaware(State or other jurisdiction of incorporation or organization) | 37-1397683(IRS Employer
Identification No.)
|---------------------------------------------------------------------- | -------------------------------------------

|109 East Depot Street,
Colchester, Illinois 62326 (Address of Principal
Executive Offices) (Zip Code)

(309) 776-3225(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 by check mark whether the  registrant  is an  accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  [    ]       No [ X ]


State the number of shares
outstanding of each of the issuers classes of common equity as of the latest
practicable date.


As of October 16, 2003 the
Registrant had outstanding 1,850,203 shares of common stock.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# FIRST FEDERAL
BANCSHARES, INC.

Form 10-Q Quarterly
Report

Index

|                               |                                                                                          | Page
|------------------------------ | ---------------------------------------------------------------------------------------- | ----
|PART I  Financial Information
|                              
|Item 1                         | Financial Statements                                                                     | 1   
|                              
|Item 2                         | Managements Discussion and Analysis of Financial Condition and    Results of Operations | 9   
|                              
|Item 3                         | Quantitative and Qualitative Disclosures About Market Risk                               | 13  
|                              
|Item 4                         | Controls and Procedures                                                                  | 14  
|                              
|PART II  Other Information   
|                              
|Item 1                         | Legal Proceedings                                                                        | 16  
|                              
|Item 2                         | Changes in Securities and Use of Proceeds                                                | 16  
|                              
|Item 3                         | Defaults Upon Senior Securities                                                          | 16  
|                              
|Item 4                         | Submission of Matters to a Vote of Securities Holders                                    | 16  
|                              
|Item 5                         | Other Information                                                                        | 16  
|                              
|Item 6                         | Exhibits and Reports on Form 8-K                                                         | 16  
|                              
|SIGNATURES                     |                                                                                          | 18  

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

First Federal Bancshares, Inc. and
Subsidiary Consolidated Statements of Financial Condition (In thousands of dollars,
except share data) (unaudited)

|                                                              | September 30,
2003 |  | December 31,
2002
|------------------------------------------------------------- | ------------------ |  | -----------------
|                                                              |                    |  |                  
|ASSETS                                                        |                    |  |                  
|Cash and cash equivalents                                     |                    |  | $                
|Time deposits in other financial institutions                 |                    |  |                  
|Securities available-for-sale                                 |                    |  |                  
|Securities held-to-maturity (fair value:                      |                    | 
|December 31 - $24,764)                                        |                    |  |                  
|Loans receivable, net                                         |                    |  |                  
|Real estate owned, net                                        |                    |  |                  
|Premises and equipment                                        |                    |  |                  
|Accrued interest receivable                                   |                    |  |                  
|Goodwill                                                      |                    |  |                  
|Core deposits and other intangibles                           |                    |  |                  
|Other assets                                                  |                    |  |                  
|Due from broker                                               |                    |  |                  
|                                                              |                    |  |                  
|TOTAL ASSETS                                                  |                    |  | $                
|                                                              |                    |  |                  
|                                                              |                    | 
|LIABILITIES AND SHAREHOLDERS EQUITY                          |                    | 
|LIABILITIES                                                   |                    | 
|Deposits                                                      |                    |  | $                
|Advances from borrowers for taxes and insurance               |                    |  |                  
|Federal Home Loan Bank advances                               |                    |  |                  
|Accrued interest payable                                      |                    |  |                  
|Other liabilities                                             |                    |  |                  
|                                                              |                    |  |                  
|Total liabilities                                             |                    |  |                  
|                                                              |                    | 
|SHAREHOLDERS EQUITY                                          |                    | 
|Preferred stock, $.01 par value, 1,000,000 shares authorized; |                    | 
|none issued or outstanding                                    |                    |  |                  
|Common stock, $.01 par value, 4,000,000 shares authorized;    |                    | 
|2,242,500 shares issued                                       |                    |  |                  
|Additional paid-in capital                                    |                    |  |                  
|Unearned ESOP shares                                          |                    |  |                  
|Unearned stock awards                                         |                    |  |                  
|Treasury stock (September 30 -394,647 shares,                 |                    |  |                  
|December 31 - 180,557)                                        |                    | 
|Retained earnings                                             |                    |  |                  
|Accumulated other comprehensive income                        |                    |  |                  
|                                                              |                    |  |                  
|Total shareholders equity                                    |                    |  |                  
|                                                              |                    |  |                  
|                                                              |                    | 
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                    |                    |  | $                
|                                                              |                    |  |                  
|                                                              |                    | 

|See notes to consolidated financial
statements.


1
|---------------------------------------------------

---

First Federal Bancshares, Inc.
and Subsidiary 
Consolidated Statements of Income 
(in thousands of dollars, except share data)
(unaudited)

