Exhibit 13.0



SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA



The following table sets forth certain consolidated summary historical financial information concerning the financial position of First
Federal Bancshares, Inc. including its subsidiary, First Federal Bank, for the dates indicated. The financial data is derived in part from, and should be read in conjunction with, the consolidated financial statements and related notes of First
Federal Bancshares, Inc. contained later in this annual report.



|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|--------------------------------------------------- |  | ------------------------ | ------- | -------------------------------- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                    |  | At December 31,         
|                                                    |  | 2004                     |         | 2003                             |   | 2002    |  | 2001 |         | 2000
|                                                    |  | (In thousands)          
|SELECTED FINANCIAL DATA:                            |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Total assets                                        |  | $                        | 312,487 |                                  | $ | 328,730 |  | $    | 316,400 |      | $ | 242,170 |  | $ | 237,602
|Cash and cash equivalents                           |  |                          | 14,387  |                                  |   | 29,124  |  |      | 42,827  |      |   | 18,249  |  |   | 11,244 
|Loans receivable, net                               |  |                          | 136,331 |                                  |   | 131,935 |  |      | 150,269 |      |   | 112,911 |  |   | 115,619
|Securities available for sale                       |  |                          | 153,622 |                                  |   | 160,337 |  |      | 91,562  |      |   | 97,106  |  |   | 42,592 
|Securities held to maturity                         |  |                          |        |                                  |   |        |  |      | 24,471  |      |   | 10,036  |  |   | 61,619 
|Deposits                                            |  |                          | 273,711 |                                  |   | 271,850 |  |      | 263,834 |      |   | 192,784 |  |   | 184,878
|Federal Home Loan Bank advances                     |  |                          | 6,450   |                                  |   | 6,000   |  |      | 4,000   |      |   | 4,000   |  |   | 5,000  
|Subordinated debentures                             |  |                          | 7,217   |                                  |   |        |  |      |        |      |   |        |  |   |       
|Total equity                                        |  |                          | 24,124  |                                  |   | 41,393  |  |      | 47,031  |      |   | 43,701  |  |   | 45,867 
|                                                    |  |                         
|                                                    |  | Years Ended December 31, |         | Ten MonthsEndedDecember 31, 2000
|                                                    |  | 2004                     |         | 2003                             |   | 2002    |  | 2001 |        
|                                                    |  | (In thousands)          
|SELECTED OPERATING DATA:                            |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Total interest income                               |  | $                        | 14,450  |                                  | $ | 15,311  |  | $    | 13,092  |      | $ | 15,417  |  | $ | 12,898 
|Total interest expense                              |  |                          | 6,152   |                                  |   | 6,555   |  |      | 6,154   |      |   | 9,135   |  |   | 8,186  
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Net interest income                                 |  |                          | 8,298   |                                  |   | 8,756   |  |      | 6,938   |      |   | 6,282   |  |   | 4,712  
|Provision for loan losses                           |  |                          |        |                                  |   | 90      |  |      | 7       |      |   | 103     |  |   | 71     
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Net interest income after provision for loan losses |  |                          | 8,298   |                                  |   | 8,666   |  |      | 6,931   |      |   | 6,179   |  |   | 4,641  
|Noninterest income                                  |  |                          | 1,465   |                                  |   | 2,493   |  |      | 573     |      |   | 630     |  |   | 287    
|Noninterest expense:                                |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Compensation and benefits                           |  |                          | 4,322   |                                  |   | 4,010   |  |      | 2,713   |      |   | 2,199   |  |   | 1,443  
|Other noninterest expense                           |  |                          | 2,556   |                                  |   | 2,766   |  |      | 1,730   |      |   | 1,697   |  |   | 1,241  
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Total noninterest expense                           |  |                          | 6,878   |                                  |   | 6,776   |  |      | 4,443   |      |   | 3,896   |  |   | 2,684  
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Income before income taxes                          |  |                          | 2,885   |                                  |   | 4,383   |  |      | 3,061   |      |   | 2,913   |  |   | 2,244  
|Provision for income taxes                          |  |                          | 1,086   |                                  |   | 1,551   |  |      | 1,124   |      |   | 1,062   |  |   | 788    
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        
|Net Income                                          |  | $                        | 1,799   |                                  | $ | 2,832   |  | $    | 1,937   |      | $ | 1,851   |  | $ | 1,456  
|                                                    |  |                          |         |                                  |   |         |  |      |         |      |   |         |  |   |        



2.



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|                                                                        |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ----------------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                        |  | Years Ended December 31,              |        |   | Ten Months EndedDecember 31, 2000               |  
|                                                                        |  | 2004                                  |        |   | 2003                                            |   |        | 2002 |  |   | 2001   |   | 
|                                                                        |  | (In thousands)                        |        |   |                                                 |  
|PER SHARE DATA:                                                         |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Earnings per share:                                                     |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Basic                                                                   |  | $                                     | 1.30   |   |                                                 | $ | 1.58   |      |  | $ | 1.09   |   |  | $ | .91    |   |  | $ | .22    |  
|Diluted                                                                 |  |                                       | 1.21   |   |                                                 |   | 1.48   |      |  |   | 1.07   |   |  |   | .91    |   |  |   | .22    |  
|Dividend declared                                                       |  |                                       | .44    |   |                                                 |   | .41    |      |  |   | .32    |   |  |   | .29    |   |  |   | .05    |  
|                                                                        |  |                                      
|                                                                        |  | At or For the Year Ended December 31, |        |   | At or For theTen Months EndedDecember 31, 2000* |  
|                                                                        |  | 2004                                  |        |   | 2003                                            |   |        | 2002 |  |   | 2001   |   | 
|SELECTED FINANCIAL RATIOS AND OTHER DATA:                               |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Performance Ratios:                                                     |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Return on assets (1)                                                    |  |                                       | .56    | % |                                                 |   | .88    | %    |  |   | .77    | % |  |   | .76    | % |  |   | .78    | %
|Return on equity (2)                                                    |  |                                       | 5.92   |   |                                                 |   | 6.26   |      |  |   | 4.49   |   |  |   | 4.01   |   |  |   | 6.01   |  
|Dividend payout ratio                                                   |  |                                       | 33.85  |   |                                                 |   | 25.95  |      |  |   | 29.36  |   |  |   | 31.87  |   |  |   | 22.73  |  
|Average interest rate spread (3)                                        |  |                                       | 2.51   |   |                                                 |   | 2.50   |      |  |   | 2.36   |   |  |   | 1.75   |   |  |   | 1.95   |  
|Net interest margin (4)                                                 |  |                                       | 2.67   |   |                                                 |   | 2.80   |      |  |   | 2.84   |   |  |   | 2.64   |   |  |   | 2.56   |  
|Operating (noninterest) expense to average total assets                 |  |                                       | 2.16   |   |                                                 |   | 2.05   |      |  |   | 1.70   |   |  |   | 1.58   |   |  |   | 1.43   |  
|Efficiency ratio (5)                                                    |  |                                       | 74.87  |   |                                                 |   | 66.29  |      |  |   | 59.69  |   |  |   | 63.94  |   |  |   | 53.69  |  
|Average interest-earning assets to average interest-bearing liabilities |  |                                       | 108.12 |   |                                                 |   | 114.36 |      |  |   | 119.01 |   |  |   | 123.17 |   |  |   | 113.58 |  
|Capital Ratios:                                                         |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Tangible capital ratio                                                  |  |                                       | 7.93   |   |                                                 |   | 8.52   |      |  |   | 11.97  |   |  |   | 14.13  |   |  |   | 15.15  |  
|Core capital ratio                                                      |  |                                       | 7.93   |   |                                                 |   | 8.52   |      |  |   | 11.97  |   |  |   | 14.13  |   |  |   | 15.15  |  
|Risk-based capital ratio                                                |  |                                       | 18.51  |   |                                                 |   | 20.98  |      |  |   | 25.92  |   |  |   | 31.38  |   |  |   | 35.60  |  
|Ratio of average equity to average assets                               |  |                                       | 9.55   |   |                                                 |   | 13.99  |      |  |   | 17.15  |   |  |   | 18.91  |   |  |   | 12.93  |  
|Asset Quality Ratios:                                                   |  |                                       |        |   |                                                 |   |        |      |  |   |        |   |  |   |        |   |  |   |        |  
|Nonperforming loans to total loans                                      |  |                                       | 1.33   |   |                                                 |   | .87    |      |  |   | 1.27   |   |  |   | .80    |   |  |   | .94    |  
|Allowance for loan losses to nonperforming loans (6)                    |  |                                       | 51.45  |   |                                                 |   | 83.52  |      |  |   | 50.89  |   |  |   | 59.01  |   |  |   | 52.48  |  
|Allowance for loan losses to total loans                                |  |                                       | .69    |   |                                                 |   | .72    |      |  |   | .65    |   |  |   | .47    |   |  |   | .49    |  

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|* | Ratios for the ten months ended December 31, 2000 have been annualized where applicable
|- | ---------------------------------------------------------------------------------------



|(1) | Net income divided by average total assets.
|--- | -------------------------------------------

|(2) | Net income divided by average total equity.
|--- | -------------------------------------------

|(3) | Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest income as a percentage of average interest-earning assets.
|--- | -----------------------------------------------------------------------

|(5) | Noninterest expense divided by the sum of net interest income and noninterest income excluding gains on sales of securities and gain on sale of branch.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Nonperforming loans consist of nonaccrual loans and loans greater than 90 days delinquent and still accruing.
|--- | -------------------------------------------------------------------------------------------------------------





3.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS



General



First Federal Bancshares, Inc. (the Company) is engaged primarily in attracting deposits from the general public and using these deposits to originate loans and purchase securities. The Company derives
revenues principally from interest earned on loans and securities and fees from other banking-related services. The operations of the Company are influenced significantly by general economic conditions and by policies of financial institution
regulatory agencies, primarily the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. The Companys cost of funds is influenced by interest rates on competing investments and general market interest rates. Lending
activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financings may be offered.



The Companys net interest income is dependent primarily upon the difference or spread between the average yield earned on loans
receivable and securities and the average rate paid on deposits and borrowings, as well as the relative amounts of such assets and liabilities. The Company, like other thrift institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a different basis, than its interest-earning assets.



Critical Accounting Policies



The Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of
the allowance required for probable credit losses and the material effect that such judgments can have on the results of operations. The Companys policies on the allowance for loan losses is disclosed in note 1 to the consolidated financial
statements and discussed below under Provision for Loan Losses in the comparison of results of operations for 2004 and 2003. All accounting policies are important, and as such, the Company encourages the reader to review each of the
policies included in note 1 to the consolidated financial statements to obtain a better understanding of how the Companys financial performance is reported.



Forward-Looking Statements



This Annual Report contains certain forward-looking statements that are based on certain assumptions and describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally identified by use of the words 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 that could have a material adverse effect on the operations of the Company include, but are not limited to, changes in
interest rates; general economic conditions; legislative/regulatory changes; 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 Companys
loan or investment portfolios; demand for loan products; deposit flows; competition; demand for



4.



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financial services in the Companys market area; and accounting principles and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company does not undertakeand specifically disclaims any obligationto publicly release the
result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



The following presents managements discussion and analysis of the results of operations
and financial condition of the Company as of the dates and for the periods indicated. You should read this discussion in conjunction with the Companys consolidated financial statements and the notes thereto and other financial data appearing
elsewhere in this annual report.



Comparison of Financial Condition at
December 31, 2004 and 2003



Total assets at December 31, 2004 were $312.5
million compared to $328.7 million at December 31, 2003, a decrease of $16.2 million. Decreases in cash and cash equivalents and securities available for sale during 2004 were slightly offset by an increase in the loan portfolio.



Loans receivable totaled $136.3 million, or 43.6% of total assets, at December 31, 2004.
Loans receivable increased $4.4 million, or 3.3%, from the prior year end as a result of a shift away from loan originations through the Federal Home Loan Bank (FHLB) Mortgage Partnership Finance Program (MPF) and toward
adjustable rate portfolio loans due to the increase in the interest rate environment. During 2004, multifamily and commercial mortgage loans increased $4.5 million, one-to four-family mortgage loans increased $1.2 million, and construction mortgage
loans increased $1.7 million. These increases were partially offset by a decrease of $2.9 million in consumer loans and a slight decrease in commercial loans. During 2004, the Banks portfolio of loans serviced for the Federal Home Loan Bank
increased $5.3 million from $40.6 million to $45.9 million.



The Bank
participates in a MPF program with the FHLB of Chicago. Through this program, the Bank underwrites long-term fixed rate loans that are funded and owned by the FHLB of Chicago while allowing the Bank to maintain the customer relationship through
servicing the loans and to manage interest rate risk more effectively by not originating long-term fixed rate loans in a low rate environment to be held in portfolio. The Bank receives loan origination fees from the FHLB and also receives servicing
fees on a monthly basis.



The Companys securities portfolio totaled
$153.6 million, or 49.2% of total assets, at December 31, 2004. During 2004, the securities portfolio decreased $6.7 million, or 4.2%.



Cash and cash equivalents totaled $14.4 million, or 4.6% of total assets, at December 31, 2004. Cash and cash equivalents decreased $14.7 million in 2004 as excess funds
were used for the Companys self tender offer in May 2004 which is more fully discussed in Note 19 to the consolidated financial statements.



Total liabilities at December 31, 2004 were $288.4 million compared to $287.3 million at December 31, 2003, an increase of $1.1 million. The increase in total liabilities
was primarily due to an increase in deposits of $1.9 million, an increase in Federal Home Loan Bank advances of $450,000, and the addition of $7.2 million of subordinated debt in connection with the issuance of trust preferred securities. Refer to
Note 1 of the consolidated financial statements for more information. The increases in total liabilities were offset by a decrease in other liabilities of $8.7 million primarily due to the payment and settlement of amounts due to broker for the
purchase of securities available-for-sale.



5.



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Shareholders equity at December 31, 2004 was $24.1 million compared to $41.4 million at December 31, 2003, a
decrease of $17.3 million. The decrease in equity primarily reflects the repurchase of 559,993 shares of common stock totaling $18.9 million through the tender offer and a decrease in the fair value of securities available-for-sale, net of tax of
$751,000, offset by net income of $1.8 million. Other items affecting equity include ESOP and stock awards earned, dividends paid, and options exercised.



Comparison of Results of Operations for the Year Ended December 31, 2004 and December 31, 2003



General.Net income decreased $1.0 million, or 36.5%, to $1.8 million for the year ended December 31, 2004. The decrease was
primarily a result of a decrease in noninterest income associated with loan origination and servicing fees, recovery of impairment losses, and the gain on the sale of the branch office located in Mt. Sterling, Illinois recognized in the prior
period. In addition, net interest income decreased and noninterest expenses increased, and were partially offset by a decrease in the provision for income taxes.



Interest Income.Interest income for the year ended December 31, 2004 was $14.5 million compared to $15.3 million for the year ended
December 31, 2003, a decrease of $800,000. The decrease was primarily a result of the tender offer completed on May 28, 2004, which decreased interest-earning assets approximately $11.6 million. The average yield on interest-earning assets decreased
to 4.65% for the year ended December 31, 2004 from 4.89% for the year ended December 31, 2003.



Interest Expense.Interest expense for the year ended December 31, 2004 was $6.2 million compared to $6.6 million for the prior year, a decrease of $400,000. The decrease was primarily due to a decrease in the
average cost of funds to 2.14% for the year ended December 31, 2004 from 2.39% for the year ended December 31, 2003, and was partially offset by an increase in the volume of interest-bearing liabilities for the year ended December 31, 2004 to $287.2
million from $273.7 million for the year ended December 31, 2003 as a result of the trust preferred offering completed on March 25, 2004 and the related subordinated debt.



Net Interest Income.Net interest income of $8.3 million for the year ended December 31, 2004 reflects a decrease of $500,000 from
$8.8 million for the year ended December 31, 2003. Net interest income decreased primarily as 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 108.12% in 2004 from 114.36% in 2003.
The net interest margin decreased to 2.67% for the year ended December 31, 2004 from 2.80% in the prior year. The decrease in the margin was primarily due to the decrease in volume of interest-earning assets and the increase in volume of
interest-earning liabilities. The net interest rate spread remained relatively stable increasing to 2.51% for 2004 compared to 2.50% for 2003.



