U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[ ]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934


[X]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 FOR THE TRANSITION PERIOD FROM MARCH 1, 2000 TO DECEMBER
         31, 2000

                         Commission File Number: 0-30753


                         FIRST FEDERAL BANCSHARES, INC.
                 (Name of small business issuer in its charter)

       DELAWARE                                            37-1397683
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

109 EAST DEPOT STREET, COLCHESTER, ILLINOIS                   62326
  (Address of principal executive offices)                  (Zip Code)

         Issuer's telephone number, including area code: (309) 776-3225
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of Class)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes  _X_       No ___


         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. _X_

         The issuer's gross revenues for the fiscal year ended December 31, 2000
were $13,185,155.

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates was $33,113,043 based upon the closing price ($15.438 per
share) as quoted on the Nasdaq National Market on March 1, 2001. Solely for
purposes of this calculation, the shares held by the directors and officers of
the registrant are deemed to be held by affiliates.

         The number of shares outstanding of the registrant's common stock as of
March 1, 2001 was 2,242,500.

                       DOCUMENTS INCORPORATED BY REFERENCE

       PORTIONS OF THE 2000 ANNUAL REPORT TO STOCKHOLDERS AND OF THE PROXY
     STATEMENT FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED
       BY REFERENCE IN PARTS II AND III, RESPECTIVELY, OF THIS FORM 10-KSB

Transitional Small Business Disclosure Format (check one): Yes ___   No  _X_

<PAGE>



                                      INDEX

                                     Part I

<TABLE>
<CAPTION>
                                                                                                           Page

<S>                                                                                                          <C>
Item 1.  Description of Business.............................................................................3
Item 2.  Description of Property............................................................................31
Item 3.  Legal Proceedings..................................................................................32
Item 4.  Submission of Matters to a Vote of Securities Holders..............................................32

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters...........................................32
Item 6.  Management's Discussion and Analysis or Plan of Operation..........................................32
Item 7.  Financial Statements...............................................................................32
Item 8.  Changes In and Disagreements with Accountants on Accounting and Financial
                  Disclosure ...............................................................................32

                                    Part III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
                  of the Exchange Act.......................................................................32
Item 10. Executive Compensation.............................................................................33
Item 11. Security Ownership of Certain Beneficial Owners and Management.....................................33
Item 12. Certain Relationships and Related Transactions.....................................................33
Item 13. Exhibits and Reports on Form 8-K...................................................................33

</TABLE>

<PAGE>



         THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. THESE STATEMENTS ARE NOT HISTORICAL
FACTS, RATHER STATEMENTS BASED ON FIRST FEDERAL BANCSHARES, INC.'S CURRENT
EXPECTATIONS REGARDING ITS BUSINESS STRATEGIES, INTENDED RESULTS AND FUTURE
PERFORMANCE. FORWARD-LOOKING STATEMENTS ARE PRECEDED BY TERMS SUCH AS "EXPECTS,"
"BELIEVES," "ANTICIPATES," "INTENDS" AND SIMILAR EXPRESSIONS.

         MANAGEMENT'S ABILITY TO PREDICT RESULTS OR THE EFFECT OF FUTURE PLANS
OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD AFFECT ACTUAL RESULTS
INCLUDE INTEREST RATE TRENDS, THE GENERAL ECONOMIC CLIMATE IN THE MARKET AREA IN
WHICH FIRST FEDERAL BANCSHARES, INC. OPERATES, AS WELL AS NATIONWIDE, FIRST
FEDERAL BANCSHARES, INC.'S ABILITY TO CONTROL COSTS AND EXPENSES, COMPETITIVE
PRODUCTS AND PRICING, LOAN DELINQUENCY RATES AND CHANGES IN FEDERAL AND STATE
LEGISLATION AND REGULATION. THESE FACTORS SHOULD BE CONSIDERED IN EVALUATING THE
FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH
STATEMENTS. FIRST FEDERAL BANCSHARES, INC. ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         First Federal Bancshares, Inc., headquartered in Colchester, Illinois,
was organized as a Delaware business corporation on March 27, 2000 as the
holding company for First Federal Bank in connection with the conversion of
First Federal Bank from mutual to stock form of ownership. The conversion was
completed on September 27, 2000 through the sale by First Federal Bancshares of
2,242,500 shares of common stock at a price of $10.00 per share. As a result of
the conversion, First Federal Bank is a wholly owned subsidiary of First Federal
Bancshares and all of the issued and outstanding capital stock of First Federal
Bank is owned by First Federal Bancshares.

         First Federal operates as a community-oriented financial institution,
specializing in the acceptance of retail deposits from the general public in the
areas surrounding its six full-service banking offices and using those funds,
together with funds generated from operations and borrowings, to originate
loans. The principal lending activity of First Federal is the origination of
mortgage loans for the purpose of purchasing or refinancing one- to four-family
residential property. First Federal also originates multi-family and commercial
real estate loans, residential construction loans, commercial business loans and
a variety of consumer loans. First Federal originates loans primarily for
long-term investment purposes. First Federal also invests in mortgage-backed
securities, securities issued by the U.S. Government and state and local
governments, and other permissible investments. First Federal's revenues are
derived principally from the generation of interest and fees on loans originated
and, to a lesser extent, interest and dividends on investments. First Federal's
primary sources of funds are deposits, principal and interest payments on loans
and investments and advances from the Federal Home Loan Bank of Chicago.

MARKET AREA

         First Federal conducts business in west central Illinois from its home
office in Colchester (McDonough County), its two branch offices in Quincy (Adams
County) and its branch offices located in Mt. Sterling (Brown County) and Macomb
and Bushnell (McDonough County). First Federal's primary deposit gathering and
lending area is concentrated in the communities surrounding its six banking
offices and, to a lesser extent, in the surrounding counties.

         The market area served by First Federal is generally rural and has an
agriculturally-based economy. Adams County, which is home to the city of Quincy,
is a regional population and employment center for west central Illinois. Quincy
has a diverse employment base and serves as a center for education, healthcare
and related services.


                                        3


<PAGE>



COMPETITION

         First Federal faces intense competition for the attraction of deposits
and origination of loans in its market area. Its most direct competition for
deposits has historically come from the several financial institutions operating
in First Federal's market area and, to a lesser extent, from other financial
service companies, such as brokerage firms, credit unions and insurance
companies. While those entities still provide a significant source of
competition for deposits, First Federal also currently faces significant
competition for deposits from the mutual fund industry as customers seek
alternative sources of investment for their funds. In this regard, First Federal
also faces competition for investors' funds from their direct purchase of
short-term money market securities and other corporate and government
securities. First Federal's competition for loans comes primarily from financial
institutions in its market area, and to a lesser extent from other financial
service providers, such as mortgage companies and mortgage brokers.
Additionally, competition for loans may increase due to the increasing number of
non-depository financial service companies entering the mortgage market, such as
insurance companies, securities companies and specialty finance companies. First
Federal expects competition to increase in the future as a result of
legislative, regulatory and technological changes and the continuing trend of
consolidation in the financial services industry. Technological advances, for
example, have lowered barriers to entry, allowed banks to expand their
geographic reach by providing services over the Internet and made it possible
for non-depository institutions to offer products and services that
traditionally have been provided by banks. The Gramm-Leach-Bliley Act, which
permits affiliation among banks, securities firms and insurance companies, also
will change the competitive environment in which First Federal conducts
business. Some of the institutions with which First Federal competes are
significantly larger than First Federal and, therefore, have significantly
greater resources. Competition for deposits and the origination of loans could
limit First Federal's growth in the future.

LENDING ACTIVITIES

         GENERAL. First Federal's loan portfolio primarily consists of one- to
four-family mortgage loans. To a lesser degree, First Federal's loan portfolio
also includes multi-family and commercial real estate loans, residential
construction loans, commercial business loans and a variety of consumer loans.
Most of First Federal's borrowers are located in the counties where its branches
are located and in the surrounding counties.

         First Federal's loans are subject to federal laws and regulations.
Interest rates charged by First Federal on loans are affected principally by
First Federal's current asset/liability strategy, the demand for various types
of loans, the supply of money available for lending purposes and the rates
offered by competitors. These factors are, in turn, affected by general and
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board, legislative tax policies and governmental budgetary
matters.


                                        4


<PAGE>



         LOAN PORTFOLIO ANALYSIS. The following table presents the composition
of First Federal's loan portfolio at the dates indicated. First Federal had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.



<TABLE>
<CAPTION>
                                                                                   AT FEBRUARY 29/28,
                                                                   ----------------------------------------------------
                                         AT DECEMBER 31, 2000               2000                      1999
                                       ------------------------    ------------------------    ------------------------
                                                      PERCENT                     PERCENT                     PERCENT
                                         AMOUNT       OF TOTAL       AMOUNT       OF TOTAL       AMOUNT       OF TOTAL
                                       ----------    ----------    ----------    ----------    ----------    ----------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                    <C>                <C>      <C>                <C>      <C>                <C>
Real estate loans:
   One- to four-family.................$   81,630         70.32%   $   80,383         70.52%   $   76,452         74.76%
   Multi-family and commercial.........    15,767         13.58        15,580         13.67        12,767         12.49
   Construction........................       964          0.83         1,675          1.47           645          0.63
                                       ----------    ----------    ----------    ----------    ----------    ----------
      Total real estate loans..........    98,361         84.73        97,638         85.66        89,864         87.88
Commercial loans.......................     5,281          4.55         3,885          3.41           532          0.52
Consumer and other loans:
   Automobile..........................     5,599          4.82         5,874          5.15         5,658          5.53
   Home improvement....................     2,491          2.15         2,434          2.14         2,276          2.23
   Share loans.........................     1,004          0.87           783          0.68           787          0.77
   Other...............................     3,347          2.88         3,379          2.96         3,141          3.07
                                       ----------    ----------    ----------    ----------    ----------    ----------
      Total consumer and other loans...    12,441         10.72        12,470         10.93        11,862         11.60
                                       ----------    ----------    ----------    ----------    ----------    ----------
      Total loans......................   116,083        100.00%      113,993        100.00%      102,258        100.00%
                                                         ======                      ======                      ======

Less:
   Deferred loan origination fees
      and discounts....................       108                          92                          33
   Allowance for loan losses...........      (572)                       (483)                       (457)
                                       ----------                  ----------                  ----------
      Total loans, net.................$  115,619                  $  113,602                  $  101,834
                                       ==========                  ==========                  ==========

