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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



Commission file number 0-30753



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FIRST FEDERAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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)



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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 April 30, 2005, the Registrant had outstanding 1,244,274 shares of common stock.



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##### Table of Contents

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  
|                               |  |                                                                                      
|Item 4                         |  | Controls and Procedures                                                               |  | 11  
|                              
|PART II - Other Information   
|                               |  |                                                                                      
|Item 1                         |  | Legal Proceedings                                                                     |  | 12  
|                               |  |                                                                                      
|Item 2                         |  | Unregistered Sales of Equity 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                                                                              |  | 13  
|                               | 
|SIGNATURES                     |  | 14                                                                                   







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##### Table of Contents

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)



|                                                                                         |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                         |  | March 31,2005 |         |   | December 31,2004 |  
|ASSETS                                                                                   |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                |  | $             | 15,714  |   |                  | $ | 14,387  |  
|Time deposits in other financial institutions                                            |  |               | 295     |   |                  |   | 295     |  
|Securities available-for-sale at fair value                                              |  |               | 149,170 |   |                  |   | 153,622 |  
|Loans receivable, net                                                                    |  |               | 146,041 |   |                  |   | 136,331 |  
|Real estate owned                                                                        |  |               | 112     |   |                  |   | 101     |  
|Premises and equipment, net                                                              |  |               | 3,437   |   |                  |   | 3,471   |  
|Accrued interest receivable                                                              |  |               | 1,516   |   |                  |   | 1,363   |  
|Goodwill                                                                                 |  |               | 1,340   |   |                  |   | 1,340   |  
|Core deposits and other intangibles                                                      |  |               | 238     |   |                  |   | 248     |  
|Other assets                                                                             |  |               | 1,956   |   |                  |   | 1,329   |  
|                                                                                         |  |               |         |   |                  |   |         |  
|TOTAL ASSETS                                                                             |  | $             | 319,819 |   |                  | $ | 312,487 |  
|                                                                                         |  |               |         |   |                  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                     |  |               |         |   |                  |   |         |  
|LIABILITIES                                                                              |  |               |         |   |                  |   |         |  
|Deposits                                                                                 |  | $             | 281,494 |   |                  | $ | 273,711 |  
|Advances from borrowers for taxes and insurance                                          |  |               | 319     |   |                  |   | 184     |  
|Federal Home Loan Bank advances                                                          |  |               | 6,450   |   |                  |   | 6,450   |  
|Accrued interest payable                                                                 |  |               | 628     |   |                  |   | 592     |  
|Other liabilities                                                                        |  |               | 408     |   |                  |   | 209     |  
|Subordinated debt                                                                        |  |               | 7,217   |   |                  |   | 7,217   |  
|                                                                                         |  |               |         |   |                  |   |         |  
|Total liabilities                                                                        |  |               | 296,516 |   |                  |   | 288,363 |  
|                                                                                         |  |              
|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       |  |               | 22      |   |                  |   | 22      |  
|Additional paid-in capital                                                               |  |               | 22,996  |   |                  |   | 22,954  |  
|Unearned ESOP shares                                                                     |  |               | (987    | ) |                  |   | (1,032  | )
|Unearned stock awards                                                                    |  |               | (406    | ) |                  |   | (474    | )
|Treasury stock (March 31  923,501 shares, December 31  925,401)                        |  |               | (28,127 | ) |                  |   | (28,185 | )
|Retained earnings                                                                        |  |               | 31,532  |   |                  |   | 31,393  |  
|Accumulated other comprehensive loss                                                     |  |               | (1,727  | ) |                  |   | (554    | )
|                                                                                         |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                               |  |               | 23,303  |   |                  |   | 24,124  |  
|                                                                                         |  |               |         |   |                  |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                               |  | $             | 319,819 |   |                  | $ | 312,487 |  
|                                                                                         |  |               |         |   |                  |   |         |  



See notes to
consolidated financial statements.



