UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

| | [X] |  |  |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
  OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- |  |  |  | -----------------------------------------------------------------------------------

For the quarterly period ended June 30, 2002Commission file number 0-37053

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 [  ]

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

As of August 7, 2002 the Registrant had outstanding 1,889,340
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 | 7
| | ------ | --------------------------------------------------------------------------------------- | -

| | Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 10
| | ------ | ---------------------------------------------------------- | --

PART II  Other Information

| | Item 1 | Legal Proceedings | 12
| | ------ | ----------------- | --

| | Item 2 | Changes in Securities and Use of Proceeds | 12
| | ------ | ----------------------------------------- | --

| | Item 3 | Defaults Upon Senior Securities | 12
| | ------ | ------------------------------- | --

| | Item 4 | Submission of Matters to a Vote of Securities Holders | 12
| | ------ | ----------------------------------------------------- | --

| | Item 5 | Other Information | 12
| | ------ | ----------------- | --

| | Item 6 | Exhibits and Reports on Form 8-K | 13
| | ------ | -------------------------------- | --

|SIGNATURES |  | 14
|---------- |  | --



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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)

|                                                              | June 30,2002 |  | December 31,2001
|------------------------------------------------------------- | ------------ |  | ----------------
|ASSETS                                                        |              |  |                 
|Cash and cash equivalents                                     |              |  | $               
|Time deposits in other financial institutions                 |              |  |                 
|Securities available-for-sale                                 |              |  |                 
|Securities held-to-maturity (fair value: June 30  $19,900    |              | 
|December 31  $10,033)                                        |              |  |                 
|Loans receivable, net                                         |              |  |                 
|Real estate owned, net                                        |              |  |                 
|Premises and equipment                                        |              |  |                 
|Accrued interest receivable                                   |              |  |                 
|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                                             |              |  |                 
|                                                              |              |  |                 
|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 (June 30  239,160 shares,                     |              |  |                 
|December 31  134,550)                                        |              | 
|Retained earnings                                             |              |  |                 
|Accumulated other comprehensive income                        |              |  |                 
|                                                              |              |  |                 
|Total shareholders equity                                    |              |  |                 
|                                                              |              |  |                 
|                                                              |              | 
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                    |              |  | $               
|                                                              |              |  |                 

See notes to consolidated financial statements.

1

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

|                                        | Three MonthsEnded June 30, |  | Six MonthsEnded June 30, |          
|--------------------------------------- | -------------------------- |  | ------------------------ | ---------
|                                        |                            |  |                          |          
|
|Interest income                         |                            |  |                          |          
|Loans                                   |                            |  | $                        | 1,925    
|Securities                              |                            |  |                          | 1,217    
|Other interest income                   |                            |  |                          | 98       
|                                        |                            |  |                          |          
|Total interest income                   |                            |  |                          | 3,240    
|                                        |                            | 
|Interest expense                        |                            | 
|Deposits                                |                            |  |                          | 1,450    
|Federal Home Loan Bank advances         |                            |  |                          | 39       
|                                        |                            |  |                          |          
|Total interest expense                  |                            |  |                          | 1,489    
|                                        |                            |  |                          |          
|                                        |                            | 
|Net interest income                     |                            |  |                          | 1,751    
|                                        |                            | 
|Provision for loan losses               |                            |  |                          |         
|                                        |                            |  |                          |          
|                                        |                            | 
|Net interest income after provision for |                            | 
|loan losses                             |                            |  |                          | 1,751    
|                                        |                            | 
|Noninterest income                      |                            | 
|Service charges                         |                            |  |                          | 31       
|Other fee income                        |                            |  |                          | 32       
|Net gain on sale of securities          |                            |  |                          | 31       
|Other income                            |                            |  |                          | 7        
|                                        |                            |  |                          |          
|Total noninterest income                |                            |  |                          | 101      
|                                        |                            | 
|Noninterest expense                     |                            | 
|Compensation and benefits               |                            |  |                          | 689      
|Occupancy and equipment                 |                            |  |                          | 85       
|Data processing                         |                            |  |                          | 131      
|Federal insurance premiums              |                            |  |                          | 24       
|Advertising                             |                            |  |                          | 25       
|Professional fees                       |                            |  |                          | 43       
|Other noninterest expenses              |                            |  |                          | 100      
|                                        |                            |  |                          |          
|Total noninterest expense               |                            |  |                          | 1,097    
|                                        |                            |  |                          |          
|                                        |                            | 
|Income before income taxes              |                            |  |                          | 755      
|                                        |                            | 
|Provision for income taxes              |                            |  |                          | 270      
|                                        |                            |  |                          |          
|                                        |                            | 
|Net income                              |                            |  | $                        | 485      
|                                        |                            |  |                          |          
|                                        |                            | 
|Earnings per share                      |                            | 
|Basic                                   |                            |  | $                        | .26      
|Diluted                                 |                            |  | $                        | .26      
|                                        |                            | 
|Weighted average shares                 |                            |  |                          | 1,860,446
|                                        |                            | 
|Comprehensive income                    |                            |  | $                        | 1,025    
|                                        |                            |  |                          |          

