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, 2004

# Commission file number
0-30753

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

|Delaware                                                       |  | 37-1397683                        | 
|-------------------------------------------------------------- |  | --------------------------------- | 
|(State or other jurisdiction of incorporation or organization) |  | (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 May 13, 2004 the Registrant
had outstanding 1,866,291 shares of common stock.



---

# FIRST FEDERAL BANCSHARES, INC.

Form 10-Q Quarterly Report

Index

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



---

# 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 and per share data)
(unaudited)

|                                                              | March 31,2004 |  | December 31,2003
|------------------------------------------------------------- | ------------- |  | ----------------
|ASSETS                                                        |               |  |                 
|Cash and cash equivalents                                     |               |  | $               
|Time deposits in other financial institutions                 |               |  |                 
|Securities available-for-sale                                 |               |  |                 
|Loans receivable, net                                         |               |  |                 
|Real estate owned, net                                        |               |  |                 
|Premises and equipment                                        |               |  |                 
|Accrued interest receivable                                   |               |  |                 
|Goodwill                                                      |               |  |                 
|Core deposits and other intangibles                           |               |  |                 
|Other assets                                                  |               |  |                 
|                                                              |               |  |                 
|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                                             |               |  |                 
|Subordinated debt                                             |               |  |                 
|                                                              |               |  |                 
|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 (March 31 - 376,209 shares,                    |               |  |                 
|December 31 - 388,313)                                        |               | 
|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 and per share data)
(unaudited)

|                                                    | Three Months Ended March 31,
|--------------------------------------------------- | ----------------------------
|
|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                      |                             
|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                                             |                             
|Weighted average shares                             |                             
|Comprehensive income                                |                             
|                                                    |                             

See notes to consolidated financial statements.

2

---

# First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders Equity
Three months ended March 31, 2003 and 2004
(in thousands of dollars, except share data)
(unaudited)

|                                               | CommonStock |  | AdditionalPaid-inCapital |    | UnearnedESOPShares |   | UnearnedStockAwards |   | TreasuryStock |        | RetainedEarnings |   | AccumulatedOtherCompre-hensiveIncome |   | TotalStock-holdersEquity
|---------------------------------------------- | ----------- |  | ------------------------ | -- | ------------------ | - | ------------------- | - | ------------- | ------ | ---------------- | - | ------------------------------------ | - | -------------------------
|Balance at December 31, 2002                   |             |  | $                        | 22 |                    | $ | 22,629              |   | $             | (1,390 | )                | $ | (1,016                               | ) | $                        
|Options exercised (4,534 shares)               |             |  |                          |   |                    |   | (39                 | ) |               |       |                  |   |                                     |   |                          
|ESOP shares earned                             |             |  |                          |   |                    |   | 46                  |   |               | 44     |                  |   |                                     |   |                          
|Stock awards earned                            |             |  |                          |   |                    |   |                    |   |               |       |                  |   | 68                                   |   |                          
|Dividends declared ($.08 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                     |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|                                               |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|Balance at March 31, 2003                      |             |  | $                        | 22 |                    | $ | 22,636              |   | $             | (1,346 | )                | $ | (948                                 | ) | $                        
|                                               |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|                                              
|                                              
|                                              
|Balance at December 31, 2003                   |             |  | $                        | 22 |                    | $ | 22,852              |   | $             | (1,211 | )                | $ | (745                                 | ) | $                        
|Options exercised (12,104 shares)              |             |  |                          |   |                    |   | (88                 | ) |               |       |                  |   |                                     |   |                          
|ESOP shares earned                             |             |  |                          |   |                    |   | 108                 |   |               | 45     |                  |   |                                     |   |                          
|Stock awards earned                            |             |  |                          |   |                    |   |                    |   |               |       |                  |   | 68                                   |   |                          
|Dividends declared ($.11 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                     |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|                                               |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|Balance at March 31, 2004                      |             |  | $                        | 22 |                    | $ | 22,872              |   | $             | (1,166 | )                | $ | (677                                 | ) | $                        
|                                               |             |  |                          |    |                    |   |                     |   |               |        |                  |   |                                      |   |                          
|                                               |             |  |                          |    |                    |   |                     |  

See notes to consolidated financial statements.