|                                        | Three Months
Ended September 30, |  | Nine Months
Ended September 30,
|--------------------------------------- | -------------------------------- |  | -------------------------------
|                                        |                                  |  |                                
|
|                                        |                                  |  |                                
|Interest income                         |                                  |  |                                
|Loans                                   |                                  |  | $                              
|Securities                              |                                  |  |                                
|Other interest income                   |                                  |  |                                
|                                        |                                  |  |                                
|Total interest income                   |                                  |  |                                
|Interest expense                        |                                  | 
|Deposits                                |                                  |  |                                
|Federal Home Loan Bank advances         |                                  |  |                                
|                                        |                                  |  |                                
|Total interest expense                  |                                  |  |                                
|                                        |                                  |  |                                
|Net interest income                     |                                  |  |                                
|Provision for loan losses               |                                  |  |                                
|                                        |                                  |  |                                
|Net interest income after provision for |                                  | 
|loan losses                             |                                  |  |                                
|Noninterest income                      |                                  | 
|Service charges                         |                                  |  |                                
|Loan origination and servicing fees     |                                  |  |                                
|Other fee income                        |                                  |  |                                
|Net gain on sale of securities          |                                  |  |                                
|Gain on sale of branch                  |                                  |  |                                
|Recovery of impairment loss             |                                  |  |                                
|Other income                            |                                  |  |                                
|                                        |                                  |  |                                
|Total noninterest income                |                                  |  |                                
|Noninterest expense                     |                                  | 
|Compensation and benefits               |                                  |  |                                
|Occupancy and equipment                 |                                  |  |                                
|Data processing                         |                                  |  |                                
|Federal insurance premiums              |                                  |  |                                
|Advertising                             |                                  |  |                                
|Professional fees                       |                                  |  |                                
|Other noninterest expenses              |                                  |  |                                
|                                        |                                  |  |                                
|Total noninterest expense               |                                  |  |                                
|                                        |                                  |  |                                
|Income before income taxes              |                                  |  |                                
|Provision for income taxes              |                                  |  |                                
|                                        |                                  |  |                                
|Net income                              |                                  |  | $                              
|                                        |                                  |  |                                
|Earnings per share                      |                                  | 
|Basic                                   |                                  |  | $                              
|Diluted                                 |                                  |  | $                              
|Comprehensive income (loss)             |                                  |  | $                              
|                                        |                                  |  |                                

|See notes to consolidated financial
statements.


2
|---------------------------------------------------

---

First Federal Bancshares, Inc.
and Subsidiary
Consolidated Statements of Shareholders Equity
Nine Months Ended
September 30, 2002 and 2003
(in thousands of dollars, except share data)
(unaudited)

|                                       | Common
Stock | Additional
Paid-in
Capital | Unearned
ESOP
Shares | Unearned
Stock
Awards | Treasury
Stock | Retained
Earnings | Accumulated
Other
Compre-
hensive
Income | TotalStock-
holders
Equity
|-------------------------------------- | ------------ | -------------------------- | -------------------- | --------------------- | -------------- | ----------------- | ---------------------------------------- | ---------------------------
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Balance at December 31, 2001           |              |                            | $                    | 22                    |                | $                 | 21,418                                   |                            
|Purchase of 300,110 shares of treasury |              |                           
|stock                                  |              |                            |                      |                      |                |                   |                                         |                            
|ESOP shares earned                     |              |                            |                      |                      |                |                   | 102                                      |                            
|Stock awards earned                    |              |                            |                      |                      |                |                   |                                         |                            
|Dividends declared ($.24 per share)    |              |                            |                      |                      |                |                   |                                         |                            
|Comprehensive income                   |              |                           
|Net income                             |              |                            |                      |                      |                |                   |                                         |                            
|Change in fair value of securities     |              |                           
|classified as available-for-sale, net  |              |                           
|of reclassification and tax effects    |              |                            |                      |                      |                |                   |                                         |                            
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Total comprehensive income             |              |                            |                      | 2,649                 |               
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Balance at September 30, 2002          |              |                            | $                    | 22                    |                | $                 | 21,520                                   |                            
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Balance at December 31, 2002           |              |                            | $                    | 22                    |                | $                 | 22,629                                   |                            
|Purchase of 239,950 shares of treasury |              |                           
|stock                                  |              |                            |                      |                      |                |                   |                                         |                            
|Options exercised (25,860 shares)      |              |                            |                      |                      |                |                   | (132                                     | )                          
|ESOP shares earned                     |              |                            |                      |                      |                |                   | 185                                      |                            
|Stock awards earned                    |              |                            |                      |                      |                |                   |                                         |                            
|Dividends declared ($.30 per share)    |              |                            |                      |                      |                |                   |                                         |                            
|Comprehensive income                   |              |                           
|Net income                             |              |                            |                      |                      |                |                   |                                         |                            
|Change in fair value of securities     |              |                           
|classified as available-for-sale, net  |              |                           
|of reclassification and tax effects    |              |                            |                      |                      |                |                   |                                         |                            
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Total comprehensive income             |              |                            |                      | 494                   |               
|                                       |              |                            |                      |                       |                |                   |                                          |                            
|Balance at September 30, 2003          |              |                            | $                    | 22                    |                | $                 | 22,682                                   |                            
|                                       |              |                            |                      |                       |                |                   |                                          |                            

|See notes to consolidated financial
statements.