Provision for Loan Losses.The Company establishes an allowance for loan losses at a level that management believes is appropriate to absorb probable incurred
credit losses in the loan portfolio. The allowance for loan losses is increased by provisions for loan losses, which are



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charged to operations. In evaluating the level of the allowance for loan losses, management considers historical loss
experience, the types of loans and the amount of loans in the loan portfolio, an evaluation of losses inherent in the loan portfolio, problem loans, delinquency trends, and prevailing economic conditions. In evaluating the level of the allowance for
loan losses, the Company evaluates larger commercial, commercial real estate, and construction loans individually for impairment based upon collateral values, adverse situations that may affect the borrowers ability to repay, and other
factors. Smaller balance homogeneous mortgage and consumer loans are evaluated independently based upon loss factors derived from historical loss experience, peer group information, and similar factors adjusted for current economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as circumstances change. Based on the Companys evaluation of these factors, the Company did not
make provisions for loan losses for the year ended December 31, 2004 and made provisions of $90,000 for the year ended December 31, 2003. The provision for loan losses for the year ended December 31, 2003 was largely due to increases in consumer
loan charge-offs, increased classified loans, and a shift in the composition of the loan portfolio due to a decrease in lower risk one- to four-family mortgage loans, offset by an increase in commercial loans, which are inherently higher risk in
nature.



Management assesses the allowance for loan losses on a quarterly basis
and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management believes that the existing level of the allowance is adequate, 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 December 31, 2004 is 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. The following table summarizes noninterest income in 2004 and 2003 (dollars in thousands):



|                                    |  |      |       |      |   |          |  |          |        |  |       
|----------------------------------- |  | ---- | ----- | ---- | - | -------- |  | -------- | ------ |  | ------
|                                    |  | 2004 |       | 2003 |   | $ change |  | % change
|Service charges on deposit accounts |  | $    | 321   |      | $ | 209      |  | $        | 112    |  | -53.6 
|Loan origination and servicing fees |  |      | 260   |      |   | 482      |  |          | -222   |  | -46.1 
|Other fee income                    |  |      | 180   |      |   | 210      |  |          | -30    |  | -14.3 
|Net gain on sale of securities      |  |      | 576   |      |   | 599      |  |          | -23    |  | -3.8  
|Gain on sale of branch              |  |      |      |      |   | 428      |  |          | -428   |  | -100.0
|Recovery of impairment loss         |  |      | 85    |      |   | 452      |  |          | -367   |  | -81.2 
|Other income                        |  |      | 43    |      |   | 113      |  |          | -70    |  | -61.9 
|                                    |  |      |       |      |   |          |  |          |        |  |       
|Total                               |  | $    | 1,465 |      | $ | 2,493    |  | $        | -1,028 |  | -41.2 



The decrease in noninterest income was
primarily a result of decreases in gain on the sale of a branch and recovery of an impairment loss related to certificates of deposit purchased through a broker that has been charged by the Securities and Exchange Commission (SEC) with
securities fraud in relation to these certificates. Loan origination and servicing fees decreased as the result of the Companys shift away from loan originations through the FHLBs MPF and toward adjustable rate portfolio loans. The
increase in service charges on deposit accounts was primarily the result of the implementation of an overdraft protection program.





7.



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Noninterest Expense. The following table summarizes noninterest expense in 2004 and 2003 (dollars in thousands):



|                           |  |      |       |      |   |          |  |          |      |  |      
|-------------------------- |  | ---- | ----- | ---- | - | -------- |  | -------- | ---- |  | -----
|                           |  | 2004 |       | 2003 |   | $ change |  | % change
|Compensation and benefits  |  | $    | 4,322 |      | $ | 4,010    |  | $        | 312  |  | 7.8  
|Occupancy and equipment    |  |      | 556   |      |   | 542      |  |          | 14   |  | 2.6  
|Data processing            |  |      | 536   |      |   | 765      |  |          | -229 |  | -29.9
|Federal insurance premiums |  |      | 118   |      |   | 116      |  |          | 2    |  | 1.7  
|Advertising                |  |      | 161   |      |   | 150      |  |          | 11   |  | 7.3  
|Professional fees          |  |      | 278   |      |   | 319      |  |          | -41  |  | -12.9
|Other noninterest expense  |  |      | 907   |      |   | 874      |  |          | 33   |  | 3.8  
|                           |  |      |       |      |   |          |  |          |      |  |      
|Total                      |  | $    | 6,878 |      | $ | 6,776    |  | $        | 102  |  | 1.5  



The increase in noninterest expense is
primarily associated with compensation and benefits expense due to an increase in health insurance premiums and retirement funds. Slight increases also occurred in occupancy and equipment expense, advertising expense, and an increase in other
non-interest expense, due to increased loan origination expenses on portfolio loans and increased expenses associated with real estate owned. The increases were offset by a decrease of $229,000 in data processing due to a change in data processing
firms resulting in conversion expenses in 2003, and a slight decrease in professional fees.



Income Taxes.The provision for income taxes decreased $465,000 to $1.1 million for the year ended December 31, 2004. The decrease was a direct result of a decrease in pretax income. The effective tax rate was
approximately 37.6% for 2004 and 35.4% for 2003. The increase in the effective tax rate was primarily a result of tax refunds received in 2003 for amended state tax returns to reflect apportionment of income.



Comparison of Results of Operations for the Years Ended December 31, 2003 and December 31,
2002



General.Net income increased $895,000, or 46.2%, to $2.8
million for the year ended December 31, 2003. Increases in both net interest income and noninterest income drove the increase in net income.



Interest Income.Interest income for the year ended December 31, 2003 was $15.3 million compared to $13.1 million for the year ended December 31, 2002, an increase
of $2.2 million. The increase was primarily a result of an increase in the volume of interest-earning assets due to the acquisition of PFSB in the fourth quarter of 2002. The average balance of interest-earning assets increased to $313.1 million for
the year ended December 31, 2003 from $244.0 million for 2002. The average yield on interest-earning assets decreased to 4.89% for the year ended December 31, 2003 compared to 5.37% for the year ended December 31, 2002.



Interest Expense.Interest expense for the year ended December 31, 2003 was $6.6
million compared to $6.2 million for the year ended December 31, 2002, an increase of $400,000. The increase was primarily due to an increase in the volume of interest-bearing liabilities for the year ended December 31, 2003 to $273.7 million from
$205.0 million. However, a decrease in the average cost on interest-bearing liabilities to 2.39% from 3.00% for the years 2003 and 2002 resulted in keeping interest expense from increasing as much as otherwise would have occurred.



Net Interest Income.Net interest income of $8.8 million for the year ended December
31, 2003 reflects an increase of $1.9 million from $6.9 million for the year ended December 31, 2002. The increase in net interest income was primarily a result of the increase in the net interest spread to



8.



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2.50% for the year ended December 31, 2003 from 2.36% for the year ended December 31, 2002 because rates on deposits
decreased faster than rates on assets during this period. Net interest income was negatively impacted by a decrease in the net interest margin to 2.80% for the year ended December 31, 2003 from 2.84% in the prior year because of the decrease in the
ratio of average interest-earning assets to average interest-bearing liabilities to 114.36% in 2003 from 119.01% in 2002.



Provision for Loan Losses.The Company made provisions of $90,000 for the year ended December 31, 2003 and $7,000 for the year ended December 31, 2002. The
increase in the provision for loan losses for the year ended December 31, 2003 was largely due to increases in consumer loan charge-offs, increased classified loans, and a shift in the composition of the loan portfolio due to a decrease in lower
risk one- to four-family mortgage loans, offset by an increase in commercial loans, which are inherently higher risk in nature.



Noninterest Income. The following table summarizes noninterest income in 2003 and 2002 (dollars in thousands):



|                                    |  |      |       |      |   |          |  |          |       |  |      
|----------------------------------- |  | ---- | ----- | ---- | - | -------- |  | -------- | ----- |  | -----
|                                    |  | 2003 |       | 2002 |   | $ change |  | % change
|Service charges on NOW accounts     |  | $    | 209   |      | $ | 142      |  | $        | 67    |  | 47.2 
|Loan origination and servicing fees |  |      | 482   |      |   | 164      |  |          | 318   |  | 193.9
|Other fee income                    |  |      | 210   |      |   | 149      |  |          | 61    |  | 40.9 
|Net gain on sale of securities      |  |      | 599   |      |   | 68       |  |          | 531   |  | N/M  
|Gain on sale of branch              |  |      | 428   |      |   |         |  |          | 428   |  | N/M  
|Recovery of impairment loss         |  |      | 452   |      |   |         |  |          | 452   |  | N/M  
|Other income                        |  |      | 113   |      |   | 50       |  |          | 63    |  | 126.0
|                                    |  |      |       |      |   |          |  |          |       |  |      
|Total                               |  | $    | 2,493 |      | $ | 573      |  | $        | 1,920 |  | N/M  



Net gain on the sale of securities,
gain on the sale of a branch office and related deposits, and recovery of an impairment loss related to certificates of deposit purchased through a broker that has been charged by the SEC with securities fraud in relation to these certificates all
contributed significantly to the increase in noninterest income over 2002. Loan origination and servicing fees increased significantly over 2002 as the result of the Companys participation in the FHLBs MPF program and the growth of the
Companys loan servicing portfolio. The increases in service charges and other fee income were primarily the result of the expansion of the customer base through the acquisition of PFSB.



Noninterest Expense. The following table summarizes noninterest expense in 2003 and
2002 (dollars in thousands):



|                           |  |      |       |      |   |          |  |          |       |  |     
|-------------------------- |  | ---- | ----- | ---- | - | -------- |  | -------- | ----- |  | ----
|                           |  | 2003 |       | 2002 |   | $ change |  | % change
|Compensation and benefits  |  | $    | 4,010 |      | $ | 2,713    |  | $        | 1,297 |  | 47.8
|Occupancy and equipment    |  |      | 542   |      |   | 383      |  |          | 159   |  | 41.5
|Data processing            |  |      | 765   |      |   | 484      |  |          | 281   |  | 58.1
|Federal insurance premiums |  |      | 116   |      |   | 100      |  |          | 16    |  | 16.0
|Advertising                |  |      | 150   |      |   | 109      |  |          | 41    |  | 37.6
|Professional fees          |  |      | 319   |      |   | 172      |  |          | 147   |  | 85.5
|Other noninterest expense  |  |      | 874   |      |   | 482      |  |          | 229   |  | 47.5
|                           |  |      |       |      |   |          |  |          |       |  |     
|Total                      |  | $    | 6,776 |      | $ | 4,443    |  | $        | 2,170 |  | 48.8



The acquisition of PFSB resulted in
overall increases to all line items detailed above and classified in noninterest expense. Compensation and benefits expense increased due to an



9.



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increase of $183,000 for health insurance benefits, an increase of $152,000 related to ESOP expense, and increases
related to normal salary and retirement benefits. Data processing expense increased due to the increases in average balances of loans and deposits and due to deconversion costs totaling approximately $73,000 related to the conversion to a new
service bureau.



Income Taxes.The provision for income taxes increased
$427,000 to $1.6 million for the year ended December 31, 2003. The increase was a direct result of an increase in pretax income. The effective tax rate was approximately 35% for 2003 and 37% for 2002. The decrease in the effective tax rate was
primarily due to federal and state tax refunds totaling approximately $102,000. Prior period state tax returns were amended to reflect apportionment of income.



Liquidity and Capital Resources



The Companys primary sources of funds are deposits and proceeds from principal and interest payments on loans and mortgage-backed securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Company generally manages the pricing
of its deposits to be competitive and to increase core deposit relationships.



The Companys cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Cash flows provided by operating activities were $1,438,000, $2,383,000, and
$635,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Net cash from investing activities consisted primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans,
proceeds from maturation of securities, and paydowns on mortgage-backed securities. Net cash from financing activities consisted primarily of the activity in deposit accounts and FHLB advances. During 2004, the Company used subordinated debt and
excess liquidity to repurchase 559,993 shares of common stock totaling $18.9 million through the tender offer. During 2003 and 2002, the Company used excess liquidity to repurchase 240,666 and 300,920 shares of its common stock for a total of $7.3
million and $5.6 million, respectively.



The Companys most liquid assets
are cash and short-term investments. The levels of these assets are dependent on the Companys operating, financing, lending, and investing activities during any given period. At December 31, 2004, cash and short-term investments totaled $14.4
million. The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available for sale, federal
funds purchased, and Federal Home Loan Bank advances as sources of funds. At December 31, 2004, the Company had the ability to borrow a total of approximately $594,000 from the FHLB of Chicago without securing advances with securities specifically
assigned to the FHLB of Chicago. On that date, the Company had outstanding advances of $6.5 million.



At December 31, 2004, the Company had outstanding commitments to originate loans of $1.7 million, none of which had fixed interest rates. These loans are to be secured by properties located in its market area. The
Company anticipates that it will have sufficient funds available to meet its current loan commitments. Loan commitments have, in recent periods, been funded through liquidity or through FHLB borrowings. Certificates of deposit, which are scheduled
to mature in one year or less from December 31, 2004, totaled $92.3 million. Management believes,



10.



---

based on past experience, that a significant portion of such 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.



Liquidity management is both a daily and long-term responsibility of management. The Company
adjusts its investments in liquid assets based upon managements assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and investment securities, and (4) the objectives of its
asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term U.S. government and agency obligations and mortgage-backed securities of short duration.



The Bank is subject to various regulatory capital requirements imposed by the
Office of Thrift Supervision (OTS). At December 31, 2004, the Company was in compliance with all applicable capital requirements. See Note 13 of the Notes to Consolidated Financial Statements.



Contractual Obligations



The following table sets forth the contractual obligations of the Company as of December 31, 2004 (in thousands):



|                                   |  |       |        |                 |   |            |  |            |       |              |   |   |  |   |      
|---------------------------------- |  | ----- | ------ | --------------- | - | ---------- |  | ---------- | ----- | ------------ | - | - |  | - | -----
|                                   |  | Total |        | Less Than1 Year |   | 1  3Years |  | 4  5Years |       | After 5Years
|FHLB advances                      |  | $     | 6,450  |                 | $ | 2,450      |  | $          | 4,000 |              | $ |  |  | $ |     
|Subordinated debentures            |  |       | 7,217  |                 |   |           |  |            |      |              |   |  |  |   | 7,217
|                                   |  |       |        |                 |   |            |  |            |       |              |   |   |  |   |      
|Total contractual cash obligations |  | $     | 13,667 |                 | $ | 2,450      |  | $          | 4,000 |              | $ |  |  | $ | 7,217
|                                   |  |       |        |                 |   |            |  |            |       |              |   |   |  |   |      



Off-Balance-Sheet Arrangements



In the normal course of operations, the Company engages in a variety of
financial transactions that, in accordance with accounting principles generally accepted in the United States of America, are not recorded in its consolidated financial statements. These transactions involve, to varying degrees, elements of credit,
interest rate, and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments, lines of credit, and letters of credit. See Note 10 to the consolidated financial
statements.



For the year ended December 31, 2004, the Company engaged in no
off-balance-sheet transactions reasonably likely to have a material effect on its consolidated financial condition, results of operations or cash flows.



New Accounting Pronouncements



FAS 123R 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. This will apply to awards granted or modified after the first quarter or



11.



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year beginning after June 15, 2005. Compensation cost will also be recorded for prior option grants that vest after the
date of adoption. 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, as well as the vesting periods provided. Existing options that
will vest after adoption date are expected to result in additional compensation expense of approximately $165,000 during the balance of 2005, $165,000 in 2006, $19,000 in 2007, $19,000 in 2008, and $17,000 in 2009. There will be no significant
effect on financial position as total equity will not change.



SOP 03-3
requires that a valuation allowance for loans acquired in a transfer, including in a business combination, reflect only losses incurred after acquisition and should not be recorded at acquisition. It applies to any loan acquired in a transfer that
showed evidence of credit quality deterioration since it was made.



The effect
of these new standards on the Companys financial position and results of operations is not expected to be material upon and after adoption.



Effect of Inflation and Changing Prices



The consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United
States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Bank is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates,
generally, have a more significant impact on a financial institutions performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.



Average Balances, Interest, and Average Yields/Cost



The following table presents certain information for the periods indicated regarding average
balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities and average yields and costs. The yields and costs for the
periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Nonaccruing loans have been included in the average loan amounts. Average balances were derived
from average daily balances.





12.