</TABLE>

[WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>

                                                      AT FEBRUARY 29/28,
                                     ----------------------------------------------------
                                               1998                       1997
                                     ------------------------    ------------------------
                                                    PERCENT                     PERCENT
                                       AMOUNT       OF TOTAL       AMOUNT       OF TOTAL
                                     ----------    ----------    ----------    ----------
                                                    (DOLLARS IN THOUSANDS)
<S>                                  <C>                <C>      <C>                <C>
Real estate loans:
   One- to four-family...............$   77,203         72.99%   $   75,947         74.10%
   Multi-family and commercial.......    14,922         14.11        13,999         13.66
   Construction......................     1,912          1.81         1,883          1.84
                                     ----------    ----------    ----------    ----------
      Total real estate loans........    94,037         88.91        91,829         89.60
Commercial loans.....................       469          0.44           610          0.60
Consumer and other loans:
   Automobile........................     5,061          4.78         4,581          4.47
   Home improvement..................     2,513          2.38         2,382          2.32
   Share loans.......................       707          0.67           653          0.64
   Other.............................     2,984          2.82         2,429          2.37
                                     ----------    ----------    ----------    ----------
      Total consumer and other loans.    11,265         10.65        10,045          9.80
                                     ----------    ----------    ----------    ----------
      Total loans....................   105,771        100.00%      102,484        100.00%
                                                   ==========                  ==========
Less:
   Deferred loan origination fees
      and discounts..................       (25)                        (60)
   Allowance for loan losses.........      (486)                       (467)
                                     ----------                  ----------
      Total loans, net...............$  105,260                  $  101,957
                                     ==========                  ==========

</TABLE>


                                        5


<PAGE>



         The following table presents certain information at December 31, 2000
regarding the dollar amount of loans maturing in First Federal's portfolio based
on their contractual terms to maturity or scheduled amortization, but does not
include potential prepayments. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as becoming due
in one year or less. Loan balances do not include undisbursed loan proceeds, net
deferred loan origination costs and allowance for loan losses.

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31, 2000
                                         ---------------------------------------------------------------------
                                                     MULTI-
                                                   FAMILY AND
                                         ONE- TO   COMMERCIAL
                                         FOUR-        REAL                                              TOTAL
                                         FAMILY      ESTATE     CONSTRUCTION    CONSUMER  COMMERCIAL    LOANS
                                         --------   --------    ------------    --------  ----------  --------
                                                                      (IN THOUSANDS)
<S>                                      <C>        <C>           <C>           <C>        <C>        <C>
Amounts due in:
   One year or less......................$  3,847   $  2,620      $    964      $  2,057   $  2,208   $ 11,696
   More than one year to three years.....  10,463      2,222          --           3,654      1,452     17,791
   More than three years to five years...  10,662      5,321          --           5,191      1,621     22,795
   More than five years to 10 years......   4,812      2,015          --           1,524       --        8,351
   More than 10 years to 15 years........  25,671      2,273          --              15       --       27,959
   More than 15 years....................  26,175      1,316          --            --         --       27,491
                                         --------   --------      --------      --------   --------   --------
      Total amount due...................$ 81,630   $ 15,767      $    964      $ 12,441   $  5,281   $116,083
                                         ========   ========      ========      ========   ========   ========
</TABLE>


         Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give First Federal the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.

         The following table presents the dollar amount of all loans due after
December 31, 2001, which have fixed interest rates and floating or adjustable
interest rates.

                                      DUE AFTER DECEMBER 31, 2001
                                 ------------------------------------
                                    FIXED     ADJUSTABLE      TOTAL
                                 ----------   ----------   ----------
                                            (IN THOUSANDS)
Real estate loans:
   One- to four-family...........$   20,476   $   57,307   $   77,783
   Multi-family and commercial...     8,351        4,796       13,147
      Total real estate loans....    28,827       62,103       90,930
Consumer loans...................    10,361           23       10,384
Commercial loans.................     3,073         --          3,073
                                 ----------   ----------   ----------
      Total loans................$   42,261   $   62,126   $  104,387
                                 ==========   ==========   ==========


         ONE- TO FOUR-FAMILY REAL ESTATE LOANS. First Federal's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. First Federal's residential mortgage loans are
primarily structured as either one-year adjustable-rate mortgage loans or
five-year balloon loans. The loan fees charged, interest rates and other
provisions of First Federal's mortgage loans are determined by First Federal on
the basis of its own pricing criteria and market conditions.



                                        6


<PAGE>


         First Federal's adjustable-rate mortgage loans are based on an
amortization schedule that ranges from 10 to 30 years. Interest rates and
payments on First Federal's adjustable-rate mortgage loans generally are
adjusted annually after one year based on the Federal Housing Finance Board's
national average mortgage contract rate for major lenders on the purchase of
previously occupied homes. The maximum amount by which the interest rate may be
increased or decreased on First Federal's adjustable-rate mortgage loans is 2%
per year and the lifetime interest rate cap is generally 5% over the initial
interest rate of the loan. First Federal qualifies the borrower based on the
borrower's ability to repay the loan based on the maximum interest rate at the
first adjustment. The terms and conditions of the adjustable-rate mortgage loans
offered by First Federal, including the index for interest rates, may vary from
time to time.

         First Federal's balloon loans have a five-year term and payments based
on an amortization schedule of up to 30 years. The interest rate on First
Federal's balloon loans is fixed for the term of the loan. First Federal
typically notifies the borrower in writing 30 days before the end of the loan
term of the maturity of the loan and that the loan must be repaid or the term
extended. In most instances, a new rate is negotiated to meet market conditions
and an extension of the loan is executed for another five-year term with an
amortization schedule equal to the original amortization term less the prior
balloon term(s). First Federal generally does not extend the loan if the
borrower is delinquent or has had a poor payment history.

         In January 2000, First Federal began offering 30-year fixed rate
mortgage loans through the Federal Home Loan Bank's Mortgage Partnership Finance
Program. Through this program, mortgage loans are funded and owned by the
Federal Home Loan Bank and serviced by First Federal. At December 31, 2000,
First Federal was servicing 11 loans originated through the Mortgage Partnership
Finance Program.

         Most loans originated by First Federal conform to Fannie Mae and
Freddie Mac underwriting standards. However, First Federal also originates
residential mortgage loans that are not originated in accordance with the
purchase requirements of Freddie Mac or Fannie Mae. Although such loans satisfy
First Federal's underwriting requirements, they are considered "non-conforming"
because they do not satisfy collateral requirements, income and debt ratios,
acreage limits, insurance requirements or various other requirements imposed by
Freddie Mac and Fannie Mae. Accordingly, First Federal's non-conforming loans
could be sold only after incurring certain costs and/or discounting the purchase
price. First Federal, however, currently does not intend to sell its loans.
First Federal has historically found that its origination of non-conforming
loans has not resulted in high amounts of non-performing loans. In addition,
First Federal believes that these loans satisfy a need in First Federal's local
community. As a result, First Federal intends to continue to originate
non-conforming loans.

         Adjustable-rate mortgage loans help reduce First Federal's exposure to
changes in interest rates. The retention of balloon loans in First Federal's
loan portfolio, which through the use of extension agreements function like
adjustable-rate mortgage loans, also helps reduce First Federal's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable-rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable-rate mortgage loans make First Federal's asset base more
responsive to changes in interest rates, the extent of this interest sensitivity
is limited by the annual and lifetime interest rate adjustment limits. Because
of these considerations First Federal has no assurance that yields on
adjustable-rate mortgage loans will be sufficient to offset increases in First
Federal's cost of funds during periods of rising interest rates. First Federal
believes these risks, which have not had a material adverse effect on First
Federal to date, are less than the risks associated with holding fixed-rate
loans in its portfolio in a rising interest rate environment.

         First Federal requires all properties securing its mortgage loans to be
appraised by an approved independent state-certified and licensed appraiser.
First Federal's lending policies permit First Federal to lend up to 95% of the
appraised value of the property or the purchase price of the property, whichever
is less; however, First Federal generally requires private mortgage insurance on
the portion of the principal amount that exceeds 80% of the appraised value of
the property. First Federal also requires that fire, casualty, title, hazard
insurance and, if appropriate, flood insurance be maintained on most properties
securing real estate loans made by First Federal.


                                        7


<PAGE>



         In an effort to provide financing for moderate income and first-time
home buyers, First Federal offers the Affordable Housing Loan Program through
the Illinois League of Financial Institutions and has its own first-time home
buyer loan program, the Community Home Buyer Program. First Federal offers
residential mortgage loans through these programs to qualified individuals and
originates the loans using modified underwriting guidelines. Most of these loans
have private mortgage insurance on the portion of the principal amount that
exceeds 80% of the appraised value of the property. At December 31, 2000 First
Federal had four and 20 loans originated through the Affordable Housing Loan
Program and the Community Home Buyer Program, respectively.

         MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. First Federal originates
mortgage loans for the acquisition and refinancing of multi-family and
commercial real estate properties. Most of the multi-family loans and commercial
real estate loans originated by First Federal are five-year balloon loans with
payments based on an amortization schedule of up to 20 years. Generally, the
maximum loan-to-value ratio for a multi-family or commercial real estate loan is
75%. First Federal requires written appraisals prepared by an approved
independent appraiser of all properties located in Quincy, Illinois securing
multi-family or commercial real estate loans in amounts over $50,000 and all
properties located in the remainder of First Federal's market area securing
multi-family or commercial real estate loans in amounts over $5,000.

         At December 31, 2000, First Federal's largest multi-family loan had a
balance of $300,000 and was secured by an apartment complex located in Phoenix,
Arizona. At December 31, 2000, this loan was performing according to its
original terms. At December 31, 2000, First Federal's commercial real estate
loans were secured by a variety of properties, including retail and small office
properties, farmland and churches. At December 31, 2000, First Federal's largest
commercial real estate loan had an outstanding balance of $880,000. The loan is
secured by a gas station/convenience store located in Macomb, Illinois. At
December 31, 2000, this loan was performing according to its original terms.