3

---

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

|                                                              | Three Months Ended
March 31,
|------------------------------------------------------------- | ----------------------------
|
|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                                    |                             
|Net changes in                                                |                             
|Accrued interest receivable and other assets                  |                             
|Deferred loan costs                                           |                             
|Accrued interest payable and other liabilities                |                             
|                                                              |                             
|Net cash provided from operating activities                   |                             
|                                                             
|CASH FLOWS FROM INVESTING ACTIVITIES                          |                             
|Purchase of securities available-for-sale                     |                             
|Purchase of securities held-to-maturity                       |                             
|Principal paydowns on mortgage-backed securities              |                             
|Redemption of Federal Home Loan Bank stock                    |                             
|Proceeds from maturities of securities                        |                             
|Proceeds from sale of securities available-for-sale           |                             
|Purchase of loans                                             |                             
|Net decrease in loans receivable                              |                             
|Proceeds from sale of real estate owned                       |                             
|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 |                             
|Proceeds from subordinated debt                               |                             
|Dividends paid                                                |                             
|Options exercised                                             |                             
|                                                              |                             
|Net cash from financing activities                            |                             
|                                                              |                             
|Net change in cash and cash equivalents                       |                             
|                                                             
|Cash and cash equivalents                                     |                             
|Beginning of period                                           |                             
|                                                              |                             
|End of period                                                 |                             
|                                                              |                             
|                                                             
|Supplemental disclosures of cash flow information             |                             
|Cash paid during the period for                               |                             
|Interest                                                      |                             
|Taxes, net of refunds                                         |                             
|Transfers to real estate owned                                |                             

See notes to consolidated financial statements.

4

---

FIRST FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(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 the Companys Annual Report on Form 10-K. The December 31,
2003 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, 2004. 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  Subordinated Debt and Trust Preferred Securities

On March 25, 2004, FFBI Capital
Trust I (the Trust), a Delaware statutory trust sponsored by the Company,
issued $7.0 million in the form of fixed/floating rate capital securities through a pooled
trust preferred securities offering. The proceeds from this issuance, along with the
Companys $217,000 capital contribution for the Trusts common securities, were
used to acquire $7.2 million aggregate principal amount of the Companys
fixed/floating rate junior subordinated deferrable interest debentures due 2034 (the
Debentures), which constitute the sole asset of the Trust. Prior to April 7,
2009 the interest rate on the Debentures and the capital securities is fixed at a rate of
5.838% and on or after April 7, 2009 the interest rate on the Debentures is variable and
adjustable quarterly at 2.80% over the three-month LIBOR. The stated maturity of
the Debentures is April 6, 2034.  In addition, the Debentures are subject to
redemption at par at the option of the Company, subject to prior regulatory approval, in
whole or in part on any interest payment date on or after April 7, 2009.

Under new accounting guidance,
FASB Interpretation No. 46, as revised in December 2003, the trust is not consolidated
with the Company. Accordingly, the Company does not report the securities issued by the
trust as liabilities, and instead reports as liabilities the subordinated debentures
issued by the Company and held by the trust, as these are no longer eliminated in
consolidation.

Note 3  Earnings Per Share

For purposes of per share
calculations, the Company had 1,866,291 and 2,066,477 shares of common stock outstanding
at March 31, 2004 and 2003. Basic earnings per share for the three months ended March 31,
2004 and 2003 were computed by dividing net income by the weighted average number of
shares outstanding. Diluted earnings per share for the three months ended March 31, 2004
and 2003 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.

5

---

|                                  | For the three months
ended March 31,
|--------------------------------- | ------------------------------------
|
|                                  |                                     
|
|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 |                                     
|                                  |                                     

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.

|                               | Three Months Ended
March 31, 2004 | Three Months Ended
March 31, 2003
|------------------------------ | --------------------------------- | ---------------------------------
|Net income as reported         |                                   |                                  
|Pro forma net income           |                                   |                                  
|Earnings per share as reported |                                   |                                  
|Basic                          |                                   |                                  
|Diluted                        |                                   |                                  
|Pro forma earnings per share   |                                   |                                  
|Basic                          |                                   |                                  
|Diluted                        |                                   |                                  

6

---

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.

# ITEM 2.   MANAGEMENTSDISCUSSION AND 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, Inc. (Company) and its wholly owned subsidiary, First Federal
Bank (Bank), at March 31, 2004 to its financial condition at December 31, 2003 and the results
of its operations for the three-month period ended March 31, 2004 to the same period in 2003. This
discussion should be read in conjunction with the interim financial statements and footnotes
included herein.