See notes to consolidated financial statements.

2

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First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders Equity
Six months ended June 30, 2001 and 2002
(in thousands of dollars, except share data)
(unaudited)

|                                             | CommonStock | AdditionalPaid-inCapital | UnearnedESOPShares | UnearnedStockAwards | TreasuryStock | RetainedEarnings | AccumulatedOtherCompre-hensiveIncome | TotalStock-holdersEquity
|-------------------------------------------- | ----------- | ------------------------ | ------------------ | ------------------- | ------------- | ---------------- | ------------------------------------ | -------------------------
|                                             |             |                         
|Balance at December 31, 2000                 |             |                          | $                  | 22                  |               | $                | 21,315                               |                          
|ESOP shares earned                           |             |                          |                    |                    |               |                  | 47                                   |                          
|Dividend declared ($.13 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 June 30, 2001                     |             |                          | $                  | 22                  |               | $                | 21,362                               |                          
|                                             |             |                          |                    |                     |               |                  |                                      |                          
|                                             |             |                         
|                                             |             |                         
|Balance at December 31, 2001                 |             |                          | $                  | 22                  |               | $                | 21,418                               |                          
|Purchase of 104,610 shares of treasury stock |             |                          |                    |                    |               |                  |                                     |                          
|ESOP shares earned                           |             |                          |                    |                    |               |                  | 63                                   |                          
|Stock awards earned                          |             |                          |                    |                    |               |                  |                                     |                          
|Dividends declared ($.16 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 June 30, 2002                     |             |                          | $                  | 22                  |               | $                | 21,481                               |                          
|                                             |             |                          |                    |                     |               |                  |                                      |                          

See notes to consolidated financial statements.

3

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

|                                                              | Six Months EndedJune 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                              |                          | 
|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 by 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                       |                          | 
|Purchase of property and equipment                            |                          | 
|                                                              |                          | 
|Net cash provided by (used in) 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                                                |                          | 
|Repayment of Federal Home Loan Bank advances                  |                          | 
|                                                              |                          | 
|Net cash provided by 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

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FIRST FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2002
(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-KSB. The December 31, 2001
balance sheet presented herein has been derived from the audited financial statements
included in the Companys Annual Report on Form 10-KSB, 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, 2002. 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  Earnings Per Share

For purposes of per share calculations, the Company had 2,003,340 and
2,242,500 shares of common stock outstanding at June 30, 2002 and 2001, respectively.
Basic earnings per share for the three and six months ended June 30, 2002 and 2001 were
computed by dividing net income by the weighted average number of shares outstanding.
Diluted earnings per share for the three and six months ended June 30, 2002 and 2001 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

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|                                  | For the three monthsended June 30, |  | For the six monthsended June 30, |      
|--------------------------------- | ---------------------------------- |  | -------------------------------- | -----
|                                  |                                    |  |                                  |      
|
|
|                                  |                                    |  |                                  |      
|Basic                             |                                    | 
|Net income                        |                                    |  | $                                | 485  
|                                  |                                    |  |                                  |      
|Weighted average common shares    |                                    | 
|outstanding                       |                                    |  |                                  | 1,860
|                                  |                                    |  |                                  |      
|Basic earnings per common share   |                                    |  | $                                | .26  
|                                  |                                    |  |                                  |      
|                                  |                                    | 
|Diluted                           |                                    | 
|Net income                        |                                    |  | $                                | 485  
|                                  |                                    |  |                                  |      
|Weighted average common shares    |                                    | 
|outstanding                       |                                    |  |                                  | 1,860
|                                  |                                    |  |                                  |      
|Dilutive effect of stock options  |                                    |  |                                  | 26   
|                                  |                                    |  |                                  |      
|Dilutive effect of stock awards   |                                    |  |                                  | 7    
|                                  |                                    |  |                                  |      
|                                  |                                    | 
|Diluted average common shares     |                                    |  |                                  | 1,893
|                                  |                                    |  |                                  |      
|                                  |                                    | 
|Diluted earnings per common share |                                    |  | $                                | .26  
|                                  |                                    |  |                                  |      