         Multi-family and commercial real estate lending affords First Federal
an opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. However, loans secured
by these properties usually are greater in amount and are more difficult to
evaluate and monitor and, therefore, involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
income producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. First Federal seeks
to minimize these risks by generally limiting the maximum loan-to-value ratio to
75% for multi-family and commercial real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. First Federal also attempts to minimize credit risk by
lending almost solely on local properties to businesses with which First Federal
is familiar. First Federal conducts a visual inspection for possible
environmental compliance concerns and requires an environmental audit with
respect to manufacturing facilities securing any loan over $200,000 and any
other property where the inspection discloses possible problems. First Federal
also generally obtains personal loan guarantees from financially capable
parties.

         RESIDENTIAL CONSTRUCTION LOANS. First Federal originates construction
loans to professional builders and to individuals for the construction and
acquisition of personal residences. Most of First Federal's construction loans
are made to individuals. First Federal's construction loans generally provide
for the payment of interest only during the construction phase, which is usually
six months. In the case of loans to individuals, at the end of the construction
phase, the loan converts to a permanent mortgage loan. Loans can be made with a
maximum loan to value ratio of 80%.

         Before making a commitment to fund a construction loan, First Federal
requires an appraisal of the property by a licensed appraiser. First Federal
also reviews and inspects each property before disbursement of funds during the
term of the construction loan. Loan proceeds are disbursed after inspection
based on the percentage of completion.

         Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, First Federal may be
required to advance funds beyond the amount originally committed to protect the
value of the property. If the estimate


                                        8


<PAGE>



of value upon completion proves to be inaccurate, First Federal may be
confronted with a property whose value is insufficient to assure full repayment.
First Federal has attempted to minimize the foregoing risks by, among other
things, limiting its construction lending to residential properties, limiting
loans to builders for speculative construction projects and by having all
construction loans to individuals convert to permanent mortgage loans at the end
of the construction phase. It is also First Federal's general policy to obtain
regular financial statements and tax returns from builders so that it can
monitor their financial strength and ability to repay.

         COMMERCIAL BUSINESS LOANS. First Federal makes commercial business
loans in its market area to a variety of professionals, sole proprietorships,
partnerships and corporations. First Federal offers a variety of commercial
lending products that include term loans for equipment financing, term loans for
business acquisitions, inventory financing and revolving lines of credit. In
most cases, fixed-rate loans have terms up to 5 years and are fully amortizing.
Revolving lines of credit generally will have adjustable rates of interest and
are governed by a borrowing base certificate, payable on demand, subject to
annual review and renewal. Business loans with variable rates of interest adjust
on a daily basis and are generally indexed to the prime rate as published in THE
WALL STREET JOURNAL. Furthermore, as circumstances warrant, First Federal may
utilize a loan agreement for commercial loans.

         In making commercial business loans, First Federal considers a number
of factors, including the financial condition of the borrower, the nature of the
borrower's business, economic conditions affecting the borrower, First Federal's
market area, the management experience of the borrower, the debt service
capabilities of the borrower, the projected cash flows of the business and the
collateral. Commercial loans are generally secured by a variety of collateral,
including equipment, inventory and accounts receivable, and supported by
personal guarantees.

         Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are larger in amount and of higher risk and
typically are made on the basis of the borrower's ability to repay the loan from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial loans may be substantially dependent on the
success of the business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in value.
To manage these risks, First Federal performs a credit analysis for each
commercial loan at least annually. At December 31, 2000, First Federal's largest
commercial loan was for $565,000 to an equipment manufacturer located in Quincy,
Illinois. This loan was performing in accordance with its original terms at
December 31, 2000.

         CONSUMER LOANS. First Federal offers a variety of consumer loans,
including fully amortized home equity loans and second mortgage loans and
automobile loans.

         First Federal offers fixed-rate home improvement loans with terms up to
eight years. The home improvement loans are FHA-insured loans in amounts up to
$25,000. The loan-to-value ratios of fixed-rate home improvement loans are
generally limited to 80%.

         First Federal's second mortgage loans are generally either five-year,
fixed-rate loans or five-year balloon loans. First Federal's second mortgages
are limited to existing First Federal customers. The underwriting standards
employed by First Federal for home equity loans and second mortgage loans
include a determination of the applicant's credit history, an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan.

         First Federal also originates consumer loans secured by automobiles
and, occasionally, boats and other recreational vehicles. First Federal offers
fixed-rate automobile loans with terms of up to 60 months. Loan-to-value ratios
and maximum loan terms vary depending on the age of the vehicle. At December 31,
2000, automobile loans were 45% of First Federal's consumer and other loans.




                                        9


<PAGE>



         Other consumer loans offered by First Federal include loans secured by
various personal property and share loans. Loans secured by personal property
generally have a fixed-rate and a maximum term of five years. Share loans are
secured by deposits at First Federal.

         Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.

         LOANS TO ONE BORROWER. The maximum amount that First Federal may lend
to one borrower is limited by regulation. At December 31, 2000, First Federal's
regulatory limit on loans to one borrower was $5.1 million. At that date, First
Federal's largest amount of loans to one borrower, including the borrower's
related interests, was approximately $2.5 million and consisted of commercial
real estate loans, commercial loans and a commercial working capital loan. These
loans were performing according to their original terms at December 31, 2000.

         LOAN APPROVAL PROCEDURES AND AUTHORITY. First Federal's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by First Federal's Board of Directors and
management.

         First Federal's policies and loan approval limits are established and
approved by the Board of Directors. With respect to residential mortgage loans,
at least two members of First Federal's loan approval committee must approve all
loans up to $300,000. All residential mortgage loans over $300,000 require prior
approval of the full Board of Directors.

         With respect to commercial loans, including commercial mortgage loans,
all extensions of credit that would result in total exposure to First Federal of
$100,000 or less require the approval of the commercial loan manager or the
Chief Executive Officer. All extensions of credit that would result in total
exposure to First Federal of over $100,000 but no more than $500,000 require the
approval of the commercial loan manager and the Chief Executive Officer. All
extensions of credit that would result in total exposure to First Federal of
over $500,000 but no more than $1,000,000 require the approval of the commercial
loan manager, the Chief Executive Officer, and the commercial loan committee.
Credit extensions that would result in total exposure to First Federal of more
than $1,000,000 require the additional approval of the Board of Directors.

         Additionally, various bank personnel have been delegated authority to
approve consumer loans, including automobile loans. The Chief Executive Officer
reviews all consumer loan approvals after each loan is made.

         LOAN ORIGINATIONS, PURCHASES AND SALES. First Federal's lending
activities are conducted by its employees operating through First Federal's
offices. First Federal relies on advertising, referrals from realtors and
customers, and personal contact by First Federal's staff to generate loan
originations. First Federal does not use loan correspondents or other
third-parties to originate loans and, in recent years, has not been an active
purchaser of loans. In the past, First Federal purchased whole loans and
participation interests in commercial and residential mortgage loans through a
mortgage company in Colorado. First Federal has also participated in a small
amount of loans through a group of institutions organized to lend to businesses
in the Quincy, Illinois business district. Except for loans originated through
the Federal Home Loan Bank's Mortgage Partnership Finance Program, First Federal
generally retains for its portfolio all of the loans that it originates. First
Federal's ability to originate adjustable-rate and balloon loans is dependent
upon the relative customer demand for such loans, which is affected by the
current and expected future level of interest rates.




                                       10


<PAGE>




         The following table presents total loans originated, purchased and
repaid during the periods indicated. First Federal did not sell any loans during
the periods indicated.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                            TEN MONTHS ENDED    FEBRUARY 29/28,
                                              DECEMBER 31,  -----------------------
                                                  2000        2000          1999
                                               ----------   ----------   ----------
                                                          (IN THOUSANDS)
<S>                                            <C>          <C>          <C>
Loans at beginning of period...................$  113,993   $  102,258   $  105,771
   Originations:
      Real estate:
         One- to four-family...................     8,092       11,797       12,870
         Multi-family and commercial...........     1,626        6,308          352
         Construction..........................     1,909        3,236        3,683
                                               ----------   ----------   ----------
            Total real estate loans............    11,627       21,341       16,905

      Consumer:
         Home improvement......................     1,157        1,258          979
         Automobile............................     2,683        3,824        3,864
         Other.................................     2,530        4,638        4,072
                                               ----------   ----------   ----------
            Total consumer loans...............    6,370        9,720        8,915

      Commercial...............................     4,066        6,754        1,562
                                               ----------   ----------   ----------
            Total loans originated.............    22,063       37,815       27,382

Loans purchased................................        --           --          275
Deduct:
   Principal loan repayments and prepayments...    19,843       26,044       30,988
   Loan sales..................................        --           --           --
   Transfers to REO and repossessed assets.....       130           36          182
                                               ----------   ----------   ----------
            Sub-total..........................    19,973       26,080       31,170
                                               ----------   ----------   ----------
Net loan activity..............................     2,090       11,735       (3,513)
                                               ----------   ----------   ----------
            Loans at end of period.............$  116,083   $  113,993   $  102,258
                                               ==========   ==========   ==========

</TABLE>


         LOAN COMMITMENTS. First Federal issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 30 days from approval. At December 31, 2000, First Federal had
loan commitments and unadvanced loans and lines of credit totaling $4.4 million.
See note 10 of the notes to financial statements included in this annual report.

         LOAN FEES. In addition to interest earned on loans, First Federal
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.

         First Federal charges loan origination fees, which are calculated as a
percentage of the amount borrowed. As required by applicable accounting
principles, loan origination fees, discount points and certain loan origination
costs are deferred and recognized over the contractual remaining lives of the
related loans on a level yield basis. At December 31, 2000, First Federal had
$126,000 of net deferred loan costs.

         NONPERFORMING ASSETS AND DELINQUENCIES. All loan payments are due on
the first day of each month. When a borrower on a residential mortgage loan
fails to make a required loan payment, First Federal attempts to cure the
deficiency by contacting the borrower and seeking the payment. A late notice is
mailed after 30 days of delinquency. In most cases, deficiencies are cured
promptly. A second notice is mailed after 60 days of delinquency and First
Federal follows up the second notice with a letter and a phone call to the
borrower. On or about the 90th day of delinquency, First Federal sends a third
late notice and a personal collection letter giving the borrower 10 days in
which to work out a payment schedule. On or about the 120th day of delinquency,
First Federal sends a final late notice and a compulsory


                                       11


<PAGE>



collection letter from First Federal's attorney warning the borrower of possible
foreclosure if the account is not brought up to date within 30 days. While First
Federal generally prefers to work with borrowers to resolve problems, First
Federal will institute foreclosure or other proceedings after five months of
delinquency, as necessary, to minimize any potential loss.