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|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|---------------------------------------------------------------- |  | ---------------------------- | ------- | -------- | ---------------------------- | ----------------- |  | ---------------------------- | -------------- |  | -------- | ------- | ----------------- | - | ------ | -------------- | ------ | -------- |  | ----------------- | ------- |  | - | ------ |  | ------ | -
|                                                                 |  | Year ended December 31, 2004 |         |          | Year ended December 31, 2003 |                   |  | Year ended December 31, 2002 |               
|Dollars in Thousands                                             |  | AverageBalance               |         | Interest |                              | AverageYield/Cost |  |                              | AverageBalance |  | Interest |         | AverageYield/Cost |   |        | AverageBalance |        | Interest |  | AverageYield/Cost |        
|Interest-earning assets:                                         |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Loans receivable (1)                                             |  | $                            | 134,237 |          | $                            | 8,363             |  | 6.23                         | %              |  | $        | 138,533 |                   | $ | 9,327  |                | 6.73   | %        |  | $                 | 113,246 |  | $ | 7,961  |  | 7.03   | %
|Securities (2)                                                   |  |                              | 158,247 |          |                              | 5,919             |  | 3.74                         |                |  |          | 143,478 |                   |   | 5,728  |                | 3.99   |          |  |                   | 102,739 |  |   | 4,783  |  | 4.66   |  
|Other interest-earning assets                                    |  |                              | 18,006  |          |                              | 168               |  | 0.93                         |                |  |          | 31,052  |                   |   | 256    |                | 0.82   |          |  |                   | 28,021  |  |   | 348    |  | 1.24   |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total interest-earning assets                                    |  |                              | 310,490 |          |                              | 14,450            |  | 4.65                         |                |  |          | 313,063 |                   |   | 15,311 |                | 4.89   |          |  |                   | 244,006 |  |   | 13,092 |  | 5.37   |  
|Non-interest-earning assets                                      |  |                              | 8,018   |          |                              |                   |  |                              |                |  |          | 10,214  |                   |   |        |                |        |          |  |                   | 7,428   |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total assets                                                     |  | $                            | 318,508 |          |                              |                   |  |                              |                |  | $        | 323,277 |                   |   |        |                |        |          |  | $                 | 251,434 |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Interest-bearing liabilities:                                    |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Deposits:                                                        |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|NOW and money market accounts                                    |  | $                            | 46,053  |          | $                            | 418               |  | 0.91                         |                |  | $        | 45,602  |                   | $ | 487    |                | 1.07   |          |  | $                 | 39,222  |  | $ | 572    |  | 1.46   |  
|Savings and certificates                                         |  |                              | 227,792 |          |                              | 5,234             |  | 2.30                         |                |  |          | 223,251 |                   |   | 5,901  |                | 2.64   |          |  |                   | 161,878 |  |   | 5,428  |  | 3.35   |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total deposits                                                   |  |                              | 273,845 |          |                              | 5,652             |  | 2.06                         |                |  |          | 268,853 |                   |   | 6,388  |                | 2.38   |          |  |                   | 201,100 |  |   | 6,000  |  | 2.98   |  
|FHLB advances                                                    |  |                              | 6,114   |          |                              | 177               |  | 2.89                         |                |  |          | 4,888   |                   |   | 167    |                | 3.42   |          |  |                   | 3,934   |  |   | 154    |  | 3.91   |  
|Subordinated debentures                                          |  |                              | 7,217   |          |                              | 323               |  | 5.84                         |                |  |          |        |                   |   |       |                |       |          |  |                   |        |  |   |       |  |       |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total interest-bearing liabilities                               |  |                              | 287,176 |          |                              | 6,152             |  | 2.14                         |                |  |          | 273,741 |                   |   | 6,555  |                | 2.39   |          |  |                   | 205,034 |  |   | 6,154  |  | 3.00   |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Non-interest-bearing liabilities                                 |  |                              | 921     |          |                              |                   |  |                              |                |  |          | 4,287   |                   |   |        |                |        |          |  |                   | 3,281   |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total liabilities                                                |  |                              | 288,097 |          |                              |                   |  |                              |                |  |          | 278,028 |                   |   |        |                |        |          |  |                   | 208,315 |  |   |        |  |        |  
|Equity                                                           |  |                              | 30,411  |          |                              |                   |  |                              |                |  |          | 45,249  |                   |   |        |                |        |          |  |                   | 43,119  |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total liabilities and equity                                     |  | $                            | 318,508 |          |                              |                   |  |                              |                |  | $        | 323,277 |                   |   |        |                |        |          |  | $                 | 251,434 |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Net interest income/ interest rate spread                        |  |                              |         |          | $                            | 8,298             |  | 2.51                         | %              |  |          |         |                   | $ | 8,756  |                | 2.50   | %        |  |                   |         |  | $ | 6,938  |  | 2.36   | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Net interest margin                                              |  |                              |         |          |                              |                   |  | 2.67                         | %              |  |          |         |                   |   |        |                | 2.80   | %        |  |                   |         |  |   |        |  | 2.84   | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                              |         |          |                              |                   |  | 108.12                       | %              |  |          |         |                   |   |        |                | 114.36 | %        |  |                   |         |  |   |        |  | 119.01 | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  

---

|(1) | Includes nonaccrual loans at a 0% yield. Net of deferred fees and allowance for loan losses.
|--- | --------------------------------------------------------------------------------------------

|(2) | Includes Federal Home Loan Bank stock and FHLMC stock.
|--- | ------------------------------------------------------





13.



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Rate/Volume Analysis



The following table presents the effects of changing rates and volumes on the interest income and interest expense of the Company. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). For purposes of this table, changes attributable to
changes in both rate and volume, which cannot be segregated, have been allocated proportionately based on the absolute value of the change due to rate and the change due to volume.



|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|---------------------------------- |  | -------------------------- | ------ | - | ------ | - | ----- | ----- |  | - | ----- | -
|                                   |  | 2004  2003                |       
|                                   |  | Increase (Decrease) Due to |       
|                                   |  | Rate                       |        |   | Volume |   |       | Total | 
|                                   |  | (Dollars in thousands)     |       
|Interest-earning assets:           |  |                            |        |   |        |   |       |       |  |   |       |  
|Loans receivable                   |  | $                          | (681   | ) |        | $ | (283  | )     |  | $ | (964  | )
|Securities                         |  |                            | (376   | ) |        |   | 567   |       |  |   | 191   |  
|Other interest-earning assets      |  |                            | (88    | ) |        |   |      |       |  |   | (88   | )
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-earning assets      |  |                            | (1,145 | ) |        |   | 284   |       |  |   | (861  | )
|                                   |  |                            |       
|Interest-bearing liabilities:      |  |                            |        |   |        |   |       |       |  |   |       |  
|Deposits:                          |  |                            |        |   |        |   |       |       |  |   |       |  
|NOW and money market accounts      |  |                            | (69    | ) |        |   |      |       |  |   | (69   | )
|Savings accounts and certificates  |  |                            | (785   | ) |        |   | 118   |       |  |   | (667  | )
|FHLB advances                      |  |                            | 10     |   |        |   |      |       |  |   | 10    |  
|Subordinated debentures            |  |                            |       |   |        |   | 323   |       |  |   | 323   |  
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-bearing liabilities |  |                            | (844   | ) |        |   | 441   |       |  |   | (403  | )
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Decrease in net interest income    |  | $                          | (301   | ) |        | $ | (157  | )     |  | $ | (458  | )
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|                                   | 
|                                   |  | 2003 - 2002                |       
|                                   |  | Increase (Decrease) Due to |       
|                                   |  | Rate                       |        |   | Volume |   |       | Total | 
|                                   |  | (Dollars in thousands)     |       
|Interest-earning assets:           |  |                            |        |   |        |   |       |       |  |   |       |  
|Loans receivable                   |  | $                          | (348   | ) |        | $ | 1,714 |       |  | $ | 1,366 |  
|Securities                         |  |                            | (753   | ) |        |   | 1,698 |       |  |   | 945   |  
|Other interest-earning assets      |  |                            | (92    | ) |        |   |      |       |  |   | (92   | )
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-earning assets      |  |                            | (1,193 | ) |        |   | 3,412 |       |  |   | 2,219 |  
|                                   |  |                            |       
|Interest-bearing liabilities:      |  |                            |        |   |        |   |       |       |  |   |       |  
|Deposits:                          |  |                            |        |   |        |   |       |       |  |   |       |  
|NOW and money market accounts      |  |                            | (85    | ) |        |   |      |       |  |   | (85   | )
|Savings accounts and certificates  |  |                            | (1,305 | ) |        |   | 1,778 |       |  |   | 473   |  
|FHLB advances                      |  |                            | 13     |   |        |   |      |       |  |   | 13    |  
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-bearing liabilities |  |                            | (1,377 | ) |        |   | 1,778 |       |  |   | 401   |  
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Increase in net interest income    |  | $                          | 184    |   |        | $ | 1,634 |       |  | $ | 1,818 |  
|                                   |  |                            |        |   |        |   |       |       |  |   |       |  





14.



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Market Risk Analysis



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. The committee meets monthly and reports trends and interest rate risk position to the Board of Directors quarterly. The extent of the movement of interest rates is uncertainty that could have a negative impact on the
earnings of the Company.



The Company has used the following strategies to
manage interest rate risk: (1) emphasizing the origination of adjustable-rate and balloon loans and not originating long-term, fixed-rate loans for retention in its portfolio; (2) using the Federal Home Loan Bank Mortgage Partnership Finance Program
to continue to offer fixed-rate loans with no interest rate risk to the Company; (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 OTS to review the level of interest rate risk. This analysis measures interest rate risk by computing changes in the net portfolio value of the Company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 tables, which are based on information provided to the Company by the OTS, presents the change in the Companys net
portfolio value at December 31, 2004, that would occur upon an immediate change in interest rates based on OTS assumptions, but without giving effect to any steps that management might take to counteract that change. Due to the abnormally low
prevailing interest rate environment, the OTS report did not provide NPV estimated for the 200 and 300 basis points.





15.



---

|                                                      |        |                        |          |  |                                       |          |  |     |          |  |       |                   |  |      |    
|----------------------------------------------------- | ------ | ---------------------- | -------- |  | ------------------------------------- | -------- |  | --- | -------- |  | ----- | ----------------- |  | ---- | ---
|                                                      |        | 2004                   |         
|Change in Interest
Rates in Basis Points (Rate
Shock) |        | Net Portfolio Value    |          |  | NPV as % of Portfolio Value of Assets |         
|                                                      | Amount |                        | $ Change |  |                                       | % Change |  |     | NPVRatio |  |       | Basis PointChange | 
|                                                      |        | (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 



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



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





16.



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

First Federal Bancshares, Inc.

Colchester, Illinois



We have audited the accompanying consolidated statements of financial condition of First Federal Bancshares, Inc. as of December 31, 2004
and 2003, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Federal Bancshares, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2004 in conformity with U.S. generally accepted accounting principles.





/s/    Crowe Chizek and Company LLCCrowe Chizek and Company LLC




Oak Brook, Illinois

March 29, 2005





17.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2004 and 2003

(Dollars in thousands, except share and per share data)



|                                                                                                         |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                         |  | 2004 |         |   | 2003 |  
|ASSETS                                                                                                   |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                                  |  | $    | 1,003   |   |      | $ | 2,068   |  
|Interest-bearing deposits                                                                                |  |      | 13,384  |   |      |   | 27,056  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                |  |      | 14,387  |   |      |   | 29,124  |  
|Time deposits in other financial institutions                                                            |  |      | 295     |   |      |   | 295     |  
|Securities available for sale, at fair value                                                             |  |      | 153,622 |   |      |   | 160,337 |  
|Loans receivable, net of allowance of $942 and $963                                                      |  |      | 136,331 |   |      |   | 131,935 |  
|Real estate owned, net                                                                                   |  |      | 101     |   |      |   | 149     |  
|Premises and equipment, net                                                                              |  |      | 3,471   |   |      |   | 3,535   |  
|Accrued interest receivable                                                                              |  |      | 1,363   |   |      |   | 1,489   |  
|Goodwill                                                                                                 |  |      | 1,340   |   |      |   | 1,340   |  
|Core deposits and other intangibles                                                                      |  |      | 248     |   |      |   | 288     |  
|Other assets                                                                                             |  |      | 1,329   |   |      |   | 238     |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total assets                                                                                             |  | $    | 312,487 |   |      | $ | 328,730 |  
|                                                                                                         |  |      |         |   |      |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                     |  |      |         |   |      |   |         |  
|Liabilities                                                                                              |  |      |         |   |      |   |         |  
|Deposits                                                                                                 |  |      |         |   |      |   |         |  
|Non-interest-bearing                                                                                     |  | $    | 3,256   |   |      | $ | 4,012   |  
|Interest-bearing                                                                                         |  |      | 270,455 |   |      |   | 267,838 |  
|                                                                                                         |  |      |         |   |      |   |         |  
|                                                                                                         |  |      | 273,711 |   |      |   | 271,850 |  
|Advances from borrowers for taxes and insurance                                                          |  |      | 184     |   |      |   | 137     |  
|Federal Home Loan Bank advances                                                                          |  |      | 6,450   |   |      |   | 6,000   |  
|Accrued interest payable                                                                                 |  |      | 592     |   |      |   | 484     |  
|Other liabilities                                                                                        |  |      | 209     |   |      |   | 8,866   |  
|Subordinated debentures                                                                                  |  |      | 7,217   |   |      |   |        |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total liabilities                                                                                        |  |      | 288,363 |   |      |   | 287,337 |  
|Shareholders equity                                                                                     |  |      |         |   |      |   |         |  
|Preferred stock, $.01 par value per share, 1,000,000 shares authorized, no shares issued and outstanding |  |      |        |   |      |   |        |  
|Common stock, $.01 par value per share, 4,000,000 shares authorized, 2,242,500 shares issued             |  |      | 22      |   |      |   | 22      |  
|Additional paid-in capital                                                                               |  |      | 22,954  |   |      |   | 22,852  |  
|Unearned ESOP shares                                                                                     |  |      | (1,032  | ) |      |   | (1,211  | )
|Unearned stock awards                                                                                    |  |      | (474    | ) |      |   | (745    | )
|Treasury stock, 925,401 shares in 2004 and 388,313 shares in 2003                                        |  |      | (28,185 | ) |      |   | (9,902  | )
|Retained earnings                                                                                        |  |      | 31,393  |   |      |   | 30,180  |  
|Accumulated other comprehensive income (loss)                                                            |  |      | (554    | ) |      |   | 197     |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total shareholders equity                                                                               |  |      | 24,124  |   |      |   | 41,393  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                               |  | $    | 312,487 |   |      | $ | 328,730 |  
|                                                                                                         |  |      |         |   |      |   |         |  



See accompanying notes
to consolidated financial statements.