Note 3  Recent Developments  New Accounting Pronouncements

Financial Accounting Standards Board (FASB), in July 2001, issued SFAS
142, Goodwill and Other Intangible Assets, that requires goodwill to no
longer be amortized to earnings, but instead be reviewed for impairment. The amortization
of goodwill by the Company ceased upon adoption of the Statement, which became effective
at January 1, 2002. Adoption of SFAS 142 has not had a material effect on the Companys
financial statements.

Effective January 1, 2003, SFAS 143, Accounting for Asset
Retirement Obligations, will apply. The statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period incurred.
Adoption of SFAS 143 is not expected to have a material effect on the financial position
and operations of the Company.

The Company adopted SFAS 144, Accounting for the Impairment of
Disposal of Long-Lived Assets on January 1, 2002. The statement requires that the
Company recognize an impairment loss on long-lived assets when the carrying amount is not
recoverable and the measurement of the impairment loss is the difference between the
carrying amount and the fair value of the asset. Adoption of SFAS 144 did not have a
material effect on the Companys financial statements.

6

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|ITEM 2. | MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS 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 June 30, 2002 to its financial condition at December 31, 2001 and the results
of its operations for the three-month and six-month periods ended June 30, 2002 to the
same period in 2001. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein.

FINANCIAL CONDITION

Total assets at June 30, 2002 were $242.9 million compared to $242.2
million at December 31, 2001, an increase of $0.7 million. During the six months ended
June 30, 2002, cash and cash equivalents increased $6.3 million, which reflects excess
operating cash resulting from the timing of loan prepayments and an increase in customer
deposits. Loans decreased $5.1 million primarily as a result of portfolio loans
refinancing into the Federal Home Loan Bank Mortgage Partnership Finance program and also
to other competitors due to the lower interest rate environment. Securities
available-for-sale decreased $10.4 million and securities held-to-maturity increased $9.9
million. The increase in held-to-maturity securities was primarily a result of proceeds
from principal paydowns and maturities of securities available-for-sale being reinvested
in securities held-to-maturity.

The allowance for loan losses was $603,000 at June 30, 2002 and
$534,000 at December 31, 2001. There were no impaired loans at either date. The allowance
for loan losses represented .56% of total loans and 92.53% of nonperforming loans at June
30, 2002 compared to .47% of total loans and 59.01% of nonperforming loans at December
31, 2001. Nonperforming assets totaled $798,000 and $1,119,000 at June 30, 2002 and
December 31, 2001, respectively. The ratio of non-performing assets to total assets at
June 30, 2002 was .33% compared to .46% at December 31, 2001.

Total liabilities at June 30, 2002 were $199.9 million compared to
$198.5 million at December 31, 2001, an increase of $1.4 million, due to an increase in
deposits of $1.4 million. The increased funds from deposits have been invested in
interest-earning deposits at other institutions until such time as the funds can be
redeployed into loans receivable or securities.

7

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Shareholders equity at June 30, 2002 was $43.1 million compared to
$43.7 million at December 31, 2001, a decrease of $0.6 million. The decrease primarily
reflects the repurchase of treasury stock totaling $1.9 million, offset by net income of
$1.0 million and an increase in the fair value of securities available-for-sale, net of
tax, of $290,000.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND JUNE
30, 2001

Net income decreased $79,000 to $485,000 for the quarter ended June 30,
2002 compared to the same period in 2001. The decrease was primarily a result of
increased noninterest expense and decreased noninterest income, partially offset by an
increase in net interest income.