1



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##### Table of Contents

First Federal Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

(in thousands of dollars, except share data)

(unaudited)



|                                                    |  |                              |           |   |      |   |          
|--------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | ---------
|                                                    |  | Three Months Ended March 31,
|                                                    |  | 2005                         |           |   | 2004
|Interest income                                     |  |                              |           |   |      |   |          
|Loans                                               |  | $                            | 2,114     |   |      | $ | 2,072    
|Securities                                          |  |                              | 1,491     |   |      |   | 1,468    
|Other interest income                               |  |                              | 75        |   |      |   | 49       
|                                                    |  |                              |           |   |      |   |          
|Total interest income                               |  |                              | 3,680     |   |      |   | 3,589    
|                                                    |  |                             
|Interest expense                                    |  |                              |           |   |      |   |          
|Deposits                                            |  |                              | 1,590     |   |      |   | 1,408    
|Federal Home Loan Bank advances                     |  |                              | 56        |   |      |   | 38       
|Subordinated debtentures                            |  |                              | 105       |   |      |   |         
|                                                    |  |                              |           |   |      |   |          
|Total interest expense                              |  |                              | 1,751     |   |      |   | 1,446    
|                                                    |  |                             
|Net interest income                                 |  |                              | 1,929     |   |      |   | 2,143    
|                                                    |  |                             
|Provision for loan losses                           |  |                              |          |   |      |   |         
|                                                    |  |                              |           |   |      |   |          
|                                                    |  |                             
|Net interest income after provision for loan losses |  |                              | 1,929     |   |      |   | 2,143    
|                                                    |  |                             
|Noninterest income                                  |  |                              |           |   |      |   |          
|Service charges                                     |  |                              | 23        |   |      |   | 12       
|Loan origination and servicing fees                 |  |                              | 57        |   |      |   | 59       
|Other fee income                                    |  |                              | 121       |   |      |   | 79       
|Net gain on sale of securities                      |  |                              | 4         |   |      |   | 380      
|Recovery of impairment loss                         |  |                              |          |   |      |   | 25       
|Other income                                        |  |                              | 23        |   |      |   | 15       
|                                                    |  |                              |           |   |      |   |          
|Total noninterest income                            |  |                              | 228       |   |      |   | 570      
|                                                    |  |                             
|Noninterest expense                                 |  |                              |           |   |      |   |          
|Compensation and benefits                           |  |                              | 1,041     |   |      |   | 1,032    
|Occupancy and equipment                             |  |                              | 140       |   |      |   | 140      
|Data processing                                     |  |                              | 150       |   |      |   | 166      
|Federal insurance premiums                          |  |                              | 29        |   |      |   | 29       
|Advertising                                         |  |                              | 41        |   |      |   | 39       
|Professional fees                                   |  |                              | 75        |   |      |   | 93       
|Other noninterest expenses                          |  |                              | 232       |   |      |   | 228      
|                                                    |  |                              |           |   |      |   |          
|Total noninterest expense                           |  |                              | 1,708     |   |      |   | 1,727    
|                                                    |  |                              |           |   |      |   |          
|Income before income taxes                          |  |                              | 449       |   |      |   | 986      
|                                                    |  |                             
|Provision for income taxes                          |  |                              | 164       |   |      |   | 418      
|                                                    |  |                              |           |   |      |   |          
|Net income                                          |  | $                            | 285       |   |      | $ | 568      
|                                                    |  |                              |           |   |      |   |          
|Earnings per share                                  |  |                              |           |   |      |   |          
|Basic                                               |  | $                            | .24       |   |      | $ | .34      
|Diluted                                             |  | $                            | .23       |   |      | $ | .31      
|                                                    |  |                             
|Weighted average shares                             |  |                              | 1,186,654 |   |      |   | 1,691,921
|Comprehensive income (loss)                         |  | $                            | (888      | ) |      | $ | 1,251    
|                                                    |  |                              |           |   |      |   |          



See notes to
consolidated financial statements.