         When a borrower on a consumer loan fails to make a required loan
payment, a late notice is mailed on the day after the payment is due. A second
notice is mailed after 10 days of delinquency and First Federal follows up with
a letter and a phone call to the borrower. Depending on the type of collateral,
First Federal may take action to repossess the property securing the loan.

         A report listing all delinquent commercial loans and commercial real
estate loans is generated and reviewed by management, including the Board of
Directors, on a monthly basis. The procedures taken by First Federal with
respect to delinquencies vary depending on the nature of the loan and cause of
delinquency. When a commercial borrower fails to make a required payment on a
loan, First Federal takes a number of actions to have the debtor cure the
delinquency and return the account to current status. The commercial loan
department will send a written notice of non-payment after the payment or loan
is first past due. The commercial loan department will then via telephone,
written correspondence or face-to-face contact attempt to ascertain the reasons
for delinquency and the prospects for repayment. In the event that payment is
not received or not otherwise satisfied, additional telephone calls and letters
are generally made. If the loan is 90 days delinquent, First Federal will
commence legal proceedings.

         Management informs the Board of Directors monthly of the amount of
loans delinquent more than 30 days, all loans in foreclosure, and all foreclosed
and repossessed property that First Federal owns.

         First Federal ceases accruing interest on loans when principal or
interest payments are delinquent 90 days or more unless the loan is adequately
collateralized and in the process of collection. Once the accrual of interest on
a loan is discontinued, all interest previously accrued is reversed against
current period interest income once management determines that interest is
uncollectible.




                                       12


<PAGE>



         The following table presents information with respect to First
Federal's nonperforming assets at the dates indicated.

<TABLE>
<CAPTION>

                                                 AT                        AT FEBRUARY 29/28,
                                             DECEMBER 31,  ---------------------------------------------------
                                                2000          2000          1999         1998          1997
                                             ----------    ----------    ----------   ----------    ----------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                          <C>           <C>           <C>          <C>           <C>
Accruing loans past due 90 days or more:

    One- to four-family real estate..........$      806    $      875    $      642   $      911    $    1,497
    Multi-family and
      commercial real estate.................        87            --            --           25           158
    Consumer.................................       174           105           121          165           245
    Commercial...............................        --            --            --           --            --
                                             ----------    ----------    ----------   ----------    ----------
        Total................................     1,067           980           763        1,101         1,900
Non-accruing loans:
   One- to four-family real estate...........        23            32            17           18            98
   Multi-family and commercial real estate...        --            --            --           --            --
   Consumer..................................        --            --             2           --            --
   Commercial................................        --            --            --           --            --
                                             ----------    ----------    ----------   ----------    ----------
      Total..................................        23            32            19           18            98
Real estate owned (REO)......................        --            48            60           25           106
Other repossessed assets.....................        64            --            15           33            22
                                             ----------    ----------    ----------   ----------    ----------
      Total nonperforming assets.............$    1,154    $    1,060    $      857   $    1,177    $    2,126
                                             ==========    ==========    ==========   ==========    ==========
Total nonperforming loans
   as a percentage of total loans............      0.94%         0.89%         0.76%        1.06%         1.95%
Total nonperforming assets
   as a percentage of total assets...........      0.49%         0.50%         0.43%        0.63%         1.18%

</TABLE>


         Interest income that would have been recorded for the ten months ended
December 31, 2000 had nonaccruing loans been current according to their original
terms amounted to approximately $2,000. Interest related to these loans of
approximately $500 was included in interest income for the ten months ended
December 31, 2000.


                                       13


<PAGE>



         The following table sets forth the delinquencies in First Federal's
loan portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                                                                               AT FEBRUARY 29/28,
                                                                                  -----------------------------------------
                                               AT DECEMBER 31, 2000                                   2000
                                  --------------------------------------------    ---------------------------------------
                                        60-89 DAYS            90 DAYS OR MORE          60-89 DAYS           90 DAYS OR MORE
                                  --------------------    --------------------    --------------------    -------------------
                                    NUMBER   PRINCIPAL     NUMBER    PRINCIPAL    NUMBER     PRINCIPAL    NUMBER    PRINCIPAL
                                      OF     BALANCE OF      OF      BALANCE OF     OF       BALANCE OF      OF     BALANCE OF
                                    LOANS      LOANS       LOANS       LOANS       LOANS       LOANS       LOANS      LOANS
                                  --------    --------    --------    --------    --------    --------    --------   --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                     <C>    <C>          <C>       <C>          <C>        <C>          <C>        <C>
Real estate loans:
   One- to four-family ...........       36    $1,210        21     $  829           22      $  577           22      $  907
   Multi-family and commercial ...        4       213         2         87            2          66           --          --
   Construction ..................       --        --        --         --            1          70           --          --
Consumer loans:
   Home improvement ..............        3        24         7         37            3          11            4          17
   Automobile ....................       14        92        23        129           11          86           15          60
   Other .........................        1         6         3          8           --          --            2          28
Commercial loans .................       --        --        --         --           --          --           --          --
                                    --------  --------  --------   --------     --------    --------     --------    --------
      Total ......................       58    $1,545        56     $1,090           39      $  810           43      $1,012
                                    ========  ========  ========   ========     ========    ========     ========    ========
Delinquent loans to total loans ..               1.33%                0.94%                    0.71%                    0.89%

</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]



                                                AT FEBRUARY 29/28,
                                  -------------------------------------------
                                                    1999
                                  -------------------------------------------
                                      60-89 DAYS           90 DAYS OR MORE
                                  -------------------    --------------------
                                    NUMBER  PRINCIPAL    NUMBER    PRINCIPAL
                                      OF    BALANCE OF    OF       BALANCE OF
                                    LOANS     LOANS      LOANS       LOANS
                                  --------   --------   --------   --------

Real estate loans:
   One- to four-family .........      12      $296          20        $659
   Multi-family and commercial .      --        --          --          --
   Construction ................      --        --          --          --
Consumer loans:
   Home improvement ............       1         1           7          33
   Automobile ..................      10        47          12          61
   Other .......................       2        47           3          29
Commercial loans ...............      --        --          --          --
                                    ---------------------------------------
      Total ....................      25      $391          42        $782
                                    =======================================
Delinquent loans to total loans .             0.38%                   0.76%




                                       14


<PAGE>



         REAL ESTATE OWNED. Real estate acquired by First Federal as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at the lower of its cost,
which is the unpaid principal balance of the loan plus foreclosure costs, or
fair market value at the date of foreclosure, establishing a new cost basis.
Holding costs and declines in fair value after acquisition of the property
result in charges to expense. At December 31, 2000, First Federal has no real
estate owned.

         ASSET CLASSIFICATION. Federal banking regulators have adopted various
regulations and practices regarding problem assets of savings institutions.
Under such regulations, examiners have authority to identify problem assets
during examinations and, if appropriate, require them to be classified.

         There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." First Federal monitors "special mention"
assets.

         The following table presents classified assets at December 31, 2000.

<TABLE>
<CAPTION>
                                   LOSS                   DOUBTFUL                 SUBSTANDARD             SPECIAL MENTION
                         -----------------------   -----------------------   -----------------------   -----------------------
                         PRINCIPAL    NUMBER OF    PRINCIPAL    NUMBER OF    PRINCIPAL    NUMBER OF    PRINCIPAL    NUMBER OF
                          BALANCE        LOANS      BALANCE        LOANS      BALANCE        LOANS      BALANCE        LOANS
                         ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
                                                            (DOLLARS IN THOUSANDS)
Real estate loans:
<S>                      <C>             <C>          <C>          <C>        <C>            <C>         <C>          <C>
   One- to four-family . $       --           --   $       --           --   $      422           11   $      115            4
   Multi-family and
      commercial .......         --           --           --           --           --           --           --           --
   Construction ........         --           --           --           --           --           --           --           --
Consumer loans:
   Home improvement ....          2            4           --           --           35            7           --           --
   Automobile ..........         60           12           --           --           46            8           --           --
   Share loans .........         --           --           --           --           --           --           --           --
   Other ...............          3            1           --           --            5            2           --           --
Commercial loans .......         --           --           --           --           --           --           --           --
                         ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
         Total ......... $       65           17   $       --           --   $      508           28   $      115            4
                         ==========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>


         ALLOWANCE FOR LOAN LOSSES. In originating loans, First Federal
recognizes that losses will be experienced on loans and that the risk of loss
will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. First Federal maintains an allowance for loan losses to absorb losses
inherent in the loan portfolio. The allowance for loan losses represents
management's estimate of probable losses based on information available as of
the date of the financial statements. The allowance for loan losses is based on
management's evaluation of the collectibility of the loan portfolio, including
past loan loss experience, known and inherent risks in the nature and volume of
the portfolio, information about specific borrower situations and estimated
collateral values, and economic conditions.


                                       15


<PAGE>



         The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review First Federal's allowance for loan
losses. Such agencies may require First Federal to make additional provisions
for estimated losses based upon judgments different from those of management.

         In connection with assessing the allowance, loss factors are applied to
various pools of outstanding loans. First Federal segregates the loan portfolio
according to risk characteristics (I.E., mortgage loans, business, consumer).
Loss factors are derived using First Federal's historical loss experience and
may be adjusted for significant factors that, in management's judgment, affect
the collectibility of the portfolio as of the evaluation date.

         In addition, management assesses the allowance using factors that
cannot be associated with specific credit or loan categories. These factors
include management's subjective evaluation of local and national economic and
business conditions, portfolio concentration and changes in the character and
size of the loan portfolio. The allowance methodology reflects management's
objective that the overall allowance appropriately reflects a margin for the
imprecision necessarily inherent in estimates of expected credit losses.

         At December 31, 2000, First Federal's allowance for loan losses
represented 0.49% of total loans and 52.48% of nonperforming loans. Although
management believes that it uses the best information available to establish the
allowance for loan losses, future adjustments to the allowance for loan losses
may be necessary and results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while First Federal believes it has established its
existing allowance for loan losses in conformity with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
First Federal's loan portfolio, will not request First Federal to increase its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
increases will not be necessary should the quality of any loans deteriorate as a
result of the factors discussed above. Any material increase in the allowance
for loan losses may adversely affect First Federal's financial condition and
results of operations.


                                       16


<PAGE>



         The following table presents an analysis of First Federal's allowance
for loan losses.