# FINANCIAL CONDITION

Total assets were $332.9 million at March 31,
2004 and $328.7 million at December 31, 2003. During the three months ended March 31, 2004,
cash and cash equivalents increased $4.1 million, which reflects excess operating cash resulting
from the timing of loan prepayments and an increase in customer deposits. Loans decreased $3.0
million 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. Securities available-for-sale increased $2.6 million to $163.0 million
primarily due to the timing of securities purchased and sold during the quarter.

The allowance for loan losses was $948,000 at
March 31, 2004 and $963,000 at December 31, 2003. There were no impaired loans at either date.
The allowance for loan losses represented .73% of total loans and 80.88% of nonperforming loans at
March 31, 2004 compared to .72% of total loans and 83.52% of nonperforming loans at December 31,
2003. Nonperforming assets totaled $1.4 million at March 31, 2004 and December 31, 2003. The ratio
of non-performing assets to total assets was .42% at both March 31, 2004 and December 31, 2003.

7

---

Total liabilities at March 31, 2004 were $290.0
million compared to $287.3 million at December 31, 2003, an increase of $2.6 million. The
increase in total liabilities primarily reflects an increase in customer deposits of $3.5 million
and the addition of $7.2 million of subordinated debt in connection with the issuance of trust
preferred securities. The increases in total liabilities were offset by a decrease in other
liabilities of $8.2 million primarily due to the payment and settlement of amounts due to broker for
the purchase of securities available for sale.

Shareholders equity at March
31, 2004 was $42.9 million compared to $41.4 million at December 31, 2003, an
increase of $1.5 million. The increase primarily reflects net income of $568,000 and an
increase in the fair value of securities available-for-sale, net of tax, of $683,000. The
Company anticipates a decrease in its equity resulting from the repurchase of stock
through the pending tender offer as further discussed on page nine.

# RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003

Net income decreased $49,000 to $568,000 for
the quarter ended March 31, 2004 compared to the same period in 2003. The decrease in net income was
primarily a result of a decrease in net interest income and increases in non-interest expense and
the income tax provision, partially offset by an increase in noninterest income.

Net interest income was $2.1 million for the
quarter ended March 31, 2004 compared to $2.2 million for the same prior year period. The slight
decrease in net interest income was primarily a result of small decreases in the net interest spread
and the net interest margin to 2.42% and 2.67%, respectively, for the quarter ended March 31, 2004
from 2.56% and 2.90%, respectively, for the quarter ended March 31, 2003. The average yield on
interest-earning assets decreased to 4.48% for the quarter ended March 31, 2004 from 5.27% for the
same quarter in 2003, while the average yield on interest-bearing liabilities decreased to 2.06% for
the quarter ended March 31, 2004 from 2.71% for the same period in 2003. The decreased net interest
margin reflects a slight decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities to 114.18% from 114.28% for the three-month periods respectively. The
issuance of the trust preferred securities, combined with the use of cash on hand to purchase shares
in the pending tender offer, is expected to decrease net interest income in future periods.

The provision for loan losses was zero for both
quarters ended March 31, 2004 and 2003 due to the overall stability in the amount of nonperforming
loans during the quarter.

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 March 31, 2004,
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 March 31, 2004 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 $570,000 for the
three-month period ended March 31, 2004 compared to $309,000 for the same period in 2003. The
increase in noninterest income was primarily a result of a $315,000 increase in net gains on the
sale of securities, and a $25,000 increase in recovery of impairment loss related to certificates of
deposit purchased through a broker who was charged by the SEC with securities fraud in relation to
these certificates. The increases in noninterest income were partially offset by small decreases in
service charges, loan origination and servicing fees, and other income during the quarter.

8

---

Noninterest expense was $1.7 million and $1.5
million for the quarters ended March 31, 2004 and 2003. The increase in noninterest expense
primarily reflects an increase in compensation and benefits expense of $175,000 associated with an
increase in salaries of $29,000 and an increase of $137,000 in employee benefit expenses, including
health insurance and retirement funds. Occupancy and equipment expense, data processing expense,
federal insurance premiums, and advertising expense all experienced slight decreases, while
professional fees and other noninterest expenses experienced small increases during the period.

The Companys federal income tax expense
increased $43,000 to $418,000 for the quarter ended March 31, 2004 compared to $375,000 during the
same period in 2003. Income tax expense was approximately 42% and 38% of pretax income in both
periods, respectively. The increase in the effective tax rate is largely due to an increase in
nondeductible ESOP expense as a result of the increase in the market value of the Companys
common stock.