2



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##### Table of Contents

First Federal Bancshares, Inc. and Subsidiary

Consolidated Statements of Shareholders Equity

Three months ended March 31, 2004 and 2005

(in thousands of dollars, except share data)

(unaudited)



|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ---- | - | ---------------- | - | ------- | ------------------------------------------- |  | - | ------------------------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                             |  | CommonStock |    | AdditionalPaid-inCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |      |   | RetainedEarnings |   |         | AccumulatedOther ComprehensiveIncome (loss) |  |   | TotalShareholdersEquity |  
|Balance at December 31, 2003                                                                                 |  | $           | 22 |                          | $ | 22,582 |                    |  | $ | (1,211              | ) |  | $             | (745 | ) |                  | $ | (9,902  | )                                           |  | $ | 30,180                   |   |  | $ | 197    |   |  | $ | 41,393 |  
|Options exercised (12,104 shares)                                                                            |  |             |    |                          |   | (88    | )                  |  |   |                    |   |  |               |     |   |                  |   | 310     |                                             |  |   |                          |   |  |   |       |   |  |   | 222    |  
|ESOP shares earned                                                                                           |  |             |   |                          |   | 108    |                    |  |   | 45                  |   |  |               |     |   |                  |   |        |                                             |  |   |                         |   |  |   |       |   |  |   | 153    |  
|Stock awards earned                                                                                          |  |             |   |                          |   |       |                    |  |   |                    |   |  |               | 68   |   |                  |   |        |                                             |  |   |                         |   |  |   |       |   |  |   | 68     |  
|Dividends declared ($.11 per share)                                                                          |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   | (193                     | ) |  |   |       |   |  |   | (193   | )
|Comprehensive income                                                                                         |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Net income                                                                                                   |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   | 568                      |   |  |   |       |   |  |   | 568    |  
|Change in fair value of securities classified as available-for-sale, net of reclassification and tax effects |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   |                         |   |  |   | 683    |   |  |   | 683    |  
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                                   |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   | 1,251  |  
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance at March 31, 2004                                                                                    |  | $           | 22 |                          | $ | 22,872 |                    |  | $ | (1,166              | ) |  | $             | (677 | ) |                  | $ | (9,592  | )                                           |  | $ | 30,555                   |   |  | $ | 880    |   |  | $ | 42,894 |  
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2004                                                                                 |  | $           | 22 |                          | $ | 22,954 |                    |  | $ | (1,032              | ) |  | $             | (474 | ) |                  | $ | (28,185 | )                                           |  | $ | 31,393                   |   |  | $ | (554   | ) |  | $ | 24,124 |  
|Options exercised (1,900 shares)                                                                             |  |             |   |                          |   | (24    | )                  |  |   |                    |   |  |               |     |   |                  |   | 58      |                                             |  |   |                         |   |  |   |       |   |  |   | 34     |  
|ESOP shares earned                                                                                           |  |             |   |                          |   | 66     |                    |  |   | 45                  |   |  |               |     |   |                  |   |        |                                             |  |   |                         |   |  |   |       |   |  |   | 111    |  
|Stock awards earned                                                                                          |  |             |   |                          |   |       |                    |  |   |                    |   |  |               | 68   |   |                  |   |        |                                             |  |   |                         |   |  |   |       |   |  |   | 68     |  
|Dividends declared ($.12 per share)                                                                          |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   | (146                     | ) |  |   |       |   |  |   | (146   | )
|Comprehensive income                                                                                         |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Net income                                                                                                   |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   | 285                      |   |  |   |       |   |  |   | 285    |  
|Change in fair value of securities classified as available-for-sale, net of reclassification and tax effects |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                             |  |   |                         |   |  |   | (1,173 | ) |  |   | (1,173 | )
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Total comprehensive loss                                                                                     |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   | (888   | )
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance at March 31, 2005                                                                                    |  | $           | 22 |                          | $ | 22,996 |                    |  | $ | (987                | ) |  | $             | (406 | ) |                  | $ | (28,127 | )                                           |  | $ | 31,532                   |   |  | $ | (1,727 | ) |  | $ | 23,303 |  
|                                                                                                             |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                             |  |   |                          |   |  |   |        |   |  |   |        |  



See notes to
consolidated financial statements.