18.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2004, 2003, and 2002

(Dollars in thousands, except per share data)



|                                                    |  |      |        |      |   |        |  |   |       
|--------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                    |  | 2004 |        | 2003 |   | 2002  
|Interest income                                     |  |      |        |      |   |        |  |   |       
|Loans                                               |  | $    | 8,363  |      | $ | 9,327  |  | $ | 7,961 
|Securities                                          |  |      | 5,919  |      |   | 5,728  |  |   | 4,783 
|Time deposits in other financial institutions       |  |      | 168    |      |   | 256    |  |   | 348   
|                                                    |  |      |        |      |   |        |  |   |       
|Total interest income                               |  |      | 14,450 |      |   | 15,311 |  |   | 13,092
|Interest expense                                    |  |      |        |      |   |        |  |   |       
|Savings and certificates                            |  |      | 5,234  |      |   | 5,901  |  |   | 5,428 
|NOW and money market accounts                       |  |      | 418    |      |   | 487    |  |   | 572   
|Federal Home Loan Bank advances                     |  |      | 177    |      |   | 167    |  |   | 154   
|Subordinated debentures                             |  |      | 323    |      |   |       |  |   |      
|                                                    |  |      |        |      |   |        |  |   |       
|Total interest expense                              |  |      | 6,152  |      |   | 6,555  |  |   | 6,154 
|                                                    |  |      |        |      |   |        |  |   |       
|Net interest income                                 |  |      | 8,298  |      |   | 8,756  |  |   | 6,938 
|Provision for loan losses                           |  |      |       |      |   | 90     |  |   | 7     
|                                                    |  |      |        |      |   |        |  |   |       
|Net interest income after provision for loan losses |  |      | 8,298  |      |   | 8,666  |  |   | 6,931 
|                                                    |  |      |       
|Noninterest income                                  |  |      |        |      |   |        |  |   |       
|Service charges on deposit accounts                 |  |      | 321    |      |   | 209    |  |   | 142   
|Loan origination and servicing fees                 |  |      | 260    |      |   | 482    |  |   | 164   
|Other fee income                                    |  |      | 180    |      |   | 210    |  |   | 149   
|Net gain on sale of securities                      |  |      | 576    |      |   | 599    |  |   | 68    
|Gain on sale of branch                              |  |      |       |      |   | 428    |  |   |      
|Recovery of impairment loss                         |  |      | 85     |      |   | 452    |  |   |      
|Other income                                        |  |      | 43     |      |   | 113    |  |   | 50    
|                                                    |  |      |        |      |   |        |  |   |       
|Total noninterest income                            |  |      | 1,465  |      |   | 2,493  |  |   | 573   
|Noninterest expense                                 |  |      |        |      |   |        |  |   |       
|Compensation and benefits                           |  |      | 4,322  |      |   | 4,010  |  |   | 2,713 
|Occupancy and equipment                             |  |      | 556    |      |   | 542    |  |   | 383   
|Data processing                                     |  |      | 536    |      |   | 765    |  |   | 484   
|Federal insurance premiums                          |  |      | 118    |      |   | 116    |  |   | 100   
|Advertising                                         |  |      | 161    |      |   | 150    |  |   | 109   
|Professional fees                                   |  |      | 278    |      |   | 319    |  |   | 172   
|Other noninterest expense                           |  |      | 907    |      |   | 874    |  |   | 482   
|                                                    |  |      |        |      |   |        |  |   |       
|Total noninterest expense                           |  |      | 6,878  |      |   | 6,776  |  |   | 4,443 
|                                                    |  |      |        |      |   |        |  |   |       
|Income before income taxes                          |  |      | 2,885  |      |   | 4,383  |  |   | 3,061 
|Provision for income taxes                          |  |      | 1,086  |      |   | 1,551  |  |   | 1,124 
|                                                    |  |      |        |      |   |        |  |   |       
|Net income                                          |  | $    | 1,799  |      | $ | 2,832  |  | $ | 1,937 
|                                                    |  |      |        |      |   |        |  |   |       
|Earnings per share                                  |  |      |        |      |   |        |  |   |       
|Basic                                               |  | $    | 1.30   |      | $ | 1.58   |  | $ | 1.09  
|Diluted                                             |  | $    | 1.21   |      | $ | 1.48   |  | $ | 1.07  



See accompanying notes
to consolidated financial statements.



19.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended
December 31, 2004, 2003, and 2002

(Dollars in thousands, except share and per share data)



|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |       |        |   |  |   |       |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ------ | - | ---------------- | - | ------ | ------------------------------------------ |  | ----- | ------ | - |  | - | ----- |  | - | ------ | -
|                                                                                          |  | CommonStock |    | AdditionalPaid-inCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |        |   | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  | Total |       
|Balance at December 31, 2001                                                              |  | $           | 22 |                          | $ | 21,418 |                    |  | $ | (1,570              | ) |  | $             | (1,287 | ) |                  | $ | (2,322 | )                                          |  | $     | 26,745 |   |  | $ | 695   |  | $ | 43,701 |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Purchase of 300,920 shares of treasury stock                                              |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   | (5,572 | )                                          |  |       |       |   |  |   |      |  |   | (5,572 | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|Acquisition of PFSB Bancorp, Inc. (252,310 shares)                                        |  |             |   |                          |   | 1,072  |                    |  |   |                    |   |  |               |       |   |                  |   | 4,575  |                                            |  |       |       |   |  |   |      |  |   | 5,647  |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                        |  |             |   |                          |   | 143    |                    |  |   | 180                 |   |  |               |       |   |                  |   |       |                                            |  |       |       |   |  |   |      |  |   | 323    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Options exercised (2,603 shares)                                                          |  |             |   |                          |   | (4     | )                  |  |   |                    |   |  |               |       |   |                  |   | 47     |                                            |  |       |       |   |  |   |      |  |   | 43     |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Stock awards earned                                                                       |  |             |   |                          |   |       |                    |  |   |                    |   |  |               | 271    |   |                  |   |       |                                            |  |       |       |   |  |   |      |  |   | 271    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Dividends declared ($.32 per share)                                                       |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |       | (592   | ) |  |   |      |  |   | (592   | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|Comprehensive income                                                                      |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |       |        |   |  |   |       |  |   |        |  
|Net income                                                                                |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |       | 1,937  |   |  |   |      |  |   | 1,937  |  
|Unrealized loss on securities available-for-sale, net of reclassification and tax effects |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |       |       |   |  |   | 1,273 |  |   | 1,273  |  
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |       |        |   |  |   |       |  |   |        |  
|Total comprehensive income                                                                |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |       |        |   |  |   |       |  |   | 3,210  |  
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |       |        |   |  |   |       |  |   |        |  
|Balance at December 31, 2002                                                              |  |             | 22 |                          |   | 22,629 |                    |  |   | (1,390              | ) |  |               | (1,016 | ) |                  |   | (3,272 | )                                          |  |       | 28,090 |   |  |   | 1,968 |  |   | 47,031 |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Purchase of 240,666 shares of treasury stock                                              |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   | (7,333 | )                                          |  |       |       |   |  |   |      |  |   | (7,333 | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                        |  |             |   |                          |   | 293    |                    |  |   | 179                 |   |  |               |       |   |                  |   |       |                                            |  |       |       |   |  |   |      |  |   | 472    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Options exercised (32,910 shares)                                                         |  |             |   |                          |   | (185   | )                  |  |   |                    |   |  |               |       |   |                  |   | 703    |                                            |  |       |       |   |  |   |      |  |   | 518    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Stock awards earned and related tax benefit                                               |  |             |   |                          |   | 115    |                    |  |   |                    |   |  |               | 271    |   |                  |   |       |                                            |  |       |       |   |  |   |      |  |   | 386    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Dividends declared ($.41 per share)                                                       |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |       | (742   | ) |  |   |      |  |   | (742   | )



(Continued)



20.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended
December 31, 2004, 2003, and 2002

(Dollars in thousands, except shares and per share data)



|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ---- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                                           |  | CommonStock |    | AdditionalPaid-inCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |      |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|Comprehensive income                                                                       |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                                 |  | $           |   |                          | $ |       |                    |  | $ |                    |   |  | $             |     |   |                  | $ |        |                                            |  | $ | 2,832  |   |  | $ |       |   |  | $ | 2,832   |  
|Unrealized gain on securities available for sale, net of reclassification and tax effects  |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   | (1,771 | ) |  |   | (1,771  | )
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Total comprehensive income                                                                 |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   | 1,061   |  
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2003                                                               |  |             | 22 |                          |   | 22,852 |                    |  |   | (1,211              | ) |  |               | (745 | ) |                  |   | (9,902  | )                                          |  |   | 30,180 |   |  |   | 197    |   |  |   | 41,393  |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Purchase of 562,148 shares of treasury stock through tender offer, including related costs |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   | (18,969 | )                                          |  |   |       |   |  |   |       |   |  |   | (18,969 | )
|                                                                                           |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                         |  |             |   |                          |   | 324    |                    |  |   | 179                 |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   |       |   |  |   | 503     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Options exercised (25,060 shares)                                                          |  |             |   |                          |   | (284   | )                  |  |   |                    |   |  |               |     |   |                  |   | 686     |                                            |  |   |       |   |  |   |       |   |  |   | 402     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Stock awards earned and related tax benefit                                                |  |             |   |                          |   | 62     |                    |  |   |                    |   |  |               | 271  |   |                  |   |        |                                            |  |   |       |   |  |   |       |   |  |   | 333     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Dividends declared ($.44 per share)                                                        |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | (586   | ) |  |   |       |   |  |   | (586    | )
|                                                                                           |  |             |    |                          |   |        |                    | 
|Comprehensive income                                                                       |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                                 |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | 1,799  |   |  |   |       |   |  |   | 1,799   |  
|Unrealized loss on securities available for sale, net of reclassification and tax effects  |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   | (751   | ) |  |   | (751    | )
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Total comprehensive income                                                                 |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   | 1,048   |  
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2004                                                               |  | $           | 22 |                          | $ | 22,954 |                    |  | $ | (1,032              | ) |  | $             | (474 | ) |                  | $ | (28,185 | )                                          |  | $ | 31,393 |   |  | $ | (554   | ) |  | $ | 24,124  |  
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |         |  



See accompanying notes
to consolidated financial statements.



21.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2004, 2003, and
2002

(Dollars in thousands)



|                                                                                 |  |      |         |   |      |   |          |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                 |  | 2004 |         |   | 2003 |   |          | 2002 | 
|Cash flows from operating activities                                             |  |      |         |   |      |   |          |      |  |   |         |  
|Net income                                                                       |  | $    | 1,799   |   |      | $ | 2,832    |      |  | $ | 1,937   |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |         |   |      |   |          |      |  |   |         |  
|Depreciation                                                                     |  |      | 259     |   |      |   | 230      |      |  |   | 126     |  
|Loss (gain) on sale of real estate owned                                         |  |      | 12      |   |      |   | (11      | )    |  |   | 17      |  
|Net amortization of premiums and discounts                                       |  |      | 133     |   |      |   | 71       |      |  |   | 149     |  
|ESOP compensation expense                                                        |  |      | 503     |   |      |   | 472      |      |  |   | 323     |  
|Stock award compensation expense                                                 |  |      | 271     |   |      |   | 271      |      |  |   | 271     |  
|Amortization of intangible assets                                                |  |      | 40      |   |      |   | 40       |      |  |   | (32     | )
|Provision for loan losses                                                        |  |      |        |   |      |   | 90       |      |  |   | 7       |  
|Deferred income taxes                                                            |  |      |        |   |      |   | 107      |      |  |   | 87      |  
|Dividend reinvestments                                                           |  |      | (1,055  | ) |      |   | (886     | )    |  |   | (1,102  | )
|Federal Home Loan Bank stock dividends                                           |  |      | (89     | ) |      |   | (96      | )    |  |   | (55     | )
|Net gain on sale of securities                                                   |  |      | (576    | ) |      |   | (599     | )    |  |   | (68     | )
|Gain on sale of branch                                                           |  |      |        |   |      |   | (428     | )    |  |   |        |  
|Net changes in                                                                   |  |      |         |   |      |   |          |      |  |   |         |  
|Accrued interest receivable and other assets                                     |  |      | (850    | ) |      |   | 7        |      |  |   | 607     |  
|Deferred loan (fees) costs                                                       |  |      | 5       |   |      |   | 27       |      |  |   | (52     | )
|Accrued interest payable and other liabilities                                   |  |      | 986     |   |      |   | 131      |      |  |   | (1,580  | )
|                                                                                 |  |      |         |   |      |   |          |      |  |   |         |  
|Net cash from operating activities                                               |  |      | 1,438   |   |      |   | 2,258    |      |  |   | 635     |  
|                                                                                 |  |      |        
|Cash flows from investing activities                                             |  |      |         |   |      |   |          |      |  |   |         |  
|Cash acquired from PFSB Bancorp, Inc. net of cash paid                           |  |      |        |   |      |   |         |      |  |   | 18,108  |  
|Net change in time deposits in other financial institutions                      |  |      |        |   |      |   |         |      |  |   | 293     |  
|Purchase of securities available for sale                                        |  |      | (65,844 | ) |      |   | (147,666 | )    |  |   | (25,464 | )
|Purchase of securities held to maturity                                          |  |      |        |   |      |   |         |      |  |   | (23,422 | )
|Principal paydowns on mortgage-backed securities available for sale              |  |      | 16,676  |   |      |   | 19,907   |      |  |   | 10,659  |  
|Principal paydowns on mortgage-backed securities held to maturity                |  |      |        |   |      |   |         |      |  |   | 396     |  
|Redemption of Federal Home Loan Mortgage Corporation stock                       |  |      | 20      |   |      |   |         |      |  |   |        |  
|Redemption of Federal Home Loan Bank stock                                       |  |      |        |   |      |   |         |      |  |   | 509     |  
|Purchase of Federal Home Loan Bank stock                                         |  |      | (85     | ) |      |   | (175     | )    |  |   | (54     | )
|Proceeds from maturities of securities available for sale                        |  |      | 10,609  |   |      |   | 38,755   |      |  |   | 1,000   |  
|Proceeds from maturities of securities held to maturity                          |  |      |        |   |      |   |         |      |  |   | 10,025  |  
|Proceeds from sales of securities available for sale                             |  |      | 36,699  |   |      |   | 52,494   |      |  |   | 22,973  |  
|Capital expenditures on real estate owned                                        |  |      |        |   |      |   |         |      |  |   | (1      | )
|Net (increase) decrease in loans receivable                                      |  |      | (4,663  | ) |      |   | 17,690   |      |  |   | 9,196   |  
|Proceeds from sale of real estate owned                                          |  |      | 298     |   |      |   | 641      |      |  |   | 417     |  
|Payments for sale of branch                                                      |  |      |        |   |      |   | (6,103   | )    |  |   |        |  
|Purchase of property and equipment                                               |  |      | (195    | ) |      |   | (506     | )    |  |   | (739    | )
|                                                                                 |  |      |         |   |      |   |          |      |  |   |         |  
|Net cash from investing activities                                               |  |      | (6,485  | ) |      |   | (24,963  | )    |  |   | 23,896  |  



(Continued)



22.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2004, 2003, and
2002

(Dollars in thousands)



|                                                                                                     |  |      |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                     |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Cash flows from financing activities                                                                 |  |      |         |   |      |   |         |      |  |   |        |  
|Net increase in deposits                                                                             |  | $    | 1,861   |   |      | $ | 14,607  |      |  | $ | 6,278  |  
|Net change in advances from borrowers for taxes and insurance                                        |  |      | 47      |   |      |   | (30     | )    |  |   | (55    | )
|Advances from the Federal Home Loan Bank                                                             |  |      | 4,450   |   |      |   | 4,000   |      |  |   |       |  
|Repayment of Federal Home Loan Bank advances                                                         |  |      | (4,000  | ) |      |   | (2,000  | )    |  |   |       |  
|Proceeds from subordinated debentures                                                                |  |      | 7,217   |   |      |   |        |      |  |   |       |  
|Purchase of treasury stock                                                                           |  |      | (18,969 | ) |      |   | (7,333  | )    |  |   | (5,572 | )
|Dividends paid                                                                                       |  |      | (698    | ) |      |   | (760    | )    |  |   | (647   | )
|Exercise of stock options                                                                            |  |      | 402     |   |      |   | 518     |      |  |   | 43     |  
|                                                                                                     |  |      |         |   |      |   |         |      |  |   |        |  
|Net cash from financing activities                                                                   |  |      | (9,690  | ) |      |   | 9,002   |      |  |   | 47     |  
|                                                                                                     |  |      |         |   |      |   |         |      |  |   |        |  
|Net change in cash and cash equivalents                                                              |  |      | (14,737 | ) |      |   | (13,703 | )    |  |   | 24,578 |  
|                                                                                                     |  |      |        
|Cash and cash equivalents                                                                            |  |      |         |   |      |   |         |      |  |   |        |  
|Beginning of year                                                                                    |  |      | 29,124  |   |      |   | 42,827  |      |  |   | 18,249 |  
|                                                                                                     |  |      |         |   |      |   |         |      |  |   |        |  
|End of year                                                                                          |  | $    | 14,387  |   |      | $ | 29,124  |      |  | $ | 42,827 |  
|                                                                                                     |  |      |         |   |      |   |         |      |  |   |        |  
|Supplemental disclosures of cash flow information                                                    |  |      |         |   |      |   |         |      |  |   |        |  
|Cash paid during the year for                                                                        |  |      |         |   |      |   |         |      |  |   |        |  
|Interest                                                                                             |  | $    | 6,044   |   |      | $ | 6,677   |      |  | $ | 6,084  |  
|Taxes, net of refunds                                                                                |  |      | 627     |   |      |   | 1,362   |      |  |   | 1,384  |  
|Transfer of loans to real estate owned                                                               |  |      | 262     |   |      |   | 502     |      |  |   | 346    |  
|Transfer of securities to available for sale from held to maturity on January 24, 2003 at fair value |  |      |        |   |      |   | 24,471  |      |  |   |       |  
|Due to broker                                                                                        |  |      |        |   |      |   | 9,000   |      |  |   |       |  



See accompanying notes
to consolidated financial statements.



23.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of Consolidation: The accompanying consolidated financial statements include the accounts of First Federal Bancshares, Inc. (the
Corporation) and its wholly owned subsidiary, First Federal Bank (the Bank). All significant intercompany transactions and balances are eliminated in consolidation.