<TABLE>
<CAPTION>
                                                 TEN MONTHS
                                                    ENDED          YEAR ENDED FEBRUARY 29/28,
                                                  DECEMBER 31, -----------------------------------
                                                     2000       2000      1999      1998      1997
                                                   --------    -----     -----     -----     -----
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                <C>         <C>       <C>       <C>       <C>
Allowance for loan losses,
   beginning of period .........................   $ 483    $ 457     $ 486     $ 467     $ 442
Charged-off loans:
   One- to four-family real estate .............      --       --       (89)       --        --
   Multi-family and commercial .................      --       --        --        --        --
   Consumer ....................................      --      (93)      (73)       (8)       (2)
                                                --------    -----     -----     -----     -----
      Total charged-off loans ..................      --      (93)     (162)       (8)       (2)
Recoveries on loans previously
   charged off:
   One- to four-family real estate .............      --       --        64        --        --
   Multi-family and commercial .................      15       --        --        --        --
   Consumer ....................................       3       --        63        --        --
                                                --------    -----     -----     -----     -----
      Total recoveries .........................      18       --       127        --        --
                                                --------    -----     -----     -----     -----
Net loans charged-off ..........................      18      (93)      (35)       (8)       (2)
Provision for loan losses ......................      71      119         6        27        27
                                                --------    -----     -----     -----     -----
Allowance for loan losses, end of period .......   $ 572    $ 483     $ 457     $ 486     $ 467
                                                ========    =====     =====     =====     =====
Allowance for loan losses
   to total loans ..............................    0.49%    0.42%     0.45%     0.46%     0.46%
Allowance for loan losses to nonperforming loans
   and troubled debt restructurings ............   52.48%   47.73     58.44     43.43     23.37
Recoveries to charge-offs ......................      --       --     78.40        --        --

</TABLE>






                                       17


<PAGE>



         The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.

<TABLE>
<CAPTION>
                                                                                       AT FEBRUARY 29/28,
                                                                 --------------------------------------------------------------
                                       AT DECEMBER 31, 2000                 2000                            1999
                                -------------------------------  ------------------------------  ------------------------------
                                             % OF      PERCENT               % OF      PERCENT               % OF      PERCENT
                                          ALLOWANCE    OF LOANS            ALLOWANCE   OF LOANS            ALLOWANCE   OF LOANS
                                           IN EACH     IN EACH             IN EACH     IN EACH             IN EACH     IN EACH
                                           CATEGORY   CATEGORY             CATEGORY   CATEGORY             CATEGORY   CATEGORY
                                           TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL             TO TOTAL   TO TOTAL
                                 AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS    AMOUNT   ALLOWANCE     LOANS
                                --------  ----------  --------- --------  ----------  --------  --------  ----------  --------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>        <C>       <C>        <C>       <C>        <C>        <C>       <C>
Real estate ......................  $195       34.09%     84.73%    $198       40.99%    85.66%      $180      39.39%    87.88%
Consumer .........................   156       27.27      10.72      163       33.75     10.93        142      31.07     11.60
Commercial .......................    99       17.31       4.55       73       15.11      3.41         --         --      0.52
Unallocated ......................   122       21.33         --       49       10.15        --        135       29.54       --
                                  --------   --------   --------   --------   --------  --------   --------    -------   ------
   Total allowance
            for loan losses ......  $572      100.00%            $   483      100.00%              $  457      100.00%
                                  ========   ========            ========     =======              ========    =======

</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]


<TABLE>
<CAPTION>
                                                       AT FEBRUARY 29/28,
                                ----------------------------------------------------------------------
                                           1998                                 1997
                                ---------------------------------- -----------------------------------
                                          % OF       PERCENT                    % OF        PERCENT OF
                                        ALLOWANCE    OF LOANS                 ALLOWANCE      LOANS IN
                                         IN EACH     IN EACH                   IN EACH         EACH
                                         CATEGORY    CATEGORY                  CATEGORY      CATEGORY
                                         TO TOTAL    TO TOTAL                  TO TOTAL      TO TOTAL
                                AMOUNT   ALLOWANCE    LOANS       AMOUNT      ALLOWANCE       LOANS
                               --------  ----------  -------      ------   --------------  -----------
                                                      (DOLLARS IN THOUSANDS)
<S>                              <C>        <C>       <C>           <C>        <C>           <C>
Real estate.................. $   197       40.53%    88.91%     $   250       53.53%        89.60%
Consumer.....................     151       31.07     10.65          182       38.97          9.80
Commercial...................      --          --      0.44           --          --          0.60
Unallocated..................     138       28.40        --           35        7.50            --
                              -------     -------                -------      -------
   Total allowance
            for loan losses.. $   486      100.00%               $   467      100.00%
                              =======     =======                =======      =======
</TABLE>


                                       18
<PAGE>


INVESTMENT ACTIVITIES

         Under federal law, First Federal has authority to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Chicago and certificates of deposit of federally
insured institutions. Within certain regulatory limits, First Federal may also
invest a portion of its assets in corporate securities, including non-mortgage,
asset-backed instruments. Savings institutions like First Federal are also
required to maintain an investment in Federal Home Loan Bank of Chicago stock.
First Federal is required under federal regulations to maintain a minimum amount
of liquid assets.

         First Federal's Board of Directors has the overall responsibility for
First Federal's investment portfolio, including approval of First Federal's
investment policy and appointment of First Federal's Investment Committee. The
Board of Directors reviews, updates and approves First Federal's investment
policy at least quarterly. The Board of Directors also reviews on at least a
quarterly basis an investment activities reporting package prepared by the
Investment Committee, which provides portfolio activity, risk levels and
compliance with risk limits. The Investment Committee is responsible for
approving major policies for conducting investment activities, including the
establishment of risk limits and also ensures that management has the requisite
skills to manage the risks associated with approved investment activities. First
Federal's Chief Executive Officer is authorized to make investment decisions
consistent with First Federal's investment policy and the recommendations of
First Federal's Investment Committee and is primarily responsible for daily
investment activities. The Investment Committee generally meets monthly with the
Chief Executive Officer in order to review and determine investment strategies
and transactions.

         First Federal's investment policy is designed to complement First
Federal's lending activities, provide an alternative source of income through
interest and dividends, diversify First Federal's assets and improve liquidity.
Investment decisions are made in accordance with First Federal's investment
policy and are based upon the quality of a particular investment, its inherent
risks, the composition of the balance sheet, market expectations, First
Federal's liquidity, income and collateral needs and how the investment fits
within First Federal's interest rate risk strategy.

         The primary objective of the investment portfolio is to maintain an
adequate source of liquidity sufficient to meet regulatory and operating
requirements, and to safeguard against deposit outflows, reduced loan
amortization and increased loan demand. The investment portfolio primarily
includes debt issues and mortgage-backed securities. All of First Federal's
mortgage-backed securities are issued or guaranteed by agencies of the U.S.
Government. Accordingly, they carry lower credit risk than mortgage-backed
securities of a private issuer. However, mortgage- backed securities still carry
market risk, insofar as increases in market interest rates may cause a decrease
in market value, and prepayment risk, which is risk that the securities will be
repaid before maturity and that First Federal will have to reinvest the funds at
a lower interest rate.

         First Federal's investment portfolio grew in 1998, 1999 and 2000 due to
the low interest rate environment. This low interest rate environment led to a
higher demand for long-term, fixed-rate loans, which First Federal did not
offer, and caused borrowers to refinance adjustable-rate mortgage loans.
Together, the decreased demand for First Federal loan products and the
refinancing of current loans caused an increase in liquidity at First Federal,
which First Federal invested in debt and mortgage-backed securities. As market
conditions permit, First Federal intends to use funds from the sale and maturity
of securities to make new loans or retire debt.

         Generally accepted accounting principles require that securities be
categorized as either "held to maturity," "trading securities" or "available for
sale," based on management's intent as to the ultimate disposition of each
security. Debt securities may be classified as "held to maturity" and reported
in financial statements at amortized cost only if the reporting entity has the
positive intent and ability to hold those securities to maturity. Securities
that might be sold in response to changes in market interest rates, changes in
the security's prepayment risk, increases in loan demand, or other similar
factors cannot be classified as "held to maturity." Debt and equity securities
held for current resale are classified as "trading securities." These securities
are reported at fair value, and unrealized gains and losses on the securities
would be included in earnings. First Federal does not currently use or maintain
a trading account. Debt and equity securities not classified as either "held to
maturity" or "trading securities" are classified as "available for sale." These
securities are reported at fair value, and unrealized gains and losses on the
securities are excluded from earnings and reported, net of deferred taxes, as a
separate component of equity.

         At December 31, 2000, First Federal did not own any securities, other
than U.S. Government and agency securities, that had an aggregate book value in
excess of 10% of First Federal's retained earnings at that date.



                                       19
<PAGE>


         The following table presents the amortized cost and fair value of First
Federal's securities, by type of security, at the dates indicated.


<TABLE>
<CAPTION>
                                                                                     AT FEBRUARY 29/28,
                                                                           -------------------------------------------
                                                     AT DECEMBER 31, 2000         2000                     1999
                                                     --------------------  ---------------------   -------------------
                                                      AMORTIZED    FAIR    AMORTIZED     FAIR     AMORTIZED      FAIR
                                                        COST       VALUE      COST       VALUE       COST       VALUE
                                                      --------   --------   --------    --------   --------   --------
                                                                            (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>         <C>        <C>        <C>
Securities:
   Debt securities held-to-maturity:
      Obligations of U.S. government agencies .....   $ 58,783   $ 58,117   $ 55,801    $ 52,917   $ 45,996   $ 45,637
      Other securities ............................      1,329      1,343      1,329       1,328      1,432      1,443
                                                      --------   --------   --------    --------   --------   --------
            Total .................................     60,112     59,460     57,130      54,245     47,428     47,080

   Debt securities available-for-sale:
      Obligations of U.S. Treasury and U.S.
         government agencies ......................      4,000      3,950      4,000       3,787      3,000      2,996
      Other securities ............................        600        600        526         492        423        425
                                                      --------   --------   --------    --------   --------   --------
            Total .................................      4,600      4,550      4,526       4,279      3,423      3,421