3
|---------------------------------------------------

---

First Federal Bancshares, Inc.
and Subsidiary
Consolidated Statements of Cash Flows 
(in thousands of dollars)
(unaudited)

|                                                              | Nine Months Ended
September 30,
|------------------------------------------------------------- | -------------------------------
|                                                              |                                
|
|                                                              |                                
|CASH FLOWS FROM OPERATING ACTIVITIES                          |                                
|Net income                                                    |                                
|Adjustments to reconcile net income to net cash provided by   |                                
|operating activities                                          |                                
|Provision for depreciation                                    |                                
|Loss (gain) on sale of real estate owned                      |                                
|Net amortization of premiums and discounts                    |                                
|ESOP compensation expense                                     |                                
|Stock award compensation expense                              |                                
|Amortization of intangible assets                             |                                
|Provision for loan losses                                     |                                
|Dividend reinvestments                                        |                                
|Federal Home Loan Bank stock dividends                        |                                
|Gain on sale of securities                                    |                                
|Gain on sale of Mt. Sterling branch                           |                                
|Net changes in                                                |                                
|Accrued interest receivable and other assets                  |                                
|Deferred loan costs                                           |                                
|Accrued interest payable and other liabilities                |                                
|                                                              |                                
|Net cash from operating activities                            |                                
|CASH FLOWS FROM INVESTING ACTIVITIES                          |                                
|Net change in time deposits in other financial institutions   |                                
|Purchase of securities available-for-sale                     |                                
|Purchase of securities held-to-maturity                       |                                
|Principal paydowns on mortgage-backed securities              |                                
|available-for-sale                                            |                                
|Principal paydowns on mortgage-backed securities              |                                
|held-to-maturity                                              |                                
|Purchase of Federal Home Loan Bank stock                      |                                
|Proceeds from maturities of securities available-for-sale     |                                
|Proceeds from maturities of securities held-to-maturity       |                                
|Proceeds from sale of securities available-for-sale           |                                
|Purchase of loans                                             |                                
|Capital expenditures of real estate owned                     |                                
|Net decrease in loans receivable                              |                                
|Proceeds from sale of real estate owned                       |                                
|Proceeds from sale of Mt. Sterling branch                     |                                
|Purchase of property and equipment                            |                                
|                                                              |                                
|Net cash from investing activities                            |                                
|CASH FLOWS FROM FINANCING ACTIVITIES                          |                                
|Net increase in deposits                                      |                                
|Net change in advances from borrowers for taxes and insurance |                                
|Purchase of treasury stock                                    |                                
|Dividends paid                                                |                                
|Options exercised                                             |                                
|Purchase of Federal Home Loan Bank advances                   |                                
|                                                              |                                
|Net cash from financing activities                            |                                
|                                                              |                                
|Net change in cash and cash equivalents                       |                                
|Cash and cash equivalents                                     |                                
|Beginning of period                                           |                                
|                                                              |                                
|End of period                                                 |                                
|                                                              |                                

|See notes to consolidated financial
statements.


4
|---------------------------------------------------

---

|Supplemental disclosures of cash flow information |  |  |   |        |  |   |       | 
|------------------------------------------------- |  |  | - | ------ |  | - | ----- | 
|Cash paid during the period for                   |  | 
|Interest                                          |  |  | $ | 5,196  |  | $ | 4,582 | 
|Taxes, net of refunds                             |  |  |   | 1,029  |  |   | 891   | 
|Transfers to real estate owned                    |  |  |   | 232    |  |   | 34    | 
|Transfer of securities to available-              |  | 
|for-sale from held-to-maturity                    |  | 
|on January 24, 2003 at fair value                 |  |  |   | 24,471 |  |   |      | 
|Due from broker                                   |  |  |   | 5,005  |  |   |      | 

|See notes to consolidated financial
statements.


5
|---------------------------------------------------

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FIRST FEDERAL
BANCSHARES, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS September 30, 2003(table amounts in thousands of dollars, except share data)

Note 1  Basis of Presentation

The accompanying interim consolidated
financial statements have been prepared pursuant to the rules and regulations for
reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles
generally accepted in the United States of America are not included herein. These interim
statements should be read in conjunction with First Federal Bancshares, Inc.s
(First Federal Bancshares or the Company) Annual Report on Form
10-K. The December 31, 2002 balance sheet presented herein has been derived from the
audited financial statements included in the Companys Annual Report on Form 10-K,
but does not include all disclosures required by accounting principles generally accepted
in the United States of America.

Interim statements are subject to
possible adjustment in connection with the annual audit of the Company for the year ending
December 31, 2003. In the opinion of management of the Company, the accompanying unaudited
interim consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the consolidated financial
position and consolidated results of operations for the periods presented. The results of
operations for interim periods are not necessarily indicative of the results to be
expected for the full year.

Note 2  Acquisition of PFSB
Bancorp, Inc.

On November 22, 2002, the Company completed
the acquisition of PFSB Bancorp, Inc. (PFSB), and its wholly owned subsidiary,
Palmyra Savings, pursuant to an Agreement and Plan of Merger dated as of June 4, 2002, by
and between the Company and PFSB. The acquisition was completed through the merger of PFSB
with and into the Company. As part of the acquisition, Palmyra Savings merged with and
into First Federal Bank (First Federal or the Bank), the
Companys wholly owned subsidiary, with First Federal being the surviving bank. First
Federal Bancshares paid approximately $4.4 million in cash and issued approximately
252,000 shares of the Companys common stock to the former stockholders of PFSB. The
PFSB acquisition included total assets of approximately $73.8 million and three banking
offices in northeast Missouri.