Nature of Operations: The only business of the Corporation is the ownership of the Bank. The Bank provides a full range of banking
and related financial services to individual and corporate business customers located primarily in west central Illinois and northeast Missouri. The Banks primary deposit products are demand deposits and time and savings accounts. Its primary
lending products are commercial and residential real estate loans to customers who are predominantly small and middle market businesses and individuals. The accounting and reporting policies of the Corporation are based upon accounting principles
generally accepted in the United States of America and conform to predominant practices within the banking industry. Significant accounting policies followed by the Corporation are presented below.



Use of Estimates: In preparing consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America, management must make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported for assets, liabilities, income, and
expenses, as well as affecting the disclosures provided. Actual results could differ from the current estimates. The collectibility of loans, fair values of financial instruments, impairment of goodwill, and status of contingencies are particularly
subject to change.



Statement of Cash Flows: Cash and cash equivalents
include cash on hand, amounts due from banks under 90 days, and daily federal funds sold. The Bank reports net cash flows for customer loan transactions, deposit transactions, time deposits in other financial institutions, and advances from
borrowers for taxes and insurance.



Interest-bearing Deposits in Other
Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.



Securities: Securities are classified as held to maturity when the Corporation has the positive intent and ability to hold those securities to maturity.
Accordingly, they are stated at cost, adjusted for amortization of premiums and accretion of discounts. All other securities are classified as available for sale since the Corporation may decide to sell those securities in response to changes in
market interest rates, liquidity needs, changes in yields or alternative investments, and for other reasons. These securities are carried at market value with unrealized gains and losses charged or credited, net of income taxes, to a valuation
allowance included in other comprehensive income.



(Continued)



24.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating
prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.



Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses,
management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Companys ability and intent to hold the security for a period
sufficient to allow for any anticipated recovery in fair value.



Loans:
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan
losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.



Interest income on mortgage and commercial loans is discontinued at the time
the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In
all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.



All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.



Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience; the nature and volume of the
portfolio; information about specific borrower situations and estimated collateral values; economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that,
in managements judgment, should be charged off. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan balance is confirmed.



(Continued)



25.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



The allowance consists of specific and general components. The specific component relates to loans that are individually classified as
impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.



A loan is impaired when full payment under the loan terms is not expected. Commercial and
commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loans
existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment,
and accordingly, they are not separately identified for impairment disclosures.



Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control
over the transferred assets through an agreement to repurchase them before their maturity.



Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a
valuation allowance is recorded through expense. Costs after acquisition are expensed.



Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from
5 to 50 years. Furniture, fixtures, and equipment are depreciated using the straight-line or accelerated method with useful lives ranging from 3 to 10 years. The cost of maintenance and repairs is charged to expense as incurred and significant
repairs are capitalized.



Goodwill and Other Intangible Assets: Goodwill
results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such
impairment will be recognized in the period identified. No impairment was recognized in 2004 or 2003.



(Continued)



26.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Other intangible assets consist of core deposit and customer relationship assets arising from bank acquisition. These intangibles are initially measured at fair value and
then are amortized on an accelerated method over their useful lives, estimated to be ten years.



Long-term Assets: Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from
future undiscounted cash flows. If impaired, the assets are recorded at fair value.



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



Under generally accepted accounting principals, the trust is not consolidated with the
Company. Accordingly, the Company reports as liabilities the subordinated debentures issued by the Company and held by the trust.



Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.



(Continued)





27.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Earnings Per Common Share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period.
ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and stock awards. Earnings and dividends
per share are restated for all stock splits and dividends through the date of issue of the financial statements.



Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses
on securities available for sale, net of tax, which are also recognized as separate components of equity.



Employee Stock Ownership Plan (ESOP): The cost of shares issued to the ESOP but not yet allocated to participants is presented in the consolidated balance sheet as a reduction of shareholders equity.
Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of the shares committed to be released is
recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares reduce retained earnings; dividends on unallocated ESOP shares reduce debt.



Shares are considered outstanding in earnings per share calculations as they are committed to be released, unallocated shares are not
considered outstanding.



Loan Commitments and Related Financial
Instruments: Financial instruments include off-balance-sheet credit instruments such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure
to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.



Stock Compensation: Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected
in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was
measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.



For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options vesting period. The Company did not issue
stock options prior to 2001.



(Continued)



28.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



|                                                                                  |  |                         |       |      |   |       |  |   |      
|--------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                                                                  |  | Year Ended December 31,
|                                                                                  |  | 2004                    |       | 2003 |   | 2002 
|Net income as reported                                                            |  | $                       | 1,799 |      | $ | 2,832 |  | $ | 1,937
|Deduct: stock-based compensation expense determined under fair value-based method |  |                         | 93    |      |   | 90    |  |   | 88   
|                                                                                  |  |                         |       |      |   |       |  |   |      
|Pro forma net income                                                              |  |                         | 1,706 |      |   | 2,742 |  |   | 1,849
|Earnings per share as reported                                                    |  |                         |       |      |   |       |  |   |      
|Basic                                                                             |  |                         | 1.30  |      |   | 1.58  |  |   | 1.09 
|Diluted                                                                           |  |                         | 1.21  |      |   | 1.48  |  |   | 1.04 
|Pro forma earnings per share                                                      |  |                         |       |      |   |       |  |   |      
|Basic                                                                             |  |                         | 1.23  |      |   | 1.52  |  |   | 1.07 
|Diluted                                                                           |  |                         | 1.15  |      |   | 1.44  |  |   | 1.02 



The pro forma effects are computed
using option pricing models, using the following weighted-average assumptions as of grant date.



|                                              |  |                   |         |   |                  |   |         |                  |  |   |         |  
|--------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | ---------------- |  | - | ------- | -
|Date of grant                                 |  | December 15, 2004 |         |   | January 22, 2003 |   |         | October 10, 2001 | 
|Options granted                               |  |                   | 12,701  |   |                  |   | 3,000   |                  |  |   | 208,549 |  
|Estimated fair value of stock options granted |  | $                 | 6.58    |   |                  | $ | 3.26    |                  |  | $ | 3.50    |  
|                                              |  |                   |        
|Assumptions used:                             |  |                   |         |   |                  |   |         |                  |  |   |         |  
|Risk-free interest rate                       |  |                   | 3.48    | % |                  |   | 2.94    | %                |  |   | 3.88    | %
|Expected option life                          |  |                   | 5 years |   |                  |   | 5 years |                  |  |   | 5 years |  
|Expected stock price volatility               |  |                   | 25.10   | % |                  |   | 12.80   | %                |  |   | 20.10   | %
|Expected dividend yield                       |  |                   | 1.56    | % |                  |   | 1.55    | %                |  |   | 1.93    | %



Loss Contingencies: Loss
contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe
there now are such matters that will have a material effect on the financial statements.



Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates
involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.



(Continued)



29.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Effect of Newly Issued But Not Yet Effective Accounting Standards: FAS 123R 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. This will apply to awards
granted or modified after the first quarter or year beginning after June 15, 2005. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. 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, as well as the vesting periods provided. Existing options that will vest after adoption date are expected to result in additional compensation
expense of approximately $165,000 during the balance of 2005, $165,000 in 2006, $19,000 in 2007, $19,000 in 2008, and $17,000 in 2009. There will be no significant effect on financial position as total equity will not change.



SOP 03-3 requires that a valuation allowance for loans acquired in a transfer, including in a
business combination, reflect only losses incurred after acquisition and should not be recorded at acquisition. It applies to any loan acquired in a transfer that showed evidence of credit quality deterioration since it was made.



The effect of these new standards on the Companys financial position and results of
operations is not expected to be material upon and after adoption.



Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a
corporate-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.



Reclassifications: Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation.



NOTE 2 - ACQUISITION AND DIVESTITURE



On November 22, 2002, the Corporation acquired 100 percent of the outstanding common shares
of PFSB Bancorp, Inc. (PFSB). As a result of the acquisition, the Corporation is better positioned to compete in the financial services industry in Illinois and Missouri through expanded operations and market coverage.



NOTE 2 - ACQUISITION AND DIVESTITURE(Continued)



The aggregate purchase price was $10.6 million, including $4.4 million of cash, the exchange
of 252,310 shares of the Corporations common stock valued at $5.6 million, and transaction costs totaling $550,000. The value of the 252,310 common shares issued was determined based on the average closing price of the Corporations
common stock over a ten-day trading period shortly before the closing of the merger.



The following table presents the allocation of the acquisition cost for PFSB to assets acquired and liabilities assumed, based on their fair values:



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Cash and cash equivalents               |  | $ | 23,067  |  
|Securities                              |  |   | 2,359   |  
|Loans, net of allowance for loan losses |  |   | 46,852  |  
|Premises and equipment                  |  |   | 1,159   |  
|Other assets                            |  |   | 776     |  
|Goodwill                                |  |   | 1,515   |  
|Intangible assets                       |  |   | 331     |  
|                                        |  |   |         |  
|Total assets acquired                   |  |   | 76,059  |  
|                                        |  |   |         |  
|Deposits                                |  |   | (64,796 | )
|Other liabilities                       |  |   | (657    | )
|                                        |  |   |         |  
|Total liabilities acquired              |  |   | (65,453 | )
|                                        |  |   |         |  
|Net assets acquired                     |  | $ | 10,606  |  
|                                        |  |   |         |  



(Continued)



30.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



During 2003, goodwill was reduced by $175,000 to reflect an adjustment to the fair value of deferred tax assets and liabilities as a result of the final analysis of
PFSBs tax position.



Goodwill is not deductible for tax purposes.
Intangible assets consist primarily of a core deposit intangible, which is being amortized over ten years on an accelerated basis. Intangible assets are reported net of accumulated amortization of $82,750, $43,030, and $4,000 at December 31, 2004,
2003, and 2002, respectively. Estimated amortization for intangibles for each of the next five years is approximately $40,000.



The Companys subsidiary, First Federal Bank, completed the sale of its Mount Sterling, Illinois branch office on September 26, 2003. The sale included the
assumption of approximately $6.2 million in deposits and miscellaneous other assets totaling approximately $106,000. A gain of $428,000, pre-tax, was recorded on the sale. There was no goodwill or intangible assets associated with the sale of the
branch.



NOTE 3 - SECURITIES



The fair value of securities available for sale and the related gross unrealized gains and
losses recognized in accumulated other comprehensive income (loss) were as follows:



|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ------------------- | ------- | -------------------- | - | --------------------- |  | - | ------ | -
|                                                                                          |  | EstimatedFair Value |         | GrossUnrealizedGains |   | GrossUnrealizedLosses | 
|2004                                                                                      |  |                     |         |                      |   |                       |  |   |        |  
|U.S. government agency                                                                    |  | $                   | 26,932  |                      | $ | 88                    |  | $ | (727   | )
|SLMA bonds                                                                                |  |                     | 2,555   |                      |   |                      |  |   | (13    | )
|Corporate bonds                                                                           |  |                     | 6,036   |                      |   |                      |  |   | (64    | )
|State and municipal obligations                                                           |  |                     | 7,520   |                      |   | 256                   |  |   | (6     | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 43,043  |                      |   | 344                   |  |   | (810   | )
|U.S. government agency mortgage-backed securities and collateralized mortgage obligations |  |                     |         |                      |   |                       |  |   |        |  
|FHLMC                                                                                     |  |                     | 12,768  |                      |   | 16                    |  |   | (116   | )
|FNMA                                                                                      |  |                     | 44,024  |                      |   | 59                    |  |   | (708   | )
|GNMA                                                                                      |  |                     | 18,390  |                      |   | 24                    |  |   | (135   | )
|Other                                                                                     |  |                     | 3,976   |                      |   |                      |  |   | (10    | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 79,158  |                      |   | 99                    |  |   | (969   | )
|Marketable equity securities                                                              |  |                     |         |                      |   |                       |  |   |        |  
|Mortgage securities fund                                                                  |  |                     | 18,285  |                      |   |                      |  |   | (344   | )
|Federal Home Loan Bank stock                                                              |  |                     | 1,562   |                      |   |                      |  |   |       |  
|FHLMC stock                                                                               |  |                     | 907     |                      |   | 867                   |  |   |       |  
|Adjustable rate mortgage securities fund                                                  |  |                     | 9,232   |                      |   |                      |  |   | (81    | )
|Ultra Fund                                                                                |  |                     | 1,435   |                      |   |                      |  |   | (11    | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 31,421  |                      |   | 867                   |  |   | (436   | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|Total                                                                                     |  | $                   | 153,622 |                      | $ | 1,310                 |  | $ | (2,215 | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|2003                                                                                      |  |                     |         |                      |   |                       |  |   |        |  
|U.S. government agency                                                                    |  | $                   | 36,021  |                      | $ | 225                   |  | $ | (774   | )
|SLMA bonds                                                                                |  |                     | 7,058   |                      |   | 25                    |  |   | (12    | )
|Corporate bonds                                                                           |  |                     | 15,722  |                      |   | 75                    |  |   | (32    | )
|State and municipal obligations                                                           |  |                     | 6,850   |                      |   | 290                   |  |   | (4     | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 65,651  |                      |   | 615                   |  |   | (822   | )
|U.S. government agency mortgage-backed securities and collateralized mortgage obligations |  |                     |         |                      |   |                       |  |   |        |  
|FHLMC                                                                                     |  |                     | 20,452  |                      |   | 233                   |  |   | (141   | )
|FNMA                                                                                      |  |                     | 33,744  |                      |   | 323                   |  |   | (639   | )
|GNMA                                                                                      |  |                     | 8,360   |                      |   | 18                    |  |   |       |  
|Other                                                                                     |  |                     | 2,009   |                      |   | 17                    |  |   |       |  
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 64,565  |                      |   | 591                   |  |   | (780   | )



(Continued)



31.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 3 - SECURITIES(Continued)



|                                             |  |   |         |  |   |       |  |   |        |  
|-------------------------------------------- |  | - | ------- |  | - | ----- |  | - | ------ | -
|2003 (Continued)                             |  |   |         |  |   |       |  |   |        |  
|Marketable equity securities                 |  |   |         |  |   |       |  |   |        |  
|Mortgage securities fund                     |  |   | 17,632  |  |   |      |  |   | (228   | )
|Federal Home Loan Bank stock                 |  |   | 1,388   |  |   |      |  |   |       |  
|Federal Home Loan Mortgage Corporation stock |  |   | 1,019   |  |   | 965   |  |   | (3     | )
|Adjustable rate mortgage securities fund     |  |   | 9,079   |  |   | 4     |  |   | (21    | )
|Ultra Fund                                   |  |   | 1,003   |  |   | 1     |  |   |       |  
|                                             |  |   |         |  |   |       |  |   |        |  
|                                             |  |   | 30,121  |  |   | 970   |  |   | (252   | )
|                                             |  |   |         |  |   |       |  |   |        |  
|Total                                        |  | $ | 160,337 |  | $ | 2,176 |  | $ | (1,854 | )
|                                             |  |   |         |  |   |       |  |   |        |  



During the first quarter of 2003, as a
result of the acquisition of PFSB, changes in the structure of the balance sheet and for asset/liability management purposes, management revised the Companys policy to classify all securities as available for sale. Effective January 31, 2003,
the Company reclassified all of its securities held to maturity to securities available for sale. The securities that were reclassified had a book value of $24.2 million and a fair value of $24.5 million as of that date.



Sales of available for sale securities were as follows:



|             |  |      |        |   |      |   |        |      |  |   |       
|------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|             |  | 2004 |        |   | 2003 |   |        | 2002
|Proceeds     |  | $    | 36,699 |   |      | $ | 52,494 |      |  | $ | 22,973
|Gross gains  |  |      | 608    |   |      |   | 615    |      |  |   | 68    
|Gross losses |  |      | (32    | ) |      |   | (16    | )    |  |   |      



(Continued)



32.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



Securities with a carrying amount of $16,821 and $8,008 at December 31, 2004 and 2003, respectively, were pledged to secure public deposits and for other purposes as
required by law.



During the quarter ended December 31, 2001, the Company
recorded an impairment loss of $596,000 related to certificates of deposit purchased through a broker who was charged by the SEC with securities fraud in relationship to these certificates of deposit. The Company received a total of $452,000 during
2003 as distributions of receivership assets, representing 76% of the allowed claim. During 2004, the Company received three distributions totaling $85,000 for the year. The distributions of receivership assets represent 90% of the allowed claim.
These amounts are reflected as recovery impairment loss in the accompanying consolidated statement of income.