Net interest income was $1.8 million for the quarter ended June 30,
2002 compared to $1.7 for the same prior year quarter. The increase in net interest
income was primarily a result of an increase in the net interest spread and the net
interest margin to 2.42% and 2.93%, respectively, for the three months ended June 30,
2002 from 1.88% and 2.80% for the three months ended June 30, 2001. The average yield on
interest-earning assets decreased to 5.43% for the three months ended June 30, 2002 from
6.75% for the three months ended June 30, 2001 while the average yield on
interest-bearing liabilities decreased to 3.01% for the three months ended June 30, 2002
from 4.88% for the same period in 2001. These decreases reflect the overall decrease in
market rates from 2001. 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 earning assets as
interest-earning assets and interest-bearing liabilities repriced downward in reaction to
the continued decreasing interest rate environment.

The provision for loan losses was zero for the quarters ended June 30,
2002 and June 30, 2001.

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 June 30, 2002, 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 June 30, 2002 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 $101,000 for the three-month period ended June
30, 2002 compared to $237,000 for the same period in 2001. The decrease in noninterest
income was primarily a result of a decrease in net gain on the sale of securities in the
amount of $110,000 and small decreases in other various income accounts.

Noninterest expense was $1,097,000 and $969,000 for the quarters ended
June 30, 2002 and 2001. The increase in noninterest expense primarily reflects an
increase in compensation and benefits expense of $147,000 associated with an increase in
salaries of $49,000, an increase of $20,000 in employee benefits including health
insurance and retirement funds, and expense of $68,000 associated with the restricted
stock awards granted in October of 2001. Data processing expense increased $22,000 due to
the implementation of new products such as internet banking. Other noninterest expenses
decreased $37,000 as a result of a decrease in ATM expense and repossessed asset expense,
the decrease in amortization of goodwill due to the fact that goodwill was fully
amortized during 2001, and small decreases in various other accounts.

8

---

The Companys federal income tax expense decreased $100,000 to
$270,000 for the quarter ended June 30, 2002 compared to the same period in 2001. Income
tax expense was approximately 36% of pretax income for the quarter ended June 30, 2002
and 39% of pretax income for the same prior year quarter.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE
30, 2001

Net income decreased $115,000 to $1.0 million for the six months ended
June 30, 2002 compared to the same period in 2001. Return on average assets was .83% for
the six months ended June 30, 2002 compared to .92% for the six months ended June 30,
2001.

Net interest income was $3.5 million for the six months ended June 30,
2002 compared to $3.4 for the same period in 2001. The increase in net interest income
was primarily a result of an increase in the net interest spread and the net interest
margin to 2.41% and 2.94%, respectively, for the six months ended June 30, 2002 from
1.94% and 2.88% for the six months ended June 30, 2001. The average yield on
interest-earning assets decreased to 5.49% for the six months ended June 30, 2002 from
6.90% for the same period in 2001 while the average yield on interest-bearing liabilities
decreased to 3.08% for the six months ended June 30, 2002 from 4.96% for the same period
in 2001. These decreases reflect an overall decrease in the market rates from 2001. 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 earning assets as interest-earning assets
and interest-bearing liabilities repriced downward in reaction to the continued
decreasing interest rate environment.

The provision for loan losses was $7,000 for the six months ended June
30, 2002 and zero for the same period in 2001.

Noninterest income was $209,000 for the six-month period ended June 30,
2002 compared to $310,000 for the prior period. The decrease in noninterest income was
primarily a result of a decrease in net gain on the sale of securities in the amount of
$88,000.

Noninterest expense was $2.1 million and $1.9 million for the six
months ended June 30, 2002 and 2001. The increase in noninterest expense primarily
reflects an increase in compensation and benefits expense of $274,000 associated with an
increase in salaries of $85,000, an increase of $34,000 in employee benefits including
health insurance and retirement funds, and expense of $153,000 associated with the
restricted stock awards granted in October of 2001. Data processing expense increased
$52,000 due to the implementation of new products such as internet banking. Other
noninterest expenses decreased $95,000 as a result of a decrease in ATM expense, a
decrease in repossessed asset expense, a decrease in amortization of goodwill due to the
fact that goodwill was fully amortized in 2001, and small decreases in various other
accounts.

The Companys federal income tax expense decreased $94,000 to
$612,000 for the six-months ended June 30, 2002 compared to the same period in 2001.
Income tax expense was approximately 38% of pretax income for the six-month period ending
June 30, 2002, and approximately 39% of pretax income for the same prior year period.

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 June 30, 2002, cash
and cash equivalents totaled $24.6 million. At June 30, 2002, the Company had commitments
to fund loans of $979,000. At the same time, certificates of deposit which are scheduled
to mature in one year or less totaled $90.5 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.