3



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##### Table of Contents

First Federal Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(in thousands of dollars)

(unaudited)



|                                                                                 |  |                             |        |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                 |  | Three Months EndedMarch 31, |       
|                                                                                 |  | 2005                        |        |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |  |                             |        |   |      |   |         |  
|Net income                                                                       |  | $                           | 285    |   |      | $ | 568     |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                    |  |                             | 64     |   |      |   | 65      |  
|Gain on sale of real estate owned                                                |  |                             | (3     | ) |      |   | (7      | )
|Net amortization of premiums and discounts                                       |  |                             | 26     |   |      |   | 62      |  
|ESOP compensation expense                                                        |  |                             | 111    |   |      |   | 153     |  
|Stock award compensation expense                                                 |  |                             | 68     |   |      |   | 68      |  
|Amortization of intangible assets                                                |  |                             | 10     |   |      |   | 10      |  
|Deferred income tax                                                              |  |                             | 91     |   |      |   |        |  
|Dividend reinvestments                                                           |  |                             | (290   | ) |      |   | (250    | )
|Federal Home Loan Bank stock dividends                                           |  |                             | (21    | ) |      |   | (23     | )
|Net gain on sale of securities                                                   |  |                             | (4     | ) |      |   | (380    | )
|Net changes in                                                                   |  |                             |        |   |      |   |         |  
|Accrued interest receivable and other assets                                     |  |                             | (114   | ) |      |   | (437    | )
|Deferred loan costs                                                              |  |                             | (3     | ) |      |   | 164     |  
|Accrued interest payable and other liabilities                                   |  |                             | 222    |   |      |   | 383     |  
|                                                                                 |  |                             |        |   |      |   |         |  
|Net cash from operating activities                                               |  |                             | 442    |   |      |   | 376     |  
|                                                                                 |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |  |                             |        |   |      |   |         |  
|Purchase of securities available-for-sale                                        |  |                             | (2,460 | ) |      |   | (37,120 | )
|Principal paydowns on mortgage-backed securities                                 |  |                             | 2,945  |   |      |   | 3,731   |  
|Redemption of Federal Home Loan Bank stock                                       |  |                             |       |   |      |   | 20      |  
|Proceeds from maturities of securities                                           |  |                             |       |   |      |   | 5,175   |  
|Proceeds from sale of securities available-for-sale                              |  |                             | 2,338  |   |      |   | 18,269  |  
|Purchase of loans                                                                |  |                             | (9,830 | ) |      |   | (428    | )
|Net increase in loans receivable                                                 |  |                             | 92     |   |      |   | 3,242   |  
|Proceeds from sale of real estate owned                                          |  |                             | 23     |   |      |   | 78      |  
|Purchase of property and equipment                                               |  |                             | (30    | ) |      |   | (87     | )
|                                                                                 |  |                             |        |   |      |   |         |  
|Net cash from investing activities                                               |  |                             | (6,922 | ) |      |   | (7,120  | )
|                                                                                 |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |  |                             |        |   |      |   |         |  
|Net increase (decrease) in deposits                                              |  |                             | 7,783  |   |      |   | 3,476   |  
|Net change in advances from borrowers for taxes and insurance                    |  |                             | 135    |   |      |   | 126     |  
|Proceeds from subordinated debt                                                  |  |                             |       |   |      |   | 7,217   |  
|Dividends paid                                                                   |  |                             | (145   | ) |      |   | (205    | )
|Options exercised                                                                |  |                             | 34     |   |      |   | 222     |  
|                                                                                 |  |                             |        |   |      |   |         |  
|Net cash from financing activities                                               |  |                             | 7,807  |   |      |   | 10,836  |  
|                                                                                 |  |                             |        |   |      |   |         |  
|Net change in cash and cash equivalents                                          |  |                             | 1,327  |   |      |   | 4,092   |  
|                                                                                 |  |                            
|Cash and cash equivalents                                                        |  |                             |        |   |      |   |         |  
|Beginning of period                                                              |  |                             | 14,387 |   |      |   | 29,124  |  
|                                                                                 |  |                             |        |   |      |   |         |  
|End of period                                                                    |  | $                           | 15,714 |   |      | $ | 33,216  |  
|                                                                                 |  |                             |        |   |      |   |         |  
|Supplemental disclosures of cash flow information                                |  |                             |        |   |      |   |         |  
|Cash paid during the period for                                                  |  |                             |        |   |      |   |         |  
|Interest                                                                         |  | $                           | 1,715  |   |      | $ | 1,456   |  
|Taxes, net of refunds                                                            |  |                             | 34     |   |      |   | (2      | )
|Transfers to real estate owned                                                   |  |                             | 31     |   |      |   | 64      |  