(Continued)



33.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 3 - SECURITIES(Continued)



The scheduled maturities of securities available for sale at December 31, 2004 were as follows:



|                                       |  |            |        
|-------------------------------------- |  | ---------- | -------
|                                       |  | Fair Value
|Due in one year or less                |  | $          | 90     
|Due after one year through five years  |  |            | 10,850 
|Due after five years through ten years |  |            | 28,240 
|Due after ten years                    |  |            | 3,863  
|                                       |  |            |        
|Subtotal                               |  |            | 43,043 
|Mortgage-backed securities             |  |            | 79,158 
|Marketable equity securities           |  |            | 31,421 
|                                       |  |            |        
|Total                                  |  | $          | 153,622
|                                       |  |            |        



Securities with unrealized losses at
year-end 2004 and 2003 are presented below by length of time the securities have been in an unrealized loss position.



|                                                                                           |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|------------------------------------------------------------------------------------------ |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ------ | ---------- | - | -------------- |  | - | ------- |  | - | -----
|                                                                                           |  | Less than 12 Months |        | 12 Months or More |   | Total    
|2004 Description of Securities                                                             |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | Fair Value |   | UnrealizedLoss
|U.S. government agency                                                                     |  | $                   |       |                   | $ |          |  | $              | 24,853 |            | $ | 727            |  | $ | 24,853  |  | $ | 727  
|SLMA bonds                                                                                 |  |                     |       |                   |   |          |  |                | 2,390  |            |   | 13             |  |   | 2,390   |  |   | 13   
|Corporate bonds                                                                            |  |                     | 2,077  |                   |   | 23        |  |                | 3,959  |            |   | 41             |  |   | 6,036   |  |   | 64   
|State and municipal obligations                                                            |  |                     | 737    |                   |   | 5         |  |                | 103    |            |   | 1              |  |   | 840     |  |   | 6    
|U.S. government agency mortgage- backed securities and collateralized mortgage obligations |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|FHLMC                                                                                      |  |                     | 12,022 |                   |   | 116       |  |                |       |            |   |               |  |   | 12,022  |  |   | 116  
|FNMA                                                                                       |  |                     | 23,984 |                   |   | 272       |  |                | 16,161 |            |   | 436            |  |   | 40,145  |  |   | 708  
|GNMA                                                                                       |  |                     | 15,152 |                   |   | 135       |  |                |       |            |   |               |  |   | 15,152  |  |   | 135  
|Other                                                                                      |  |                     | 1,984  |                   |   | 10        |  |                |       |            |   |               |  |   | 1,984   |  |   | 10   
|Marketable equity securities                                                               |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      
|Mortgage securities fund                                                                   |  |                     |       |                   |   | 300       |  |                | 18,285 |            |   | 44             |  |   | 18,285  |  |   | 344  
|Adjustable rate mortgage securities fund                                                   |  |                     |       |                   |   | 60        |  |                | 9,232  |            |   | 21             |  |   | 9,232   |  |   | 81   
|Ultra fund                                                                                 |  |                     | 1,435  |                   |   | 11        |  |                |       |            |   |               |  |   | 1,435   |  |   | 11   
|Total temporarily impaired                                                                 |  | $                   | 57,391 |                   | $ | 932       |  | $              | 74,983 |            | $ | 1,283          |  | $ | 132,374 |  | $ | 2,215
|                                                                                           |  |                     |        |                   |   |           |  |                |        |            |   |                |  |   |         |  |   |      



(Continued)



34.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 3 - SECURITIES(Continued)



|                                                                                            |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |      
|------------------------------------------------------------------------------------------- |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ----- | --------- | - | -------------- |  | - | ------ |  | - | -----
|                                                                                            |  | Less than 12 Months |        | 12 Months or More |   | Total    
|2003 Description of Securities                                                              |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |       | FairValue |   | UnrealizedLoss
|U.S. government agency                                                                      |  | $                   | 30,806 |                   | $ | 774       |  | $              |      |           | $ |               |  | $ | 30,806 |  | $ | 774  
|SLMA bonds                                                                                  |  |                     |       |                   |   |          |  |                | 3,086 |           |   | 12             |  |   | 3,086  |  |   | 12   
|Corporate bonds                                                                             |  |                     | 3,968  |                   |   | 32        |  |                |      |           |   |               |  |   | 3,968  |  |   | 32   
|State and municipal obligations                                                             |  |                     | 324    |                   |   | 4         |  |                |      |           |   |               |  |   | 324    |  |   | 4    
|U.S. government agency mortgage - backed securities and collateralized mortgage obligations |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |      
|FHLMC                                                                                       |  |                     | 11,376 |                   |   | 141       |  |                |      |           |   |               |  |   | 11,376 |  |   | 141  
|FNMA                                                                                        |  |                     | 23,358 |                   |   | 639       |  |                |      |           |   |               |  |   | 23,358 |  |   | 639  
|Marketable equity securities                                                                |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |      
|Mortgage securities fund                                                                    |  |                     | 17,632 |                   |   | 228       |  |                |      |           |   |               |  |   | 17,632 |  |   | 228  
|FHLMC Stock                                                                                 |  |                     | 3      |                   |   | 1         |  |                | 22    |           |   | 2              |  |   | 25     |  |   | 3    
|Adjustable rate mortgage securities fund                                                    |  |                     | 7,949  |                   |   | 21        |  |                |      |           |   |               |  |   | 7,949  |  |   | 21   
|                                                                                            |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |      
|Total temporarily impaired                                                                  |  | $                   | 95,416 |                   | $ | 1,840     |  | $              | 3,108 |           | $ | 14             |  | $ | 98,524 |  | $ | 1,854
|                                                                                            |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |      



Unrealized losses on bonds have not
been recognized into income because the issuer(s) bonds are of high credit quality, management has the intent and ability to hold the bonds for the foreseeable future, and the decline in fair value is largely due to increases in market interest
rates. The fair value is expected to recover as the bond(s) approach their maturity date and/or market rates decline. The mortgage securities fund is a U.S. Government Fund, the Net Asset Value (NAV) of which is very time dependent and sensitive to
interest rate movements in the market. When interest rates are high, the NAV is lower; when rates are low the NAV is higher. Over time, a plot of the NAV line for this fund would indicate cycles where the fund has recovered after a period of lower
valuations and management expects the fund to recover.



(Continued)



35.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 4 - LOANS RECEIVABLE



Loans receivable consist of the following:



|                            |  |      |         |   |      |   |         |  
|--------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                            |  | 2004 |         |   | 2003 |  
|First mortgage loans        |  |      |         |   |      |   |         |  
|One-  to four-family        |  | $    | 84,098  |   |      | $ | 82,931  |  
|Multi-family and commercial |  |      | 34,962  |   |      |   | 30,453  |  
|Construction                |  |      | 3,305   |   |      |   | 1,579   |  
|                            |  |      |         |   |      |   |         |  
|Total first mortgage loans  |  |      | 122,365 |   |      |   | 114,963 |  
|Commercial loans            |  |      | 6,932   |   |      |   | 7,191   |  
|Consumer loans              |  |      |         |   |      |   |         |  
|Automobile                  |  |      | 5,075   |   |      |   | 4,470   |  
|Home improvement            |  |      | 484     |   |      |   | 1,405   |  
|Share loans                 |  |      | 1,282   |   |      |   | 1,231   |  
|Other                       |  |      | 1,025   |   |      |   | 3,621   |  
|                            |  |      |         |   |      |   |         |  
|Total consumer loans        |  |      | 7,866   |   |      |   | 10,727  |  
|                            |  |      |         |   |      |   |         |  
|Total loans                 |  |      | 137,163 |   |      |   | 132,881 |  
|Add                         |  |      |         |   |      |   |         |  
|Real estate in judgment     |  |      | 20      |   |      |   |        |  
|Less                        |  |      |         |   |      |   |         |  
|Unearned discounts          |  |      | (66     | ) |      |   | (144    | )
|Deferred loans costs, net   |  |      | 156     |   |      |   | 161     |  
|Allowance for loan losses   |  |      | (942    | ) |      |   | (963    | )
|                            |  |      |         |   |      |   |         |  
|Loans receivable, net       |  | $    | 136,331 |   |      | $ | 131,935 |  
|                            |  |      |         |   |      |   |         |  



The Bank makes commercial and
residential real estate loans, commercial business loans, and consumer loans to customers located primarily in the west central Illinois and northeast Missouri areas. Generally, the loans are backed by collateral and are expected to be repaid from
cash flow or proceeds from the sale of selected assets of the borrowers.



Activity in the allowance for loan losses is summarized as follows:



|                                   |  |      |     |   |      |   |      |      |  |   |     |  
|---------------------------------- |  | ---- | --- | - | ---- | - | ---- | ---- |  | - | --- | -
|                                   |  | 2004 |     |   | 2003 |   |      | 2002 | 
|Balance at beginning of year       |  | $    | 963 |   |      | $ | 976  |      |  | $ | 534 |  
|Provision charged to income        |  |      |    |   |      |   | 90   |      |  |   | 7   |  
|Charge-offs                        |  |      | (96 | ) |      |   | (189 | )    |  |   | (25 | )
|Recoveries                         |  |      | 75  |   |      |   | 86   |      |  |   | 88  |  
|Acquired allowance for loan losses |  |      |    |   |      |   |     |      |  |   | 372 |  
|                                   |  |      |     |   |      |   |      |      |  |   |     |  
|Balance at end of year             |  | $    | 942 |   |      | $ | 963  |      |  | $ | 976 |  
|                                   |  |      |     |   |      |   |      |      |  |   |     |  



(Continued)



36.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 4 - LOANS RECEIVABLE(Continued)



There were no impaired loans as of December 31, 2004 or 2003. Differences in interest income recorded on the cash basis on nonaccrual loans for the years ended December
31, 2004, 2003, and 2002 and the amounts that would have been recorded if interest on such nonaccrual loans had been accrued were not material to the consolidated financial statements.



Nonperforming loans were as follows:



|                                             |  |      |     |      |   |    
|-------------------------------------------- |  | ---- | --- | ---- | - | ---
|                                             |  | 2004 |     | 2003
|Loans past due over 90 days still on accrual |  | $    | 902 |      | $ | 993
|Nonaccrual loans                             |  |      | 929 |      |   | 160



Nonperforming loans includes both
smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.



Loans to principal officers, directors, and their affiliates in 2004 were as follows.



|                  |  |      |      |   |      |   |      |  
|----------------- |  | ---- | ---- | - | ---- | - | ---- | -
|                  |  | 2004 |      |   | 2003 |  
|Beginning balance |  | $    | 525  |   |      |   | 399  |  
|New loans         |  |      | 498  |   |      |   | 295  |  
|Repayments        |  |      | (448 | ) |      |   | (169 | )
|                  |  |      |      |   |      |   |      |  
|Ending balance    |  | $    | 575  |   |      | $ | 525  |  
|                  |  |      |      |   |      |   |      |  



These loans were made on substantially
the same terms and conditions available to customers of the Company.



NOTE 5
- LOAN SERVICING



Mortgage loans serviced for others are not included in
the accompanying consolidated financial statements. The unpaid principal balances of these loans are summarized below:



|                       |  |      |        |      |   |       
|---------------------- |  | ---- | ------ | ---- | - | ------
|                       |  | 2004 |        | 2003
|Federal Home Loan Bank |  |      | 45,881 |      |   | 40,616
|                       |  |      |        |      |   |       
|Total                  |  | $    | 45,881 |      | $ | 40,616
|                       |  |      |        |      |   |       



(Continued)



37.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 6 - PREMISES AND EQUIPMENT



Premises and equipment are summarized as follows:



|                                   |  |      |       |      |   |      
|---------------------------------- |  | ---- | ----- | ---- | - | -----
|                                   |  | 2004 |       | 2003
|Land, buildings, and improvements  |  | $    | 4,477 |      | $ | 4,412
|Furniture, fixtures, and equipment |  |      | 2,026 |      |   | 1,929
|                                   |  |      |       |      |   |      
|                                   |  |      | 6,503 |      |   | 6,341
|Less accumulated depreciation      |  |      | 3,032 |      |   | 2,806
|                                   |  |      |       |      |   |      
|Total                              |  | $    | 3,471 |      | $ | 3,535
|                                   |  |      |       |      |   |      



NOTE 7 - DEPOSITS



Certificate of deposit accounts with balances of $100,000 or more totaled approximately
$31,629,000 and $32,922,000 at December 31, 2004 and 2003, respectively. Deposits greater than $100,000 are not federally insured.



Scheduled maturities of certificates of deposit at December 31, 2004 were as follows:



|      |  |   |        
|----- |  | - | -------
|2005  |  | $ | 92,337 
|2006  |  |   | 57,567 
|2007  |  |   | 21,143 
|2008  |  |   | 9,775  
|2009  |  |   | 4,953  
|      |  |   |        
|Total |  | $ | 185,775
|      |  |   |        



At year-end 2004 and 2003, deposits to
related parties were approximately $1,495,000 and $1,358,000.



(Continued)



38.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES



Advances from the Federal Home Loan Bank consist of:



|                   |  |      |   |  |                 |  |      |       |      |   |      
|------------------ |  | ---- | - |  | --------------- |  | ---- | ----- | ---- | - | -----
|Maturity Date      |  | Rate |   |  | Rate Adjustment |  | 2004 |       | 2003
|September 23, 2004 |  | 1.58 | % |  | Fixed           |  |      |      |      |   | 4,000
|January 31, 2005   |  | 4.40 | % |  | Fixed           |  |      | 2,000 |      |   | 2,000
|September 30, 2005 |  | 2.67 | % |  | Fixed           |  |      | 450   |      |   |     
|September 23, 2007 |  | 3.38 | % |  | Fixed           |  |      | 4,000 |      |   |     
|                   |  |      |   |  |                 |  |      |       |      |   |      
|                   |  |      |   |  |                 |  | $    | 6,450 |      | $ | 6,000
|                   |  |      |   |  |                 |  |      |       |      |   |      



The Bank maintains a collateral pledge
agreement covering secured advances whereby the Bank has agreed to at all times keep on hand, free of all other pledges, and encumbrances, securities issued, insured or guaranteed by the U.S. government or any agency thereof, aggregating no less
than 112% of the outstanding secured advances from the Federal Home Loan Bank of Chicago.



NOTE 9 - INCOME TAXES



An analysis of
the provision for income taxes is as follows:



|         |  |      |       |   |      |   |       |  |   |      
|-------- |  | ---- | ----- | - | ---- | - | ----- |  | - | -----
|         |  | 2004 |       |   | 2003 |   | 2002 
|Current  |  | $    | 1,256 |   |      | $ | 1,444 |  | $ | 1,037
|Deferred |  |      | (170  | ) |      |   | 107   |  |   | 87   
|         |  |      |       |   |      |   |       |  |   |      
|         |  | $    | 1,086 |   |      | $ | 1,551 |  | $ | 1,124
|         |  |      |       |   |      |   |       |  |   |      



The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 are as follows:



|                                                   |  |      |       |      |   |    
|-------------------------------------------------- |  | ---- | ----- | ---- | - | ---
|                                                   |  | 2004 |       | 2003
|Deferred tax assets                                |  |      |       |      |   |    
|Deferred loan fees                                 |  | $    |      |      | $ | 62 
|Allowance for loan losses                          |  |      | 366   |      |   | 374
|Stock awards                                       |  |      | 106   |      |   | 81 
|Unrealized losses on securities available for sale |  |      | 247   |      |   |   
|Other                                              |  |      | 327   |      |   |   
|                                                   |  |      |       |      |   |    
|Total deferred tax assets                          |  |      | 1,046 |      |   | 517



(Continued)



39.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 9 - INCOME TAXES(Continued)



|                                                  |  |   |      |   |  |   |      |  
|------------------------------------------------- |  | - | ---- | - |  | - | ---- | -
|Deferred tax liabilities                          |  |   |      |   |  |   |      |  
|Deferred loan costs                               |  |   | (61  | ) |  |   |     |  
|Unrealized gains on securities available for sale |  |   |     |   |  |   | (125 | )
|Depreciation                                      |  |   | (189 | ) |  |   | (147 | )
|Federal Home Loan Bank stock dividends            |  |   | (176 | ) |  |   | (144 | )
|Purchase accounting adjustments                   |  |   | (35  | ) |  |   | (20  | )
|Other                                             |  |   |     |   |  |   | (38  | )
|                                                  |  |   |      |   |  |   |      |  
|Total deferred tax liabilities                    |  |   | (461 | ) |  |   | (474 | )
|                                                  |  |   |      |   |  |   |      |  
|Net deferred tax asset (liability)                |  | $ | 585  |   |  | $ | 43   |  
|                                                  |  |   |      |   |  |   |      |  



No valuation has been recorded as
management believes that it is more likely than not that the deferred tax asset will be fully realized.