PFSB results of operations have been
reflected in the Companys consolidated statements of income beginning as of the
acquisition date. The total net interest income, total income, net income, and basic and
diluted earnings per share for the three and nine months ended September 30, 2003 and the
proforma net interest income, total income, net income, and basic and diluted earnings per
share for the three and nine months ended September 30, 2002 after giving effect to the
PFSB acquisition as if it occurred on January 1, 2002 are as follows:

6

---

Note 2  Acquisition of PFSB
Bancorp, Inc. (continued)

|                           | For the three months
Ended September 30, |  | For the nine months
Ended September 30,
|-------------------------- | ---------------------------------------- |  | ---------------------------------------
|
|                           |                                          |  |                                        
|
|Net interest income        |                                          |  | $                                      
|Total income               |                                          |  |                                        
|Net income                 |                                          |  |                                        
|Basic earnings per share   |                                          |  |                                        
|Diluted earnings per share |                                          |  |                                        

Note 3  Earnings
Per Share

For purposes of per share
calculations, the Company had 1,722,273 and 1,664,320 shares of common stock outstanding
at September 30, 2003 and 2002. Basic earnings per share for the nine months ended
September 30, 2003 and 2002 were computed by dividing net income by the weighted average
number of shares outstanding. Diluted earnings per share for the nine months ended
September 30, 2003 and 2002 were computed by dividing net income by the weighted average
number of shares outstanding, adjusted for the dilutive effect of the outstanding stock
options and stock awards. Computations for basic and diluted earnings per share are
provided below.

|                                  | For the three months
Ended September 30, |  | For the nine months
Ended September 30,
|--------------------------------- | ---------------------------------------- |  | ---------------------------------------
|
|                                  |                                          |  |                                        
|
|Basic                             |                                          |  |                                        
|Net income                        |                                          |  | $                                      
|                                  |                                          |  |                                        
|Weighted average common shares    |                                          | 
|outstanding                       |                                          |  |                                        
|                                  |                                          |  |                                        
|Basic earnings per common share   |                                          |  | $                                      
|                                  |                                          |  |                                        
|                                  |                                          | 
|Diluted                           |                                          | 
|Net income                        |                                          |  | $                                      
|                                  |                                          |  |                                        
|Weighted average common shares    |                                          | 
|outstanding                       |                                          |  |                                        
|Dilutive effect of stock options  |                                          |  |                                        
|Dilutive effect of stock awards   |                                          |  |                                        
|                                  |                                          |  |                                        
|                                  |                                          | 
|Diluted average common shares     |                                          |  |                                        
|                                  |                                          |  |                                        
|                                  |                                          | 
|Diluted earnings per common share |                                          |  | $                                      
|                                  |                                          |  |                                        

7

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Note 4  Stock
Options

The Company applies Accounting
Principles Board (APB) Opinion 25 and related interpretations in accounting for its stock
option plan. Accordingly, no compensation cost has been recognized at the date of grant.
Had compensation cost been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the
Companys net income and earnings per share would have been reduced to the pro forma
amounts in the table below. For purposes of pro forma disclosure, the estimated fair value
of the options is amortized to expense over the options vesting period.

|                               | For the three months
Ended September 30, |  | For the nine months
Ended September 30,
|------------------------------ | ---------------------------------------- |  | ---------------------------------------
|
|                               |                                          |  |                                        
|
|Net income as reported         |                                          |  | $                                      
|Pro forma net income           |                                          |  |                                        
|Earnings per share as reported |                                          | 
|Basic                          |                                          |  |                                        
|Diluted                        |                                          |  |                                        
|Pro forma earnings per share   |                                          | 
|Basic                          |                                          |  |                                        
|Diluted                        |                                          |  |                                        

Pursuant to its 2001 stock-based
incentive plan, the Company awarded 89,700 shares of restricted stock during 2001. These
shares vest over a five-year period. The unamortized cost of shares not yet earned
(vested) is reported as a reduction of shareholders equity.

Note 5  Transfer of
Securities Held to Maturity

During the first quarter of 2003, as
a result of the acquisition of PFSB, changes in the structure of the balance sheet, and
for asset/liability management purposes, management revised the Company policy to classify
all securities as available for sale. Effective January 31, 2003, the Company reclassified
all of its securities held-to-maturity to securities available-for-sale. The securities
that were reclassified had a book value of $24.2 million and a fair value of $24.5 million
as of that date. The reclassification of these securities resulted in a decrease in
securities held-to-maturity of $24.5 million from December 31, 2002 to March 31, 2003, and
the majority of the $35.2 million increase in available-for-sale securities during the
same period.

Note 6  Sale of
Branch

The Companys subsidiary, First
Federal Bank, completed the sale of its Mt. Sterling, Illinois branch office to Beardstown
Savings s.b. on September 26, 2003. The sale included the assumption of approximately $6.2
million in deposits at a 6.5% premium and miscellaneous other assets totaling
approximately $106,000. A gain of $428,000 was recorded on the sale.

8

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ITEM 2.
MANAGEMENTS DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND                
RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains certain
forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities Reform Act
of 1995 as amended, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are generally
identifiable by use of the words such as believe, expect,
intend, anticipate, estimate, project, or
similar expressions. The Companys ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a material
adverse affect on the operations and future prospects of the Company and its wholly-owned
subsidiaries include, but are not limited to, changes in: interest rates; general economic
conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve Board; the
quality or composition of the loan or investment portfolios; demand for loan products;
deposit flows; competition; demand for financial services in the Companys market
area; and accounting principles, policies, and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and its
business, including additional factors that could materially affect the Companys
financial results, is included in the Companys filings with the Securities and
Exchange Commission.

The following discussion compares the
financial condition of First Federal Bancshares and its wholly owned subsidiary, First
Federal, at September 30, 2003 to its financial condition at December 31, 2002 and
the results of its operations for the three-month and nine-month periods ended September
30, 2003 to the same periods in 2002. This discussion should be read in conjunction with
the interim financial statements and footnotes included herein.