   Equity securities available-for-sale:
      FHLB stock ..................................        944        944        894         894        930        930
      FHLMC stock .................................         29      1,757         26       1,110         26      1,532
   U.S. government mortgage securities fund .......     15,461     15,071     14,605      13,789     13,765     13,439
   Adjustable rate mortgage securities fund .......      3,227      3,228      2,093       2,068      1,000      1,000
                                                      --------   --------   --------    --------   --------   --------
         Total equity securities available-for-sale     19,661     21,000     17,618      17,861     15,721     16,901
                                                      --------   --------   --------    --------   --------   --------
         Total debt and equity securities .........     84,373     85,010     79,274      76,385     66,572     67,402

Mortgage-related securities:
   Mortgage-related securities held-to-
      maturity:
      FHLMC .......................................        705        732        817         824      1,862      1,925
      FNMA ........................................        802        799        968         955      2,216      2,242
      GNMA ........................................         --         --         12          12         18         19
                                                      --------   --------   --------    --------   --------   --------
         Total mortgage-related securities
            held-to-maturity ......................      1,507      1,531      1,797       1,791      4,096      4,186

   Mortgage-related securities available-for-sale:
      FHLMC .......................................      3,550      3,553      3,669       3,657      1,476      1,478
      FNMA ........................................      4,010      4,028      2,369       2,255      2,874      2,858
      GNMA ........................................      9,472      9,461      1,434       1,390      1,939      1,964
                                                      --------   --------   --------    --------   --------   --------
         Total mortgage-related securities
            available-for-sale ....................     17,032     17,042      7,472       7,302      6,289      6,300
                                                      --------   --------   --------    --------   --------   --------
            Total mortgage-related securities .....     18,539     18,573      9,269       9,093     10,385     10,486
         Net unrealized (losses) gains on
            available-for-sale securities .........      1,299         --       (174)         --      1,189         --
                                                      --------   --------   --------    --------   --------   --------
            Total securities ......................   $104,211   $103,583   $ 88,369    $ 85,478   $ 78,146   $ 77,888
                                                      ========   ========   ========    ========   ========   ========
</TABLE>

                                       20


<PAGE>


         The following presents the activity in the securities and
mortgage-backed securities portfolios for the periods indicated.
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED
                                                                                  FEBRUARY 29/28,
                                                       TEN MONTHS ENDED       -----------------------
                                                      DECEMBER 31, 2000          2000         1999
                                                      -----------------       ----------    ---------
                                                                       (IN THOUSANDS)
<S>                                                      <C>                  <C>           <C>
MORTGAGE-RELATED SECURITIES:
   Mortgage-related securities, beginning of period .... $    9,099           $   10,396    $   14,957
   Purchases:
      Mortgage-related securities - held-to-maturity ...         --                   --            --
      Mortgage-related securities - available-for-sale .     11,665                3,003         2,020
   Repayments and prepayments:
      Mortgage-related securities ......................     (2,434)              (4,136)       (6,613)
   Increase (decrease) in net discount .................         39                   17            53
   Increase (decrease) in unrealized gain ..............        180                 (181)          (21)
                                                         ----------           ----------    ----------
   Mortgage-related securities, end of period .......... $   18,549           $    9,099    $   10,396
                                                         ==========           ==========    ==========

SECURITIES:
   Securities, beginning of period ..................... $   79,270           $   67,750    $   47,978
   Purchases:
      Securities - held-to-maturity ....................      2,952               18,803        47,200
      Securities - available-for-sale ..................      1,073                2,100         5,439
      Reinvestment of dividends ........................      1,044                  933           717
   Redemption of FHLB stock ............................         --                  (35)           --
   Maturities and calls:
      Securities - held-to-maturity ....................         --               (9,103)      (16,801)
      Securities - available-for-sale ..................         --                   --       (16,996)
   Increase (decrease) in net discount .................         31                    5            26
   Increase (decrease) in unrealized gain ..............      1,292               (1,183)          187
                                                         ----------           ----------    ----------
   Securities, end of period ........................... $   85,662           $   79,270    $   67,750
                                                         ==========           ==========    ==========
</TABLE>
                                       21


<PAGE>



         The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of First Federal's
securities and mortgage-related securities as of December 31, 2000.


<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31, 2000
                                    ---------------------------------------------------------------------------------------------
                                                                              MORE THAN
                                                       MORE THAN ONE YEAR     FIVE YEARS         MORE
                                     ONE YEAR OR LESS     TO FIVE YEARS      TO TEN YEARS    THAN TEN YEARS          TOTAL
                                    -----------------  -----------------  -----------------  -----------------  -----------------
                                              WEIGHTED           WEIGHTED           WEIGHTED           WEIGHTED           WEIGHTED
                                    CARRYING  AVERAGE  CARRYING  AVERAGE  CARRYING  AVERAGE  CARRYING  AVERAGE  CARRYING  AVERAGE
                                     VALUE    YIELD     VALUE    YIELD     VALUE    YIELD     VALUE    YIELD     VALUE    YIELD
                                    --------  -------  -------- -------- --------- -------- --------- -------- --------- --------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                  <C>      <C>      <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C>
Held-to-maturity securities:
   Debt securities:
      Municipal securities ........  $    --      --%  $   990     4.96%  $   289     5.85%  $    50      6.0%  $ 1,329     5.19%
      Obligations of U.S.
         Government agencies ......    2,981     6.09   29,997     6.06    25,805     6.27        --       --    58,783     6.16

   Mortgage-related securities ....      401     6.18      867     6.70       230    12.90         9    11.87     1,507     7.54
                                     -------           -------            -------            -------            -------
      Total securities at
          amortized cost ..........  $ 3,382     6.11  $31,854     6.04   $26,324     6.32   $    59     6.89   $61,619     6.17
                                     =======           =======            =======            =======            =======
Available-for-sale securities:
   Debt securities:
      Obligations of the U.S.
         Treasury..................  $    --       --% $    --       --%  $    --       --%  $    --       --%  $    --       --%
      Municipals ..................       --       --       --       --       600     4.50        --       --       600     4.50
      Obligations of U.S.
         Government agencies ......       --       --       --       --     3,950     6.71        --       --     3,950     6.71
   Equity securities ..............       --       --       --       --        --       --    21,000     6.43    21,000     6.43
   Mortgage-related securities ....       --       --       24     7.83     1,634     6.44    15,384     6.60    17,042     6.16
                                     -------           -------            -------            -------            -------

   Total securities at fair
      value .......................  $    --       --% $    24     7.83%  $ 6,184     6.42%  $36,384     6.50%  $42,592     6.32%
                                     =======           =======            =======            =======            =======
</TABLE>

DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

         GENERAL. Deposits are the major external source of funds for First
Federal's lending and other investment activities. In addition, First Federal
also generates funds internally from loan principal repayments and prepayments
and maturing securities. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by general interest rates and money market conditions.
First Federal may use borrowings from the Federal Home Loan Bank of Chicago to
compensate for reductions in the availability of funds from other sources.
Presently, First Federal has no other borrowing arrangements aside from the
Federal Home Loan Bank.

         DEPOSIT ACCOUNTS. Nearly all of First Federal's depositors reside in
Illinois, Missouri, or Iowa. First Federal offers a wide variety of deposit
accounts with a range of interest rates and terms. First Federal's deposit
accounts consist of a variety of savings accounts, checking and NOW accounts,
certificates of deposit, individual retirement accounts and money market
accounts. The maturities of First Federal's certificate of deposit accounts
range from 91 days to four years. Deposit account terms vary with the principal
differences being the minimum balance deposit, early withdrawal penalties,
limits on the number of transactions and the interest rate. First Federal
reviews its deposit mix and pricing weekly.

         First Federal believes it is competitive in the interest rates it
offers on its deposit products. First Federal determines the rates paid based on
a number of factors, including rates paid by competitors, First Federal's need
for funds and cost of funds, borrowing costs and movements of market interest
rates. First Federal does not utilize brokers to obtain deposits and at December
31, 2000 had no brokered deposits.


                                       22


<PAGE>


         The following table indicates the amount of First Federal's jumbo
certificates of deposits by time remaining until maturity as of December 31,
2000. Jumbo certificates of deposits have principal balances of $100,000 or
more.

                                                                      WEIGHTED
                                                                      AVERAGE
MATURITY PERIOD                                         AMOUNT          RATE
---------------                                        ---------     ----------
                                                          (DOLLARS IN THOUSANDS)

Three months or less...........................         $  6,779        5.97%
Over 3 through 6 months........................            1,831        5.97
Over 6 through 12 months.......................            5,936        6.42
Over 12 months.................................            2,239        5.87
                                                        --------
      Total....................................         $ 16,785        6.11
                                                        ========

         The following table presents the deposit activity of First Federal for
the periods indicated.

<TABLE>
<CAPTION>
                                                               YEAR ENDED FEBRUARY 29/28,
                                             TEN MONTHS ENDED  --------------------------
                                             DECEMBER 31, 2000     2000           1999
                                             -----------------  ---------      ---------
                                                              (IN THOUSANDS)

<S>                                              <C>            <C>            <C>
Beginning balance .............................  $ 182,572      $ 176,682      $ 162,824
Increase (decrease) before interest credited ..     (3,975)        (1,091)         6,985
Interest credited .............................      6,281          6,981          6,873
                                                 ---------      ---------      ---------
Net increase ..................................      2,306          5,890         13,858
                                                 ---------      ---------      ---------
      Ending balance ..........................  $ 184,878      $ 182,572      $ 176,682
                                                 =========      =========      =========

</TABLE>

         The following table sets forth the balances and changes in dollar
amounts in the various accounts offered by First Federal between the dates
indicated.