A reconciliation of the federal statutory tax rate of 34% for the years ended December 31, 2004 and 2003 to the effective tax rate on income before income taxes is as follows:



|                                   |  |        |       |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  
|---------------------------------- |  | ------ | ----- | - | ------- | ---- | - | ------ | - | ----- | ------- |  | ---- | ------ |  | - | ------- | - |  | ---- | -
|                                   |  | 2004   |       |   | 2003    |      |   | 2002   |  
|                                   |  | Amount |       |   | Percent |      |   | Amount |   |       | Percent |  |      | Amount |  |   | Percent |  
|Tax expense at statutory rate      |  | $      | 981   |   |         | 34.0 | % |        | $ | 1,490 |         |  | 34.0 | %      |  | $ | 1,041   |   |  | 34.0 | %
|Tax-exempt interest income         |  |        | (89   | ) |         | (3.1 | ) |        |   | (93   | )       |  | (2.1 | )      |  |   | (67     | ) |  | (2.2 | )
|State income taxes, net of federal |  |        | 58    |   |         | 2.0  |   |        |   | 30    |         |  | 0.7  |        |  |   | 82      |   |  | 2.7  |  
|ESOP expense                       |  |        | 110   |   |         | 3.8  |   |        |   | 101   |         |  | 2.3  |        |  |   | 50      |   |  | 1.6  |  
|Other                              |  |        | 26    |   |         | 0.9  |   |        |   | 23    |         |  | 0.5  |        |  |   | 18      |   |  | 0.6  |  
|                                   |  |        |       |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  
|Tax expense at effective rate      |  | $      | 1,086 |   |         | 37.6 | % |        | $ | 1,551 |         |  | 35.4 | %      |  | $ | 1,124   |   |  | 36.7 | %
|                                   |  |        |       |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  



Retained earnings at December 31, 2004
include allocations for federal income tax purposes representing tax bad debt deductions of approximately $2,300,000 through December 31, 2004, on which no tax has been paid and no deferred federal income taxes have been provided. Reductions of
amounts so allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate.



(Continued)



40.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 10 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES



The contractual amount of financial instruments with off-balance-sheet risk was as follows at year end.



|                                             |  |      |       |      |   |      
|-------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                             |  | 2004 |       | 2003
|Commitments to make loans                    |  | $    | 1,728 |      | $ | 612  
|Unused lines of credit and letters of credit |  |      | 4,106 |      |   | 4,581
|Construction loans in process                |  |      | 326   |      |   | 610  



Commitments to make loans are
generally made for periods of 60 days or less. At December 31, 2004, the Bank did not have any fixed rate commitments to extend credit. Since many commitments expire without being used, the amounts above do not necessarily represent future cash
commitments. Collateral may be obtained upon exercise of a commitment. The amount of collateral is determined by management and may include commercial and residential real estate and other business and consumer assets.



At December 31, 2004 and 2003, the Corporation had no financial guarantees under FASB
Interpretation 45.



NOTE 11 - PENSION PLAN



The Corporation participates in a multi-employer defined benefit pension plan. The plan
provides benefits to substantially all of the Corporations employees. The plan is funded through contributions to a nationwide plan for savings and loan associations. Pension expense was $322,000, $224,000, and $142,500 during the years ended
December 31, 2004, 2003, and 2002, respectively.



NOTE 12 - STOCK-BASED
COMPENSATION PLANS



The Corporation maintains an ESOP for the benefit of
substantially all employees. Shares issued to the ESOP are allocated to ESOP participants based on principal and interest repayments made by the ESOP on a loan from the Corporation. The loan, which had a balance of $1,230,000 at December 31, 2004,
is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Corporations discretionary contributions to the ESOP and earnings on the ESOPs assets. Principal payments are scheduled to occur
over a ten-year period. However, in the event the Corporations contributions exceed the minimum debt service requirements, additional principal payments will be made.



(Continued)



41.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 12 - STOCK-BASED COMPENSATION PLANS(Continued)



During 2004, 2003, and 2002, 17,940 shares of stock each year with an average fair value of $28.05, $26.37, and $18.03 per share were committed to be released, resulting
in ESOP compensation expense of $503,672, $471,899, and $323,485 respectively. During 2004, 2,403 shares were released from the plan for terminated employees. Shares held by the ESOP at December 31 are as follows:



|                                 |  |      |         |      |   |        
|-------------------------------- |  | ---- | ------- | ---- | - | -------
|                                 |  | 2004 |         | 2003
|Allocated shares                 |  |      | 71,949  |      |   | 56,412 
|Unallocated shares               |  |      | 103,155 |      |   | 121,095
|                                 |  |      |         |      |   |        
|Total ESOP shares                |  |      | 175,104 |      |   | 177,507
|                                 |  |      |         |      |   |        
|Fair value of unallocated shares |  | $    | 2,219   |      | $ | 4,263  
|                                 |  |      |         |      |   |        



The Corporation adopted a stock-based
incentive plan during 2001 under the terms of which 224,250 shares of the Corporations common stock were reserved for issuance. The options become exercisable in equal installments over a five-year period from the date of grant. The options
expire ten years from the date of grant.



As part of the acquisition of PFSB,
the Corporation assumed the outstanding stock options of PFSB and converted them into options to purchase the Corporations common stock. The options were converted at the same exchange ratio that was utilized for the acquisition of the
outstanding common stock of PFSB as of the acquisition date. All converted options are fully vested and exercisable as of the conversion date.



(Continued)



42.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 12 - STOCK-BASED COMPENSATION PLANS(Continued)



A summary of the status of the Corporations stock option plan and changes including the conversion of all shares of PFSB into shares of the Corporations
common stock effective November 22, 2002, is presented below:



|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|---------------------------------------------------------- |  | ------- |  | ---------------------------- | --------- | ------ | ------- | ---------------------------- | - | --------- |  | ---------------------------- |  | - | ---------
|                                                           |  | 2004    |  | 2003                         |           | 2002  
|                                                           |  | Shares  |  | WeightedAverageExercisePrice |           | Shares |         | WeightedAverageExercisePrice |   | Shares    |  | WeightedAverageExercisePrice
|Outstanding at beginning of year                           |  | 223,850 |  | $                            | 14.16     |        | 253,760 |                              | $ | 13.86     |  | 208,549                      |  | $ | 15.10    
|Granted                                                    |  | 12,701  |  |                              | 22.50     |        | 3,000   |                              |   | 20.01     |  |                             |  |   |         
|Exercised                                                  |  | 25,060  |  |                              | 10.29     |        | 32,910  |                              |   | 11.96     |  | 2,603                        |  |   | 15.10    
|Options converted*                                         |  |        |  |                              |          |        |        |                              |   |          |  | 47,814                       |  |   | 8.52     
|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|Outstanding at end of year                                 |  | 211,491 |  | $                            | 15.18     |        | 223,850 |                              | $ | 14.16     |  | 253,760                      |  | $ | 13.86    
|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|Options exercisable at year-end                            |  | 112,976 |  |                              |           |        | 95,729  |                              |   |           |  | 86,925                       |  |   |          
|Weighted average fair value of options granted during year |  |         |  | $                            | 6.58      |        |         |                              | $ | 3.26      |  |                              |  | $ |         
|Average remaining option term                              |  |         |  |                              | 7.1 years |        |         |                              |   | 7.7 years |  |                              |  |   | 8.8 years

---

|* | Represents conversion of all outstanding PFSB options that were converted into options to purchase options of the Corporation on November 22, 2002.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------



Options outstanding at year-end 2004 were as follows:



|                        |  |             |  |                                         |  |                  
|----------------------- |  | ----------- |  | --------------------------------------- |  | -----------------
|                        |  | Outstanding |  |                                        
|Exercise Prices         |  | Number      |  | WeightedAverageRemainingContractualLife |  | ExercisableNumber
|$8.52                   |  | 13,796      |  | 6 years                                 |  | 13,796           
|$15.10                  |  | 181,994     |  | 7 years                                 |  | 98,580           
|$20.01                  |  | 3,000       |  | 8 years                                 |  | 600              
|$22.50                  |  | 12,701      |  | 10 years                                |  |                 
|                        |  |             |  |                                         |  |                  
|Outstanding at year end |  | 211,491     |  |                                         |  | 112,976          
|                        |  |             |  |                                         |  |                  



(Continued)



43.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 12 - STOCK-BASED COMPENSATION PLANS(Continued)



Pursuant to its 2001 stock-based incentive plan, the Corporation awarded 89,700 shares of restricted stock during 2001. These shares vest over a five-year period. The
unamortized cost of shares not yet earned (vested) is reported as a reduction of shareholders equity. Compensation expense for restricted stock awards totaled $270,894 for all three years ended December 31, 2004, 2003, and 2002.



NOTE 13 - REGULATORY CAPITAL REQUIREMENTS



The Bank is subject to various regulatory capital requirements administered by the federal
banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2004 and 2003, the most recent regulatory notifications
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institutions category.



The Banks actual and required capital amounts and ratios are presented below.



(Continued)



44.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 13 - REGULATORY CAPITAL REQUIREMENTS(Continued)



|                                                 |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|------------------------------------------------ |  | ------ | ------ | ----- | ---------------------------- | - | ------ | -------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|                                                 |  | Actual |        |       | For CapitalAdequacy Purposes |   |        | To Be Well CapitalizedUnder Prompt CorrectiveAction Provisions |       
|                                                 |  | Amount |        | Ratio |                              |   | Amount |                                                                | Ratio  |  |     | Amount |  | Ratio |       
|As of December 31, 2004                          |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|Total capital (to risk-weighted assets)          |  | $      | 25,336 |       | 18.49                        | % |        | $                                                              | 10,961 |  | 8.0 | %      |  | $     | 13,701 |  | 10.0 | %
|Tier I capital (to risk-weighted assets)         |  |        | 24,512 |       | 17.89                        |   |        |                                                                | 5,480  |  | 4.0 |        |  |       | 8,221  |  | 6.0  |  
|Tier I (core) capital (to adjusted total assets) |  |        | 24,512 |       | 7.93                         |   |        |                                                                | 12,357 |  | 4.0 |        |  |       | 15,447 |  | 5.0  |  
|                                                 |  |        |        |       |                              |  
|As of December 31, 2003                          |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|Total capital (to risk-weighted assets)          |  | $      | 29,086 |       | 21.13                        | % |        | $                                                              | 11,010 |  | 8.0 | %      |  | $     | 13,763 |  | 10.0 | %
|Tier I capital (to risk-weighted assets)         |  |        | 27,801 |       | 20.20                        |   |        |                                                                | 5,505  |  | 4.0 |        |  |       | 8,258  |  | 6.0  |  
|Tier I (core) capital (to adjusted total assets) |  |        | 27,801 |       | 8.58                         |   |        |                                                                | 12,968 |  | 4.0 |        |  |       | 16,210 |  | 5.0  |  



The Corporation may pay dividends
without restriction as a unitary thrift holding company. The Bank is subject to statutory dividend restrictions which provide, in general, that the Bank may pay the current years earnings and the prior two years retained earnings without
the prior approval of the Office of Thrift Supervision (OTS). The Bank requested and obtained approval of the OTS to pay dividends of $6,000,000, $8,000,000, and $5,000,000 to the Corporation in 2004, 2003, and 2002 respectively. Because of the
large dividends paid in the past few years, the Bank will be required to obtain prior approval to pay dividends in 2005.



NOTE 14 - EARNINGS PER SHARE



The following is a reconciliation of the numerator and denominator of the earnings per common share computation.



|                                                                               |  |      |           |      |   |            |  |   |          
|------------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | ---------- |  | - | ---------
|                                                                               |  | 2004 |           | 2003 |   | 2002      
|Net income attributable to common shareholders                                 |  | $    | 1,799     |      | $ | 2,832      |  | $ | 1,937    
|                                                                               |  |      |           |      |   |            |  |   |          
|Weighted average common shares outstanding for basic earnings per common share |  |      | 1,385,193 |      |   | 1,798,,428 |  |   | 1,776,719
|Add: dilutive effects of assumed exercises of stock options and stock awards   |  |      | 98,692    |      |   | 110,845    |  |   | 38,821   
|                                                                               |  |      |           |      |   |            |  |   |          
|Average shares and dilutive potential common shares                            |  |      | 1,483,885 |      |   | 1,909,273  |  |   | 1,815,540
|                                                                               |  |      |           |      |   |            |  |   |          
|Basic earnings per share                                                       |  | $    | 1.30      |      | $ | 1.58       |  | $ | 1.09     
|                                                                               |  |      |           |      |   |            |  |   |          
|Diluted earnings per share                                                     |  | $    | 1.21      |      | $ | 1.48       |  | $ | 1.07     
|                                                                               |  |      |           |      |   |            |  |   |          



(Continued)



45.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS



The approximate carrying amount and estimated fair value of financial instruments as of December 31, 2004 and 2003 are as follows:



|                                                      |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|----------------------------------------------------- |  | ------------------------- | ------- | ------------------- | - | ------------------------- |  | ------------------- | ------- |  | - | -------
|                                                      |  | 2004                      |         | 2003               
|                                                      |  | ApproximateCarryingAmount |         | EstimatedFair Value |   | ApproximateCarryingAmount |  | EstimatedFair Value
|Financial assets                                      |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|Cash and cash equivalents                             |  | $                         | 14,387  |                     | $ | 14,387                    |  | $                   | 29,124  |  | $ | 29,124 
|Time deposits in other financial institutions         |  |                           | 295     |                     |   | 295                       |  |                     | 295     |  |   | 295    
|Securities available for sale                         |  |                           | 153,622 |                     |   | 153,622                   |  |                     | 160,337 |  |   | 160,337
|Loans receivable, net                                 |  |                           | 136,331 |                     |   | 137,902                   |  |                     | 131,935 |  |   | 133,664
|Accrued interest receivable                           |  |                           | 1,363   |                     |   | 1,363                     |  |                     | 1,489   |  |   | 1,489  
|                                                      |  |                           |         |                    
|Financial liabilities                                 |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|Deposits                                              |  | $                         | 273,711 |                     | $ | 274,665                   |  | $                   | 271,850 |  | $ | 274,191
|Advance payments by borrowers for taxes and insurance |  |                           | 184     |                     |   | 184                       |  |                     | 137     |  |   | 137    
|Federal Home Loan Bank advances                       |  |                           | 6,450   |                     |   | 6,434                     |  |                     | 6,000   |  |   | 6,065  
|Accrued interest payable                              |  |                           | 592     |                     |   | 592                       |  |                     | 484     |  |   | 484    
|Subordinated Debentures                               |  |                           | 7,217   |                     |   | 7,368                     |  |                     |        |  |   |       



The methods and assumptions used to
estimate fair value are described as follows:



Carrying amount is the
estimated fair value for cash and cash equivalents, short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and
fully. Security fair values are based on market prices or dealer quotes and, if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing.