FINANCIAL CONDITION

Total assets were $312.4 million at
September 30, 2003 and $316.4 million at December 31, 2002. During the nine months
ended September 30, 2003, cash and cash equivalents decreased $24.5 million primarily due
to the timing of called and purchased securities and the sale of the Mt. Sterling,
Illinois branch office. Securities available-for-sale increased $56.5 million to $148.1
million at September 30, 2003 due to the Companys reevaluation of the classification
of the securities portfolio effective January 31, 2003. As a result of the acquisition of
PFSB, changes in the structure of the balance sheet, and for asset/liability management
purposes, management revised the Companys policy to classify all securities as
available-for-sale. The securities that were reclassified had a book value of $24.2
million and a fair value of $24.5 million as of that date. The reclassification of these
securities resulted in a decrease in securities held-to-maturity of $24.5 million from
December 31, 2002 to September 30, 2003. The remaining $32.1 million increase in
securities available-for-sale was primarily a result of additional purchases funded
through a decrease in cash and cash equivalents and principal repayments on loans. Loans
decreased $17.3 million to $133.0 million at September 30, 2003 primarily as a result of portfolio
loans refinancing into the Federal Home Loan Bank Mortgage Partnership Finance fixed rate
program and also to other competitors due to the lower interest rate environment. The
Company also had an amount due from broker at September 30, 2003 for securities that
matured or were sold but not yet settled.

The allowance for loan losses was
$980,000 at September 30, 2003 and $976,000 at December 31, 2002. There were no
impaired loans at either date. The allowance for loan losses represented .73% of total
loans and 61.25% of nonperforming loans at September 30, 2003 compared to .65% of total
loans and 50.89% of nonperforming loans at December 31, 2002. Nonperforming assets totaled
$1.8 million and $2.2 million at September 30, 2003 and December 31, 2002, respectively.
The ratio of non-performing assets to total assets at September 30, 2003 was .56% compared
to .69% at December 31, 2002.

9

---

Total liabilities at September 30,
2003 were $271.8 million compared to $269.4 million at December 31, 2002, an increase
of $2.4 million. The increase in total liabilities was primarily due to a $4.0 million
Federal Home Loan advance recorded in September 2003, partially offset by a decrease in
customer deposits due to the sale of the Mt. Sterling, Illinois branch office.

Shareholders equity at
September 30, 2003 was $40.6 million compared to $47.0 million at December 31, 2002,
a decrease of $6.5 million. The decrease primarily reflects the repurchase of treasury
stock totaling $7.3 million and a decrease in the fair value of securities
available-for-sale, net of tax, of $1.8 million, offset by net income of $2.3 million.

RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002

Net income increased $428,000 to
$925,000 for the quarter ended September 30, 2003 compared to the same period in 2002. The
increase in net income was primarily a result of an increase in net interest income and an
increase in non-interest income offset by increases in noninterest expense and the income
tax provision.

Net interest income was $2.4 million
for the quarter ended September 30, 2003 compared to $1.7 million for the same prior year
period. The increase in net interest income was primarily a result of an increase in the
net interest spread and the net interest margin to 2.73% and 3.02%, respectively, for the
quarter ended September 30, 2003 from 2.42% and 2.89% for the same period in 2002 and an
increase in volume of interest-earning assets and interest-bearing liabilities as a result
of the acquisition of PFSB in the last quarter of 2002. The increase in the spread and the
margin was due largely to the decrease in the cost of funds exceeding the decrease in the
yield on interest-earning assets as interest-earning assets and interest-bearing
liabilities repriced downward in reaction to the continued decreasing interest rate
environment. The average yield on interest-earning assets decreased to 4.93% for the
quarter ended September 30, 2003 from 5.40% for the same quarter in 2002, while the
average yield on interest-bearing liabilities decreased to 2.20% for the quarter ended
September 30, 2003 from 2.98% for the same period in 2002. The ratio of average
interest-earning assets to average interest-bearing liabilities decreased to 115.06% from
118.84% for the three-month periods, respectively.

The provision for loan losses was
$60,000 for the quarter ended September 30, 2003 and zero for the quarter ended September
30, 2002. The increase in the provision for loan losses can be attributed to increased
charge-offs of consumer loans, increased classified loans, and a shift in the composition
of the loan portfolio during the three month period. The shift in the loan portfolio
occurred due to a decrease in lower risk one-to-four-family mortgage loans, offset by an
increase in commercial loans which are inherently higher risk in nature. On a quarterly
basis, management of the Company meets to review the allowance for loan losses. Management
classifies loans in compliance with regulatory classifications. Classified loans are
individually reviewed to arrive at specific reserves for those loans. Once the specific
portion of the allowance is calculated, management calculates a historical portion for
each loan category based on loan loss history, peer data, current economic conditions and
trends in the portfolio, including delinquencies and impairments, as well as changes in
the composition of the loan portfolio. Although management believes that the allowance for
loan losses reflected probable incurred losses on existing loans at September 30, 2003,
there can be no assurance that such losses will not exceed estimated amounts. Future
adjustments to the allowance may be necessary due to economic, operating, regulatory and
other conditions that may be beyond the Companys control. The allowance for loan
losses as of September 30, 2003 was maintained at a level that represents
managements best estimate of losses in the loan portfolio and such losses were both
probable and reasonably estimatable.