See notes to
consolidated financial statements.



4



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##### Table of Contents

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2005

(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 consolidated statements should be read in conjunction with First Federal Bancshares, Inc.s (First
Federal Bancshares or the Company) Annual Report on Form 10-K. The December 31, 2004 consolidated balance sheet presented herein has been derived from the audited consolidated 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, 2005. 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.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the
reported period. Actual results could differ from these estimates.



Note 2  Earnings Per Share



For purposes
of per share calculations, the Company had 1,318,999 and 1,866,291 shares of common stock outstanding at March 31, 2005 and 2004 respectively. Basic earnings per share for the three months ended March 31, 2005 and 2004 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, 2005 and 2004 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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##### Table of Contents

|                                           |  |                                       |       |      |   |      
|------------------------------------------ |  | ------------------------------------- | ----- | ---- | - | -----
|                                           |  | For the three months Ended March 31, 
|                                           |  | 2005                                  |       | 2004
|                                           |  | (in thousands, except per share data)
|Basic                                      |  |                                       |       |      |   |      
|Net income                                 |  | $                                     | 285   |      | $ | 568  
|                                           |  |                                       |       |      |   |      
|Weighted average common shares outstanding |  |                                       | 1,187 |      |   | 1,692
|                                           |  |                                       |       |      |   |      
|Basic earnings per common share            |  | $                                     | .24   |      | $ | .34  
|                                           |  |                                       |       |      |   |      
|Diluted                                    |  |                                       |       |      |   |      
|Net income                                 |  | $                                     | 285   |      | $ | 568  
|                                           |  |                                       |       |      |   |      
|Weighted average common shares outstanding |  |                                       | 1,187 |      |   | 1,692
|Dilutive effect of stock options           |  |                                       | 69    |      |   | 108  
|Dilutive effect of stock awards            |  |                                       | 7     |      |   | 16   
|                                           |  |                                       |       |      |   |      
|Diluted average common shares              |  |                                       | 1,263 |      |   | 1,816
|                                           |  |                                       |       |      |   |      
|Diluted earnings per common share          |  | $                                     | .23   |      | $ | .31  
|                                           |  |                                       |       |      |   |      



Note
3  Stock-Based Compensation



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



|                               |  |                                       |     |      |   |    
|------------------------------ |  | ------------------------------------- | --- | ---- | - | ---
|                               |  | For the three months Ended March 31, 
|                               |  | 2005                                  |     | 2004
|                               |  | (in thousands, except per share data)
|Net income as reported         |  | $                                     | 285 |      | $ | 568
|Pro forma net income           |  |                                       | 260 |      |   | 545
|Earnings per share as reported |  |                                       |     |      |   |    
|Basic                          |  |                                       | .24 |      |   | .34
|Diluted                        |  |                                       | .23 |      |   | .31
|Pro forma earnings per share   |  |                                       |     |      |   |    
|Basic                          |  |                                       | .22 |      |   | .32
|Diluted                        |  |                                       | .21 |      |   | .30



Pursuant to the Companys 2001
stock-based incentive plan, which approved 89,700 shares of restricted stock, 73,999 shares were granted during 2001 and 15,701 were held in reserve for future



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##### Table of Contents

grants. Of those held, 3,000 and 12,701 shares were awarded in 2003 and 2004, respectively. 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.