(Continued)



46.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS)



Other comprehensive income (loss) components and related taxes were as follows:



|                                                                    |  |              |        |   |      |   |        |      |  |   |       |  
|------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                                    |  | December 31, |       
|                                                                    |  | 2004         |        |   | 2003 |   |        | 2002 | 
|Unrealized holdings gains (losses) on securities available for sale |  | $            | (651   | ) |      | $ | (2,292 | )    |  | $ | 2,146 |  
|Reclassification adjustments for net gains recognized in income     |  |              | (576   | ) |      |   | (599   | )    |  |   | (68   | )
|                                                                    |  |              |        |   |      |   |        |      |  |   |       |  
|Net unrealized gains (losses)                                       |  |              | (1,227 | ) |      |   | (2,891 | )    |  |   | 2,078 |  
|Tax effect                                                          |  |              | 476    |   |      |   | 1,120  |      |  |   | (805  | )
|                                                                    |  |              |        |   |      |   |        |      |  |   |       |  
|Other comprehensive income (loss)                                   |  | $            | (751   | ) |      | $ | (1,771 | )    |  | $ | 1,273 |  
|                                                                    |  |              |        |   |      |   |        |      |  |   |       |  



NOTE 17 - PARENT COMPANY CONDENSED
FINANCIAL STATEMENTS



CONDENSED BALANCE SHEET

December 31, 2004 and 2003



|                                             |  |      |        |      |   |       
|-------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                             |  | 2004 |        | 2003
|ASSETS                                       |  |      |        |      |   |       
|Cash and cash equivalents                    |  | $    | 918    |      | $ | 888   
|Securities available for sale                |  |      | 2,873  |      |   | 2,616 
|ESOP loan                                    |  |      | 1,230  |      |   | 1,384 
|Investment in bank subsidiary                |  |      | 25,845 |      |   | 29,608
|Accrued interest receivable and other assets |  |      | 718    |      |   | 7,003 
|                                             |  |      |        |      |   |       
|                                             |  | $    | 31,584 |      | $ | 41,499
|                                             |  |      |        |      |   |       
|LIABILITIES AND SHAREHOLDERS EQUITY         |  |      |        |      |   |       
|Accrued expenses and other liabilities       |  | $    | 7,460  |      | $ | 106   
|Shareholders equity                         |  |      | 24,124 |      |   | 41,393
|                                             |  |      |        |      |   |       
|                                             |  | $    | 31,584 |      | $ | 41,499
|                                             |  |      |        |      |   |       



(Continued)



47.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 17 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)



CONDENSED STATEMENT OF INCOME

For the years
ended December 31



|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                      |  | 2004 |        |   | 2003 |   |         | 2002 | 
|Income                                                                                |  |      |        |   |      |   |         |      |  |   |        |  
|Securities                                                                            |  | $    | 120    |   |      | $ | 75      |      |  | $ | 178    |  
|ESOP loan                                                                             |  |      | 127    |   |      |   | 140     |      |  |   | 153    |  
|Time deposits in other financial institutions                                         |  |      | 22     |   |      |   | 18      |      |  |   | 62     |  
|Dividend income from bank subsidiary                                                  |  |      | 6,000  |   |      |   | 13,000  |      |  |   | 7,000  |  
|Gain (Loss) on sale of securities                                                     |  |      | (21    | ) |      |   |        |      |  |   | 8      |  
|Other operating income                                                                |  |      |       |   |      |   | 2       |      |  |   |       |  
|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  
|Total income                                                                          |  |      | 6,248  |   |      |   | 13,235  |      |  |   | 7,401  |  
|                                                                                      |  |      |       
|Expenses                                                                              |  |      |        |   |      |   |         |      |  |   |        |  
|Subordinated debenture                                                                |  |      | 323    |   |      |   |        |      |  |   |       |  
|Other operating expenses                                                              |  |      | 388    |   |      |   | 341     |      |  |   | 186    |  
|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  
|Total expenses                                                                        |  |      | 711    |   |      |   | 341     |      |  |   | 186    |  
|                                                                                      |  |      |       
|Income before income taxes and equity in over distributed earnings of bank subsidiary |  |      | 5,537  |   |      |   | 12,894  |      |  |   | 7,215  |  
|                                                                                      |  |      |       
|Provision for income taxes                                                            |  |      | (181   | ) |      |   | (23     | )    |  |   | 82     |  
|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  
|Income before equity in over distributed earnings of bank subsidiary                  |  |      | 5,718  |   |      |   | 12,917  |      |  |   | 7,133  |  
|                                                                                      |  |      |       
|Equity in over distributed earnings of bank subsidiary                                |  |      | (3,919 | ) |      |   | (10,085 | )    |  |   | (5,196 | )
|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  
|Net income                                                                            |  | $    | 1,799  |   |      | $ | 2,832   |      |  | $ | 1,937  |  
|                                                                                      |  |      |        |   |      |   |         |      |  |   |        |  



(Continued)



48.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 17 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS(Continued)



CONDENSED STATEMENT OF CASH FLOWS

For the
year ended December 31



|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                 |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Operating activities                                                             |  |      |         |   |      |   |        |      |  |   |        |  
|Net income                                                                       |  | $    | 1,799   |   |      | $ | 2,832  |      |  | $ | 1,937  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |         |   |      |   |        |      |  |   |        |  
|Equity in over distributed earnings of bank subsidiary                           |  |      | 3,919   |   |      |   | 10,085 |      |  |   | 5,196  |  
|Net accretion                                                                    |  |      | (1      | ) |      |   | (3     | )    |  |   | (3     | )
|Dividend reinvestments                                                           |  |      | (91     | ) |      |   | (27    | )    |  |   | (34    | )
|(Gain) Loss on sale of securities                                                |  |      | 21      |   |      |   |       |      |  |   | (8     | )
|Change in other assets and liabilities                                           |  |      | 13,764  |   |      |   | (7,010 | )    |  |   | 401    |  
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash provided by operating activities                                        |  |      | 19,411  |   |      |   | 5,877  |      |  |   | 7,489  |  
|                                                                                 |  |      |        
|Investing activities                                                             |  |      |         |   |      |   |        |      |  |   |        |  
|Purchase of securities available for sale                                        |  |      | (6,000  | ) |      |   | (1,000 | )    |  |   |       |  
|Paydowns on mortgage-backed securities                                           |  |      | 184     |   |      |   | 688    |      |  |   | 581    |  
|Proceeds from sales of securities available for sale                             |  |      | 5,600   |   |      |   |       |      |  |   | 3,785  |  
|Maturities of securities available for sale                                      |  |      |        |   |      |   |       |      |  |   | 1,000  |  
|Capital contribution to subsidiary                                               |  |      | (53     | ) |      |   | (57    | )    |  |   | (5,009 | )
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash provided by investing activities                                        |  |      | (269    | ) |      |   | 369    |      |  |   | 357    |  
|                                                                                 |  |      |        
|Financing activities                                                             |  |      |         |   |      |   |        |      |  |   |        |  
|Payment received on loan to ESOP                                                 |  |      | 154     |   |      |   | 140    |      |  |   | 128    |  
|Purchase of treasury stock                                                       |  |      | (18,969 | ) |      |   | (7,333 | )    |  |   | (5,572 | )
|Exercise of options                                                              |  |      | 402     |   |      |   | 518    |      |  |   | 43     |  
|Dividends paid                                                                   |  |      | (698    | ) |      |   | (760   | )    |  |   | (647   | )
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|Net cash used in financing activities                                            |  |      | (19,112 | ) |      |   | (7,435 | )    |  |   | (6,048 | )
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|Net change in cash and cash equivalents                                          |  |      | 30      |   |      |   | (1,927 | )    |  |   | 1,798  |  
|                                                                                 |  |      |        
|Cash and cash equivalents at beginning of year                                   |  |      | 888     |   |      |   | 2,815  |      |  |   | 1,017  |  
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at end of year                                         |  | $    | 918     |   |      | $ | 888    |      |  | $ | 2,815  |  
|                                                                                 |  |      |         |   |      |   |        |      |  |   |        |  



(Continued)



49.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003

(Tables in thousands, except share and per share data)



NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)



|                   |  |                |       |                   |   |           |  |                       |     |  |   |     
|------------------ |  | -------------- | ----- | ----------------- | - | --------- |  | --------------------- | --- |  | - | ----
|                   |  | InterestIncome |       | NetInterestIncome |   | NetIncome |  | BasicEarningsPerShare
|2004               |  |                |       |                   |   |           |  |                       |     |  |   |     
|First quarter      |  | $              | 3,589 |                   | $ | 2,143     |  | $                     | 568 |  | $ | 0.34
|Second quarter (1) |  |                | 3,612 |                   |   | 2,108     |  |                       | 248 |  |   | 0.16
|Third quarter (2)  |  |                | 3,592 |                   |   | 2,046     |  |                       | 460 |  |   | 0.39
|Fourth quarter (3) |  |                | 3,657 |                   |   | 2,001     |  |                       | 523 |  |   | 0.45
|2003               |  |                |       |                   |   |           |  |                       |     |  |   |     
|First quarter      |  | $              | 4,032 |                   | $ | 2,217     |  | $                     | 617 |  | $ | 0.33
|Second quarter (4) |  |                | 3,768 |                   |   | 2,022     |  |                       | 788 |  |   | 0.42
|Third quarter (5)  |  |                | 3,886 |                   |   | 2,379     |  |                       | 925 |  |   | 0.52
|Fourth quarter     |  |                | 3,625 |                   |   | 2,138     |  |                       | 502 |  |   | 0.30

---

|(1) | During the second quarter 2004, the Company recorded $4,000 in net gains on the sale of securities compared to $380,000 recorded in the first quarter 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During the third quarter 2004, the Company recorded $192,000 in net gains on the sale of securities compared to $4,000 during the second quarter 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During the fourth quarter 2004, the Company recorded a tax benefit as a result of filing a consolidated tax return for 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(4) | During the second quarter of 2003, the Company received a cash recovery related to previously impaired investments in certificates of deposit resulting in income of $452,000.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | During the third quarter of 2003, the Company sold a branch location resulting in a gain of $428,000. See Note 2 for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



NOTE 19 - TENDER OFFER



On April 16, 2004, the Company commenced a self-tender offer for up to 560,000 shares of its common stock. On May 28, 2004, the Company
purchased 559,993 of its common shares at $33.50 per share pursuant to its self tender offer, which expired May 21, 2004. The tender offer was in the form of a modified Dutch auction tender. Under this procedure, shareholders were given
the opportunity to sell part or all of their shares to the Company at a price of not less than $31.00 per share and not more than $34.00 per share. Upon the expiration of the offer, the Company selected the lowest purchase price that allowed it to
buy 560,000 shares. All shares purchased in this offering received the same price. According to the final report from the depositary for the offer, the number of shares that were properly tendered and not withdrawn prior to the expiration of the
offer exceeded the number of shares that the Company had offered to purchase. Therefore, the Company purchased, in most cases, 66.41% of the shares tendered by each of its stockholders.



The aggregate cost of the purchase totaled $18.9 million, including fees and expenses of approximately $157,000. The tender offer was
financed with proceeds of the trust preferred securities issued by the Company in a pooled offering, cash on hand and a $6.0 million capital distribution from First Federal Bank.



50.



---

DIRECTORS AND OFFICERS



|                                                                                                                |  |                                                      |  |                                               
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ----------------------------------------------
|Directors of First Federal Bancshares, Inc. and First Federal Bank                                              |  | Principal Officers of First Federal Bancshares, Inc. |  | Principal Officers of First Federal Bank      
|Gerald L. Prunty                                                                                                |  | James J. Stebor                                      |  | James J. Stebor                               
|Chairman of the Board, First Federal Bank Retired President, First Federal Bank                                 |  | President and Chief Executive Officer                |  | President and Chief Executive Officer         
|                                                                                                                |  |                                                     
|                                                                                                                |  | Cathy D. Pendell                                     |  | Cathy D. Pendell                              
|                                                                                                                |  | Treasurer                                            |  | Sr. Vice President and Chief Financial Officer
|                                                                                                                |  |                                                     
|Franklin M. Hartzell                                                                                            |  | Peggy L. Higgins                                     |  | Peggy L. Higgins                              
|Chairman of the Board, First Federal Bancshares, Inc. Partner in law firm Hartzell, Glidden, Tucker & Hartzell; |  | Assistant Treasurer                                  |  | Sr. Vice President and Treasurer              
|                                                                                                                |  |                                                     
|                                                                                                                |  | Millie R. Shields                                    |  |                                               
|                                                                                                                |  | Corporate Secretary                                  |  |                                               
|                                                                                                                |  |                                                     
|Murrel Hollis                                                                                                   |  |                                                      |  | Millie R. Shields                             
|Ex-partner and retired president of Martin-Hollis Funeral Home                                                  |  |                                                      |  | Sr. Vice President and Secretary              
|                                                                                                                |  |                                                     
|Dr. Stephan L. Roth                                                                                             |  |                                                      |  | Mark Tyrpin                                   
|Retired family physician                                                                                        |  |                                                      |  | Vice President                                
|                                                                                                                |  |                                                     
|James J. Stebor                                                                                                 |  |                                                      |  |                                               
|President and Chief Executive Officer                                                                           |  |                                                      |  |                                               
|                                                                                                                |  |                                                     
|Richard D. Stephens                                                                                             |  |                                                      |  |                                               
|Retired attorney serving as Counsel to the law firm of Flack, McRaven & Stephens                                |  |                                                      |  |                                               
|                                                                                                                |  |                                                     
|B. Bradford Billings                                                                                            |  |                                                      |  |                                               
|President and Chief Executive Officer of Blessing Corporate Services, Inc.                                      |  |                                                      |  |                                               
|                                                                                                                |  |                                                     
|Eldon R. Mette                                                                                                  |  |                                                      |  |                                               
|Retired President and Chief Executive Officer, PFSB Bancorp, Inc. and Palmyra Savings                           |  |                                                      |  |                                               
|                                                                                                                |  |                                                     
|Director Emeritus of First Federal Bancshares, Inc. and                                                         |  |                                                      |  |                                               
|First Federal Bank                                                                                              |  |                                                      |  |                                               
|                                                                                                                |  |                                                     
|Eldon M. Snowden                                                                                                |  |                                                      |  |                                               
|Retired general manager and chief operating officer of McDonough Telephone Cooperative                          |  |                                                      |  |                                               



51.



---

INVESTOR AND CORPORATE INFORMATION



Annual Meeting



The annual meeting of shareholders will be held at 2:00 p.m., on May 24, 2005 at the Quincy Holiday Inn located at 201 S. Third Street, Quincy, Illinois 62301.



Stock Listing



First Federal Bancshares, Inc. common stock is listed on the Nasdaq National Market under
the symbol FFBI.



Price Range of Common Stock



The high and low bid prices and dividends paid per share of the common stock for each
quarter during the last two fiscal years were as follows:



|              |  |      |       |      |   |                  |  |      |     |     |   |                  |  |   |       |  |   |    
|------------- |  | ---- | ----- | ---- | - | ---------------- |  | ---- | --- | --- | - | ---------------- |  | - | ----- |  | - | ---
|              |  | 2004 |       | 2003
|Quarter Ended |  | High |       | Low  |   | DividendDeclared |  | High |     | Low |   | DividendDeclared
|March 31      |  | $    | 35.25 |      | $ | 32.85            |  | $    | .11 |     | $ | 21.00            |  | $ | 19.95 |  | $ | .08
|June 30       |  |      | 33.41 |      |   | 27.07            |  |      | .11 |     |   | 24.50            |  |   | 20.79 |  |   | .11
|September 30  |  |      | 27.31 |      |   | 20.30            |  |      | .11 |     |   | 32.95            |  |   | 23.31 |  |   | .11
|December 31   |  |      | 24.00 |      |   | 21.50            |  |      | .11 |     |   | 36.00            |  |   | 31.61 |  |   | .11
|              |  |      |       |      |   |                  |  |      |     |     |   |                  |  |   |       |  |   |    
|              |  |      |       |      |   |                  |  | $    | .44 |     |   |                  |  |   |       |  | $ | .41
|              |  |      |       |      |   |                  |  |      |     |     |   |                  |  |   |       |  |   |    



The stock price information set forth
in the table above was provided by The Nasdaq Stock Market. The closing sale price of First Federal Bancshares, Inc.s common stock on December 31, 2004 was $21.51.



At March 21, 2005, there were 1,318,599 shares of First Federal Bancshares, Inc. common stock outstanding (including unallocated ESOP
shares) and there were 569 holders of record.



|                                   |  |                                
|---------------------------------- |  | -------------------------------
|Shareholders and General Inquiries |  | Transfer Agent                 
|                                   | 
|Cathy D. Pendell                   |  | Computershare Investor Services
|First Federal Bancshares, Inc.     |  | 350 Indiana Street, Suite 800  
|109 East Depot Street              |  | Golden, CO 80401               
|Colchester, Illinois 62326         |  | (303) 262-0600                 
|(309) 776-3225                     |  |                                



Annual and Other Reports



A copy of the First Federal Bancshares, Inc.s Annual Report on Form
10-K without exhibits for the year ended December 31, 2004, as filed with the Securities and Exchange Commission, may be obtained without charge by contacting Cathy D. Pendell, First Federal Bancshares, Inc., 109 East Depot Street, Colchester,
Illinois 62326.



52.



---

OFFICE LOCATIONS



Main Office



109 East Depot Street

Colchester, Illinois
62326



Illinois Branch Offices



Quincy

2001 Maine Street

Quincy, Illinois 62301



Quincy

101 North 36thStreet

Quincy, Illinois 62301



Macomb

430 West Jackson Street

Macomb, Illinois 61455



Bushnell

190 East Hurst Street

Bushnell, Illinois 61422



Missouri Branch Offices



Palmyra

123 W. LaFayette Street

Palmyra, Missouri 63461



Canton

600 Washington Street

Canton, Missouri 63435



Kahoka

180 S. Johnson Street

Kahoka, Missouri 63445



53.