Noninterest income was $953,000 for
the three-month period ended September 30, 2003 compared to $130,000 for the same period
in 2002. The increase in noninterest income was primarily a result of a $111,000 increase
in loan origination and servicing fees related to increased loan originations in the FHLB
Mortgage Partnership Finance program, a $223,000 increase in net gains on the sale of
securities, and a $428,000 gain on the sale of the Mt. Sterling, Illinois branch office.
The remainder of the increase in noninterest income was attributed to an increase of
$18,000 in service charges, an increase of $16,000 in other fee income, and an increase
of $27,000 in other income. The increases in service charges and fee income are primarily
due to the acquisition of PFSB

10

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resulting in an increase in deposits
and associated fee income. The decrease in deposits resulting from the sale of the Mt.
Sterling branch on September 26, 2003 did not have an impact on fee income during this
quarter.

Noninterest expense was $1.7 million
and $1.0 million for the quarters ended September 30, 2003 and 2002. The increase in
noninterest expense primarily reflects increased compensation and benefits expense of
$399,000 associated with an increase in the number of employees as a result of the PFSB
acquisition in November 2002, and an increase in employee benefits including health
insurance premiums and retirement funds. Occupancy and equipment expense, data processing
expense, advertising expense, professional fees, and other noninterest expenses also
experienced increases during the period, primarily due to the acquisition.

The Companys income tax expense
increased $321,000 to $614,000 for the quarter ended September 30, 2003 compared to
$293,000 during the same period in 2002. Income tax expense was approximately 40% and 37%
of pretax income for 2003 and 2002. The increase in the effective tax rate was a result of
increases in nondeductible expenses primarily related to the ESOP.

RESULTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002

Net income increased $831,000 to
$2.3 million for the nine months ended September 30, 2003 compared to the same period in
2002. The increase in net income was primarily a result of an increase in net interest
income and an increase in non-interest income, offset by increases in noninterest expense
and the income tax provision.

Net interest income was $6.6 million
for the nine months ended September 30, 2003 compared to $5.2 million for the same period
in 2002. The increase in net interest income was primarily a result of an increase in
volume of interest-earning assets and interest-bearing liabilities as a result of the
acquisition of PFSB in the last quarter of 2002. The increase in the volume of these
interest-earning assets and interest-bearing liabilities during the nine months ended
September 30, 2003 was offset by a decrease in the net interest margin to 2.83% from 2.92%
for the same period in 2002. The net interest spread increased to 2.52% from 2.41% for the
nine-month periods ended September 30, 2003, as the decrease in the cost of funds exceeded
the decrease in the yield on interest-earning assets due to the continued declining
interest rate environment. The average yield on interest-earning assets decreased 46 basis
points to 5.00% for the nine months ended September 30, 2003 from 5.46% for the same
period in 2002, while the average yield on interest-bearing liabilities decreased 57 basis
points to 2.48% for the nine months ended September 30, 2003 from 3.05% for the same prior
year period. The ratio of average interest-earning assets to average interest-bearing
liabilities was 114.44% compared to 120.16% for the nine-month periods ended September 30,
2003 and September 30, 2002.

The provision for loan losses was
$60,000 for the nine months ended September 30, 2003 and $7,000 for the same period in
2002. The increase in the provision for loan losses can be attributed to increased
charge-offs of consumer loans increased classified loans, and a shift in the composition
of the loan portfolio during the nine-month period. The shift in the loan portfolio was a
result of decreases in lower risk one-to-four-family mortgage loans, offset by an increase
in commercial loans, which are inherently higher risk in nature.

Noninterest income was $2.1 million
for the nine-month period ended September 30, 2003 compared to $389,000 for the same
period in 2002. The increase in noninterest income was primarily a result of a $317,000
increase in loan origination and servicing fees related to increased loan originations in
the FHLB Mortgage Partnership Finance program, a $482,000 increase in net gains on the
sale of securities, a $355,000 recovery from an impairment loss related to certificates of
deposit purchased through a broker who was charged by the SEC with securities fraud in
relationship to these certificates, and a $428,000 gain on the sale of the Mt. Sterling,
Illinois branch office. Services charges increased $55,000 and other fee income increased
$59,000. The increases in service charges and fee income are primarily due to the
acquisition of PFSB resulting in an increase in deposits and associated fee income. The
decrease in deposits resulting from the sale of the Mt. Sterling branch on September 26,
2003 did not have an impact on fee income during this period.

11

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Noninterest expense was $4.9 million
and $3.2 million for the nine-months ended September 30, 2003 and 2002. The increase in
noninterest expense primarily reflects increased compensation and benefits expense of
$972,000 associated with an increase in the number of employees as a result of the PFSB
acquisition in November 2002, and an increase in employee benefits including health
insurance premiums and retirement funds. Occupancy and equipment expense, data processing
expense, advertising expense, professional fees and other noninterest expenses also
experienced increases during the period, primarily due to the acquisition.

The Companys income tax
expense increased $576,000 to $1,481,000 for the nine-months ended September 30, 2003
compared to the same period in 2002. Income tax expense was approximately 39% and 38% of
pretax income in 2003 and 2002.

LIQUIDITY

The Company must maintain an adequate
level of liquidity to ensure the availability of sufficient funds to fund loan
originations and deposit withdrawals, to satisfy other financial commitments, and to take
advantage of investment opportunities. The Company invests excess funds in overnight
deposits and other short-term interest-bearing assets to provide liquidity to meet these
needs. At September 30, 2003, cash and cash equivalents totaled $18.6 million. At
September 30, 2003, the Company had commitments to fund loans of $1.5 million. At the same
time, certificates of deposit which are scheduled to mature in one year or less totaled
$103.1 million. Management believes, based on past experience, that a significant portion
of those deposits will remain with the Company. Based on the foregoing, in addition to the
Companys high level of core deposits and capital, the Company considers its
liquidity and capital resources sufficient to meet its outstanding short-term and
long-term needs.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards
Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equities,both of which generally become effective in the quarter beginning July
1, 2003. Management determined that, upon adopting the new standards, they will not
materially affect the Companys operating results or financial condition because the
Company does not have these instruments or engage in these activities.