# 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 March 31, 2004, cash and cash
equivalents totaled $33.2 million. The Company anticipates a reduction in its cash and cash
equivalents resulting from the purchase of treasury stock through the pending tender offer as
discussed below. At March 31, 2004, the Company had commitments to fund loans of $790,000. At
the same time, certificates of deposit which are scheduled to mature in one year or less totaled
$111.4 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.

# 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 March 31, 2003:

|                           | ACTUAL | REQUIRED | EXCESS
|-------------------------- | ------ | -------- | ------
|
|Core capital               |        |          | $     
|(to adjusted total assets) |        |         
|Risk-based capital         |        |          |       
|(to risk-weighted assets)  |        |         

SUBSEQUENT EVENTS

On April 16, 2004, the Company commenced a
tender offer for up to 560,000 of its common shares, at a price not greater than $34.00 nor less
than $31.00 per share, net to the seller in cash. The Company has reserved the right to purchase up
to an additional 37,300 shares if they are tendered pursuant to the offer, but it is not obligated
to do so. The offer is scheduled to expire at 5:00 pm, Mountain time, on May 21, 2004, unless the
Company elects to extend the offer. The complete terms and conditions of the offer are filed as
exhibits to a Tender Offer Statement on Schedule TO that was filed by the Company on April 16, 2004,
as amended, which is available free of charge by accessing the Securities and Exchange Commission
site on the World Wide Web, www.sec.gov.

9

---

Assuming the Company purchases the maximum of
560,000 shares that it is obligated to purchase pursuant to the offer at a purchase price of $34.00
per share, the Company expects the aggregate cost of such purchase to be approximately $19,290,000,
including estimated fees and expenses of approximately $250,000.

The tender offer is being financed with the
proceeds of trust preferred securities issued by the Company in a private placement, cash on hand
and a $ 6.0 million capital distribution from First Federal Bank.

# ITEM 3.   QUANTITATIVEAND QUALITATIVE DISCLOSURES 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 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 December 31, 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 Marchs net portfolio value to be similar to that
of December 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.

10

---

|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 which 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.

11

---

# 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,USE OF PROCEEDS AND ISSUERS PURCHASES OF EQUITY SECURITIES

| | On March 25, 2004, FFBI Capital
Trust I (the Trust), a Delaware statutory trust sponsored by the Company, issued $7.0
million in the form of fixed/floating rate capital securities through a pooled trust preferred
securities offering. The proceeds from this issuance, along with the Companys $217,000 capital
contribution for the Trusts common securities, were used to acquire $7.2 million aggregate
principal amount of the Companys fixed/floating rate junior subordinated deferrable interest
debentures due 2034 (the Debentures), which constitute the sole asset of the Trust. The
Company has the right, at one or more times, unless an event of default exists under the Debentures,
to defer interest payments on the Debentures for up to 20 consecutive quarterly periods. During this
time, the Corporation will be prohibited from declaring or paying cash dividends on its common
stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 3.   DEFAULTS UPONSENIOR SECURITIES.

| | None
| | ----

# ITEM 4.   SUBMISSION OF MATTERSTO A VOTE OF SECURITIES HOLDERS.

| | None
| | ----

# ITEM 5.   OTHER INFORMATION.

| | None
| | ----

# ITEM 6.   EXHIBITS AND REPORTSON 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.
| |  | ---- |  | ----------------------------------------------------------

12

---

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

| | The Company filed a Current Report
on Form 8-K on January 23, 2004 announcing the date of its annual meeting of stockholders. The press
release was included as an exhibit to the Form 8-K.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company furnished a Current
Report on Form 8-K on February 20, 2004 announcing results for the quarter and year ended December
31, 2003. The press release was included as an exhibit to the Form 8-K.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company furnished a Current
Report on Form 8-K on March 31, 2004 announcing corrected financial results for the quarter and year
ended December 31, 2003. The press release was included as an exhibit to the Form 8-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

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:   May 17, 2004 |                                                      |                                |  | /s/   James J. Stebor  | 
|                     |                                                     
|                     | James J. SteborPresident and Chief Executive Officer |                               
|Date:   May 17, 2004 |                                                      |                                |  | /s/   Cathy D. Pendell | 
|                     |                                                     
|                     | Cathy D. PendellTreasurer                            |                               

14

---