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED FEBRUARY 29/28,
                                            TEN MONTHS ENDED             ---------------------------------------------------
                                              DECEMBER 31, 2000                      2000                       1999
                                        -----------------------------    ------------------------------   ------------------
                                                   PERCENT   INCREASE/              PERCENT   INCREASE/              PERCENT
                                         AMOUNT   OF TOTAL  (DECREASE)    AMOUNT   OF TOTAL  (DECREASE)    AMOUNT   OF TOTAL
                                        --------  --------   --------    --------  --------    --------   --------  --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>    <C>         <C>          <C>      <C>        <C>          <C>
Savings accounts .....................  $ 17,639      9.54%  $ (1,916)   $ 19,555     10.71%   $ (1,205)  $ 20,760     11.75%
Money market deposits ................    21,423     11.58      3,106      18,317     10.03       7,064     11,253      6.37
NOW accounts .........................    17,256      9.34        (19)     17,275      9.46       1,633     15,642      8.85
Certificates maturing:
   Within 1 year .....................   113,530     61.41     14,637      98,893     54.17      16,488     82,405     46.64
   After 1 year, but within 2 years ..     8,946      4.84    (13,808)     22,754     12.46     (12,613)    35,367     20.02
   After 2 years, but within 5 years .     3,441      1.86       (922)      4,363      2.39      (6,217)    10,580      5.99
                                        --------  --------   --------    --------  --------    --------   --------  --------
      Total certificates .............   125,917     68.11        (93)    126,010     69.02      (2,342)   128,352     72.65
Noninterest-bearing deposits .........     2,643      1.43      1,228       1,415      0.78         740        675      0.38
                                        --------  --------   --------    --------  --------    --------   --------  --------
      Total ..........................  $184,878    100.00%  $  2,306    $182,572    100.00%   $  5,890   $176,682    100.00%
                                        ========  ========   ========    ========  ========    ========   ========  ========
</TABLE>


         BORROWINGS. First Federal has the ability to use advances from the
Federal Home Loan Bank of Chicago to supplement its supply of lendable funds and
to meet deposit withdrawal requirements. The Federal Home Loan Bank of Chicago
functions as a central reserve bank providing credit for savings banks and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Chicago, First Federal is required to own capital stock in the
Federal Home Loan Bank of Chicago and is authorized to apply for advances on the
security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under


                                       23
<PAGE>


several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At December 31, 2000, First
Federal had the ability to borrow a total of approximately $18.9 million from
the Federal Home Loan Bank of Chicago.

         The following tables presents certain information regarding First
Federal's use of Federal Home Loan Bank of Chicago advances during the periods
indicated.
<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                          FEBRUARY 29/28,
                                                                      ---------------------
                                                 TEN MONTHS ENDED
                                                 DECEMBER 31, 2000      2000          1999
                                                 -----------------    -------       -------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                    <C>            <C>             <C>
FHLB advances and other borrowings:
  Average balance outstanding ......................   $ 4,789        $ 5,498         --
  Maximum amount outstanding at any month-end
     during the period .............................     7,000         14,000         --
  Balance outstanding at end of period .............     5,000          6,000         --
  Weighted average interest rate during the period .      6.80%          5.79%        --
  Weighted average interest rate at end of period ..      6.24           6.16         --
</TABLE>

SUBSIDIARY ACTIVITIES

         First Federal Bancshares' sole subsidiary is First Federal Bank.

PERSONNEL

         As of December 31, 2000, First Federal had 48 full-time employees and
six part-time employees, none of whom is represented by a collective bargaining
unit. First Federal believes its relationship with its employees is good.

                           REGULATION AND SUPERVISION

GENERAL

         As a savings and loan holding company, First Federal Bancshares is
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. First Federal is
subject to extensive regulation, examination and supervision by the Office of
Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as the deposit insurer. First Federal is a member of the
Federal Home Loan Bank System and, with respect to deposit insurance, of the
Savings Association Insurance Fund managed by the Federal Deposit Insurance
Corporation. First Federal must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The Office of Thrift Supervision
and/or the Federal Deposit Insurance Corporation conduct periodic examinations
to test First Federal's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or the Congress,
could have a material adverse impact on the Company, First Federal and their
operations. Certain of the regulatory requirements applicable to First

                                       24


<PAGE>


Federal and to First Federal Bancshares are referred to below or elsewhere
herein. The description of statutory provisions and regulations applicable to
savings institutions and their holding companies set forth in this Form 10-KSB
does not purport to be a complete description of such statutes and regulations
and their effects on First Federal and First Federal Bancshares.

HOLDING COMPANY REGULATION

         First Federal Bancshares is a nondiversified unitary savings and loan
holding company within the meaning of federal law. Under prior law, a unitary
savings and loan holding company, such as First Federal Bancshares was not
generally restricted as to the types of business activities in which it may
engage, provided that First Federal continued to be a qualified thrift lender.
SEE "FEDERAL SAVINGS INSTITUTION REGULATION - QTL TEST." The Gramm-Leach-Bliley
Act of 1999 provides that no company may acquire control of a savings
association after May 4, 1999 unless it engages only in the financial activities
permitted for financial holding companies under the law or for multiple savings
and loan holding companies as described below. Further, the Gramm-Leach-Bliley
Act specifies that existing savings and loan holding companies may only engage
in such activities. The Gramm-Leach-Bliley Act, however, grandfathered the
unrestricted authority for activities with respect to unitary savings and loan
holding companies existing prior to May 4, 1999, so long as First Federal
continues to comply with the QTL Test, First Federal Bancshares does not qualify
for the grandfather. Upon any non-supervisory acquisition by First Federal
Bancshares of another savings institution or savings bank that meets the
qualified thrift lender test and is deemed to be a savings institution by the
Office of Thrift Supervision, First Federal Bancshares would become a multiple
savings and loan holding company (if the acquired institution is held as a
separate subsidiary) and would generally be limited to activities permissible
for bank holding companies under Section 4(c)(8) of First Federal Holding
Company Act, subject to the prior approval of the Office of Thrift Supervision,
and certain activities authorized by Office of Thrift Supervision regulation.

         A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of First Federal Bancshares and
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.

         The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.

         Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. First Federal must notify
the Office of Thrift Supervision 30 days before declaring any dividend to First
Federal Bancshares. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.

FEDERAL SAVINGS INSTITUTION REGULATION

         BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
E.G., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.


                                       25
<PAGE>


         CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMEL financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
Office of Thrift Supervision regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.

         The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (Tier
1) capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.

         The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. For the present time, the Office of Thrift
Supervision has deferred implementation of the interest rate risk capital
charge. At December 31, 2000, First Federal met each of its capital
requirements.

         The following table presents First Federal's capital position at
December 31, 2000.

<TABLE>
<CAPTION>
                                                                                            CAPITAL
                                                                   EXCESS      ---------------------------------
                              ACTUAL           REQUIRED         (DEFICIENCY)         ACTUAL           REQUIRED
                              CAPITAL          CAPITAL             AMOUNT            PERCENT          PERCENT
                       -----------------   -------------   -----------------   --------------    ---------------
                                                     (DOLLARS IN THOUSANDS)
<S>                           <C>              <C>                <C>                 <C>                <C>
Tangible..................    $34,409          $3,407             $31,002             15.2%              1.50%
Core (Leverage)...........     34,409           9,085              25,324             15.2               4.00
Risk-based................     35,518           8,146              27,372             35.6               8.00
</TABLE>

         PROMPT CORRECTIVE REGULATORY ACTION. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator for an
institution that is


                                       26
<PAGE>


"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the Office of Thrift Supervision within 45
days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Office of Thrift Supervision could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.

         INSURANCE OF DEPOSIT ACCOUNTS. First Federal is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An institution's
assessment rate depends upon the categories to which it is assigned. Assessment
rates for Savings Association Insurance Fund member institutions are determined
semiannually by the Federal Deposit Insurance Corporation and currently range
from zero basis points for the healthiest institutions to 27 basis points for
the riskiest.

         First Federal's assessment rate for fiscal 2000 was 0 basis points and
the premium paid for this period was $37,000. The Federal Deposit Insurance
Corporation has authority to increase insurance assessments. A significant
increase in Savings Association Insurance Fund insurance premiums would likely
have an adverse effect on the operating expenses and results of operations of
First Federal. Management cannot predict what insurance assessment rates will be
in the future.

         In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the Savings Association
Insurance Fund. During 2000, FICO payments for Savings Association Insurance
Fund members approximated 2.07 basis points.

         Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of First Federal does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.

         LOANS TO ONE BORROWER. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if secured by specified readily-marketable collateral.

         QTL TEST. The HOLA requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.

         A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 2000, First Federal maintained 74.31% of its
portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered "qualified thrift investments."

         LIMITATION ON CAPITAL DISTRIBUTIONS. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments


                                       27
<PAGE>


to shareholders of another institution in a cash-out merger. Under the
regulations, an application to and the prior approval of the Office of Thrift
Supervision is required prior to any capital distribution if the institution
does not meet the criteria for "expedited treatment" of applications under
Office of Thrift Supervision regulations (I.E., generally, examination ratings
in the two top categories), the total capital distributions for the calendar
year exceed net income for that year plus the amount of retained net income for
the preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with Office of Thrift Supervision. If an application is
not required, the institution must still provide prior notice to Office of
Thrift Supervision of the capital distribution if, like First Federal, it is a
subsidiary of a holding company. In the event First Federal's capital fell below
its regulatory requirements or the Office of Thrift Supervision notified it that
it was in need of more than normal supervision, First Federal's ability to make
capital distributions could be restricted. In addition, the Office of Thrift
Supervision could prohibit a proposed capital distribution by any institution,
which would otherwise be permitted by the regulation, if the Office of Thrift
Supervision determines that such distribution would constitute an unsafe or
unsound practice.

         LIQUIDITY. During 2000, First Federal was required to maintain an
average daily balance of specified liquid assets equal to a monthly average of
not less than a specified percentage of its net withdrawable deposit accounts
plus short-term borrowings. This liquidity requirement was 4%. Recent
legislation has eliminated the statutory liquidity requirement.

         ASSESSMENTS. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
First Federal's latest quarterly thrift financial report. The assessments paid
by First Federal for the fiscal year ended December 31, 2000 totaled $56,000.

         TRANSACTIONS WITH RELATED PARTIES. First Federal's authority to engage
in transactions with "affiliates" (E.G., any company that controls or is under
common control with an institution, including First Federal Bancshares and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.

         First Federal's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans First Federal may make to insiders based, in part,
on First Federal's capital position and requires certain board approval
procedures to be followed.

         ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action to
be taken with respect to a particular savings institution. If action is not
taken by the Director, the Federal Deposit


                                       28
<PAGE>


Insurance Corporation has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.

         STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.

FEDERAL HOME LOAN BANK SYSTEM

         First Federal is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. First
Federal, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
First Federal was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at December 31, 2000 of $944,000.

         The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, First Federal's net interest income
would likely also be reduced. Recent legislation has changed the structure of
the Federal Home Loan Banks funding obligations for insolvent thrifts, revised
the capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.

FEDERAL RESERVE SYSTEM

         The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows: a
3% reserve ratio is assessed on net transaction accounts over $5.5 million to
and including $42.8 million; a 10% reserve ratio is applied above $42.8 million.
The first $5 million of otherwise reservable balances are exempted from the
reserve requirements. The amounts are adjusted annually. First Federal complies
with the foregoing requirements.