9

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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 June 30, 2002:

|                          
|--------------------------
|AMOUNT                    
|                          
|Core capital              
|(to adjusted total assets)
|Risk-based capital        
|(to risk-weighted assets) 

ADDITION

The Company is in the process of building a two-story addition to its
office building located at 101 N. 36th Street in Quincy, Illinois. The projected cost is
estimated at $725,000. The addition will house the commercial loan department and
corporate offices plus add needed storage space and area for projected growth of the
Quincy loan departments.

MERGER

On June 4, 2002, the Company, and PFSB Bancorp, Inc. (PFSB Bancorp),
the parent company of Palmyra Savings, entered into an Agreement and Plan of Merger
pursuant to which PFSB Bancorp will merge with and into First Federal Bancshares.
Concurrently with the merger, Palmyra Savings will merge with and into the Bank. The
merger, which is valued at approximately $9.2 million, is expected to close in the fourth
quarter of 2002 pending the necessary regulatory and shareholder approvals. The
transaction will increase the Companys assets to approximately $310 million and
increase its number of banking offices from six to nine. Under the terms of the
transaction, shareholders of PFSB Bancorp will be entitled to receive either $21.00 in
cash, shares of the Company common stock, or a combination of both in exchange for their
shares of PFSB Bancorp common stock.

ITEM 3. QUANTITATIVE AND 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 an 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.

10

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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 its 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 March
31, 2002, 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. All model outputs associated with the -300 and -200
bp scenarios are not applicable because of the abnormally low prevailing interest rate
environment.

|Change inInterest Rates |  |         |  | NPV as % ofPortfolio Value of Assets
|----------------------- |  | ------- |  | ------------------------------------
|
|
|
|                        |  |        
|300                     |  | $22,600 |  | (12,804                             
|200                     |  | 26,909  |  | (8,495                              
|100                     |  | 31,179  |  | (4,225                              
|Static                  |  | 35,404  |  |                                    
|(100)                   |  | 39,157  |  | 3,753                               
|(200)                   |  | N/A     |  | N/A                                 
|(300)                   |  | N/A     |  | N/A                                 

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.

11

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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.

| | On
May 28, 2002, the Company held its annual meeting of stockholders for the purpose of the
election of two directors to three-year terms and the ratification of Crowe, Chizek and
Company LLP as the Companys independent auditors. The number of votes cast at the
meeting as to each matter acted upon was as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Election of Directors |  | Number of Votes For: |  | Number of Votes Withheld: | 
|--------------------- |  | -------------------- |  | ------------------------- | 
|                     
|Franklin M. Hartzell  |  | 1,919,338            |  | 20,148                    | 
|                      |  |                      |  |                          
|                     
|Murrel Hollis         |  | 1,919,438            |  | 20,048                    | 
|                      |  |                      |  |                          

| | The
Directors whose terms continued and the years their terms expire are as follows: B.
Bradford Billings (2003), Gerald L. Prunty (2003), James J. Stebor (2003), Dr. Stephan L.
Roth (2004) and Richard D. Stephens (2004).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Number ofVotes For |           | Number ofVotes Against |        | Number ofVotes Abstained |      
|--------------------------------- | ------------------ | --------- | ---------------------- | ------ | ------------------------ | -----
|                                 
|Ratification of Crowe, Chizek and |                    |           |                        |        |                          |      
|Company LLP as the Companys      |                   
|Independent Auditors              |                    | 1,922,688 |                        | 15,425 |                          | 1,373
|                                  |                    |           |                        |        |                          |      

ITEM 5. OTHER INFORMATION.

| | None
| | ----

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

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

| | Exhibit
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
| | -----------------------------------------------------------------------------------------

| | Exhibit
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
| | -----------------------------------------------------------------------------------------

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

| | A
current report on Form 8-K was filed on June 6, 2002 disclosing under Item 5 that the
Company had entered into an Agreement and Plan of Merger pursuant to which PFSB Bancorp,
Inc. will merge with and into the Company. The Agreement and Plan of Merger and the press
release announcing the merger were filed as exhibits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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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: August 7, 2002 | /s/ James J. Stebor                  
|                     | James J. Stebor                      
|                     | President and Chief Executive Officer
|                    
|                    
|Date: August 7, 2002 | /s/ Cathy D. Pendell                 
|                     | Cathy D. Pendell                     
|                     | Treasurer                            

14

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