In November 2002, the FASB issued
FASB Interpretation (FIN) 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of SFAS No. 5, 57, and 107 and Rescission of FIN 34. This
Interpretation clarifies the requirements of SFAS No. 5, Accounting for
Contingencies, relating to the guarantors accounting for and disclosure of the
issuance of certain types of guarantees. The disclosure provisions of the Interpretation
are effective for financial statements in interim or annual reports for periods that end
after December 15, 2002. However, the provisions for initial recognition and measurement
are effective on a prospective basis for guarantees that are issued or modified after
December 31, 2002, irrespective of the guarantors year-end. The application of this
Interpretation did not have a material impact on the Companys consolidated statement
of financial condition or consolidated statement of income.

In January 2003, FASB issued FIN 46,
Consolidation of Variable Interest Entities. FIN 46 requires a company to
consolidate a variable interest entity (VIE) if the company has variable
interests that give it a majority of the expected losses or a majority of the expected
residual returns of the entity. FIN 46 is effective immediately for VIEs created after
January 31, 2003. For VIEs created prior to February 1, 2003, FIN 46 will apply in the
first interim period or fiscal year beginning after December 15, 2003. The implementation
of FIN 46 did not have an impact on the Companys consolidated statement of financial
condition or consolidated statement of income.

CAPITAL RESOURCES

The Bank is subject to
capital-to-asset requirements in accordance with bank regulations. The following table
summarizes the Banks regulatory capital requirements versus actual capital as of
September 30, 2003:

12

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|                           | ACTUAL |  | REQUIRED |        | EXCESS
|-------------------------- | ------ |  | -------- | ------ | ------
|                           | AMOUNT |  | %        | AMOUNT |       
|Core capital               |        |  | $        | 34,752 |       
|(to adjusted total assets) |        | 
|Risk-based capital         |        |  |          | 36,056 |       
|(to risk-weighted assets)  |        | 

On August 20, 2003, the Board of
Directors approved a stock repurchase plan to repurchase an additional 150,000 shares of
the Companys common stock. 149,489 shares have been repurchased through September
30, 2003 as part of this plan. An additional 90,461 shares were repurchased during 2003
under the prior repurchase program. On October 15, 2003, the Board of Directors approved a
stock repurchase plan to repurchase 12% of outstanding shares, or 222,024 shares. No
shares have been repurchased under this plan.

SUBSEQUENT EVENTS

During the quarter ended December 31,
2001, the Company recorded an impairment loss of $596,000 related to certificates of
deposit purchased through a broker who was charged by the SEC with securities fraud in
relationship to these certificates of deposit. The Company received a check in the amount
of $355,000 during April 2003 as an initial distribution of receivership assets. This
distribution represented 59.6% of the allowed claim. During September 2003, the Company
received a letter indicating that a second distribution of receivership of assets is in
progress. The Company expects to recover an additional $97,000 through this second
distribution however, due to the uncertainty of the ultimate distribution, no additional
amounts have been recorded in income.

ITEM 3. QUANTITATIVE AND
QUALITATIVEDISCLOSURES ABOUT MARKET RISK

Qualitative Aspects of Market
Risk.The Companys most significant form of market risk is interest
rate risk. The principal objectives of the Companys interest rate risk management
are to evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Companys business strategy,
operating environment, capital and liquidity requirements and performance objectives, and
manage the risk consistent with the Board of Directors approved guidelines. The
Company has an Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets monthly and reports trends and
interest rate risk position to the Board of Directors quarterly. The extent of the
movement of interest rates is uncertainty that could have a negative impact on the
earnings of the Company.

The Company has used the following
strategies to manage interest rate risk: (1) emphasizing the origination of
adjustable-rate and balloon loans and not originating long-term, fixed-rate loans for
retention in its portfolio; (2) emphasizing shorter term consumer loans; (3) introducing
floating-rate commercial business loans tied to the prime rate; (4) maintaining a high
quality securities portfolio that provides adequate liquidity and flexibility to take
advantage of opportunities that may arise from fluctuations in market interest rates, the
overall maturity of which is monitored in relation to the repricing of its loan portfolio;
and (5) using Federal Home Loan Bank advances to better structure maturities of its
interest rate sensitive liabilities. The Company currently does not participate in hedging
programs, interest rate swaps or other activities involving the use of off-balance sheet
derivative financial instruments.