SFAS 123R, Accounting for Stock-Based Compensation,Revised, requires all public companies to record compensation cost for stock options provided to employees in return for employee
service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. The Securities and Exchange Commission in April 2005
amended the compliance dates for SFAS 123R to the next fiscal year from periods beginning after June 15, 2005. Compensation cost will also be recorded on the date of grant as the Companys options vest immediately. The effect on results of
operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date and so cannot currently be predicted.



ITEM 2. MANAGEMENTS DISCUSSION 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 Litigation Reform Act of 1995 as amended, and is
including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the
words such as believe, expect, intend, anticipate, estimate, project, or similar expressions. The Companys ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and its wholly-owned subsidiaries include, but are not limited to, changes in: interest rates; general
economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios;
demand for loan products; deposit flows; competition; demand for financial services in the Companys market area; and accounting principles, policies, and guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Companys financial results, is
included in the Companys filings with the Securities and Exchange Commission.



The following discussion compares the financial condition of First Federal Bancshares and its wholly owned subsidiary, First Federal, at March 31, 2005 to its financial condition at December 31, 2004 and the results of its operations for
the three-month ended March 31, 2005 to the same period in 2004. This discussion should be read in conjunction with the interim consolidated financial statements and footnotes included herein.



FINANCIAL CONDITION



Total assets were $319.8 million at March 31, 2005 and $312.5 million at December 31, 2004.
During the three months ended March 31, 2005, cash and cash equivalents increased $1.3 million to $15.7 million and securities available-for-sale decreased $4.5 million to $149.2 million. Loans receivable increased $9.7 million as a result of the
purchase of single-family 5/1 hybrid ARM whole loans with 30-year maturities, purchased at a premium of approximately $79,000, with a net weighted average coupon of 4.78%. These purchases are part of the Companys strategy to increase income
through an increase in interest-earning assets, in particular loans receivable. Management feels the asset growth needed in loans receivable can be accomplished through purchasing loans to augment local residential and commercial production. Any
future purchases will be dependent upon the Companys local lending production and pricing levels.



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The allowance for loan losses was $935,000 at March 31, 2005 and $942,000 at December 31, 2004. There were no impaired
loans at either date. The allowance for loan losses represented .64% of total loans and 55.76% of nonperforming loans at March 31, 2005 compared to .69% of total loans and 51.45% of nonperforming loans at December 31, 2004. Nonperforming assets
totaled $1.9 million and $2.0 million at March 31, 2005 and December 31, 2004, respectively. The ratio of non-performing assets to total assets at March 31, 2005 was .59% compared to .63% at December 31, 2004.



Total liabilities at March 31, 2005 were $296.5 million compared to $288.4 million at
December 31, 2004, an increase of $8.1 million. The increase in total liabilities primarily reflects an increase in customer deposits of $7.8 million and an increase in advances from borrowers for taxes and insurance, which was used to fund the
increase in loans receivable.



Shareholders equity at March 31, 2005 was
$23.3 million compared to $24.1 million at December 31, 2004, a decrease of $821,000. The decrease in equity primarily reflects a decrease in the fair value of securities available-for-sale, net of tax of $1.2 million, offset by net income of
$285,000. Other items affecting equity include ESOP and stock awards earned, dividends paid, and options exercised.



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004



Net income decreased $283,000 to $285,000 for the quarter ended March 31, 2005 compared to
the same period in 2004. The decrease in net income was primarily a result of a decrease in noninterest income associated with net gains on sale of securities. In addition, net interest income decreased and was partially offset by a slight decrease
in noninterest expense and a decrease in the provision for income taxes.