                           FEDERAL AND STATE TAXATION

FEDERAL INCOME TAXATION

         GENERAL. First Federal Bancshares and First Federal Bank report their
income on a calendar year basis using the accrual method of accounting. The
federal income tax laws apply to First Federal Bancshares and First Federal Bank
in the same manner as to other corporations with some exceptions, including
particularly First Federal Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to First
Federal Bank or First Federal Bancshares. First Federal Bank's federal income
tax returns have been either audited or closed under the statute of limitations
through tax year 1995. For its 2000 tax year, First Federal's maximum federal
income tax rate was 34%.

         BAD DEBT RESERVES. For fiscal years beginning before December 31, 1995,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable


                                       29
<PAGE>


provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method.

         Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $2.3 million of First Federal Bank's accumulated bad debt reserves
would not be recaptured into taxable income unless First Federal Bank makes a
"non-dividend distribution" to First Federal Bancshares as described below.

         DISTRIBUTIONS. If First Federal Bank makes "non-dividend distributions"
to First Federal Bancshares, they will be considered to have been made from
First Federal Bank's unrecaptured tax bad debt reserves, including the balance
of its reserves as of February 28, 1988, to the extent of the "non-dividend
distributions," and then from First Federal's supplemental reserve for losses on
loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
First Federal's taxable income. Non-dividend distributions include distributions
in excess of First Federal's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of First Federal's current or accumulated earnings and profits will not be so
included in First Federal's taxable income.

         The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Therefore, if First Federal makes a non-
dividend distribution to First Federal Bancshares, approximately one and
one-half times the amount of the distribution not in excess of the amount of the
reserves would be includable in income for federal income tax purposes, assuming
a 35% federal corporate income tax rate. First Federal does not intend to pay
dividends that would result in a recapture of any portion of its bad debt
reserves.

STATE TAXATION

         ILLINOIS STATE TAXATION. First Federal is required to file Illinois
income tax returns and pay tax at an effective tax rate of 7.18% of Illinois
taxable income. For these purposes, Illinois taxable income generally means
federal taxable income subject to certain modifications, the primary one of
which is the exclusion of interest income on United States obligations.

         DELAWARE STATE TAXATION. As a Delaware holding company not earning
income in Delaware, First Federal Bancshares is exempt from Delaware corporate
income tax, but is required to file an annual report with and pay an annual
franchise tax to the State of Delaware.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

         The following sets forth certain information regarding the executive
officers and key employees of the Company and First Federal who are not also
directors. The following individuals are elected annually and hold office until
their successors have been elected and qualified or until they are removed or
replaced. Ages are as of March 1, 2001.

         PEGGY L. HIGGINS has served as Assistant Treasurer of the Company and
Treasurer of First Federal since 2000. Ms. Higgins has also served as Senior
Vice President of First Federal since 1998. Prior to becoming Senior Vice
President, Ms. Higgins served as a Vice President. She has been affiliated with
First Federal since 1976. Age 47.

         CATHY D. PENDELL has served as Treasurer of the Company and Senior Vice
President of First Federal since 2000 and 1998, respectively. Prior to becoming
Senior Vice President, Ms. Pendell served as a Vice President. She has been
affiliated with First Federal since 1976. Ms. Pendell is a certified public
accountant. Age 41.


                                       30
<PAGE>

         MILLIE R. SHIELDS has served as Senior Vice President of First Federal
since 1998. Prior to becoming Senior Vice President, Ms. Shields served as a
Vice President. She has been affiliated with First Federal since 1978. Age 41.

         RONALD A. FELD has served as Secretary of the Company and Vice
President and Secretary of First Federal since 2000, 1987 and 1990,
respectively. In 1995, Mr. Feld became Branch Manager of First Federal's
Colchester office. He has been affiliated with First Federal since 1984. Age 58.

         MARK A. TYRPIN joined First Federal in September 1999 as Vice President
and head of the commercial loan department. From 1990 until joining First
Federal, Mr. Tyrpin was with Bank of America (formerly, NationsBank), most
recently with the title of Vice President/Commercial Loan Manager. Age 35.

ITEM 2.  DESCRIPTION OF PROPERTY

PROPERTIES

         First Federal currently conducts its business through its main office
located in Colchester, Illinois, and five other full-service banking offices,
all of which it owns. First Federal is considering construction of a building on
property that it owns in Quincy to house its commercial loan department and
corporate offices. First Federal has not developed any plans for the facility or
estimates of construction cost.

                                                             NET BOOK VALUE
                                                               OF PROPERTY
                                                              OR LEASEHOLD
                                          YEAR               IMPROVEMENTS AT
LOCATION                                ACQUIRED            DECEMBER 31, 2000
-----------                            -----------         -------------------
                                                             (IN THOUSANDS)
109 East Depot Street
Colchester, Illinois 62326                1940                   $  52

2001 Maine Street
Quincy, Illinois 62301                    1977                     277

101 North 36th Street
Quincy, Illinois 62301                    1988                     465

201 West Main Street
Mt. Sterling, Illinois 62353              1978                      30

430 West Jackson Street
Macomb, Illinois 61455                    1984                     406

190 East Hurst Street
Bushnell, Illinois 61422                  1989                     144



                                       31
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

         First Federal Bancshares is not a party to any pending legal
proceedings. Periodically, there have been various claims and lawsuits involving
First Federal Bank, such as claims to enforce liens, condemnation proceedings on
properties in which First Federal Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to First Federal Bank's business. First Federal Bank is not a party to
any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of First Federal Bank.

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

         None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The information regarding the market for First Federal Bancshares'
common equity and related stockholder matters is incorporated herein by
reference to First Federal Bancshares' 2000 Annual Report to Stockholders on
page 39.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The information regarding management's discussion and analysis of
financial condition and results of operation is incorporated herein by reference
to First Federal Bancshares' 2000 Annual Report to Stockholders on pages
5 through 12.

ITEM 7. FINANCIAL STATEMENTS

         The information regarding financial statements is incorporated herein
by reference to First Federal Bancshares' 2000 Annual Report to Stockholders on
pages 13 through 37.

ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         The information regarding change in accountants is incorporated herein
by reference to First Federal Bancshares' Proxy Statement for the 2001 Annual
Meeting of Stockholders at page 13.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The information relating to the directors and officers of First Federal
Bancshares and information regarding compliance with Section 16(a) of the
Exchange Act is incorporated herein by reference to First Federal Bancshares'
Proxy Statement for the 2001 Annual Meeting of Stockholders at pages 4 through 5
and page 8 and to Part I, Item 1, "Description of Business -- Executive Officers
of the Registrant" at pages 30 through 31.

                                       32
<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

         The information regarding executive compensation is incorporated herein
by reference to First Federal Bancshares' Proxy Statement for the 2001 Annual
Meeting of Stockholders at pages 6 through 7.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to First Federal
Bancshares' Proxy Statement for the 2001 Annual Meeting of Stockholders at page
3.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information relating to certain relationships and related
transactions is incorporated herein by reference to First Federal Bancshares'
Proxy Statement for the 2001 Annual Meeting of Stockholders at page 8.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      (1)      The following are filed as a part of this report
                           by means of incorporation to First Federal
                           Bancshares' 2001 Annual Report to Stockholders:

                           o        Report of Independent Auditors

                           o        Consolidated Statements of Financial
                                    Condition as of December 31, 2000 and
                                    February 29, 2000

                           o        Consolidated Statements of Income for the
                                    Ten Months Ended December 31, 2000 and Year
                                    Ended February 29, 2000

                           o        Consolidated Statements of Changes in
                                    Shareholders' Equity for the Ten Months
                                    Ended December 31, 2000 and Year Ended
                                    February 29, 2000

                           o        Consolidated Statements of Cash Flows for
                                    the Ten Months Ended December 31, 2000 and
                                    Year Ended February 29, 2000

                           o        Notes to Consolidated Financial Statements

                  (2)      All financial statement schedules are omitted because
                           they are not required or applicable, or the required
                           information is shown in the consolidated financial
                           statements or the notes thereto.

                  (3)      Exhibits

                           3.1      Certificate of Incorporation of First
                                    Federal Bancshares, Inc.(1)

                           3.2      Bylaws of First Federal Bancshares, Inc.(1)

                           4.0      Specimen Stock Certificate of First Federal
                                    Bancshares, Inc.(1)

                           10.1     Employment Agreement between First Federal
                                    Bancshares, Inc. and James J. Stebor (2)

                           10.2     Employment Agreement between First Federal
                                    Bank and James J. Stebor (2)

                           10.3     First Federal Bank Supplemental Executive
                                    Retirement Plan (2)


                                       33
<PAGE>


                           10.4     First Federal Bank Employee Severance
                                    Compensation Plan (2)

                           13.0     Portions of the Annual Report to
                                    Stockholders

                           21.0     List of Subsidiaries

                           --------------------

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

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

         (b)      Reports on Form 8-K

         None.




                                       34
<PAGE>


CONFORMED

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                 FIRST FEDERAL BANCSHARES, INC.


Date: March 21, 2001                             By:  /s/ James J. Stebor
                                                    ----------------------------
                                                    James J. Stebor
                                                    President, and Chief
                                                        Executive Officer

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.


<TABLE>
<CAPTION>



      Name                                     Title                                        Date
      ----                                     -----                                        ----
<S>                                            <C>                                     <C>

/s/ James J. Stebor                            President, Chief Executive               March 21, 2001
-------------------------------                Officer and Director
James J. Stebor                                (principal executive officer)



/s/ Cathy D. Pendell                           Treasurer                                March 21, 2001
-------------------------------                (principal financial and
Cathy D. Pendell                               accounting officer)



/s/ Franklin M. Hartzell                       Chairman of the Board                    March 21, 2001
-------------------------------
Franklin M. Hartzell

/s/ Stephan L. Roth                            Director                                 March 21, 2001
-------------------------------
Stephan L. Roth

/s/ Richard D. Stephens                        Director                                 March 21, 2001
-------------------------------
Richard D. Stephens

/s/ Murrel Hollis                              Director                                 March 21, 2001
-------------------------------
Murrel Hollis

/s/ Gerald L. Prunty                           Director                                 March 21, 2001
-------------------------------
Gerald L. Prunty

/s/ Eldon M. Snowden                           Director                                 March 21, 2001
-------------------------------
Eldon M. Snowden
</TABLE>