Quantitative Aspects of Market
Risk.The Company primarily utilizes an interest sensitivity analysis
prepared by the Office of Thrift Supervision to review the level of interest rate risk of
the Bank. This analysis measures interest rate risk by computing changes in the net
portfolio value of the Banks cash flows from assets, liabilities and off-balance
sheet items in the event of a range of assumed changes in market interest rates. Net
portfolio value represents the market value of portfolio equity and is equal to the market
value of

13

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assets minus the market value of
liabilities, with adjustments made for off-balance sheet items. This analysis assesses
the risk of loss in market risk sensitive instruments in the event of a sudden and
sustained 100 to 300 basis point increase or decrease in market interest rates with no
effect given to any steps that management might take to counter the effect of that
interest rate movement. The following table, which is based on information provided to
the Bank by the Office of Thrift Supervision, presents the change in the Banks net
portfolio value at June 30, 2003, the latest date for which information is available,
that would occur upon an immediate change in interest rates based on Office of Thrift
Supervision assumptions, but without giving effect to any steps that management might
take to counteract that change. The Company expects Septembers net portfolio value
to be similar to that of June 30, 2003 as shown below. All model outputs associated with
the 300 and 200 bp scenarios are not applicable because of the abnormally low
prevailing interest rate environment.

|Change in
Interest Rates
in Basis Points(Rate Shock) | Net Portfolio Value | NPV as % of
Portfolio Value of Assets
|---------------------------------------------------- | ------------------- | -------------------------------------
|                                                     |                    
|
|                                                     |                     |                                      
|
|                                                     | 300                 |                                      
|                                                     | 200                 |                                      
|                                                     | 100                 |                                      
|                                                     | Static              |                                      
|                                                     | (100                | )                                    
|                                                     | (200                | )                                    
|                                                     | (300                | )                                    

The Office of Thrift Supervision uses
certain assumptions in assessing the interest rate risk of savings associations. These
assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under differing interest rate scenarios, among others.

As with any method of measuring
interest rate risk, certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees to changes
in market interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while interest
rates on other types may lag behind changes in market rates. Additionally, certain assets,
such as adjustable rate mortgage loans, have features that restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, if interest rates
change, expected rates of prepayments on loans and early withdrawals from certificates
could deviate significantly from those assumed in calculating the table.

ITEM 4: CONTROLS AND PROCEDURES

The Companys management,
including the Companys principal executive officer and principal financial officer,
have evaluated the effectiveness of the Companys disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended, (the Exchange Act). Based upon
their evaluation, the principal executive officer and principal financial officer
concluded that, as of the end of the period covered by this report, the Companys
disclosure controls and procedures were effective for the purpose of ensuring that the
information required to be disclosed in the reports that the Company files or submits
under the Exchange Act with the Securities and Exchange Commission (the SEC)
(1) is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and (2) is accumulated and communicated to the
Companys management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. In
addition, based on that evaluation, no change in the Companys internal control over
financial reporting occurred during the quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to

14

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materially affect, the
Companys internal control over financial reporting.

15

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PART II - - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

| | Periodically,
 there have been various claims and lawsuits involving the Company,  such as claims
                  to enforce  liens,  condemnation  proceedings  on properties in which
the Company holds  security                   interest,  claims  involving  the making
and  servicing of real  property  loans and other issues                   incident to
the Company's  business.  In the opinion of management,  after  consultation with the
                  Company's  legal  counsel,  no  significant  loss is expected from any
of such pending  claims or                   lawsuits.  The Company is not a party to any
material pending legal proceedings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 2.   CHANGES IN SECURITIES.

| | None
| | ----

ITEM 3.   DEFAULTS UPON SENIOR
SECURITIES.

| | None
| | ----

ITEM 4.  SUBMISSION OF MATTERS TO A
VOTE OF SECURITIES HOLDERS.

| | None
| | ----

ITEM 5. OTHER INFORMATION.

| | None
| | ----

ITEM 6.  EXHIBITS AND REPORTS ON
FORM 8-K.

| | (a) |  | Exhibits
| | --- |  | --------

| | 31.1
Rule 13a - 14(a)/15d - 14(a) Certification of the Chief Executive Officer.
| | -------------------------------------------------------------------------------

| | 31.2
Rule 13a - 14(a)/15d - 14(a) Certification of the Chief Financial Officer.
| | -------------------------------------------------------------------------------

| | 32.1
Section 1350 Certification of the Chief Executive Officer.
| | ---------------------------------------------------------------

| | 32.2
Section 1350 Certification of the Chief Financial Officer.
| | ---------------------------------------------------------------

| | (b) |  | Reports
on Form 8-K
| | --- |  | -------------------

| | The
Company filed a Current  Report on Form 8-K on September 29, 2003  announcing  that it
                           completed the sale of its Mt.  Sterling,  Illinois  branch
 office to  Beardstown  Savings                            s.b.  The press release was
included as an exhibit to the Form 8-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company filed a Current Report on Form 8-K on August 27, 2003 announcing
that it had completed its previously announced stock repurchase programs. The
press release was included as an exhibit to the Form 8-K.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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| | The
Company furnished a Current Report on Form 8-K on August 6, 2003 announcing corrected
diluted earnings per share for the six months ended June 30, 2003. The press release was
included as an exhibit to the Form 8-K.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company furnished a Current Form on Form 8-K on July 30, 2003 announcing its financial
results for the quarter ended June 30, 2003. The press release was included as an exhibit
to the Form 8-K.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company filed a Current Form on Form 8-K on July 22, 2003 announcing its wholly-owned
subsidiary, First Federal Bank, entered into an agreement to sell its Mt. Sterling,
Illinois branch office to Beardstown Savings s.b. The press release was included as an
exhibit to the Form 8-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

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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, INC.                                           
|----------------------- | -------------------------------------------------------------------------
|Date: November 14, 2003 | /s/ James J. Stebor
James J. Stebor
President and Chief Executive Officer
|Date: November 14, 2003 | /s/ Cathy D. Pendell
Cathy D. Pendell
Treasurer                          

18

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