Net
interest income was $1.9 million for the quarter ended March 31, 2005 compared to $2.1 million for the same prior year period. The decrease in net interest income was primarily a result of the tender offer completed on May 28, 2004, which decreased
interest-earning assets approximately $11.6 million, and the trust preferred offering, completed on March 25, 2004, which increased interest-bearing liabilities approximately $7.2 million. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 106.11% from 114.18% for the three-month periods, respectively. The net interest spread and the net interest margin decreased to 2.35% and 2.49%, respectively, for the quarter ended March 31, 2005 from 2.42%
and 2.67%, respectively, for the same period in 2004. The decrease in the spread and margin was due largely to the decrease in volume of interest-earning assets and the increase in volume and rate of interest-bearing liabilities due to subordinated
debt issued in relation to the trust preferred securities. The average yield on interest-earning assets increased to 4.75% for the quarter ended March 31, 2005 from 4.48% for the same quarter in 2004, while the average yield on interest-bearing
liabilities increased to 2.40% for the quarter ended March 31, 2005 from 2.06% for the same period in 2004.



The provision for loan losses was zero for both quarters ended March 31, 2005 and 2004 due to the overall stability in the amount of nonperforming loans during the quarter. Management considered the allowance for loan
losses to be adequate during both periods.



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, 2005, there can be no



8



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##### Table of Contents

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, 2005 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 $228,000 for the
three-month period ended March 31, 2005 compared to $570,000 for the same period in 2004. The decrease in noninterest income was primarily a result of a $376,000 decrease in net gains on the sale of securities due to minimal sales activity during
the quarter ended March 31, 2005, and a decrease of $25,000 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. These
decreases were partially offset by an increase of $11,000 in service charges, an increase of $42,000 in other fee income due to the implementation of an overdraft protection program, and an increase of $8,000 in other income.



Noninterest expense was $1.7 million for both quarters ended March 31, 2005 and 2004.
Compensation and benefits expense increased $9,000 compared to the same quarter in 2004, while advertising and other noninterest expenses increased slightly. The increases were offset by a decrease in data processing expense of $16,000 and a
decrease in professional fees of $18,000.



The Companys federal income
tax expense decreased $254,000 to $164,000 for the quarter ended March 31, 2005 compared to $418,000 during the same period in 2004 as a result of decreased income and a decrease in the effective tax rate. Income tax expense was approximately 37%
and 42% of pretax income in March 2005 and 2004, respectively. The decrease in the effective tax rate is primarily due to the filing of a consolidated tax return during the current period, thereby allowing the Company to utilize and record the tax
benefits not recorded in the prior comparative 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 March 31, 2005, cash and cash equivalents totaled $15.7 million. At March 31, 2005, the Company had commitments to fund loans of $9.8 million. At the same time,
certificates of deposit which are scheduled to mature in one year or less totaled $108.0 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, 2005:



|                                             |  |        |        |   |          |   |        |        |        |  |      |        |  |   |        |  |       |  
|-------------------------------------------- |  | ------ | ------ | - | -------- | - | ------ | ------ | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                             |  | ACTUAL |        |   | REQUIRED |   |        | EXCESS |       
|                                             |  | AMOUNT |        | % |          |   | AMOUNT |        | %      |  |      | AMOUNT |  | % |       
|Core capital (to adjusted total assets)      |  | $      | 23,078 |   | 7.29     | % |        | $      | 12,671 |  | 4.00 | %      |  | $ | 10,407 |  | 3.29  | %
|Tangible capital (to adjusted total assets)  |  |        | 23,078 |   | 7.29     |   |        |        | 4,752  |  | 1.50 |        |  |   | 18,326 |  | 5.79  |  
|Risk-based capital (to risk-weighted assets) |  |        | 23,686 |   | 19.01    |   |        |        | 9,967  |  | 8.00 |        |  |   | 13,719 |  | 11.01 |  



9



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SUBSEQUENT EVENT



On April 4, 2005, the Company announced that the Board of Directors approved the repurchase of up to 75,000 shares, or approximately 5.7% of
the Companys outstanding common stock. The repurchase plan was completed on April 11, 2005. A total of 75,000 shares were repurchased at an average price of $24.77 per share, totaling approximately $1.9 million.



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 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 loan 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, 2004, 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 the net portfolio value at March 31, 2005 to be similar to that of December 31, 2004 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.



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|                                                      |        |                        |          |  |                                       |          |  |     |           |  |       |                    |  |       |    
|----------------------------------------------------- | ------ | ---------------------- | -------- |  | ------------------------------------- | -------- |  | --- | --------- |  | ----- | ------------------ |  | ----- | ---
|Change in Interest
Rates in Basis Points (Rate
Shock) |        | Net Portfolio Value    |          |  | NPV as % of Portfolio Value of Assets |         
|                                                      | Amount |                        | $ Change |  |                                       | % Change |  |     | NPV Ratio |  |       | Basis Point Change | 
|                                                      |        | (Dollars in thousands) |          |  |                                       |          |  |     |          
|300                                                   |        | $                      | 22,565   |  | (12,719                               | )        |  | (36 | )%        |  | 7.53  | %                  |  | (355  | )bp
|200                                                   |        |                        | 27,731   |  | (7,552                                | )        |  | (21 | )         |  | 9.04  |                    |  | (204  | )bp
|100                                                   |        |                        | 32,149   |  | (3,134                                | )        |  | (9  | )         |  | 10.27 |                    |  | (82   | )bp
|Static                                                |        |                        | 35,283   |  |                                      |          |  |    |           |  | 11.09 |                    |  |      |    
|(100)                                                 |        |                        | 37,075   |  | 1,791                                 |          |  | 5   |           |  | 11.51 |                    |  | 42 bp |    
|(200)                                                 |        |                        | N/A      |  | N/A                                   |          |  | N/A |           |  | N/A   |                    |  | N/A   |    
|(300)                                                 |        |                        | N/A      |  | N/A                                   |          |  | N/A |           |  | 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.



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.





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##### Table of Contents

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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES.



None



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



None



ITEM 5. OTHER INFORMATION.



None



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##### Table of Contents

ITEM 6. EXHIBITS



|     |  |                                                                                    
|---- |  | -----------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of First Federal Bancshares, Inc. (1)                 
|     | 
|3.2  |  | Bylaws of First Federal Bancshares, Inc. (2)                                       
|     | 
|4.0  |  | Specimen Stock Certificate of First Federal Bancshares, Inc. (1)                   
|     | 
|10.1 |  | Employment Agreement between First Federal Bancshares, Inc. and James J. Stebor (3)
|     | 
|10.2 |  | Employment Agreement between First Federal Bank and James J. Stebor (3)            
|     | 
|10.3 |  | First Federal Bank Supplemental Executive Retirement Plan (3)                      
|     | 
|10.4 |  | First Federal Bank Employee Severance Compensation Plan (3)                        
|     | 
|10.5 |  | First Federal Bancshares, Inc. 2001 Stock-Based Incentive Plan (4)                 
|     | 
|10.6 |  | PFSB Bancorp, Inc. 2000 Stock-Based Incentive Plan (5)                             
|     | 
|10.7 |  | Form of NSO Award Agreement (6)                                                    
|     | 
|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.                         

---

|(1) | Incorporated herein by reference from the Exhibits to Form SB-2, Registration Statement and amendments thereto, initially filed on May 5, 2000, Registration No. 333-36368.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated herein by reference from the Exhibits to the Annual Report on Form 10-KSB, filed on March 28, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------

|(3) | Incorporated herein by reference from the Exhibits to the Quarterly Report on Form 10-QSB filed on November 14, 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated herein by reference from the Exhibits to the Quarterly Report on Form 10-QSB filed on August 13, 2001.
|--- | -------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to PFSB Bancorp, Inc.s Registration Statement on Form S-8 (SEC No. 333-35020) filed on April 18, 2000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from the Exhibits to the Annual Report on Form 10-K, filed on March 31, 2005.
|--- | -------------------------------------------------------------------------------------------------------



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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: May 12, 2005 |  | /s/ James J. Stebor                  
|                   |  | James J. Stebor                      
|                   |  | President and Chief Executive Officer
|                   | 
|Date: May 12, 2005 |  | /s/ Cathy D. Pendell                 
|                   |  | Cathy D. Pendell                     
|                   |  | Treasurer                            





14